First Interstate BancSystem, Inc. Reports Third Quarter 2012 Results

First Interstate BancSystem, Inc. (NASDAQ:FIBK) reports third quarter 2012 net income available to common shareholders of $15.3 million, or $0.35 per diluted share, as compared to $12.2 million, or $0.28 per diluted share, for second quarter 2012, and $11.1 million, or $0.26 per diluted share, for third quarter 2011.

Significant financial statement items for the third quarter of 2012 include:
  • Income from the origination and sale of residential mortgage loans of $11.7 million during the three months ended September 30, 2012, represented a 23.8% increase over the prior quarter and a 111.6% increase over the same quarter of the prior year;
  • Net interest margin ratio declined 11 basis points during third quarter 2012, as compared to second quarter 2012, and 21 basis points as compared to third quarter 2011, due to lower yields earned on loan and investment portfolios;
  • Non-performing assets continued to decrease, declining to $202.7 million, or 2.72% of total assets, as of September 30, 2012, from $226.2 million, or 3.10% of total assets, as of June 30, 2012, and $287.7 million, or 3.94% of total assets, as of September 30, 2011;
  • Provisions for loan losses were $9.5 million for the three months ended September 30, 2012, compared to $12.0 million for the three months ended June 30, 2012, and $14.0 million for the three months ended September 30, 2011; and
  • Net charge-offs were $13.3 million during the three months ended September 30, 2012, compared to $25.1 million during the three months ended June 30, 2012, and $18.3 million during the three months ended September 30, 2011.

RESULTS SUMMARY

(Unaudited; $ in thousands, except per share data)
     
As Of or For the Three Months Ended Sequential Quarter

% Change
Year Over Year

% Change
September 30,2012   June 30,2012   September 30,2011    
Net income available to common shareholders $ 15,292   $ 12,157   $ 11,059 25.8 % 38.3 %
Diluted earnings per common share 0.35 0.28 0.26 25.0 % 34.6 %
Dividends paid per common share 0.1200 0.1200 0.1125 0.0 % 6.7 %
Book value per common share 17.29 17.03 16.70 1.5 % 3.5 %
Tangible book value per common share* 12.90 12.63 12.25 2.1 % 5.3 %
Net tangible book value per common share* 14.30 14.03 13.66 1.9 % 4.7 %
Return on average common equity, annualized 8.22 % 6.69 % 6.17 %
Return on average tangible common equity, annualized* 11.07 % 9.04 % 8.44 %
Return on average assets, annualized 0.86 % 0.71 % 0.65 %
 
 
As Of or For the Nine Months Ended
    September 30,2012

 

September 30,2011
     
Net income available to common shareholders $ 38,810

 

28,722

 

35.1

%
Diluted earnings per common share 0.90

 

0.67

 

34.3

%
Dividends paid per common share 0.3600

 

0.3375

 

6.7

%
Return on average common equity, annualized

7.09

%

 

5.51

%
Return on average tangible common equity, annualized*

9.58

%

 

7.61

%
Return on average assets, annualized

0.75

%

 

0.57

%
 

* See Non-GAAP Financial Measures included herein for a discussion regarding tangible and net tangible book

     value per common share.

“We are very pleased with our third quarter performance, which represents a significant increase in both revenue and earnings compared to the same period last year,” said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “Our strong results were largely driven by our positioning as a leading mortgage lender throughout our footprint, which has enabled us to capitalize on the increasing demand for residential mortgage loans. We also made considerable progress in resolving problem assets during the third quarter, which helped improve our overall asset quality, reduce our credit costs, and enhance our level of profitability,” Garding further noted.

