First Interstate BancSystem, Inc. Reports Increased Earnings Of 77% And Improved Credit Metrics

First Interstate BancSystem, Inc. (NASDAQ: FIBK) reports second quarter 2013 net income available to common shareholders of $21.5 million, or $0.49 per diluted share, a 77% increase over second quarter 2012 net income to common shareholders of $12.2 million, or $0.28 per diluted share. For the first half of 2013, the Company reported net income to common shareholders of $41.5 million, or $0.95 per diluted share, compared to $23.5 million, or $0.55 per diluted share, during the same period in 2012.

SECOND QUARTER FINANCIAL HIGHLIGHTS
  • 1.76% non-performing assets to total assets, a decline from 2.60% as of June 30, 2012
  • 96% decrease in quarterly and year-to-date provisions for loan losses compared to the same periods in 2012
  • $4.1 million of recoveries, which exceeded loan charge-offs, resulting in net recoveries of $249 thousand
  • $1.9 million net gain on the sale of $13 million of OREO properties
  • 3.56% net interest margin, an increase of 1 basis point from first quarter 2013
  • 5% annualized growth in loans held for investment

“We delivered another strong quarter driven by continued improvement in credit quality, a stable net interest margin, and strength in residential real estate and indirect consumer lending,” said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “We continue to see declines in problem loans and improvement in collateral valuations throughout our markets, which resulted in only a small amount of provision for credit losses required in the second quarter,” Garding continued. “We are pleased with our performance in residential mortgage and indirect consumer lending, which both had strong loan production in the second quarter. Although we anticipate that residential lending will be impacted by higher interest rates, we are starting to see a stronger pipeline building for commercial and commercial real estate loans, which should help to offset any future declines in the mortgage business,” Garding further noted.

NET INTEREST MARGIN

The Company's net interest margin ratio was 3.56% during second quarter 2013. The Company recorded net recoveries of charged-off interest of $142 thousand during second quarter 2013, $620 thousand during first quarter 2013 and $766 thousand during second quarter 2012. Exclusive of net recoveries of charged-off interest, the Company's net interest margin ratio was 3.55% during second quarter 2013, as compared to 3.51% during first quarter 2013 and 3.70% during second quarter 2012. Declines in yields earned on the Company's loan and investment portfolios during second quarter 2013 were offset by increases in average outstanding loans, reductions in the cost of interest bearing liabilities and lower average outstanding interest bearing deposits in banks. Also offsetting the impact of lower asset yields during the three and six months ended June 30, 2013, as compared to the same periods in 2012, was the December 2012 contractual repricing of $46 million of junior subordinated debentures from a weighted average fixed interest rate of 7.07% to variable rates averaging 2.60% over LIBOR.

NON-INTEREST INCOME

Income from the origination and sale of loans was $10.0 million during second quarter 2013, compared to $10.7 million during first quarter 2013, and $9.4 million during second quarter 2012. During second quarter 2013, the Company originated loans for home purchases of approximately $277 million, the highest level in the Company's history and a 21% increase over second quarter 2012. For the six months ended June 30, 2013, mortgage loan origination was flat, as compared to the same period in 2012, with loans originated for home purchases accounting for approximately 43% of the Company's mortgage loan production, compared to approximately 35% during the same period in 2012.

Other service charges, commissions and fees increased to $9.0 million during second quarter 2013, as compared to $8.3 million during first quarter 2013 and $8.3 million during second quarter 2012, primarily due to increases in debit and credit card interchange revenues, the result of higher transaction volumes.

Other income increased to $2.2 million during second quarter 2013, compared to $1.7 million during first quarter 2013 and $1.5 million during second quarter 2012, primarily due to proceeds from company owned life insurance. Increases in earnings on securities held under deferred compensation plans also contributed to the increase in other income during second quarter 2013, as compared to second quarter 2012.

NON-INTEREST EXPENSE

Salaries and wages expense increased to $23.5 million during second quarter 2013, as compared to $23.4 million during first quarter 2013 and $21.6 million during second quarter 2012. The increase from the same period in the prior year was primarily due to higher incentive compensation accruals reflective of the Company's improved financial performance.

