First Interstate BancSystem, Inc. Reports Strong Third Quarter Earnings On Improved Credit Quality

First Interstate BancSystem, Inc. (NASDAQ:FIBK) reports third quarter 2013 net income available to common shareholders of $23.8 million, or $0.54 per diluted share, a 56% increase over third quarter 2012 net income available to common shareholders of $15.3 million, or $0.35 per diluted share. For the first nine months of 2013, the Company reported net income available to common shareholders of $65.4 million, or $1.49 per diluted share, compared to $38.8 million, or $0.90 per diluted share, during the same period in 2012.

THIRD QUARTER FINANCIAL HIGHLIGHTS
  • 1.53% non-performing assets to total assets, a decline from 1.76% as of June 30, 2013 and 2.24% as of September 30, 2012
  • Annualized net charged-off loans of 0.23% of average loans during the three months ended September 30, 2013
  • $3 million reversal of provision for loan losses
  • $6 million of OREO sales during third quarter 2013 at a net gain of $525 thousand
  • 3.52% net interest margin, a decrease of 4 basis points from second quarter 2013 and 11 basis points from third quarter 2012
  • 4% growth in loans held for investment, as compared to September 30, 2012

“Our earnings per share increased 54% over the prior year, driven primarily by lower credit costs as we continue to experience positive trends in asset quality," said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “Over the past year, our non-performing assets have declined by 31% and our criticized loans have declined by 25%. As a result of the substantial improvement in credit quality, we determined that a lower level of allowance for credit losses was appropriate and recorded a $3 million negative provision for loan losses during third quarter," Garding continued. "I am pleased to report that even without the provision reversal, our third quarter earnings surpassed quarterly earnings reported for the first and second quarters of 2013," Garding further stated.

“Although an overall decline in residential mortgage volumes resulted in a lower level of income from loans sold into the secondary market, we had sufficient volume to drive a 5% increase in our retained residential real estate portfolio during the third quarter. We also continue to see strength in our indirect consumer loan portfolio, which increased 3% during the quarter. While commercial and commercial real estate loan demand continued to be relatively weak, when compared to the demand we have historically experienced, and negatively impacted our overall level of revenue, we did a good job of managing expenses in order to maintain a solid level of profitability,” said Garding.

DIVIDEND DECLARATION

On October 21, 2013, the Executive Committee of the Company's Board of Directors declared a dividend of $0.14 per common share. The dividend is payable on November 15, 2013 to owners of record as of November 1, 2013.

NET INTEREST INCOME

The Company's net interest income, on a fully taxable equivalent, or FTE, basis, was $60.1 million during third quarter 2013, as compared to $59.9 million during second quarter 2013 and $62.2 million during third quarter 2012. Our net FTE interest margin ratio decreased to 3.52% during third quarter 2013, as compared to 3.56% during second quarter 2013 and 3.63% during third quarter 2012. Declines in yields earned on the Company's loan and investment portfolios during third quarter 2013 were partially offset by increases in average outstanding loans, reductions in the cost of interest bearing liabilities and lower average outstanding time deposits. Also offsetting the impact of lower asset yields during the three and nine months ended September 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

Non-interest income decreased to $27.6 million during third quarter 2013, as compared to $29.6 million during second quarter 2013 and $30.2 million during third quarter 2012. These decreases were primarily due to lower income from the origination and sale of mortgage loans, which was partially offset by increases in wealth management revenues.

Income from the origination and sale of loans decreased to $7.9 million during third quarter 2013, as compared to $10.0 million during second quarter 2013, and $11.7 million during third quarter 2012, primarily due to lower demand for refinancing loans. The Company's total mortgage loan production decreased approximately 21% during third quarter 2013, as compared to second quarter 2013, and 33% as compared to third quarter 2012. Loans originated for home purchases accounted for approximately 72% of the Company's mortgage loan production during third quarter 2013, as compared to approximately 53% during the second quarter 2013 and approximately 38% during third quarter 2012.

Wealth management revenues increased to $4.6 million during third quarter 2013, as compared to $4.0 million during second quarter 2013 and $3.6 million during third quarter 2012. During third quarter 2013, the Company recorded revenues from the sale of two multi-million dollar life insurance policies aggregating $370 thousand. The remainder of third quarter 2013 increases, as compared to second quarter 2013 and third quarter 2012, were primarily due to the addition of new wealth management customers and increases in assets under trust management.

NON-INTEREST EXPENSE

Non-interest expense decreased to $52.6 million during third quarter 2013, as compared to $55.0 million during second quarter 2013 and $57.1 million during third quarter 2012, primarily due to decreases in salaries and wages expense and reductions in other expenses. Also contributing to the third quarter 2013 decrease in non-interest expense, as compared to the same period in the prior year, were reductions in other real estate owned, or OREO, expense.

Salaries and wages expense was $22.8 million for third quarter 2013, as compared to $23.5 million for second quarter 2013 and $23.3 million for third quarter 2012. Salaries expense, the largest component of salaries and wages expense, remained stable at $21.0 million during third quarter 2013, second quarter 2013 and third quarter 2012.

During third quarter 2013, the Company recorded net OREO expense of $18 thousand, as compared to net OREO income of $915 thousand during second quarter 2013 and net OREO expense of $2.6 million during third quarter 2012. Third quarter 2013 net OREO expense included $543 thousand of net operating expenses, which were offset by net gains on the sale of properties of $525 thousand. This compares to $678 thousand of net operating expenses, $259 thousand of fair value write-downs and net gains of $1.9 million during second quarter 2013, and $1.1 million of net operating expenses, $2.3 million of fair value write-downs and net gains of $775 thousand during third quarter 2012.

Other expenses decreased to $12.7 million during third quarter 2013, as compared to $15.5 million during second quarter 2013 and $14.5 million during third quarter 2012, primarily due to variations in the timing of expense recognition in the ordinary course of business. In addition, FDIC insurance premiums decreased $151 thousand during third quarter 2013, as compared to second quarter 2013, and $417 thousand as compared to third quarter 2012, primarily due to lower assessment rates reflective of improved credit quality.

BALANCE SHEET

Total loans increased to $4,332 million as of September 30, 2013, from $4,297 million as of June 30, 2013 and $4,180 million as of September 30, 2012, with the most notable growth occurring in residential real estate and consumer loans. Residential real estate loans increased to $842 million as of September 30, 2013, from $804 million as of June 30, 2013 and $639 million as of September 30, 2012, due to continued retention of certain residential loans with contractual terms of fifteen years or less and increased housing demand in the Company's market areas.

Consumer loans grew to $672 million as of September 30, 2013, from $653 million as of June 30, 2013 and $630 million as of September 30, 2012. Growth in consumer loans occurred primarily in indirect loans, which increased to $477 million as of September 30, 2013, from $457 million as of June 30, 2013 and $431 million as of September 30, 2012, due to expansion of the Company's indirect lending program within existing markets.

Commercial real estate loans decreased to $1,441 million as of September 30, 2013, from $1,447 million as of June 30, 2013 and $1,514 million as of September 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 increased to $6,109 million as of September 30, 2013, from $5,930 million as of June 30, 2013 and $6,036 million as of September 30, 2012, with a continued shift in the mix of deposits away from higher costing time deposits to lower costing demand and savings deposits. As of September 30, 2013, time deposits comprised 20.3% of total deposits, as compared to 21.1% as of June 30, 2013 and 23.6% as of September 30, 2012.

OREO decreased to $19 million as of September 30, 2013, from $23 million as of June 30, 2013, primarily due to sales of OREO properties. During third quarter 2013, the Company recorded OREO additions of $2 million and sold OREO properties with carrying values of $6 million at a $525 thousand net gain. OREO sales were composed primarily of commercial and land and land development properties. As of September 30, 2013, the composition of OREO properties was as follows: 19% residential real estate; 59% land and land development and 22% commercial.

ASSET QUALITY

Non-performing loans decreased to $96 million as of September 30, 2013, from $105 million as of June 30, 2013, primarily due to the movement of non-accrual loans out of the loan portfolio through pay-off, charge-off and upgrade. Non-performing loans decreased to $96 million as of September 30, 2013, from $127 million as of September 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 $5 million during third quarter 2013, compared to $4 million during second quarter 2013 and $15 million during third quarter 2012. Recoveries of charged-off loans were $2 million during third quarter 2013, compared to $4 million during second quarter 2013 and $2 million during third quarter 2012. Approximately 29% of the third quarter 2013 charge-offs related to the loans of one commercial and one commercial real estate borrower.

The Company reversed $3.0 million of provision for loan losses during third quarter 2013, as compared to recording provisions of $375 thousand during second quarter 2013 and $9.5 million during third quarter 2012. The third quarter 2013 reversal of provision is reflective of continued improvement in and stabilization of credit quality as evidenced by declining levels of non-performing assets and criticized loans. As of September 30, 2013, non-performing assets and total criticized assets were at their lowest quarterly levels since 2008.

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.

Third Quarter 2013 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss third quarter 2013 results at 11:00 a.m. Eastern Time (9:00 a.m. MT) on Tuesday, October 22, 2013. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-888-317-6016 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 October 22, 2013 through November 22, 2013 by dialing 1-877-344-7529 (using conference ID 10034035). 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 thousands, except per share data)
 
  2013   2012

CONDENSED INCOME STATEMENTS
3rd Qtr   2nd Qtr   1st Qtr 4th Qtr   3rd Qtr
Net interest income $ 58,956 $ 58,760 $ 59,277 $ 60,973 $ 61,005
Net interest income on a fully-taxable equivalent ("FTE") basis 60,066 59,879 60,405 62,143 62,165
Provision for loan losses (3,000 ) 375 500 8,000 9,500
Non-interest income:
Income from the origination and sale of loans 7,934 10,043 10,675 12,321 11,665
Other service charges, commissions and fees 9,286 8,977 8,256 8,774 8,774
Service charges on deposit accounts 4,360 4,323 4,068 4,401 4,395
Wealth management revenues 4,581 4,020 4,134 3,659 3,557
Investment securities gains (losses), net 30 (12 ) 8 53 66
Other Income 1,416   2,228   1,678   1,427   1,725  
Total non-interest income 27,607 29,579 28,819 30,635 30,182
Non-interest expense:
Salaries and wages 22,806 23,470 23,405 23,288 23,341
Employee benefits 7,328 7,546 8,175 6,113 7,447
Occupancy, net 4,292 4,063 4,026 3,968 3,793
Furniture and equipment 3,147 3,163 3,052 3,301 3,231
Outsourced technology services 2,295 2,195 2,157 2,199 2,182
Other real estate owned (income) expense, net 18 (915 ) 1,896 3,877 2,612
Other expenses 12,693   15,498   13,974   15,086   14,458  
Total non-interest expense 52,579   55,020   56,685   57,832   57,064  
Income before taxes 36,984 32,944 30,911 25,776 24,623
Income taxes 13,172   11,439   10,867   8,931   8,468  
Net income 23,812 21,505 20,044 16,845 16,155
Preferred stock dividends       731   863  
Net income available to common shareholders $ 23,812   $ 21,505   $ 20,044   $ 16,114   $ 15,292  
 

PER COMMON SHARE DATA
Net income - basic $ 0.54 $ 0.49 $ 0.46 $ 0.37 $ 0.36
Net income - diluted 0.54 0.49 0.46 0.37 0.35
Cash dividend paid 0.14 0.13 0.25 0.12
Book value at quarter end 17.98 17.56 17.69 17.35 17.29
Tangible book value at quarter end* 13.71 13.25 13.35 12.97 12.90
 

OUTSTANDING COMMON SHARES
At period-end 44,089,962 43,835,881 43,614,942 43,290,323 43,252,383
Weighted average shares - basic 43,699,566 43,480,502 43,140,409 43,032,697 42,989,564
Weighted-average shares - diluted 44,284,844 43,908,287 43,428,382 43,198,076 43,120,077
 

SELECTED ANNUALIZED RATIOS
Return on average assets 1.28 % 1.17 % 1.08 % 0.88 % 0.86 %
Return on average common equity 12.13 11.08 10.68 8.55 8.22
Return on average tangible common equity* 16.01 14.63 14.23 11.45 11.07
Net FTE interest income to average earning assets 3.52 3.56 3.55 3.55 3.63
 
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
  2013   2012

BALANCE SHEET SUMMARIES
Sep 30   Jun 30   Mar 31 Dec 31   Sep 30
Assets:
Cash and cash equivalents $ 542,343 $ 368,217 $ 498,543 $ 801,332 $ 611,335
Investment securities 2,145,083 2,138,539 2,221,595 2,203,481 2,166,727
Loans held for investment:
Commercial real estate 1,441,297 1,447,145 1,469,302 1,497,272 1,513,784
Construction real estate 341,284 337,211 330,886 334,529 340,074
Residential real estate 841,707 804,200 758,480 708,339 639,235
Agricultural real estate 176,594 176,799 172,522 177,244 175,395
Consumer 672,184 652,944 636,364 636,794 629,757
Commercial 681,416 680,751 688,844 688,753 672,100
Agricultural 123,565 121,530 111,411 113,627 135,467
Other 1,912 2,498 1,307 912 1,359
Mortgage loans held for sale 52,133   74,286   55,443   66,442   72,880  
Total loans 4,332,092 4,297,364 4,224,559 4,223,912 4,180,051
Less allowance for loan losses 92,990   98,528   97,904   100,511   99,006  
Net loans 4,239,102   4,198,836   4,126,655   4,123,401   4,081,045  
Premises and equipment, net 179,785 181,940 185,237 187,565 188,851
Goodwill and intangible assets (excluding mortgage servicing rights) 188,569 188,925 189,281 189,637 189,994
Company owned life insurance 76,701 77,602 77,158 76,729 76,371
Other real estate owned, net 18,537 22,782 32,470 32,571 39,971
Mortgage servicing rights, net 13,518 13,304 13,006 12,653 12,334
Other assets 96,462   101,363   95,372   94,392   94,524  
Total assets $ 7,500,100   $ 7,291,508   $ 7,439,317   $ 7,721,761   $ 7,461,152  
 
Liabilities and stockholders' equity:
Deposits:
Non-interest bearing $ 1,503,969 $ 1,393,732 $ 1,406,892 $ 1,495,309 $ 1,443,773
Interest bearing 4,604,656   4,536,600   4,621,453   4,745,102   4,591,959  
Total deposits 6,108,625   5,930,332   6,028,345   6,240,411   6,035,732  
Securities sold under repurchase agreements 428,110 421,314 467,205 505,785 460,805
Accounts payable, accrued expenses and other liabilities 50,900 50,292 52,767 54,742 47,098
Long-term debt 37,128 37,139 37,150 37,160 37,170
Preferred stock pending redemption 50,000
Subordinated debentures held by subsidiary trusts 82,477   82,477   82,477   82,477   82,477  
Total liabilities 6,707,240   6,521,554   6,667,944   6,970,575   6,663,282  
Stockholders' equity:
Preferred stock 50,000
Common stock 283,352 279,232 274,929 271,335 270,553
Retained earnings 517,456 499,761 483,904 463,860 458,506
Accumulated other comprehensive income (loss) (7,948 ) (9,039 ) 12,540   15,991   18,811  
Total stockholders' equity 792,860   769,954   771,373   751,186   797,870  
Total liabilities and stockholders' equity $ 7,500,100   $ 7,291,508   $ 7,439,317   $ 7,721,761   $ 7,461,152  
 

CONSOLIDATED CAPITAL RATIOS
Total risk-based capital 16.68 %

(a)
16.29 % 15.91 % 15.59 % 16.52 %
Tier 1 risk-based capital 14.85

(a)
14.45 14.07 13.60 14.53
Tier 1 common capital to total risk-weighted assets 13.33

(a)
12.83 12.41 11.94 11.81
Leverage Ratio 10.01

(a)
9.73 9.24 8.81 9.56

Tangible common stockholders' equity to tangible assets(b)
8.26 8.18 8.03 7.46 7.67
 
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
  2013   2012

ASSET QUALITY
Sep 30   Jun 30   Mar 31 Dec 31   Sep 30
Allowance for loan losses $ 92,990 $ 98,528 $ 97,904 $ 100,511 $ 99,006
As a percentage of period-end loans 2.15 % 2.29 % 2.32 % 2.38 % 2.37 %
 
Net charge-offs during quarter $ 2,538 $ (249 ) $ 3,107 $ 6,495 $ 13,288
Annualized as a percentage of average loans 0.23 % (0.02 )% 0.30 % 0.62 % 1.26 %
 
Non-performing assets:
Non-accrual loans $ 94,015 $ 103,729 $ 98,594 $ 107,799 $ 122,931
Accruing loans past due 90 days or more 2,188   1,742   1,941   2,277   4,339  
Total non-performing loans 96,203 105,471 100,535 110,076 127,270
Other real estate owned 18,537   22,782   32,470   32,571   39,971  
Total non-performing assets 114,740 128,253 133,005 142,647 167,241
As a percentage of:
Total loans and OREO 2.64 % 2.97 % 3.12 % 3.35 % 3.96 %
Total assets 1.53 % 1.76 % 1.79 % 1.85 % 2.24 %
 

ASSET QUALITY TRENDS
  Provision for Loan Losses   Net Charge-offs   Allowance for Loan Losses  

Accruing Loans 30-89

Days Past Due
  Accruing TDRs   Non-Performing Loans   Non-Performing Assets
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
Q3 2013 (3,000 )

2,538
92,990 39,414 21,939 96,203 114,740
 

CRITICIZED LOANS
  Special Mention   Substandard   Doubtful   Total
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
Q3 2013 180,850 168,278 42,415 391,543
 

(a) Preliminary estimate - may be subject to change.

(b) 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  
September 30, 2013     June 30, 2013     September 30, 2012  
Average

Balance
Interest Average

Rate
Average

Balance
Interest Average

Rate
Average

Balance
Interest Average

Rate
Interest earning assets:
Loans (1) (2) $ 4,327,995 $ 55,345 5.07 % $ 4,256,579 $ 55,270 5.21 % $ 4,183,016 $ 57,872 5.50 %
Investment securities (2) 2,115,301 9,479 1.78 2,153,342 9,588 1.79 2,098,576 11,123 2.11
Interest bearing deposits in banks 323,781 207 0.25 335,761 212 0.25 525,149 336 0.25
Federal funds sold 4,772   8   0.67   3,322   5   0.60   3,006   4   0.53  
Total interest earnings assets 6,771,849 65,039 3.81 6,749,004 65,075 3.87 6,809,747 69,335 4.05
Non-earning assets 602,316       601,023       633,551      
Total assets $ 7,374,165       $ 7,350,027       $ 7,443,298      
Interest bearing liabilities:
Demand deposits $ 1,748,317 $ 504 0.11 % $ 1,722,138 $ 475 0.11 % $ 1,613,136 $ 589 0.15 %
Savings deposits 1,568,744 601 0.15 1,544,648 598 0.16 1,523,347 873 0.23
Time deposits 1,260,452 2,716 0.85 1,312,863 2,965 0.91 1,452,688 3,952 1.08
Repurchase agreements 418,561 58 0.05 466,533 74 0.06 501,640 144 0.11
Other borrowed funds 10 10 6
Long-term debt 37,132 487 5.20 37,142 483 5.22 37,174 502 5.37
Preferred stock pending redemption
Subordinated debentures held by subsidiary trusts 82,477   607   2.92   82,477   601   2.92   82,477   1,110   5.35  
Total interest bearing liabilities 5,115,693 4,973 0.39 5,165,811 5,196 0.40 5,210,468 7,170 0.55
Non-interest bearing deposits 1,428,099 1,356,133 1,399,585
Other non-interest bearing liabilities 51,564 49,323 43,511
Stockholders’ equity 778,809       778,760       789,734      
Total liabilities and stockholders’ equity $ 7,374,165       $ 7,350,027       $ 7,443,298      
Net FTE interest income 60,066 59,879 62,165
Less FTE adjustments (2)   (1,110 )     (1,119 )     (1,160 )  
Net interest income from consolidated statements of income   $ 58,956       $ 58,760       $ 61,005    
Interest rate spread     3.42 %     3.47 %     3.50 %
Net FTE interest margin (3)     3.52 %     3.56 %     3.63 %
Cost of funds, including non-interest bearing demand deposits (4)     0.30 %     0.32 %     0.43 %
 

(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)
 
Nine Months Ended  
September 30, 2013     September 30, 2012  
Average

Balance
Interest Average

Rate
Average

Balance
Interest Average

Rate
Interest earning assets:
Loans (1) (2) $ 4,267,576 $ 166,530 5.22 % $ 4,169,311 $ 174,809 5.60 %
Investment securities (2) 2,157,373 29,045 1.80 2,112,005 34,141 2.16
Interest bearing deposits in banks 378,239 717 0.25 447,865 852 0.25
Federal funds sold 3,547   17   0.64   2,430   11   0.60  
Total interest earnings assets 6,806,735 196,309 3.86 6,731,611 209,813 4.16
Non-earning assets 600,556       628,732      
Total assets $ 7,407,291       $ 7,360,343      
Interest bearing liabilities:
Demand deposits $ 1,733,161 $ 1,453 0.11 % $ 1,597,397 $ 1,842 0.15 %
Savings deposits 1,554,581 1,853 0.16 1,485,330 2,821 0.25
Time deposits 1,312,465 8,908 0.91 1,496,531 12,792 1.14
Repurchase agreements 465,415 232 0.07 502,828 452 0.12
Other borrowed funds 9 24
Long-term debt 37,142 1,450 5.22 37,184 1,495 5.37
Preferred stock pending redemption 3,114 159 6.83
Subordinated debentures held by subsidiary trusts 82,477   1,904   3.09   108,966   4,084   5.01  
Total interest bearing liabilities 5,188,364 15,959 0.41 5,228,260 23,486 0.60
Non-interest bearing deposits 1,394,468 1,303,535
Other non-interest bearing liabilities 51,557 47,108
Stockholders’ equity 772,902       781,440      
Total liabilities and stockholders’ equity $ 7,407,291       $ 7,360,343      
Net FTE interest income 180,350 186,327
Less FTE adjustments (2)   (3,357 )     (3,514 )  
Net interest income from consolidated statements of income   $ 176,993       $ 182,813    
Interest rate spread     3.45 %     3.56 %
Net FTE interest margin (3)     3.54 %     3.70 %
Cost of funds, including non-interest bearing demand deposits (4)     0.32 %     0.48 %
 

(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
Sep 30   Jun 30   Mar 31 Dec 31   Sep 30
Total stockholders’ equity (GAAP) $ 792,860 $ 769,954 $ 771,373 $ 751,186 $ 797,870
Less goodwill and other intangible assets (excluding mortgage servicing rights) 188,569 188,925 189,281 189,637 189,994
Less preferred stock         50,000  
Tangible common stockholders’ equity (Non-GAAP) $ 604,291   $ 581,029   $ 582,092   $ 561,549   $ 557,876  
 
Total assets (GAAP) $ 7,500,100 $ 7,291,508 $ 7,439,317 $ 7,721,761 $ 7,461,152
Less goodwill and other intangible assets (excluding mortgage servicing rights) 188,569   188,925   189,281   189,637   189,994  
Tangible assets (Non-GAAP) $ 7,311,531   $ 7,102,583   $ 7,250,036   $ 7,532,124   $ 7,271,158  
 
Quarterly averages:
Total stockholders' equity (GAAP) $ 778,809 $ 778,760 $ 760,940 $ 791,905 $ 789,734
Less goodwill and other intangible assets (excluding mortgage servicing rights) 188,778 189,135 189,503 189,839 190,206
Less preferred stock       42,391   50,000  
Average tangible common stockholder's equity (Non-GAAP) $ 590,031   $ 589,625   $ 571,437   $ 559,675   $ 549,528  
 
Common shares outstanding 44,089,962 43,835,881 43,614,942 43,290,323 43,252,383
Annualized net income available to common shareholders $ 94,472   $ 86,256   $ 81,290   $ 64,106   $ 60,836  
 
Book value per common share $ 17.98 $ 17.56 $ 17.69 $ 17.35 $ 17.29
Tangible book value per common share 13.71 13.25 13.35 12.97 12.90
Tangible common stockholders’ equity to tangible assets (Non-GAAP) 8.26 % 8.18 % 8.03 % 7.46 % 7.67 %
Return on average tangible equity (Non-GAAP) 16.01 14.63 14.23 11.45 11.07

Copyright Business Wire 2010

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