First Interstate BancSystem, Inc. Reports First Quarter 2012 Results

First Interstate BancSystem, Inc. (NASDAQ:FIBK) reports first quarter 2012 net income available to common shareholders of $11.4 million, or $0.26 per diluted share, as compared to $12.4 million, or $0.29 per diluted share, for fourth quarter 2011 and $8.7 million, or $0.20 per diluted share, for first quarter 2011.

Significant financial statement items for the first quarter of 2012 include:
  • Non-performing assets to total assets declined to 3.60% as of March 31, 2012, compared to 3.81% as of December 31, 2011 and 3.79% as of March 31, 2011;
  • Provisions for loan losses were $11.3 million for the three months ended March 31, 2012, compared to $13.8 million for the three months ended December 31, 2011 and $15.0 million for the three months ended March 31, 2011;
  • Net interest margin ratio decreased to 3.72% for the three months ended March 31, 2012, as compared to 3.79% for the three months ended December 31, 2011, primarily due to a 9 basis point decrease in the yield on interest earning assets largely due to reductions in average loans outstanding during the period. This decrease was partially offset by a decline of 3 basis points in the cost of interest bearing liabilities during the three months ended March 31, 2012, as compared to the three months ended December 31, 2011;
  • Estimated collection and settlement costs of $3.0 million related to one borrower were recorded as other expense during the three months ended March 31, 2012.

RESULTS SUMMARY

(Unaudited; $ in thousands, except per share data)
    Three Months Ended    

SequentialQuarter% Change
   

Year OverYear% Change
       

March 31,2012
   

December 31,2011
   

March 31,2011
         
Net income available to common shareholders $ 11,361     $ 12,402     $ 8,662

-8.4

%
31.2 %
Diluted earnings per common share 0.26 0.29 0.20

-10.3

%
30.0 %
Dividends paid per common share 0.1200 0.1125 0.1125 6.7 % 6.7 %
Book value per common share 16.88 16.77 16.10 0.7 % 4.8 %
Tangible book value per common share* 12.47 12.33 11.63 1.1 % 7.2 %
Net tangible book value per common share* 13.87 13.74 13.04 0.9 % 6.4 %
Return on average common equity, annualized 6.32 % 6.84 % 5.11 %
Return on average assets, annualized 0.67 % 0.72 % 0.52 %
 

* See Non-GAAP Financial Measures included herein for a discussion regarding tangible and net tangible book value per common share.

 

“Our first quarter results reflect strong improvement over the prior year period, with earnings per share increasing by 30%,” said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “During the first quarter, we saw a continuation of the mixed trends we have seen over the past few quarters: improving credit quality and healthy deposit flows being offset by weak loan demand and compression in our net interest margin. We are encouraged by the steady decline we are seeing in our level of criticized loans and non-performing assets, which is translating into lower levels of charge-offs and provision for credit loss expense,” Garding further noted.

REVENUE SUMMARY
             

(Unaudited; $ in thousands)
Three Months Ended

SequentialQuarter% Change

Year OverYear% Change
        March 31,2012     December 31,2011     March 31,2011            
Interest income $ 69,057   $ 72,006     $ 73,843

-4.1

%

-6.5

%
Interest expense       8,423     8,971       12,045      

-6.1

%
   

-30.1

%
Net interest income 60,634 63,035 61,798

-3.8

%

-1.9

%
Non-interest income:
Other service charges, commissions and fees 8,424 8,062 7,380 4.5 % 14.1 %
Income from the origination and sale of loans 8,384 8,087 3,445 3.7 % 143.4 %
Service charges on deposit accounts 4,161 4,543 4,110 -8.4

%
1.2 %
Wealth management revenues 3,283 3,177 3,295 3.3 % -0.4

%
Investment securities gains, net 31 1,488 2 -97.9

%
1,450.0 %
Other income       2,099     1,640       1,927       28.0 %     8.9 %
Total non-interest income       26,382     26,997       20,159      

-2.3

%
    30.9 %
Total revenues       $ 87,016     $ 90,032       $ 81,957      

-3.3

%
    6.2 %
Tax equivalent interest margin ratio       3.72 %   3.79 %     3.73 %                
 

Net Interest Income

Net interest margin decreased 7 basis points during first quarter to 3.72%, as compared to 3.79% during fourth quarter 2011, primarily due to lower outstanding loan balances and lower yields earned on the Company's loan and investment portfolios. These decreases were partially offset by further reductions in funding costs, along with a continued shift from higher-costing savings and time deposits to lower-costing demand deposits.