Employee benefits expense decreased to $7.5 million during second quarter 2013, as compared to $8.2 million during first quarter 2013, primarily due to decreases in payroll taxes and the second quarter 2013 reversal of $500 thousand of group health insurance expense to reflect favorable claims experience. These decreases were partially offset by higher profit sharing accruals reflective of continued improved financial performance. Employee benefits expense increased to $7.5 million during second quarter 2013, as compared to $6.8 million during second quarter 2012, primarily due to increases in earnings on securities held under deferred compensation plans.

Variations in net OREO expense between periods were primarily due to fluctuations in write-downs of the estimated fair value of OREO properties, net gains and losses recorded on the sales of OREO properties and operating expenses for OREO properties. Second quarter 2013 net OREO expense included $678 thousand of net operating expenses, $259 thousand of fair value write-downs and net gains of $1.9 million on the sale of OREO properties. This compares to $411 thousand of net operating expenses, $2.3 million of fair value write-downs and net gains of $820 thousand during first quarter 2013, and $1.3 million of net operating expenses, $580 thousand of fair value write-downs and net gains of $75 thousand during second quarter 2012.

Other expenses increased to $15.5 million during second quarter 2013, as compared to $14.0 million during first quarter 2013, primarily due to $616 thousand of write-downs in the carrying value of long-lived assets pending disposal and higher advertising expense resulting from differences in the timing of advertising campaigns. Other expenses decreased to $15.5 million during second quarter 2013, compared to $17.6 million during second quarter 2012. During second quarter 2012, the Company recorded donation expense of $1.5 million associated with the sale of a bank building to a charitable organization and wrote-off $428 thousand of unamortized issuance costs associated with redeemed junior subordinated debentures.

BALANCE SHEET

Total loans increased to $4,297 million as of June 30, 2013, from $4,225 million as of March 31, 2013 and $4,170 million as of June 30, 2012, with the most notable growth occurring in residential real estate and consumer loans. Residential real estate loans increased to $804 million as of June 30, 2013, from $758 million as of March 31, 2013 and $572 million as of June 30, 2012, due in part to continued retention of certain residential loans with contractual terms of fifteen years or less.

Consumer loans grew to $653 million as of June 30, 2013, from $636 million as of March 31, 2013 and $621 million as of June 30, 2012. Growth in consumer loans occurred primarily in indirect loans, which increased to $457 million as of June 30, 2013, from $444 million as of March 31, 2013 and $419 million as of June 30, 2012, due to expansion of the Company's indirect lending program within its existing market areas.

Commercial and commercial real estate loans decreased as of June 30, 2013, as compared to March 31, 2013 and June 30, 2012. Commercial loans decreased to $681 million as of June 30, 2013, from $689 million as of March 31, 2013 and $720 million as of June 30, 2012, and commercial real estate loans decreased to $1,447 million as of June 30, 2013, from $1,469 million as of March 31, 2013 and $1,517 million as of June 30, 2012, primarily due to weak loan demand combined with the movement of lower quality loans out of the portfolio through charge-off, pay-off and foreclosure.

Total deposits decreased to $5,930 million as of June 30, 2013, from $6,028 million as of March 31, 2013, and increased from $5,901 million as of June 30, 2012. During second quarter 2013, the mix of deposits continued to shift away from higher costing time deposits to lower costing demand and savings deposits.

Other real estate owned ("OREO") decreased to $23 million as of June 30, 2013, from $32 million as of March 31, 2013, primarily due to sales of OREO properties. During second quarter 2013, the Company recorded OREO additions of $3 million, wrote-down the value of OREO properties by $259 thousand and sold OREO properties with carrying values of $13 million at a $1.9 million net gain. OREO sales were comprised primarily of commercial and residential real estate properties, with 64% of the sales attributable to three properties. As of June 30, 2013, the composition of OREO properties was as follows: 20% residential real estate; 54% land and land development and 26% commercial.

ASSET QUALITY

Non-performing loans increased to $105 million as of June 30, 2013, from $101 million as of March 31, 2013, primarily due to the loans of one commercial real estate borrower placed on non-accrual during second quarter 2013. Non-performing loans decreased to $105 million as of June 30, 2013, from $136 million as of June 30, 2012, primarily due to the movement of non-accrual loans out of the loan portfolio through charge-off or foreclosure.