REVENUE SUMMARY

(Unaudited; $ in thousands)
     
For the Three Months Ended   Sequential Quarter

% Change
Year Over Year

% Change
    September 30,2012   June 30,2012   September 30,2011          
Interest income $ 68,175   $ 69,067   $ 73,483

-1.3

%

-7.2

%
Interest expense   7,170     7,893     9,991    

-9.2

%
 

-28.2

%
Net interest income 61,005 61,174 63,492

-0.3

%

-3.9

%
Non-interest income:
Income from the origination and sale of loans 11,665 9,420 5,512 23.8 % 111.6 %
Other service charges, commissions and fees 8,774 8,254 8,479 6.3 % 3.5 %
Service charges on deposit accounts 4,395 4,455 4,609

-1.3

%
-4.6%
Wealth management revenues 3,557 3,815 3,202

-6.8

%
11.1 %
Investment securities gains, net 66 198 38

-66.7

%
73.7 %
Other income   1,725     1,520     1,285     13.5 %   34.2 %
Total non-interest income   30,182     27,662     23,125     9.1 %   30.5 %
Total revenues   $ 91,187     $ 88,836     $ 86,617     2.6 %  

5.3

%
Tax equivalent interest margin ratio   3.63 %   3.74 %   3.84 %            
 
 

For the Nine Months Ended
Year Over Year

% Change
    September 30,2012   September 30,2011    
Interest income $ 206,299 $ 220,877

-6.6

%
Interest expense   23,486     33,060    

-29.0

%
Net interest income 182,813 187,817

-2.7

%
Non-interest income:
Income from the origination and sale of loans 29,469 13,066

125.5

%
Other service charges, commissions and fees 25,452 23,627

7.7

%
Service charges on deposit accounts 13,011 13,104

-0.7

%
Wealth management revenues 10,655 9,980

6.8

%
Investment securities gains, net 295 56

426.8

%
Other income   5,344     5,042    

6.0

%
Total non-interest income   84,226     64,875    

29.8

%
Total revenues   $ 267,039     $ 252,692    

5.7

%
Tax equivalent interest margin ratio   3.70 %   3.80 %    

Net Interest Income

The Company's net interest margin ratio decreased to 3.63% during third quarter 2012, as compared to 3.74% during second quarter 2012. The second quarter 2012 net interest margin ratio included $766 thousand of recoveries of charged-off interest. Exclusive of these interest recoveries, the Company's net interest margin ratio was 3.70% during second quarter 2012. The decline in the net interest margin ratio, as compared to second quarter 2012, was primarily due to lower yields earned on the Company's loan and investment portfolios. The impact of lower asset yields was partially offset by increases in average outstanding loans and a 6 basis point reduction in the cost of interest-bearing liabilities due to a continuing favorable shift in the mix of deposits from higher costing time deposits into primarily non-interest bearing demand deposits.

Decreases in net interest margin ratio during the three and nine months ended September 30, 2012, as compared to the same periods in 2011, were due to lower outstanding loan balances and lower yields earned on the Company's loan and investment portfolios, which were partially offset by reductions in the cost of interest bearing liabilities combined with a shift from higher-costing savings and time deposits to lower-costing demand deposits.

Non-interest Income

Non-interest income increased during the three and nine months ended September 30, 2012, as compared to the same periods in 2011 and the three months ended June 30, 2012, primarily due to increases in income from the origination and sale of residential mortgage loans. The dollar amount of the Company's residential loan originations increased 93% during the first nine months of 2012, as compared to the same period in 2011. While refinancing activity represented 62% of the Company's residential loan origination dollars during third quarter 2012, new loans for home purchases were 2% higher than in the prior quarter and 35% higher than in third quarter 2011.

NON-INTEREST EXPENSE

(Unaudited; $ in thousands)
     
For the Three Months Ended Sequential Quarter

% Change
Year Over Year

% Change
    September 30,2012   June 30,2012   September 30,2011        
Non-interest expense:    
Salaries and wages $ 23,341 $ 21,640 $ 20,801 7.9 % 12.2 %
Employee benefits 7,447 6,819 6,087 9.2 % 22.3 %
Occupancy, net 3,793 4,037 4,180

-6.0

%

-9.3

%
Furniture and equipment 3,231 3,189 3,018 1.3 % 7.1 %
Outsourced technology services 2,182 2,179 2,235 0.1 %