The net interest margin ratio remained stable at 3.72% for the three months ended March 31, 2012, as compared to 3.73% during the same period in 2011. Lower yields earned on the Company's loan and investment portfolios and lower outstanding loan balances during the three months ended March 31, 2012, as compared to the same period in 2011, were offset by a 22 basis point reduction in the cost of interest bearing liabilities.

Non-interest Income

Non-interest income decreased during first quarter 2012, as compared to fourth quarter 2011, primarily due to decreases in net gains on the sale of investment securities, which were partially offset by increases in the market values of securities held under deferred compensation plans. During fourth quarter 2011, investment security gains included the recognition of $1.4 million of unamortized discounts on investment securities called by the issuing agencies.

Non-interest income increased during first quarter 2012, as compared to the same period in the prior year, primarily due to increases in income from the origination and sale of residential mortgage loans. Low mortgage interest rates continued to spur refinancing activity in the Company's market areas, which accounted for approximately 71% of the Company's residential real estate loan originations during first quarter 2012, as compared to 68% during fourth quarter 2011 and 56% during first quarter 2011.

NON-INTEREST EXPENSE
             

(Unaudited; $ in thousands)
Three Months Ended

SequentialQuarter% Change

Year OverYear% Change
        March 31,2012     December 31,2011     March 31,2011            
Non-interest expense:        
Salaries and wages $ 21,564 $ 22,002 $ 20,203

-2.0

%
6.7 %
Employee benefits 8,966 6,871 7,499 30.5 % 19.6 %
Occupancy, net 3,988 3,815 4,215 4.5 %

-5.4

%
Furniture and equipment 3,138 3,195 3,220

-1.8

%

-2.5

%
Outsourced technology services 2,266 2,245 2,241 0.9 % 1.1 %
Other real estate owned ("OREO") expense, net of income 1,105 2,021 1,711

-45.3

%

-35.4

%
FDIC insurance premiums 1,595 1,607 2,466

-0.7

%

-35.3

%
Mortgage servicing rights amortization 895 940 807

-4.8

%
10.9 %
Mortgage servicing rights impairment (recovery) (868 ) 427 (347 )

-303.3

%

-150.1

%
Core deposit intangibles amortization 355 361 362

-1.7

%

-1.9

%
Other expenses       14,436       12,737       10,581       13.3 %     36.4 %
Total non-interest expense       $ 57,440       $ 56,221       $ 52,958       2.2 %     8.5 %
 

Employee benefits expense increased during first quarter 2012, as compared to fourth quarter 2011, primarily due to higher payroll tax expense and increases in the market values of securities held under deferred compensation plans. Employee benefits expense increased during first quarter 2012, as compared to first quarter 2011, primarily due to increases in group health insurance costs, higher stock-based compensation expense and increases in the market values of securities held under deferred compensation plans.

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. First quarter 2012 net OREO expense included $453 thousand of net operating expenses, $578 thousand of fair value write-downs and net losses of $74 thousand on the sale of OREO properties. During the fourth and first quarters of 2011, the Company recorded fair value write-downs of $1.5 million and $1.6 million, respectively.

Estimated collection and settlement costs of $3.0 million related to one borrower were recorded as other expense during the three months ended March 31, 2012.