The Company charged-off loans of $3.9 million during second quarter 2013, compared to $6.0 million during first quarter 2013 and $26.7 million during second quarter 2012. Recoveries of charged-off loans were $4.1 million during second quarter 2013, compared to $2.9 million during first quarter 2013 and $1.6 million during second quarter 2012. Approximately 32% of the second quarter 2013 recoveries related to one commercial real estate loan charged-off during second quarter 2010. Management expects lower levels of recoveries of previously charged-off loans in future quarters.

The provision for loan losses decreased to $375 thousand during second quarter 2013, as compared to $500 thousand during first quarter 2013 and $12.0 million during second quarter 2012. Decreases in the provision for loan losses during second quarter 2013, as compared to first quarter 2013 and second quarter 2012, are reflective of improvement in local and national economic trends, continued improvement in and stabilization of credit quality as evidenced by declining levels of non-performing assets and criticized loans and unusually high levels of recoveries of previously charged-off loans. As of June 30, 2013, non-performing assets were at their lowest level since first quarter 2009 and total criticized assets were at their lowest level since second quarter 2009.

Beginning in 2013, the Company no longer presents accruing loans modified in troubled debt restructurings as non-performing loans. While still considered impaired under applicable accounting guidance, these loans are performing as agreed under their modified terms and management expects performance to continue. Prior period balances and ratios have been adjusted to reflect this change.

CAPITAL

On July 2, 2013, the Federal Reserve Board finalized its rule implementing the Basel III regulatory capital framework. The Basel III capital rules, which will phase-in for the Company beginning January 1, 2015, increase minimum capital requirements for banking organizations in terms of both quantity and quality of capital held. Initial calculations indicate that as of June 30, 2013, the Company would meet all fully phased-in Basel III capital adequacy requirements.

Second Quarter 2013 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss second quarter 2013 results at 11:00 a.m. Eastern Time (9:00 a.m. MT) on Tuesday, July 23, 2013. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-877-317-6016 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. MT) on July 23, 2013 through August 23, 2013 by dialing 1-877-344-7529 (using conference ID 10030187). 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 74 banking offices, including detached drive-up facilities, in 41 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 Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. Any statements about our plans, objectives, expectations, strategies, beliefs, or future performance or events constitute forward-looking statements. Such statements are identified as those that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “may” or similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other important factors that could cause actual results to differ materially from any results, performance or events expressed or implied by such forward-looking statements. 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 press release: continuing or worsening economic conditions, adverse economic conditions affecting Montana, Wyoming and western South Dakota, credit losses, concentrations of real estate loans, 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, repurchases of mortgage loans from or reimbursements to investors due to contractual or warranty breach, inability to grow business, 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, 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, litigation pertaining to fiduciary responsibilities, failure to effectively implement technology-driven products and services, capital required to support the Company’s bank subsidiary, soundness of other financial institutions, impact of proposed Basel III capital standards for U.S. banks, inability of our bank subsidiary to pay dividends, implementation of new lines of business or new product or service offerings, 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 and subordination of common stock to Company debt.

These factors are not necessarily all of the factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results.

All forward-looking statements attributable to us or persons acting on our 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 we do 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 we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
FIRST INTERSTATE BANCSYSTEM, INC AND SUBSIDIARIES

Consolidated Financial Summary

(Unaudited, $ in thousand, except per share data)
 