-2.4

%
Other real estate owned ("OREO") expense, net of income 2,612 1,806 2,878 44.6 %

-9.2

%
FDIC insurance premiums 1,622 1,601 1,631 1.3 %

-0.6

%
Professional fees 1,050 1,002 995 4.8 % 5.5 %
Mortgage servicing rights amortization 879 817 807 7.6 % 8.9 %
Mortgage servicing rights impairment 55 52 1,168 5.8 %

-95.3

%
Core deposit intangibles amortization 355 355 362 0.0 %

-1.9

%
Other expenses   10,497     13,802     10,879    

-23.9

%
 

-3.5

%
Total non-interest expense   $ 57,064     $ 57,299     $ 55,041    

-0.4

%
  3.7 %
 
 
Nine Months Ended   Year Over Year% Change
    September 30,2012   September 30,2011    
Non-interest expense:
Salaries and wages $ 66,545 $ 61,557

8.1

%
Employee benefits 23,232 20,922

11.0

%
Occupancy, net 11,818 12,408

-4.8

%
Furniture and equipment 9,558 9,367

2.0

%
Outsourced technology services 6,627 6,688

-0.9

%
FDIC insurance premiums 4,818 5,726

-15.9

%
OREO expense, net of income 5,523 6,631

-16.7

%
Professional fees 2,985 2,500

19.4

%
Mortgage servicing rights amortization 2,591 2,285

13.4

%
Mortgage servicing rights impairment (recovery) (761 ) 848

-189.7

%
Core deposit intangibles amortization 1,066 1,085

-1.8

%
Other expenses   37,801     32,174    

17.5

%
Total non-interest expense   $ 171,803     $ 162,191    

5.9

%

Salaries and wages expense increased 7.9% during third quarter 2012, as compared to second quarter 2012. Approximately half of the third quarter increase was attributable to higher incentive bonus accruals reflective of the Company's improved financial performance. The remaining quarter-over-quarter increase was primarily due to one additional accrual day in third quarter 2012 and higher commissions and overtime compensation related to continuing increases in residential real estate loan activity.

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.

During third quarter 2012, the Company recorded additions to OREO of $3 million, recorded write downs in the fair value of OREO properties of $2 million and sold OREO with a net book value of $15 million at a gain of $775 thousand.

Decreases in provisions for loan losses during third quarter 2012, as compared to second quarter 2012 and third quarter 2011, are reflective of continued improvement in credit quality as evidenced by declining levels of non-performing and criticized loans.

CREDIT QUALITY TRENDS

(Unaudited; $ in thousands)
         
  Provision for Loan Losses   Net Charge-offs   Allowance for Loan Losses   Accruing Loans 30-89 Days Past Due   Non-Performing Loans   Non-Performing 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
Q2 2012 12,000 25,108 102,794 55,074 172,333 226,150
Q3 2012 9,500     13,288     99,006     41,056     162,698     202,669

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
Q2 2012 220,509 243,916 81,473 545,898
Q3 2012 223,306     229,826     66,179     519,311

LOANS

(Unaudited; $ in thousands)
       
  September 30,2012   June 30,2012   September 30,2011   Sequential Quarter

% Change
  Year Over Year

% Change
Real estate:
Commercial $ 1,513,784 $ 1,517,400 $ 1,561,788

-0.2

%

-3.1

%
Construction:
Land acquisition & development 233,082 240,550 296,407

-3.1

%

-21.4

%
Residential 50,895 51,193 67,261

-0.6

%

-24.3

%
Commercial 56,097     59,911     64,098    

-6.4

%
 

-12.5

%
Total construction loans 340,074     351,654     427,766    

-3.3

%
 

-20.5

%
Residential 639,235 572,018 586,425 11.8 % 9.0 %
Agricultural 175,395     171,087     177,121     2.5 %  

-1.0

%
Total real estate loans 2,668,488     2,612,159     2,753,100     2.2 %  

-3.1

%
Consumer:
Indirect consumer loans 431,449 418,604 415,245 3.1 % 3.9 %
Other consumer loans 139,984 144,442 151,611