ASSET QUALITY
       

(Unaudited; $ in thousands)
          Three Months Ended
March 31,         December 31,         March 31,
          2012         2011         2011
Allowance for loan losses - beginning of period $ 112,581 $ 120,303 $ 120,480
Charge-offs (9,087 ) (22,435 ) (12,339 )
Recoveries 1,158 962 1,305
Provision         11,250           13,751           15,000  
Allowance for loan losses - end of period         $ 115,902           $ 112,581           $ 124,446  
                     
March 31, December 31, March 31,
2012 2011 2011
Period end loans $ 4,158,616 $ 4,186,549 $ 4,263,764
Average loans 4,165,203 4,236,228 4,303,575
Non-performing loans:
Non-accrual loans 180,910 199,983 212,394
Accruing loans past due 90 days or more 5,017 4,111 4,140
Troubled debt restructurings         36,838           37,376           33,344  
Total non-performing loans 222,765 241,470 249,878
Other real estate owned         44,756           37,452           31,995  
Total non-performing assets         $ 267,521           $ 278,922           $ 281,873  
 
Net charge-offs to average loans, annualized 0.76 % 2.01 % 1.04 %
Provision for loan losses to average loans, annualized 1.08 % 1.29 % 1.41 %
Allowance for loan losses to period end loans 2.79 % 2.69 % 2.92 %
Allowance for loan losses to total non-performing loans 52.03 % 46.62 % 49.80 %
Non-performing loans to period end loans 5.36 % 5.77 % 5.86 %
Non-performing assets to period end loans and other real estate owned 6.36 % 6.60 % 6.56 %
Non-performing assets to total assets         3.60 %         3.81 %         3.79 %
 

As of March 31, 2012, total non-performing loans included $203 million of real estate loans, of which $87 million were construction loans and $90 million were commercial real estate loans. Non-performing construction loans as of March 31, 2012 were comprised of land acquisition and development loans of $61 million, commercial construction loans of $22 million and residential construction loans of $4 million.

Non-performing loans decreased 7.7% as of March 31, 2012 compared to December 31, 2011. Decreases in non-accrual loans, the largest component of non-performing loans, were primarily due to the movement of loans out of the loan portfolio due to charge-off or foreclosure.

During first quarter 2012, the Company recorded additions to OREO of $14 million. Approximately 68% of OREO additions during first quarter 2012 were attributable to the loans of four real estate borrowers. First quarter 2012 OREO additions were partially offset by write downs of the fair value of OREO properties of $578 thousand and sales of OREO with a net book value of $6 million at a slight loss.

Fluctuations in the provision for loan losses result from management's assessment of the adequacy of the Company's allowance for loan losses. Decreases in the provision for loan losses during first quarter 2012, as compared to the fourth and first quarters of 2011, are reflective of continued improvement and stabilization of credit quality as evidenced by declining levels of non-performing and criticized loans.

CREDIT QUALITY TRENDS

(Unaudited; $ in thousands)
                                         
Accruing Loans
Provision for Allowance for 30-89 Days Past Non-Performing Non-Performing
                Loan Losses       Net Charge-offs       Loan Losses       Due       Loans       Assets
Q1 2009 $ 9,600 $ 4,693 $ 92,223 $ 98,980 $ 103,653 $ 122,300
Q2 2009 11,700 5,528 98,395 88,632 135,484 167,273
Q3 2009 10,500 7,147 101,748 91,956 125,083 156,958
Q4 2009 13,500 12,218 103,030 63,878 124,678 163,078
Q1 2010 11,900 8,581 106,349 62,675 133,042 177,022
Q2 2010 19,500 11,521 114,328 99,334 158,113 200,451
Q3 2010 18,000 12,092 120,236 47,966 202,008 237,304
Q4 2010 17,500 17,256 120,480 57,011 210,684 244,312
Q1 2011 15,000 11,034 124,446 68,021 249,878 281,873
Q2 2011 15,400 15,267 124,579 70,145 263,467 291,790
Q3 2011 14,000 18,276 120,303 62,165 262,578 287,658
Q4 2011 13,751 21,473 112,581 75,603 241,470 278,922
Q1 2012               11,250         7,929         115,902         58,531         222,765         267,521
 

CRITICIZED LOANS
                               

(Unaudited; $ in thousands)
 
Other Assets
Especially
                Mentioned       Substandard       Doubtful       Total
Q1 2009 $ 163,402 $ 231,861 $ 40,356 $ 435,619
Q2 2009 230,833 242,751 48,326 521,910
Q3 2009 239,320 271,487 60,725 571,532
Q4 2009 279,294 271,324 69,603 620,221
Q1 2010 312,441 311,866 64,113 688,420
Q2 2010 319,130 337,758 92,249 749,137
Q3 2010 340,075 340,973 116,003 797,051
Q4 2010 305,925 303,653 133,353 742,931
Q1 2011 293,899 299,072 135,862 728,833
Q2 2011 268,450 309,029 149,964 727,443
Q3 2011 261,501 305,145 134,367 701,013
Q4 2011 240,903 269,794 120,165 630,862
Q1 2012               242,071         276,165         93,596         611,832
 