      2013     2012

CONDENSED INCOME STATEMENTS
2nd Qtr     1st Qtr 4th Qtr     3rd Qtr     2nd Qtr
Net interest income $ 58,760 $ 59,277 $ 60,973 $ 61,005 $ 61,174
Net interest income on a fully-taxable equivalent ("FTE") basis 59,879 60,405 62,143 62,165 62,370
Provision for loan losses 375 500 8,000 9,500 12,000
Non-interest income:
Income from the origination and sale of loans 10,043 10,675 12,321 11,665 9,420
Other service charges, commissions and fees 8,977 8,256 8,774 8,774 8,254
Service charges on deposit accounts 4,323 4,068 4,401 4,395 4,455
Wealth management revenues 4,020 4,134 3,659 3,557 3,815
Investment securities gains (losses), net (12 ) 8 53 66 198
Other Income 2,228   1,678   1,427   1,725   1,520  
Total non-interest income 29,579 28,819 30,635 30,182 27,662
Non-interest expense:
Salaries and wages 23,470 23,405 23,288 23,341 21,640
Employee benefits 7,546 8,175 6,113 7,447 6,819
Occupancy, net 4,063 4,026 3,968 3,793 4,037
Furniture and equipment 3,163 3,052 3,301 3,231 3,189
Outsourced technology services 2,195 2,157 2,199 2,182 2,179
Other real estate owned (income) expense, net (915 ) 1,896 3,877 2,612 1,806
Other expenses 15,498   13,974   15,086   14,458   17,629  
Total non-interest expense 55,020   56,685   57,832   57,064   57,299  
Income before taxes 32,944 30,911 25,776 24,623 19,537
Income taxes 11,439   10,867   8,931   8,468   6,527  
Net income 21,505 20,044 16,845 16,155 13,010
Preferred stock dividends     731   863   853  
Net income available to common shareholders $ 21,505   $ 20,044   $ 16,114   $ 15,292   $ 12,157  
 

PER COMMON SHARE DATA
Net income - basic $ 0.49 $ 0.46 $ 0.37 $ 0.36 $ 0.28
Net income - diluted 0.49 0.46 0.37 0.35 0.28
Cash dividend paid 0.13 0.25 0.12 0.12
Book value at quarter end 17.56 17.69 17.35 17.29 17.03
Tangible book value at quarter end* 13.25 13.35 12.97 12.90 12.63
 

OUTSTANDING COMMON SHARES
At period-end 43,835,881 43,614,942 43,290,323 43,252,383 43,228,750
Weighted average shares - basic 43,480,502 43,140,409 43,032,697 42,989,564 42,966,926
Weighted-average shares - diluted 43,908,287 43,428,382 43,198,076 43,120,077 43,060,204
 

SELECTED ANNUALIZED RATIOS
Return on average assets 1.17 % 1.08 % 0.88 % 0.86 % 0.71 %
Return on average common equity 11.08 10.68 8.55 8.22 6.69
Return on average tangible common equity* 14.63 14.23 11.45 11.07 9.04
Net FTE interest income to average earning assets 3.56 3.55 3.55 3.63 3.74
 
FIRST INTERSTATE BANCSYSTEM, INC AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
      2013     2012

BALANCE SHEET SUMMARIES
Jun 30     Mar 31 Dec 31     Sep 30     Jun 30
Assets:
Cash and cash equivalents $ 368,217 $ 498,543 $ 801,332 $ 611,335 $ 536,653
Investment securities 2,138,539 2,221,595 2,203,481 2,166,727 2,080,909
Loans held for investment:
Commercial real estate 1,447,145 1,469,302 1,497,272 1,513,784 1,517,400
Construction real estate 337,211 330,886 334,529 340,074 351,654
Residential real estate 804,200 758,480 708,339 639,235 572,018
Agricultural real estate 176,799 172,522 177,244 175,395 171,087
Consumer 652,944 636,364 636,794 629,757 621,212
Commercial 680,751 688,844 688,753 672,100 720,010
Agricultural 121,530 111,411 113,627 135,467 138,115
Other 2,498 1,307 912 1,359 2,319
Mortgage loans held for sale 74,286   55,443   66,442   72,880   76,148  
Total loans 4,297,364 4,224,559 4,223,912 4,180,051 4,169,963
Less allowance for loan losses 98,528   97,904   100,511   99,006   102,794  
Net loans 4,198,836   4,126,655   4,123,401   4,081,045   4,067,169  
Premises and equipment, net 181,940 185,237 187,565 188,851 187,367
Goodwill and intangible assets (excluding mortgage servicing rights) 188,925 189,281 189,637 189,994 190,351
Company owned life insurance 77,602 77,158 76,729 76,371 75,849
Other real estate owned, net 22,782 32,470 32,571 39,971 53,817
Mortgage servicing rights, net 13,304 13,006 12,653 12,334 11,985
Other assets 101,363   95,372   94,392   94,524   101,076  
Total assets $ 7,291,508   $ 7,439,317   $ 7,721,761   $ 7,461,152   $ 7,305,176  
 