-3.1

%

-7.7

%
Credit card loans 58,324     58,166     60,283     0.3 %  

-3.2

%
Total consumer loans 629,757     621,212     627,139     1.4 %   0.4 %
Commercial 672,100 720,010 703,010

-6.7

%

-4.4

%
Agricultural 135,467 138,115 136,728

-1.9

%

-0.9

%
Other loans, including overdrafts 1,359     2,319     3,252    

-41.4

%
 

-58.2

%
Loans held for investment 4,107,171 4,093,815 4,223,229 0.3 %

-2.7

%
Mortgage loans held for sale 72,880     76,148     52,488    

-4.3

%
  38.9 %
Total loans $ 4,180,051     $ 4,169,963     $ 4,275,717     0.2 %  

-2.2

%

Loan demand continues to be challenging with total loans showing only slight growth as of September 30, 2012, compared to June 30, 2012. Residential real estate loans continued to grow due to retention of selected loan production. Decreases in construction loans as of September 30, 2012, compared to June 30, 2012 and September 30, 2011, were primarily due to movement of lower quality loans out of the loan portfolio through charge-off or foreclosure.

DEPOSITS

(Unaudited; $ in thousands)
         
    September 30,2012   June 30,2012   September 30,2011   Sequential Quarter

% Change
  Year Over Year

% Change
Non-interest bearing demand $ 1,443,773 $ 1,337,777 $ 1,243,703 7.9 % 16.1 %
Interest bearing:
Demand 1,637,214 1,586,962 1,308,122 3.2 % 25.2 %
Savings 1,531,359 1,495,230 1,662,602 2.4 %

-7.9

%
Time, $100 and over 613,586 641,070 704,518

-4.3

%

-12.9

%
Time, other   809,800     840,340     932,374    

-3.6

%
 

-13.1

%
Total interest bearing   4,591,959     4,563,602     4,607,616     0.6 %  

-0.3

%
Total deposits   $ 6,035,732     $ 5,901,379     $ 5,851,319     2.3 %   3.2 %

Total deposits increased as of September 30, 2012, as compared to June 30, 2012 and September 30, 2011. The favorable shift in the composition of deposits away from higher costing time deposits into lower costing demand deposits continued during third quarter 2012. As a result, the Company's cost of funds, including non-interest bearing demand deposits, decreased to 0.43% during third quarter 2012, from 0.49% during second quarter 2012 and 0.61% during third quarter 2011.

REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES HELD BY SUBSIDIARY TRUSTS

On June 26, 2012, the Company redeemed $41.2 million of 30-year junior subordinated deferrable interest debentures issued by the Company to an unconsolidated subsidiary trust. The redemption of the junior subordinated debentures caused a mandatory redemption of $40 million of 30-year floating rate mandatorily redeemable capital trust preferred securities issued by the unconsolidated subsidiary trust to third-party investors.

CAPITAL

(Unaudited, $ in thousands, except per share data)
         
    September 30,2012   June 30,2012   September 30,2011   Sequential Quarter

% Change
  Year Over Year

% Change
Preferred stockholders' equity $ 50,000 $ 50,000 $ 50,000 0.0 % 0.0 %
Common stockholders' equity 729,059 718,070 693,873 1.5 % 5.1 %
Accumulated other comprehensive income, net   18,811     18,265     24,082     3.0 %  

-21.9

%
Total stockholders' equity   $ 797,870     $ 786,335     $ 767,955     1.5 %   3.9 %
Book value per common share $ 17.29 $ 17.03 $ 16.70 1.5 % 3.5 %
Tangible book value per common share* $ 12.90 $ 12.63 $ 12.25 2.1 % 5.3 %
Net tangible book value per common share *   $ 14.30     $ 14.03     $ 13.66     1.9 %   4.7 %
Weighted average common shares outstanding for basic earnings per common share computation   42,989,564     42,966,926     42,737,986     0.1 %   0.6 %
Weighted average common shares outstanding for diluted earnings per common share computation   43,120,077     43,060,204     42,849,354     0.1 %   0.6 %
 