LOANS

(Unaudited; $ in thousands)
                                 
Sequential Year Over
March 31, December 31, March 31, Quarter Year
          2012       2011       2011       % Change           % Change  
Real estate loans:
Commercial $ 1,533,624 $ 1,553,155 $ 1,553,750 -1.3 % -1.3 %
Construction:
Land acquisition & development 272,874 278,613 319,573 -2.1 % -14.6 %
Residential 50,332 61,106 78,572 -17.6 % -35.9 %
Commercial         65,196         61,054         95,623        

6.8

%

 
      -31.8 %
Total construction loans         388,402         400,773         493,768         -3.1 %         -21.3 %
Residential 562,588 571,943 561,420 -1.6 %

0.2

%
Agricultural         171,685         175,302         181,513         -2.1 %         -5.4 %
Total real estate loans         2,656,299         2,701,173         2,790,451         -1.7 %         -4.8 %
Consumer:
Indirect consumer loans 407,389 407,651 411,908 -0.1 % -1.1 %
Other consumer loans 142,144 147,487 155,100 -3.6 % -8.4 %
Credit card loans         56,540         60,933         58,075         -7.2 %         -2.6 %
Total consumer loans         606,073         616,071         625,083         -1.6 %         -3.0 %
Commercial 708,397 693,261 703,837

2.2

%

 

0.6

%
Agricultural 128,599 119,710 121,571

7.4

%

 

5.8

%
Other loans, including overdrafts         568         2,813         1,830         -79.8 %         -69.0 %
Loans held for investment         4,099,936         4,133,028         4,242,772         -0.8 %         -3.4 %
Mortgage loans held for sale         58,680         53,521         20,992        

9.6

%

 
     

179.5

%
Total loans         $ 4,158,616         $ 4,186,549         $ 4,263,764         -0.7 %         -2.5 %
 

Total loans decreased as of March 31, 2012, as compared to December 31, 2011 and March 31, 2011, with all major categories of loans showing decreases with the exception of commercial and agricultural loans. Declines in total loans during first quarter 2012 were primarily due to the continued combined effects of movement of lower quality loans out of the loan portfolio through charge-off or foreclosure and weak loan demand.

DEPOSITS

(Unaudited; $ in thousands)
                                             
Sequential Year Over
March 31, December 31, March 31, Quarter Year
                2012         2011         2011         % Change           % Change  
Non-interest bearing demand $ 1,284,823 $ 1,271,709 $ 1,110,940 1.0 %

15.7

%
Interest bearing:
Demand 1,618,174 1,306,509 1,259,105 23.9 %

28.5

%
Savings 1,480,435 1,691,413 1,742,958

-12.5

%
-15.1 %
Time, $100 and over 671,014 681,047 825,585

-1.5

%
-18.7 %
Time, other               856,388           876,293           992,596          

-2.3

%
        -13.7 %
Total interest bearing               4,626,011           4,555,262           4,820,244           1.6 %         -4.0 %
Total deposits               $ 5,910,834           $ 5,826,971           $ 5,931,184           1.4 %         -0.3 %
 

Total deposits increased as of March 31, 2012, as compared to December 31, 2011 and remained flat as compared to March 31, 2011. As a result of a regulatory change allowing businesses to receive interest on checking accounts, the Company discontinued its savings sweep product resulting in a shift of approximately $300 million from savings deposits into demand deposits during first quarter 2012. During first quarter 2012, the Company continued to experience a shift in the mix of deposits away from time deposits to demand deposits. Management attributes this shift to the effects of a prolonged low interest rate environment and corresponding hesitation of customers to invest their funds for extended periods at such low interest rates.