Liabilities and stockholders' equity:
Deposits:
Non-interest bearing $ 1,393,732 $ 1,406,892 $ 1,495,309 $ 1,443,773 $ 1,337,777
Interest bearing 4,536,600   4,621,453   4,745,102   4,591,959   4,563,602  
Total deposits 5,930,332   6,028,345   6,240,411   6,035,732   5,901,379  
Securities sold under repurchase agreements 421,314 467,205 505,785 460,805 455,993
Accounts payable, accrued expenses and other liabilities 50,292 52,767 54,742 47,098 41,811
Long-term debt 37,139 37,150 37,160 37,170 37,181
Preferred stock pending redemption 50,000
Subordinated debentures held by subsidiary trusts 82,477   82,477   82,477   82,477   82,477  
Total liabilities 6,521,554   6,667,944   6,970,575   6,663,282   6,518,841  
Stockholders' equity:
Preferred stock 50,000 50,000
Common stock 279,232 274,929 271,335 270,553 269,698
Retained earnings 499,761 483,904 463,860 458,506 448,372
Accumulated other comprehensive income (9,039 ) 12,540   15,991   18,811   18,265  
Total stockholders' equity 769,954   771,373   751,186   797,870   786,335  
Total liabilities and stockholders' equity $ 7,291,508   $ 7,439,317   $ 7,721,761   $ 7,461,152   $ 7,305,176  
 

CONSOLIDATED CAPITAL RATIOS
Total risk-based capital 16.29 %

**
15.91 % 15.59 % 16.52 % 16.20 %
Tier 1 risk-based capital 14.45

**
14.07 13.60 14.53 14.22
Tier 1 common capital to total risk-weighted assets 12.83

**
12.41 11.94 11.81 11.51
Leverage Ratio 9.73

**
9.24 8.81 9.56 9.54
Tangible common stockholders' equity to tangible assets* 8.18 8.03 7.46 7.67 7.67
 

FIRST INTERSTATE BANCSYSTEM, INC AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
      2013     2012

ASSET QUALITY
Jun 30     Mar 31     Dec 31     Sep 30     Jun 30
Allowance for loan losses $ 98,528 $ 97,904 $ 100,511 $ 99,006 $ 102,794
As a percentage of period-end loans 2.29 % 2.32 % 2.38 % 2.37 % 2.47 %
 
Net charge-offs during quarter $ (249 ) $ 3,107 $ 6,495 $ 13,288 $ 25,108
Annualized as a percentage of average loans (0.02 )% 0.30 % 0.62 % 1.26 % 2.43 %
 
Non-performing assets:
Non-accrual loans $ 103,729 $ 98,594 $ 107,799 $ 122,931 $ 129,923
Accruing loans past due 90 days or more

1,742
  1,941   2,277   4,339   6,451  
Total non-performing loans

105,471
100,535 110,076 127,270 136,374
OREO 22,782   32,470   32,571   39,971   53,817  
Total non-performing assets

128,253
133,005 142,647 167,241 190,191
As a percentage of:
Total loans and OREO 2.97 % 3.12 % 3.35 % 3.96 % 4.50 %
Total assets 1.76 % 1.79 % 1.85 % 2.24 % 2.60 %
 
                  Accruing            
Allowance Loans 30-89 Non- Non-
Provision for Net Charge- for Loan Days Past Accruing Performing Performing

ASSET QUALITY TRENDS
Loan Losses offs Losses Due TDRs Loans Assets
Q2 2010 $ 19,500 $ 11,521 $ 114,328 $ 99,334 $ 10,588 $ 147,525 $ 189,863
Q3 2010 18,000 12,092 120,236 47,966 26,630 175,378 210,674
Q4 2010 17,500 17,256 120,480 57,011 13,490 197,194 230,822
Q1 2011 15,000 11,034 124,446 68,021 33,344 216,534 248,529
Q2 2011 15,400 15,267 124,579 70,145 31,611 231,856 260,179
Q3 2011 14,000 18,276 120,303 62,165 35,616 226,962 252,042
Q4 2011 13,751 21,473 112,581 75,603 37,376 204,094 241,546
Q1 2012 11,250 7,929 115,902 58,531 36,838 185,927 230,683
Q2 2012 12,000 25,108 102,794 55,074 35,959 136,374 190,191
Q3 2012 9,500 13,288 99,006 48,277 35,428 127,270 167,241
Q4 2012 8,000 6,495 100,511 34,602 31,932 110,076 142,647
Q1 2013 500 3,107 97,904 41,924 35,787 100,535 133,005
Q2 2013 375 (249 ) 98,528 39,408 23,406 105,471 128,253
 

