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First Interstate BancSystem, Inc. Reports Third Quarter 2012 Results

A more detailed discussion of each of the foregoing risks is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, filed February 28, 2012. These factors and the other risk factors described in the Company's periodic and current reports filed with the Securities and Exchange Commission from time to time, however, are not necessarily all of the important factors that could cause the Company's actual results, performance or achievements to differ materially from those expressed in or implied by any of the Company's forward-looking statements. Other unknown or unpredictable factors also could harm the Company's results. Investors and others are encouraged to read the more detailed discussion of the Company's risks contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

All forward-looking statements attributable to the Company or persons acting on the Company's behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made and the Company does not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements.

CONSOLIDATED BALANCE SHEETS

(Unaudited, $ in thousands)

     
    September 30,2012   June 30,2012   September 30,2011
Assets
Cash and due from banks $ 124,275 $ 146,577 $ 135,229
Federal funds sold 1,215 2,854 2,119
Interest bearing deposits in banks   485,845     387,222     366,879
Total cash and cash equivalents   611,335     536,653     504,227
Investment securities:
Available-for-sale 1,979,154 1,913,983 1,896,385
Held-to-maturity (estimated fair values of $199,078, $177,532 and $157,639 at September 30, 2012, June 30, 2012 and September 30, 2011, respectively)   187,573     166,926     149,411
Total investment securities   2,166,727     2,080,909     2,045,796
Loans held for investment 4,107,171 4,093,815 4,223,229
Mortgage loans held for sale   72,880     76,148     52,488
Total loans   4,180,051     4,169,963     4,275,717
Less allowance for loan losses   99,006     102,794     120,303
Net loans   4,081,045     4,067,169     4,155,414
Premises and equipment, net of accumulated depreciation 188,851 187,367 185,742
Goodwill 183,673 183,673 183,673
Company-owned life insurance 76,371 75,849 74,362
Other real estate owned ("OREO"), net of write-downs 39,971 53,817 25,080
Accrued interest receivable 33,416 30,936 34,994
Mortgage servicing rights, net of accumulated amortization and impairment reserve 12,334 11,985 11,909
Core deposit intangibles, net of accumulated amortization 6,291 6,647 7,719
Deferred tax asset, net 1,638 5,017 8,393
Other assets   59,500     65,154     69,845
Total assets   $ 7,461,152     $ 7,305,176     $ 7,307,154
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing $ 1,443,773 $ 1,337,777 $ 1,243,703
Interest bearing   4,591,959     4,563,602     4,607,616
Total deposits   6,035,732     5,901,379     5,851,319
Securities sold under repurchase agreements 460,805 455,993 475,522
Accounts payable and accrued expenses 40,386 33,589 37,266
Accrued interest payable 6,706 8,215 8,786
Long-term debt 37,170 37,181 37,469
Other borrowed funds 6 7 5,122
Subordinated debentures held by subsidiary trusts   82,477     82,477     123,715
Total liabilities   6,663,282     6,518,841     6,539,199
Stockholders’ equity:
Preferred stock 50,000 50,000 50,000
Common stock 270,553 269,698 266,317
Retained earnings 458,506 448,372 427,556
Accumulated other comprehensive income, net   18,811     18,265     24,082
Total stockholders’ equity   797,870     786,335     767,955
Total liabilities and stockholders’ equity   $ 7,461,152     $ 7,305,176     $ 7,307,154

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, $ in thousands, except per share data)

 
Three Months Ended
    September 30,2012   June 30,2012   September 30,2011
Interest income:    
Interest and fees on loans $ 57,418 $ 58,084 $ 61,372
Interest and dividends on investment securities:
Taxable 9,194 9,458 10,721
Exempt from federal taxes 1,223 1,240 1,188
Interest on deposits in banks 336 279 200
Interest on federal funds sold   4     6     2
Total interest income   68,175     69,067     73,483
Interest expense:
Interest on deposits 5,414 5,779 7,905
Interest on securities sold under repurchase agreements 144 152 137
Interest on long-term debt 502 495 498
Interest on subordinated debentures held by subsidiary trusts   1,110     1,467     1,451
Total interest expense   7,170     7,893     9,991
Net interest income 61,005 61,174 63,492
Provision for loan losses   9,500     12,000     14,000
Net interest income after provision for loan losses   51,505     49,174     49,492
Non-interest income:
Income from the origination and sale of loans 11,665 9,420 5,512
Other service charges, commissions and fees 8,774 8,254 8,479
Service charges on deposit accounts 4,395 4,455 4,609
Wealth management revenues 3,557 3,815 3,202
Investment securities gains, net 66 198 38
Other income   1,725     1,520     1,285
Total non-interest income   30,182     27,662     23,125
Non-interest expense:
Salaries and wages 23,341 21,640 20,801
Employee benefits 7,447 6,819 6,087
Occupancy, net 3,793 4,037 4,180
Furniture and equipment 3,231 3,189 3,018
Outsourced technology services 2,182 2,179 2,235
OREO expense, net of income 2,612 1,806 2,878
FDIC insurance premiums 1,622 1,601 1,631
Professional fees 1,050 1,002 995
Mortgage servicing rights amortization 879 817 807
Mortgage servicing rights impairment 55 52 1,168
Core deposit intangibles amortization 355 355 362
Other expenses   10,497     13,802     10,879
Total non-interest expense   57,064     57,299     55,041
Income before income tax expense 24,623 19,537 17,576
Income tax expense   8,468     6,527     5,655
Net income 16,155 13,010 11,921
Preferred stock dividends   863     853     862
Net income available to common shareholders   $ 15,292     $ 12,157     $ 11,059
 
Basic earnings per common share $ 0.36 $ 0.28 $ 0.26
Diluted earnings per common share   $ 0.35     $ 0.28     $ 0.26

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, $ in thousands, except per share data)

 
Nine Months Ended
    September 30,2012   September 30,2011
Interest income:  
Interest and fees on loans $ 173,412 $ 185,238
Interest and dividends on investment securities:
Taxable 28,357 31,281
Exempt from federal taxes 3,667 3,553
Interest on deposits in banks 852 794
Interest on federal funds sold   11     11
Total interest income   206,299     220,877
Interest expense:
Interest on deposits 17,455 26,679
Interest on securities sold under repurchase agreements 452 545
Interest on long-term debt 1,495 1,482
Interest on subordinated debentures held by subsidiary trusts   4,084     4,354
Total interest expense   23,486     33,060
Net interest income: 182,813 187,817
Provision for loan losses   32,750     44,400
Net interest income after provision for loan losses   150,063     143,417
Non-interest income:
Income from the origination and sale of loans 29,469 13,066
Other service charges, commissions and fees 25,452 23,627
Service charges on deposit accounts 13,011 13,104
Wealth management revenues 10,655 9,980
Investment securities gains, net 295 56
Other income   5,344     5,042
Total non-interest income   84,226     64,875
Non-interest expense:
Salaries and wages 66,545 61,557
Employee benefits 23,232 20,922
Occupancy, net 11,818 12,408
Furniture and equipment 9,558 9,367
Outsourced technology services 6,627 6,688
FDIC insurance premiums 4,818 5,726
OREO expense, net of income 5,523 6,631
Professional fees 2,985 2,500
Mortgage servicing rights amortization 2,591 2,285
Mortgage servicing rights impairment (recovery) (761 ) 848
Core deposit intangibles amortization 1,066 1,085
Other expenses   37,801     32,174
Total non-interest expense   171,803     162,191
Income before income tax expense 62,486 46,101
Income tax expense   21,107     14,820
Net income 41,379 31,281
Preferred stock dividends   2,569     2,559
Net income available to common shareholders   $ 38,810     $ 28,722
 
Basic earnings per common share $ 0.90 $ 0.67
Diluted earnings per common share   $ 0.90     $ 0.67

AVERAGE BALANCE SHEETS

(Unaudited, $ in thousands)

 
Three Months Ended
September 30, 2012   June 30, 2012   September 30, 2011
    Average

Balance

  Interest   Average

Rate

  Average

Balance

  Interest   Average

Rate

  Average

Balance

  Interest   Average

Rate

 
Interest earning assets:          
Loans (1) (2) $ 4,183,016 $ 57,872 5.50 % $ 4,159,565 $ 58,564 5.66 % $ 4,291,632 $ 61,801 5.71 %
Investment securities (2) 2,098,576 11,123 2.11 2,094,148 11,414 2.19 2,064,019 12,594 2.42
Interest bearing deposits in banks 525,149 336 0.25 442,698 279 0.25 311,768 200 0.25
Federal funds sold   3,006   4   0.53     3,668   6   0.66     1,858   2   0.43  
Total interest earnings assets 6,809,747 69,335 4.05 6,700,079 70,263 4.22 6,669,277 74,597 4.44
Non-earning assets   633,551           633,454           615,472          
Total assets   $ 7,443,298           $ 7,333,533           $ 7,284,749          
Interest bearing liabilities:
Demand deposits $ 1,613,136 $ 589 0.15 % $ 1,596,076 $ 606 0.15 % $ 1,265,339 $ 775 0.24 %
Savings deposits 1,523,347 873 0.23 1,482,986 934 0.25 1,712,739 1,478 0.34
Time deposits 1,452,688 3,952 1.08 1,496,597 4,239 1.14 1,699,633 5,652 1.32
Repurchase agreements 501,640 144 0.11 493,450 152 0.12 477,612 137 0.11
Other borrowed funds 6 33 5,584
Long-term debt 37,174 502 5.37 37,184 495 5.35 37,473 498 5.27
Subordinated debentures held by subsidiary trusts   82,477   1,110   5.35     120,996   1,467   4.88     123,715   1,451   4.65  
Total interest bearing liabilities 5,210,468 7,170 0.55 5,227,322 7,893 0.61 5,322,095 9,991 0.74
Non-interest bearing deposits 1,399,585 1,277,091 1,153,800
Other non-interest bearing liabilities 43,511 47,781 47,412
Stockholders’ equity   789,734           781,339           761,442          
Total liabilities and stockholders’ equity   $ 7,443,298           $ 7,333,533           $ 7,284,749          
Net FTE interest income $ 62,165 $ 62,370 $ 64,606
Less FTE adjustments (2)       (1,160 )         (1,196 )         (1,114 )    
Net interest income from consolidated statements of income       $ 61,005           $ 61,174           $ 63,492      
Interest rate spread           3.50 %           3.61 %           3.70 %
Net FTE interest margin (3)           3.63 %           3.74 %           3.84 %
Cost of funds, including non-interest bearing demand deposits (4)           0.43 %           0.49 %           0.61 %
 

(1)  Average loan balances include non-accrual loans. Interest income on loans includes amortization of deferred loan fees net of deferred loan costs, which is not material.

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

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

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

AVERAGE BALANCE SHEETS

(Unaudited, $ in thousands)

 
Nine Months Ended
September 30, 2012   September 30, 2011
    Average

Balance

  Interest   Average

Rate

    Average

Balance

  Interest   Average

Rate

 
Interest earning assets:      
Loans (1) (2) $ 4,169,311 $ 174,809 5.60 % $ 4,288,237 $ 186,564 5.82 %
Investment securities (2) 2,112,005 34,141 2.16 2,010,966 36,885 2.45
Interest bearing deposits in banks 447,865 852 0.25 418,661 794 0.25
Federal funds sold   2,430   11   0.60     2,656   11   0.55  
Total interest earnings assets 6,731,611 209,813 4.16 6,720,520 224,254 4.46
Non-earning assets   628,732             618,367          
Total assets   $ 7,360,343             $ 7,338,887          
Interest bearing liabilities:
Demand deposits $ 1,597,397 $ 1,842 0.15 % $ 1,259,421 $ 2,456 0.26 %
Savings deposits 1,485,330 2,821 0.25 1,722,782 5,231 0.41
Time deposits 1,496,531 12,792 1.14 1,784,256 18,992 1.42
Repurchase agreements 502,828 452 0.12 505,313 545 0.14
Other borrowed funds 24 5,579
Long-term debt 37,184 1,495 5.37 37,485 1,482 5.29
Subordinated debentures held by subsidiary trusts   108,966   4,084   5.01     123,715   4,354   4.71  
Total interest bearing liabilities 5,228,260 23,486 0.60 5,438,551 33,060 0.81
Non-interest bearing deposits 1,303,535 1,105,122
Other non-interest bearing liabilities 47,108 48,726
Stockholders’ equity   781,440             746,488          
Total liabilities and stockholders’ equity   $ 7,360,343             $ 7,338,887          
Net FTE interest income $ 186,327 $ 191,194
Less FTE adjustments (2)       (3,514 )           (3,377 )    
Net interest income from consolidated statements of income       $ 182,813             $ 187,817      
Interest rate spread           3.56 %           3.65 %
Net FTE interest margin (3)           3.70 %           3.80 %
Cost of funds, including non-interest bearing demand deposits (4)           0.48 %           0.68 %
 

(1)  Average loan balances include non-accrual loans. Interest income on loans includes amortization of deferred loan fees net of deferred loan costs, which is not material.

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

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

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

Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principals in the United States of America, or GAAP, this release contains the following non-GAAP financial measures that management uses to evaluate capital adequacy: (i) tangible book value per common share; (ii) net tangible book value per common share; (iii) tangible common stockholders' equity to tangible assets; (iv) net tangible common stockholders' equity to tangible assets; (v) tangible assets, and (vi) return on average tangible common equity.

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