CAPITAL

(Unaudited, $ in thousands, except per share data)
                                 
Sequential Year Over
March 31, December 31, March 31, Quarter Year
    2012         2011         2011         % Change         % Change
Preferred stockholders' equity $ 50,000 $ 50,000 $ 50,000 0.0 % 0.0 %
Common stockholders' equity 709,781 701,986 682,049 1.1 % 4.1 %
Accumulated other comprehensive income, net   19,494           19,034           9,648           2.4 %         102.1 %
Total stockholders' equity   $ 779,275           $ 771,020           $ 741,697           1.1 %         5.1 %
Book value per common share $ 16.88 $ 16.77 $ 16.10 0.7 % 4.8 %
Tangible book value per common share* $ 12.47 $ 12.33 $ 11.63 1.1 % 7.2 %

Net tangible book value per common share*
  $ 13.87           $ 13.74           $ 13.04           0.9 %         6.4 %
Weighted average common shares outstanding for basic earnings per common share computation   42,873,769           42,783,770           42,689,390           0.2 %         0.4 %
Weighted average common shares outstanding for diluted earnings per common share computation   42,982,543           42,847,772           42,859,981           0.3 %         0.3 %
 

* See Non-GAAP Financial Measures included herein for a discussion of tangible and net tangible book value per common share.
 

CAPITAL RATIOS
                         

(Unaudited)
 
March 31, December 31, March 31,
              2012         2011         2011
Tangible common stockholders' equity to tangible assets* 7.48 % 7.43 % 6.90 %
Net tangible common stockholders' equity to tangible assets* 8.32 % 8.28 % 7.74 %
Tier 1 common capital to total risk weighted assets 11.35 % ** 11.04 % 10.40 %
Leverage ratio 10.01 % ** 9.84 % 9.34 %
Tier 1 risk-based capital 14.90 % ** 14.55 % 13.85 %
Total risk-based capital             16.89 % **       16.54 %         15.83 %
 

* See Non-GAAP Financial Measures included herein for a discussion of tangible and net tangible common stockholders' equity to tangible assets.

** Preliminary estimate - may be subject to change.
 

As of March 31, 2012, the Company had capital levels that, in all cases, exceeded the “well capitalized” requirements under all regulatory capital guidelines.

First Quarter 2012 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss first quarter 2012 results at 11:00 a.m. Eastern Time (9:00 a.m. MDT) on Tuesday, April 24, 2012. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-877-317-6789 or by logging on to www.FIBK.com. The call will be recorded and made available for replay after 1:00 p.m. Eastern Time (11:00 a.m. MDT) on April 24, 2012 through May 25, 2012 by dialing 1-877-344-7529 (using conference ID 10012022). The call will also be archived on our website, www.FIBK.com, for one year.

About First Interstate BancSystem, Inc.

First Interstate BancSystem, Inc. is a financial and bank holding company incorporated in 1971 and headquartered in Billings, Montana. The Company operates 71 banking offices in 42 communities in Montana, Wyoming and western South Dakota. Through First Interstate Bank, the Company delivers a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities throughout the Company's market areas.

Cautionary Statement

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are covered by the safe harbor provisions of such sections. These statements include statements about decreased levels of criticized loans, stabilization of the loan portfolio, the Company's level of allowance for loan losses, manageability of credit costs and levels of profitability. Therefore, the Company's actual results, performance or achievements may differ materially from those expressed in or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions.

The following factors, among others, may cause actual results to differ materially from current expectations in the forward-looking statements, including those set forth in this release: credit losses; concentrations of real estate loans; economic and market developments, including inflation; commercial loan risk; adequacy of the allowance for loan losses; impairment of goodwill; changes in interest rates; access to low-cost funding sources; increases in deposit insurance premiums; inability to grow business; adverse economic conditions affecting Montana, Wyoming and western South Dakota; governmental regulation and changes in regulatory, tax and accounting rules and interpretations; sweeping changes in regulation of financial institutions due to passage of the Dodd-Frank Act; changes in or noncompliance with governmental regulations; effects of recent legislative and regulatory efforts to stabilize financial markets; dependence on the Company’s management team; ability to attract and retain qualified employees; failure of technology; reliance on external vendors; disruption of vital infrastructure and other business interruptions; illiquidity in the credit markets; inability to meet liquidity requirements; lack of acquisition candidates; failure to manage growth; competition; inability to manage risks in turbulent and dynamic market conditions; ineffective internal operational controls; environmental remediation and other costs; failure to effectively implement technology-driven products and services; litigation pertaining to fiduciary responsibilities; capital required to support the Company’s bank subsidiary; soundness of other financial institutions; impact of Basel III capital standards and forthcoming new capital rules proposed for U.S. banks; inability of our bank subsidiary to pay dividends; change in dividend policy; lack of public market for our Class A common stock; volatility of Class A common stock; voting control of Class B stockholders; decline in market price of Class A common stock; dilution as a result of future equity issuances; uninsured nature of any investment in Class A common stock; anti-takeover provisions; controlled company status; subordination of common stock to Company debt; uncertainties associated with introducing new products or lines of business; and, downgrade of the U.S. credit rating.