CRITICIZED LOANS
      Special Mention     Substandard     Doubtful     Total
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
Q4 2012 209,933 215,188 42,459 467,580
Q1 2013 197,645 197,095 43,825 438,565
Q2 2013 192,390 161,786 52,266 406,442
 

**Preliminary estimate - may be subject to change.

*See Non-GAAP Financial Measures included herein for a discussion regarding tangible book value per common share, return on average tangible common equity and tangible common stockholders' equity to tangible assets.

FIRST INTERSTATE BANCSYSTEM, INC AND SUBSIDIARIES

Average Balance Sheets

(Unaudited, $ in thousands)
 
      Three Months Ended
June 30, 2013     March 31, 2013     June 30, 2012
Average         Average Average         Average Average           Average
Balance     Interest     Rate Balance     Interest     Rate Balance       Interest     Rate
Interest earning assets:
Loans (1) (2) $ 4,256,579 $ 55,270 5.21 % $ 4,216,934 $ 55,913 5.38 % $ 4,159,565 $ 58,564 5.66 %
Investment securities (2) 2,153,342 9,588 1.79 2,204,458 9,980 1.84 2,094,148 11,414 2.19
Interest bearing deposits in banks 335,761 212 0.25 476,856 298 0.25 442,698 279 0.25
Federal funds sold   3,322       5       0.60     2,521     4      

0.64
    3,668         6       0.66  
Total interest earnings assets 6,749,004 65,075 3.87 6,900,769 66,195 3.89 6,700,079 70,263 4.22
Non-earning assets   601,023               598,283               633,454              
Total assets $ 7,350,027             $ 7,499,052             $ 7,333,533              
Interest bearing liabilities:
Demand deposits $ 1,722,138 $ 475 0.11 % $ 1,728,813 $ 473 0.11 % $ 1,596,076 $ 606 0.15 %
Savings deposits 1,544,648 598 0.16 1,550,146 653 0.17 1,482,986 934 0.25
Time deposits 1,312,863 2,965 0.91 1,365,232 3,229 0.96 1,496,597 4,239 1.14
Repurchase agreements 466,533 74 0.06 512,180 100 0.08 493,450 152 0.12
Other borrowed funds 10 7 33

Long-term debt 37,142 483 5.22 37,153 480 5.24 37,184 495 5.35
Preferred stock pending redemption 9,444 159 6.83
Subordinated debentures held by subsidiary trusts   82,477       601       2.92     82,477     696       3.42     120,996         1,467       4.88  
Total interest bearing liabilities 5,165,811 5,196 0.40 5,285,452 5,790 0.44 5,227,322 7,893 0.61
Non-interest bearing deposits 1,356,133 1,398,850 1,277,091
Other non-interest bearing liabilities 49,323 53,810 47,781
Stockholders’ equity   778,760               760,940               781,339              
Total liabilities and stockholders’ equity $ 7,350,027             $ 7,499,052             $ 7,333,533              
Net FTE interest income 59,879 60,405 62,370
Less FTE adjustments (2)         (1,119 )            

(1,128

)
                (1,196 )      
Net interest income from consolidated statements of income       $ 58,760               $ 59,277                 $ 61,174        
Interest rate spread             3.47 %             3.45 %               3.61 %
Net FTE interest margin (3)             3.56 %             3.55 %               3.74 %
Cost of funds, including non-interest bearing demand deposits (4)             0.32 %             0.35 %               0.49 %
 

(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.
FIRST INTERSTATE BANCSYSTEM, INC AND SUBSIDIARIES

Average Balance Sheets

(Unaudited, $ in thousands)
 
