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First Interstate BancSystem, Inc. Reports Fourth Quarter 2012 Results

Employee benefits decreased during fourth quarter 2012, as compared to third quarter 2012 and fourth quarter 2011, primarily due to lower group health insurance costs. During fourth quarter 2012, the Company reversed $1.1 million of previously accrued group health insurance expense to reflect favorable claims experience in 2012.

Employee benefits increased during the twelve months ended December 31, 2012, as compared to the same period in 2011, primarily due to the combined effects of increases in the market values of securities held under deferred compensation plans, higher stock-based compensation expense and increases in profit sharing accruals reflective of the Company's improved performance. These increases were partially offset by decreases in group health insurance expense described above.

Increases in OREO expense during fourth quarter 2012, as compared to third quarter of 2012 and fourth quarter 2011, were primarily due to write-downs in the estimated fair values of OREO properties. During fourth quarter 2012, the Company recorded write-downs in the estimated fair values of OREO properties of $3.3 million, compared to $2.3 million during third quarter 2012 and $1.5 million during fourth quarter 2011. Approximately 75% of fourth quarter 2012 write-downs were attributable to three properties.

Increases in OREO expense during the twelve months ended December 31, 2012, compared to the same period in the prior year, were primarily attributable to additional carrying costs associated with properties foreclosed during the period. During 2012, OREO expenses included net operating expenses of $3.7 million, write-downs in the estimated fair value of OREO properties of $6.7 million and net gains on OREO sales of $1.0 million, as compared to net operating expenses of $1.8 million, write-downs in the estimated fair value of OREO properties of $7.5 million and net gains on OREO sales of $567 thousand during 2011.

Other expenses increased during fourth quarter 2012 compared to third quarter 2012. During fourth quarter 2012, the Company adjusted accruals related to its credit card loyalty program resulting in a reversal of $695 thousand of other expense. This decrease was offset by increases in advertising costs, which fluctuate based on the timing of advertising campaigns. Increases in other expenses during the twelve months ended December 31, 2012, as compared to the same period in 2011, were primarily due to non-recurring expenses recorded during the first and second quarters of 2012, including the accrual of $3.0 million of estimated collection and settlement costs, $1.5 million of donations expense 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. In addition, debit card processing expenses increased $1.4 million in 2012, as compared to 2011, due to changes in per transaction processing costs and increases in transaction volumes. Increases in debit card processing expense were offset by corresponding increases in debit card processing revenues of $1.1 million, which are included in non-interest income from other service charges, commissions and fees in the tables above and the accompanying income statements.

       

ASSET QUALITY

(Unaudited; $ in thousands)

 
For the Three Months Ended
December 31,         September 30,         December 31,
          2012         2012         2011
Allowance for loan losses - beginning of period $ 99,006 $ 102,794 $ 120,303
Charge-offs (10,291 ) (14,813 ) (22,435 )
Recoveries 3,796 1,525 962
Provision         8,000           9,500           13,751  
Allowance for loan losses - end of period         $ 100,511           $ 99,006           $ 112,581  
 
December 31, September 30, December 31,
          2012         2012         2011
Period end loans $ 4,223,912 $ 4,180,051 $ 4,186,549
Average loans, quarter 4,197,665 4,183,016 4,236,228
Non-performing loans:
Non-accrual loans 107,799 122,931 199,983
Accruing loans past due 90 days or more 2,277 4,339 4,111
Troubled debt restructurings         31,932           35,428           37,376  
Total non-performing loans 142,008 162,698 241,470
Other real estate owned         32,571           39,971           37,452  
Total non-performing assets         $ 174,579           $ 202,669           $ 278,922  
 
As Of or For the Three Months Ended
December 31, September 30, December 31,
          2012         2012         2011
Net charge-offs to average loans, annualized 0.62 % 1.26 % 2.01 %
Provision for loan losses to average loans, annualized 0.76 % 0.90 % 1.29 %
Allowance for loan losses to period end loans 2.38 % 2.37 % 2.69 %
Allowance for loan losses to total non-performing loans 70.78 % 60.85 % 46.62 %
Non-performing loans to period end loans 3.36 % 3.89 % 5.77 %
Non-performing assets to period end loans and other real estate owned 4.10 % 4.80 % 6.60 %
Non-performing assets to total assets         2.26 %         2.72 %         3.81 %
 

As of December 31, 2012, total non-performing loans included $125 million of real estate loans, of which $34 million were construction loans and $74 million were commercial real estate loans. Non-performing construction loans as of December 31, 2012 were comprised of land acquisition and development loans of $23 million, commercial construction loans of $8 million and residential construction loans of $3 million. Decreases in non-performing loans as of December 31, 2012, as compared to September 30, 2012, are primarily due to the movement of non-accrual loans out of the loan portfolio through pay-off, charge-off or foreclosure.

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