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)
                   
March 31, December 31, March 31,
          2012       2011       2011
Assets
Cash and due from banks $ 128,341 $ 142,502 $ 120,814
Federal funds sold 304 309 3,108
Interest bearing deposits in banks         494,279         329,636         556,399
Total cash and cash equivalents         622,924         472,447         680,321
Investment securities:
Available-for-sale 1,955,436 2,016,864 1,841,281
Held-to-maturity (estimated fair values of $166,932, $161,877 and $147,401 at March 31, 2012, December 31, 2011 and March 31, 2011, respectively)         158,070         152,781         146,097
Total investment securities         2,113,506         2,169,645         1,987,378
Loans held for investment 4,099,936 4,133,028 4,242,772
Mortgage loans held for sale         58,680         53,521         20,992
Total loans         4,158,616         4,186,549         4,263,764
Less allowance for loan losses         115,902         112,581         124,446
Net loans         4,042,714         4,073,968         4,139,318
Premises and equipment, net of accumulated depreciation 185,230 184,771 185,702
Goodwill 183,673 183,673 183,673
Company-owned life insurance 75,342 74,880 73,545
Other real estate owned ("OREO"), net of write-downs 44,756 37,452 31,995
Accrued interest receivable 30,407 31,974 32,380
Mortgage servicing rights, net of accumulated amortization and impairment reserve 11,833 11,555 13,284
Deferred tax asset, net 9,571 9,628 19,112
Core deposit intangibles, net of accumulated amortization 7,002 7,357 8,441
Other assets         67,348         68,177         73,977
Total assets         $ 7,394,306         $ 7,325,527         $ 7,429,126
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing $ 1,284,823 $ 1,271,709 $ 1,110,940
Interest bearing         4,626,011         4,555,262         4,820,244
Total deposits         5,910,834         5,826,971         5,931,184
Securities sold under repurchase agreements 491,058 516,243 536,955
Accounts payable and accrued expenses 43,972 42,248 40,400
Accrued interest payable 8,255 8,123 12,162
Long-term debt 37,191 37,200 37,491
Other borrowed funds 6 7 5,522
Subordinated debentures held by subsidiary trusts         123,715         123,715         123,715
Total liabilities         6,615,031         6,554,507         6,687,429
Stockholders’ equity:
Preferred stock 50,000 50,000 50,000
Common stock 268,411 266,842 264,932
Retained earnings 441,370 435,144 417,117
Accumulated other comprehensive income, net         19,494         19,034         9,648
Total stockholders’ equity         779,275         771,020         741,697
Total liabilities and stockholders’ equity         $ 7,394,306         $ 7,325,527         $ 7,429,126
 

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, $ in thousands, except per share data)
       
Three Months Ended
March 31,       December 31,       March 31,
          2012       2011       2011
Interest income:
Interest and fees on loans $ 57,910 $ 60,529 $ 62,391
Interest and dividends on investment securities:
Taxable 9,705 10,023 9,911
Exempt from federal taxes 1,204 1,196 1,171
Interest on deposits in banks 237 256 367
Interest on federal funds sold         1         2         3  
Total interest income         69,057         72,006         73,843  
Interest expense:
Interest on deposits 6,262 6,854 9,871
Interest on securities sold under repurchase agreements 156 150 237
Interest on long-term debt 498 493 489
Interest on subordinated debentures held by subsidiary trusts         1,507         1,474         1,448  
Total interest expense         8,423         8,971         12,045  
Net interest income 60,634 63,035 61,798
Provision for loan losses         11,250         13,751         15,000  
Net interest income after provision for loan losses         49,384         49,284         46,798  
Non-interest income:
Other service charges, commissions and fees 8,424 8,062 7,380
Income from the origination and sale of loans 8,384 8,087 3,445
Service charges on deposit accounts 4,161 4,543 4,110
Wealth management revenues 3,283 3,177 3,295
Investment securities gains, net 31 1,488 2
Other income         2,099         1,640         1,927  
Total non-interest income         26,382         26,997         20,159  
Non-interest expense:
Salaries and wages 21,564 22,002 20,203
Employee benefits 8,966 6,871 7,499
Occupancy, net 3,988 3,815 4,215
Furniture and equipment 3,138 3,195 3,220
Outsourced technology services 2,266 2,245 2,241
FDIC insurance premiums 1,595 1,607 2,466
OREO expense, net of income 1,105 2,021 1,711
Mortgage servicing rights amortization 895 940 807
Mortgage servicing rights impairment (recovery) (868 ) 427 (347 )
Core deposit intangibles amortization 355 361 362
Other expenses         14,436         12,737         10,581  
Total non-interest expense         57,440         56,221         52,958  
Income before income tax expense 18,326 20,060 13,999
Income tax expense         6,112         6,795         4,493  
Net income 12,214 13,265 9,506
Preferred stock dividends         853         863         844  
Net income available to common shareholders         $ 11,361         $ 12,402         $ 8,662  
Basic earnings per common share $ 0.26 $ 0.29 $ 0.20
Diluted earnings per common share         $ 0.26         $ 0.29         $ 0.20  
 

AVERAGE BALANCE SHEETS

(Unaudited, $ in thousands)

 
 
Three Months Ended
March 31, 2012       December 31, 2011       March 31, 2011
Average         Average       Average         Average       Average         Average
    Balance     Interest     Rate       Balance     Interest     Rate       Balance     Interest     Rate
Interest earning assets:
Loans (1) (2) $ 4,165,203 $ 58,374 5.64 % $ 4,236,228 $ 60,928 5.71 % $ 4,303,575 $ 62,836 5.92 %
Investment securities (2) 2,143,438 11,604 2.18 2,071,372 11,910 2.28 1,948,422 11,758 2.45
Interest bearing deposits in banks 374,899 237 0.25 401,654 256 0.25 587,804 367 0.25
Federal funds sold   609       1       0.66         973       2       0.82         2,242       3       0.54  
Total interest earnings assets 6,684,149 70,216 4.23 6,710,227 73,096 4.32 6,842,043 74,964 4.44
Non-earning assets   619,137                     618,712                     622,539              
Total assets   $ 7,303,286                     $ 7,328,939                     $ 7,464,582              
Interest bearing liabilities:
Demand deposits $ 1,582,805 $ 646 0.16 % $ 1,300,105 $ 601 0.18 % $ 1,249,283 $ 834 0.27 %
Savings deposits 1,449,239 1,015 0.28 1,689,109 1,217 0.29 1,744,747 2,000 0.46
Time deposits 1,540,789 4,601 1.20 1,598,361 5,036 1.25 1,874,515 7,037 1.52
Repurchase agreements 513,407 156 0.12 487,734 150 0.12 569,881 237 0.17
Other borrowed funds 35 5,589 5,695
Long-term debt 37,194 498 5.39 37,315 493 5.24 37,496 489 5.29
Subordinated debentures held by subsidiary trusts   123,715       1,507       4.90         123,715       1,474       4.73         123,715       1,448       4.75  
Total interest bearing liabilities 5,247,184 8,423 0.65 5,241,928 8,971 0.68 5,605,332 12,045 0.87
Non-interest bearing deposits 1,232,874 1,269,423 1,070,744
 
Other non-interest bearing liabilities 50,071 47,956 51,013
Stockholders’ equity   773,157                     769,632                     737,493              
Total liabilities and stockholders’ equity   $ 7,303,286                     $ 7,328,939                     $ 7,464,582              
Net FTE interest income $ 61,793 $ 64,125 $ 62,919
Less FTE adjustments (2)         (1,159 )                   (1,090 )                   (1,121 )      
Net interest income from consolidated statements of income         $ 60,634                     $ 63,035                     $ 61,798        
Interest rate spread               3.58 %                   3.64 %                   3.57 %
Net FTE interest margin (3)               3.72 %                   3.79 %                   3.73 %
 
Cost of funds, including non-interest bearing demand deposits (4)               0.52 %                   0.55 %                   0.73 %
 

(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; and (v) tangible assets.

For purposes of computing tangible book value per common share, tangible book value equals common stockholders' equity less goodwill and other intangible assets (except mortgage servicing rights). Tangible book value per common share is calculated as tangible common stockholders' equity divided by shares of common stock outstanding.

For purposes of computing net tangible book value per common share, net tangible book value equals common stockholders' equity less goodwill (adjusted for associated deferred tax liability) and other intangible assets (except mortgage servicing rights). Net tangible book value per common share is calculated as net tangible common stockholders' equity divided by shares of common stock outstanding. The Company's goodwill as of March 31, 2012 was $184 million, of which approximately $159 million is deductible for income tax purposes over an original period of 15 years. The calculation of net tangible book value takes into account the full amount of tax benefit of approximately $60 million associated with deductible goodwill assuming the Company will continue to have income sufficient to allow it to recognize this benefit in future periods.

For purposes of computing tangible common stockholders' equity to tangible assets, tangible assets equals total assets less goodwill and other intangible assets (except mortgage servicing rights). Tangible common stockholders' equity to tangible assets is calculated as tangible common stockholders' equity divided by tangible assets.

For purposes of computing net tangible common stockholders' equity to tangible assets, net tangible common stockholders' equity equals common stockholders' equity less goodwill (adjusted for associated deferred tax liability) and other intangible assets (except mortgage servicing rights). Net tangible common stockholders' equity to tangible assets is calculated as net tangible common stockholders' equity divided by tangible assets.

Management believes that these non-GAAP financial measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of unrealized losses on securities and other components of accumulated other comprehensive income (loss) in stockholders' equity. Management also believes that such financial measures, which are intended to complement the capital ratios defined by banking regulators, are useful to investors in evaluating the Company's performance due to the importance that analysts place on these ratios and also allow investors to compare certain aspects of our capitalization to other companies. These non-GAAP financial measures, however, may not be comparable to similarly titled measures reported by other companies because other companies may not calculate these non-GAAP measures in the same manner. As a result, the usefulness of these measures to investors may be limited, and they should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP.

The following table reconciles the above described non-GAAP financial measures to their most directly comparable GAAP financial measures as of the dates indicated.

NON-GAAP FINANCIAL MEASURES

(Unaudited; $ in thousands except share and per share data)
               
March 31, December 31, March 31,
      2012       2011       2011
Total stockholders’ equity (GAAP) 779,275 771,020 741,697
Less goodwill and other intangible assets (excluding mortgage servicing rights) 190,708 191,065 192,155
Less preferred stock     50,000         50,000         50,000  
Tangible common stockholders’ equity (Non-GAAP) $ 538,567 $ 529,955 $ 499,542
Add deferred tax liability for deductible goodwill     60,499         60,499         60,499  
Net tangible common stockholders’ equity (Non-GAAP)     $ 599,066         $ 590,454         $ 560,041  
Total assets (GAAP) 7,394,306 7,325,527 7,429,126
Less goodwill and other intangible assets (excluding mortgage servicing rights)     190,708         191,065         192,155  
Tangible assets (Non-GAAP)     7,203,598         7,134,462         7,236,971  
Common shares outstanding 43,190,975 42,984,174 42,961,253
Book value per common share $ 16.88 $ 16.77 $ 16.10
Tangible book value per common share $ 12.47 $ 12.33 $ 11.63
Net tangible book value per common share     $ 13.87         $ 13.74         $ 13.04  
Tangible common stockholders’ equity to tangible assets (Non-GAAP)     7.48 %       7.43 %       6.90 %
Net tangible common stockholders’ equity to tangible assets (Non-GAAP)     8.32 %       8.28 %       7.74 %

Copyright Business Wire 2010

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