      Six Months Ended
June 30, 2013     June 30, 2012
Average         Average Average         Average
Balance     Interest     Rate Balance     Interest     Rate
Interest earning assets:
Loans (1) (2) $ 4,236,866 $ 111,184 5.29 % $ 4,162,384 $ 116,938 5.65 %
Investment securities (2) 2,178,758 19,567 1.81 2,118,793 23,018 2.18
Interest bearing deposits in banks 405,919 510 0.25 408,799 516 0.25
Federal funds sold   2,924       9       0.62     2,139       7       0.66  
Total interest earnings assets 6,824,467 131,270 3.88 6,692,115 140,479 4.22
Non-earning assets   599,661               626,295            
Total assets $ 7,424,128             $ 7,318,410            
Interest bearing liabilities:
Demand deposits $ 1,725,457 $ 949 0.11 % $ 1,589,440 $ 1,253 0.16 %
Savings deposits 1,547,381 1,251 0.16 1,466,113 1,948 0.27
Time deposits 1,338,903 6,193 0.93 1,518,693 8,840 1.17
Repurchase agreements 489,230 174 0.07 503,428 308 0.12
Other borrowed funds 9 34
Long-term debt 37,148 963 5.23 37,189 993 5.37
Preferred stock pending redemption 4,696 159 6.83
Subordinated debentures held by subsidiary trusts   82,477       1,297       3.17     122,356       2,974       4.89  
Total interest bearing liabilities 5,225,301 10,986 0.42 5,237,253 16,316 0.63
Non-interest bearing deposits 1,377,374 1,254,983
Other non-interest bearing liabilities 51,554 48,926
Stockholders’ equity   769,899               777,248            
Total liabilities and stockholders’ equity $ 7,424,128             $ 7,318,410            
Net FTE interest income 120,284 124,163
Less FTE adjustments (2)         (2,247 )               (2,355 )      
Net interest income from consolidated statements of income       $ 118,037               $ 121,808        
Interest rate spread             3.46 %             3.59 %
Net FTE interest margin (3)             3.55 %             3.73 %
Cost of funds, including non-interest bearing demand deposits (4)             0.34 %             0.51 %
 

(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) tangible common stockholders' equity to tangible assets; (iii) tangible assets, (iv) tangible common stockholders' equity, and (v) 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 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 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.

    2013     2012
Jun 30     Mar 31 Dec 31     Sep 30     Jun 30
Total stockholders’ equity (GAAP) $ 769,954 $ 771,373 $ 751,186 $ 797,870 $ 786,335
Less goodwill and other intangible assets (excluding mortgage servicing rights) 188,925 189,281 189,637 189,994 190,351
Less preferred stock               50,000     50,000  
Tangible common stockholders’ equity (Non-GAAP) $ 581,029   $ 582,092   $ 561,549   $ 557,876   $ 545,984  
 
Total assets (GAAP) $ 7,291,508 $ 7,439,317 $ 7,721,761 $ 7,461,152 $ 7,305,176
Less goodwill and other intangible assets (excluding mortgage servicing rights)   188,925     189,281     189,637     189,994     190,351  
Tangible assets (Non-GAAP) $ 7,102,583   $ 7,250,036   $ 7,532,124   $ 7,271,158   $ 7,114,825  
 
Quarterly averages:
Total stockholders' equity (GAAP) $ 778,760 $ 760,940 $ 791,905 $ 789,734 $ 781,339
Less goodwill and other intangible assets (excluding mortgage servicing rights) 189,135 189,503 189,839 190,206 190,563
Less preferred stock           42,391     50,000     50,000  
Average tangible common stockholder's equity (Non-GAAP) $ 589,625   $ 571,437   $ 559,675   $ 549,528   $ 540,776  
 
Common shares outstanding 43,835,881 43,614,942 43,290,323 43,252,383 43,228,750
Annualized net income available to common shareholders $ 86,256   $ 81,290   $ 64,106   $ 60,836   $ 48,895  
 
Book value per common share $ 17.56 $ 17.69 $ 17.35 $ 17.29 $ 17.03
Tangible book value per common share 13.25 13.35 12.97 12.90 12.63
Tangible common stockholders’ equity to tangible assets (Non-GAAP) 8.18 % 8.03 % 7.46 % 7.67 % 7.67 %
Return on average tangible equity (Non-GAAP) 14.63 14.23 11.45 11.07 9.04

Copyright Business Wire 2010

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