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

CAPITAL RATIOS

(Unaudited)
   
    September 30,2012   June 30,2012   September 30,2011
Tangible common stockholders' equity to tangible assets* 7.67 % 7.67 % 7.40 %
Net tangible common stockholders' equity to tangible assets* 8.50 % 8.52 % 8.25 %
Tier 1 common capital to total risk weighted assets 11.81 % ** 11.51 % 10.78 %
Leverage ratio 9.56 % ** 9.54 % 9.77 %
Tier 1 risk-based capital 14.53 % ** 14.22 % 14.28 %
Total risk-based capital   16.52 % ** 16.20 %   16.26 %
 

*    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 September 30, 2012, the Company had capital levels that, in all cases, exceeded the “well capitalized” requirements under all regulatory capital guidelines.

Third Quarter 2012 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss third quarter 2012 results at 11:00 a.m. Eastern Daylight Time (9:00 a.m. MDT) on Tuesday, October 23, 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 Daylight Time (11:00 a.m. MDT) on October 23, 2012 through November 26, 2012 by dialing 1-877-344-7529 (using conference ID 10019097). 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 72 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)
     
    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.

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 September 30, 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.

For purposes of computing return on average tangible common equity, average tangible common equity equals average common stockholders' equity less average goodwill and average other intangible assets (except mortgage servicing rights). Return on average tangible common equity is calculated by dividing net income available to common shareholders by average tangible common equity.

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)
     
    September 30,2012   June 30,2012   September 30,2011
Total stockholders’ equity (GAAP) $ 797,870 $ 786,335 $ 767,955
Less goodwill and other intangible assets (excluding mortgage servicing rights) 189,994 190,351 191,428
Less preferred stock   50,000     50,000     50,000  
Tangible common stockholders’ equity (Non-GAAP) 557,876 545,984 526,527
Add deferred tax liability for deductible goodwill   60,499     60,499     60,499  
Net tangible common stockholders’ equity (Non-GAAP)   $ 618,375     $ 606,483     $ 587,026  
Total assets (GAAP) $ 7,461,152 $ 7,305,176 $ 7,307,154
Less goodwill and other intangible assets (excluding mortgage servicing rights)   189,994     190,351     191,428  
Tangible assets (Non-GAAP)   $ 7,271,158     $ 7,114,825     $ 7,115,726  
 
Common shares outstanding 43,252,383 43,228,750 42,979,732
Book value per common share $ 17.29 $ 17.03 $ 16.70
Tangible book value per common share $ 12.90 $ 12.63 $ 12.25
Net tangible book value per common share $ 14.30 $ 14.03 $ 13.66
Tangible common stockholders’ equity to tangible assets (Non-GAAP) 7.67 % 7.67 % 7.40 %
Net tangible common stockholders’ equity to tangible assets (Non-GAAP)   8.50 %   8.52 %   8.25 %
  Average for the three months ended   Average for the nine months ended
    September 30,2012   June 30,2012   September 30,2011   September 30,2012   September 30,2011
Total stockholders’ equity (GAAP) $ 789,734   $ 781,339   $ 761,442 $ 781,440   $ 746,488
Less goodwill and other intangible assets (excluding mortgage servicing rights) 190,206 $ 190,563

 

$
191,647 190,564 192,007
Less preferred stock   50,000     50,000     50,000     50,000     50,000  
Tangible common stockholders' equity (Non-GAAP)   $ 549,528     $ 540,776     $ 519,795     $ 540,876     $ 504,481  
 
As of or for the three months ended As of or for the nine months ended
    September 30,2012   June 30,2012   September 30,2011   September 30,2012   September 30,2011
Net income to available to common shareholders, annualized $ 60,836 $ 48,895 $ 43,875 $ 51,841 $ 38,401
Return on average tangible common equity (Non-GAAP)   11.07 %   9.04 %   8.44 %   9.58 %   7.61 %

Copyright Business Wire 2010

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX