First Interstate BancSystem, Inc. Reports Strong Second Quarter Earnings; Loan Growth

First Interstate BancSystem, Inc. (NASDAQ: FIBK) reports second quarter 2014 net income of $21.1 million, or $0.47 per diluted share. Included in second quarter 2014 net income are $597 thousand of acquisition expenses and $17 thousand of net gains on the sale of investment securities, which the Company considers to be unrelated to its normalized operations, or non-core. Exclusive of these non-core revenues and expenses, the Company’s second quarter 2014 core net income was $ 21.4 million, or $0.48 per diluted share, as compared to core net income of $21.3 million, or $0.48 per diluted share, for first quarter 2014 and $21.5 million, or $0.49 per diluted share for second quarter 2013.

SECOND QUARTER FINANCIAL HIGHLIGHTS
  • 3.2% growth in total loans
  • Non-performing assets decreased $9 million to $97 million as of June 30, 2014
  • $2 million reversal of provision for loan losses
  • 10% growth in non-interest income
  • 3.54% net interest margin ratio remained stable, as compared to 3.52% for first quarter 2014

“We are very pleased with our second quarter results, which reflect positive trends across most areas of our operations,” said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “We are encouraged by the increase in loan demand we are seeing across our markets, which resulted in the strongest quarterly loan growth we have experienced in several years. Our loan portfolio increased 3% during the second quarter, with all of our major lending areas contributing to the growth. We are also pleased with the continued improvement in asset quality we are seeing, which is reflected in a 9% decrease in non-performing assets during the second quarter,” Garding continued.

“Our operations continue to generate a significant amount of capital and we are highly focused on efficiently managing our capital position. We are reinvesting our capital to support growth through our pending merger with Mountain West Bank, while also returning capital to shareholders through strong dividends and our ongoing share repurchase program. We believe this formula of balanced capital management will continue to optimize our returns and create value for our shareholders,” said Mr. Garding.

RESULTS OF OPERATIONS

Net Interest Income. The Company’s net interest income, on a fully taxable equivalent, or FTE, basis, increased $1.6 million to $60.8 million during second quarter 2014, as compared to $59.2 million during first quarter 2014, primarily due to loan growth and one additional accrual day during second quarter 2014. During second quarter 2014, the Company further reduced funding costs to 0.27%, a one basis point reduction from first quarter 2014 and a five basis point reduction from second quarter 2013.

The Company’s interest margin ratio remained stable at 3.54% during second quarter 2014, as compared to 3.52% during first quarter 2014. During second quarter 2014, the Company recovered charged off interest of $1.4 million, compared to $532 thousand during first quarter 2014. Exclusive of these interest recoveries, the Company’s net interest margin ratio was 3.46% during the second quarter 2014 and 3.49% during first quarter 2014.

Non-Interest Income. Non-interest income increased $2.5 million to $26.6 million during second quarter 2014, as compared to $24.1 million during first quarter 2014, primarily due to increases in income from the origination and sale of mortgage loans, higher debit and credit card interchange fees and increases in wealth management revenues.

Income from the origination and sale of loans increased $1.7 million to $6.4 million during second quarter 2014, as compared to $4.7 million during first quarter 2014, primarily due to increased mortgage loan production. The Company’s mortgage loan production increased 57% during second quarter 2014, as compared to first quarter 2014, primarily due to seasonal fluctuations in production volumes combined with the completion of residential mortgage loan closings delayed by weather during the first quarter. Loans originated for home purchases accounted for approximately 76% of the Company’s mortgage loan production during second quarter 2014, as compared to 68% during first quarter 2014 and 53% during second quarter 2013.

Other service charges, commissions and fees increased $543 thousand to $9.7 million during second quarter 2014, as compared to $9.2 million during first quarter 2014, primarily due to higher interchange fees earned on debit and credit card transactions resulting from higher transaction volumes.

Wealth management revenues increased $154 thousand to $4.6 million during second quarter 2014, as compared to $4.5 million during first quarter 2014, due to the combined effect of the continued addition of new wealth management customers and increases in the market values of new and existing assets under trust management.

Non-Interest Expense. Non-interest expense increased $1.6 million to $55.9 million during second quarter 2014, as compared to $54.3 million during first quarter 2014. Included in non-interest expense are $597 thousand of acquisition expenses, which the Company considers to be non-core. Exclusive of these non-core expenses, core non-interest expense was $55.3 million during second quarter 2014, $54.3 million during first quarter 2014 and $55.0 million during second quarter 2013. Increases in core non-interest expense during second quarter 2014, as compared to first quarter 2014, were primarily due to higher salaries and wages expense, which was partially offset by lower employee benefits expense.

Salaries and wages expense increased $2.0 million to $24.4 million during second quarter 2014, as compared to $22.4 million during first quarter 2014, primarily due to one additional salary accrual day, increases in commissioned pay reflective of increased mortgage loan origination and higher incentive compensation accruals.

Employee benefits expense decreased $1.1 million to $7.2 million during second quarter 2014, as compared to $8.3 million during first quarter 2014, primarily due to reductions in payroll taxes as annual compensation tax limits are met. In addition, during second quarter 2014, the Company reversed $500 thousand of previously accrued health insurance expense reflective of favorable claims experience during the first half of 2014.

BALANCE SHEET

Total loans increased $142 million to $4,506 million as of June 30, 2014, from $4,365 million as of March 31, 2014, with all major categories of loans showing growth. Loan growth during second quarter 2014 was spread across the Company’s market areas and was largely attributable to improvement in the economic conditions of the areas served.

Residential real estate loans grew $26 million to $895 million as of June 30, 2014, from $869 million as of March 31, 2014. The increase was primarily due to the origination of 1-4 family residential real estate loans not meeting the requirements for sale on the secondary market. These loans are generally five to fifteen year adjustable rate and conventional mortgages. During the first half of 2014, substantially all of the Company’s conforming residential loan production was sold to investors in the secondary market.

Consumer loans increased $37 million to $707 million as of June 30, 2014, from $670 million as of March 31, 2014, primarily due to increases in indirect consumer loans. Indirect consumer loans increased $31 million to $512 million as of June 30, 2014, from $481 million as of March 31, 2014. Management attributes the increase in indirect consumer loans to continued expansion of the Company’s indirect lending program within existing markets combined with increases in the average loan amount advanced.

Continuing business expansion in the Company’s market areas resulted in increases in commercial, commercial real estate and commercial construction loans during second quarter 2014. The most notable increase occurred in commercial loans, which grew $20 million to $727 million as of June 30, 2014, from $707 million as of March 31, 2014.

Agricultural loans increased $22 million to $130 million as of June 30, 2014, from $108 million as of March 31, 2014, primarily due to seasonal increases that typically occur during the second and third quarters of the year.

Total deposits increased $44 million to $6,179 million as of June 30, 2014, from $6,135 million as of March 31, 2014. During second quarter 2014, the mix of deposits continued to shift away from higher costing time deposits to lower costing demand deposits, the result of sustained low interest rates. As of June 30, 2014, time deposits comprised 18.4% of total deposits, as compared to 18.9% of total deposits as of March 31, 2014 and 21.7% as of June 30, 2013.

ASSET QUALITY

Non-performing assets continued to decrease during second quarter 2014, ending the quarter at $97 million, or 1.27% of total assets, as of June 30, 2014, their lowest level since 2008. This compares to $106 million, or 1.40% of total assets as of March 31, 2014.

During second quarter 2014, the Company recorded net charged-off loans of $1 million, which was comprised of gross charge-offs of $3 million and gross recoveries of $2 million. This compares to gross charge-offs of $3 million and gross recoveries of $4 million recorded during first quarter 2014.

The Company reversed $2 million of provision for loan losses during second quarter 2014, primarily due to the combined impact of reductions in specific reserves on impaired loans and lower general reserves reflective of improvement in economic conditions in the Company’s market areas, improvement in loss history trends used to estimate required reserves and decreases in the level of criticized commercial real estate and construction loans, which typically require higher reserves based on loss history.

STOCK REPURCHASE

Pursuant to a stock repurchase program approved by the Company’s Board of Directors on November 25, 2013, the Company repurchased and retired 225,063 shares of its Class A common stock during second quarter 2014. The shares were repurchased in a combination of open market and privately negotiated transactions at an aggregate purchase price of $24.91 per share. Under the stock repurchase program, the Company may repurchase up to an additional 1,674,582 shares of its Class A common stock prior to expiration of the plan on November 25, 2014.

ACQUISITION

On June 30, 2014, the Company received regulatory approval of its acquisition by merger of Mountain West Financial Corp., the parent company of Mountain West Bank, National Association. The acquisition is expected to close on July 31, 2014. Subsequent to the acquisition, and subject to further regulatory approval, the Company will merge Mountain West Bank, National Association into First Interstate Bank, the Company’s bank subsidiary. The bank merger is expected to occur on October 18, 2014. As of June 30, 2014, Mountain West Financial Corp. had total assets of approximately $623 million, net loans of approximately $380 million and deposits of approximately $520 million.

Second Quarter 2014 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss second quarter 2014 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Tuesday, July 22, 2014. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-888-507-1071 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. Mountain Time) on July 22, 2014 through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on August 22, 2014, by dialing 1-877-344-7529 (using conference ID 10048571). 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 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 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 report: continuing or worsening business and economic conditions, adverse economic conditions affecting Montana, Wyoming and western South Dakota, credit losses, lending risk, adequacy of the allowance for loan losses, impairment of goodwill, changes in interest rates, access to low-cost funding sources, dependence on the Company’s management team, ability to attract and retain qualified employees, governmental regulation and changes in regulatory, tax and accounting rules and interpretations, failure of technology, inability to meet liquidity requirements, failure to manage growth, competition, ineffective internal operational controls, environmental remediation and other costs, reliance on external vendors, litigation pertaining to fiduciary responsibilities, failure to effectively implement technology-driven products and services, soundness of other financial institutions, inability of our bank subsidiary to pay dividends, implementation of new lines of business or new product or service offerings, change in dividend policy, volatility of Class A common stock, 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, voting control of Class B stockholders, 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)
 
      2014     2013

CONDENSED INCOME STATEMENTS
2nd Qtr     1st Qtr 4th Qtr     3rd Qtr     2nd Qtr
Net interest income $ 59,727 $ 58,136 $ 59,974 $ 58,956 $ 58,760
Net interest income on a fully-taxable equivalent ("FTE") basis 60,806 59,243 61,109 60,066 59,879
Provision for loan losses (2,001 ) (5,000 ) (4,000 ) (3,000 ) 375
Non-interest income:
Other service charges, commissions and fees 9,699 9,156 9,458 9,286 8,977
Income from the origination and sale of loans 6,380 4,660 5,602 7,934 10,043
Wealth management revenues 4,609 4,455 4,350 4,581 4,020
Service charges on deposit accounts 3,929 3,875 4,086 4,360 4,323
Investment securities gains (losses), net 17 71 (25 ) 30 (12 )
Other income 1,937   1,889   2,203   1,416   2,228  
Total non-interest income 26,571 24,106 25,674 27,607 29,579
Non-interest expense:
Salaries and wages 24,440 22,442 24,335 22,843 23,470
Employee benefits 7,164 8,313 7,289 7,328 7,546
Occupancy, net 4,253 4,239 4,206 4,292 4,063
Furniture and equipment 3,157 3,201 3,192 3,147 3,163
Outsourced technology services 2,309 2,300 2,382 2,295 2,195
Other real estate owned (income) expense, net (134 ) (19 ) 1,292 18 (915 )

Non-core acquisition expenses
597
Other expenses 14,134   13,862   15,089   12,656   15,498  
Total non-interest expense 55,920   54,338   57,785   52,579   55,020  
Income before taxes 32,379 32,904 31,863 36,984 32,944
Income taxes 11,302   11,511   11,088   13,172   11,439  
Net income $ 21,077   $ 21,393   $ 20,775   $ 23,812   $ 21,505  
Core net income** $ 21,438   $ 21,349  

 
$ 20,791  

 
$ 23,793   $ 21,512  
 

PER COMMON SHARE DATA
Net income - basic $ 0.48 $ 0.49 $ 0.47 $ 0.54 $ 0.49
Net income - diluted 0.47 0.48 0.47 0.54 0.49
Core net income - diluted 0.48 0.48 0.47 0.54 0.49
Cash dividend paid 0.16 0.16 0.14 0.14 0.13
Book value at period end 18.95 18.60 18.15 17.98 17.56
Tangible book value at period end** 14.71 14.37 13.89 13.71 13.25

 

OUTSTANDING COMMON SHARES

 
At period-end 44,255,012 44,390,095 44,155,063 44,089,962 43,835,881

Weighted-average shares - basic
44,044,260 43,997,815 43,888,261 43,699,566 43,480,502

Weighted-average shares - diluted

44,575,963
44,620,776 44,541,497 44,284,844 43,908,287
 

SELECTED ANNUALIZED RATIOS
Return on average assets 1.12 % 1.16 % 1.10 % 1.28 % 1.17 %
Core return on average assets** 1.14 1.16 1.10 1.28 1.17
Return on average common equity 10.18 10.74 10.31 12.13 11.08
Core return on average common equity** 10.36 10.72 10.32 12.12 11.08
Return on average tangible common equity** 13.16 14.00 13.49 16.01 14.63
Net FTE interest income to average earning assets 3.54 3.52 3.52 3.52 3.56
 
 
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
      2014     2013

BALANCE SHEET SUMMARIES
Jun 30     Mar 31 Dec 31     Sep 30     Jun 30
Assets:
Cash and cash equivalents $ 503,648 $ 610,531 $ 534,827 $ 542,343 $ 368,217
Investment securities 2,093,985 2,095,088 2,151,543 2,145,083 2,138,539
Loans held for investment:
Commercial real estate 1,464,947 1,452,967 1,449,174 1,441,297 1,447,145
Construction real estate 361,009 354,349 351,635 341,284 337,211
Residential real estate 894,502 868,836 867,912 841,707 804,200
Agricultural real estate 162,428 160,570 173,534 176,594 176,799
Consumer 707,035 670,406 671,587 672,184 652,944
Commercial 727,482 707,237 676,544 681,416 680,751
Agricultural 130,280 108,376 111,872 123,565 121,530
Other 2,016 3,626 1,734 1,912 2,498
Mortgage loans held for sale 56,663   38,471   40,861   52,133   74,286  
Total loans 4,506,362 4,364,838 4,344,853 4,332,092 4,297,364
Less allowance for loan losses 78,266   81,371   85,339   92,990   98,528  
Net loans 4,428,096   4,283,467   4,259,514   4,239,102   4,198,836  
Premises and equipment, net 180,341 179,942 179,690 179,785 181,940
Goodwill and intangible assets (excluding mortgage servicing rights) 187,502 187,858 188,214 188,569 188,925
Company owned life insurance 138,899 138,027 122,175 76,701 77,602
Other real estate owned, net 16,425 16,594 15,504 18,537 22,782
Mortgage servicing rights, net 13,443 13,474 13,546 13,518 13,304
Other assets 89,040   92,844   99,638   96,462   101,363  
Total assets $ 7,651,379   $ 7,617,825   $ 7,564,651   $ 7,500,100   $ 7,291,508  
 
Liabilities and stockholders' equity:
Deposits:
Non-interest bearing $ 1,533,484 $ 1,458,460 $ 1,491,683 $ 1,503,969 $ 1,393,732
Interest bearing 4,645,558   4,676,677   4,642,067   4,604,656   4,536,600  
Total deposits 6,179,042   6,135,137   6,133,750   6,108,625   5,930,332  
Securities sold under repurchase agreements 462,985 488,898 457,437 428,110 421,314
Accounts payable, accrued expenses and other liabilities 51,456 48,770 52,489 50,900 50,292
Long-term debt 36,893 36,905 36,917 37,128 37,139
Subordinated debentures held by subsidiary trusts 82,477   82,477   82,477   82,477   82,477  
Total liabilities 6,812,853   6,792,187   6,763,070   6,707,240   6,521,554  
Stockholders' equity:
Common stock 283,697 286,553 285,535 283,352 279,232
Retained earnings 560,469 546,444 532,087 517,456 499,761
Accumulated other comprehensive income (loss) (5,640 ) (7,359 ) (16,041 ) (7,948 ) (9,039 )
Total stockholders' equity 838,526   825,638   801,581   792,860   769,954  
Total liabilities and stockholders' equity $ 7,651,379   $ 7,617,825   $ 7,564,651   $ 7,500,100   $ 7,291,508  
 

CONSOLIDATED CAPITAL RATIOS
Total risk-based capital 16.69 % * 16.83 % 16.75 % 16.68 % 16.29 %
Tier 1 risk-based capital 15.02 % * 15.16 14.93 14.85 14.45
Tier 1 common capital to total risk-weighted assets 13.45 % * 13.55 13.31 13.33 12.83
Leverage Ratio 10.35 % * 10.27 10.08 10.01 9.73
Tangible common stockholders' equity to tangible assets** 8.72 8.58 8.32 8.26 8.18
 
 
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
      2014     2013

ASSET QUALITY
Jun 30     Mar 31 Dec 31     Sep 30     Jun 30
Allowance for loan losses $ 78,266 $ 81,371 $ 85,339 $ 92,990 $ 98,528

As a percentage of period-end loans
1.74 % 1.86 % 1.96 % 2.15 % 2.29 %
 
Net charge-offs (recoveries) during quarter $

1,104
$ (1,032 ) $ 3,651 $ 2,538 $ (249 )
Annualized as a percentage of average loans 0.10 % (0.10 )% 0.34 % 0.23 % (0.02 )%
 
Non-performing assets:
Non-accrual loans $ 79,166 $ 88,114 $ 94,439 $ 94,015 $ 103,729
Accruing loans past due 90 days or more 1,494   1,664   2,232   2,188   1,742  
Total non-performing loans 80,660 89,778 96,671 96,203 105,471
Other real estate owned 16,425   16,594   15,504   18,537   22,782  
Total non-performing assets 97,085 106,372 112,175 114,740 128,253
As a percentage of:
Total loans and OREO 2.15 % 2.43 % 2.57 % 2.64 % 2.97 %
Total assets 1.27 % 1.40 % 1.48 % 1.53 % 1.76 %
 
                  Accruing            
Provision Net Allowance Loans 30-89 Non- Non-
for Loan Charge-offs for Loan Days Past Accruing Performing Performing

ASSET QUALITY TRENDS
Losses (Recoveries) Losses Due TDRs Loans Assets
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
Q4 2013 (4,000 ) 3,651 85,339 26,944 21,780 96,671 112,175
Q1 2014 (5,000 ) (1,032 ) 81,371 41,034 19,687 89,778 106,372
Q2 2014 (2,001 ) 1,105 78,266 24,250 23,531 80,660 97,085
 
                 

CRITICIZED LOANS
Special Mention Substandard Doubtful Total
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
Q4 2013 159,081 154,100 45,308 358,489
Q1 2014 174,834 161,103 31,672 367,609
Q2 2014 160,271 155,744 29,115 345,130
 

*Preliminary estimate - may be subject to change.

**See Non-GAAP Financial Measures included herein for a discussion regarding core net income, tangible book value per common share, core return on average assets, core return on average common equity, 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, 2014     March 31, 2014     June 30, 2013
Average         Average Average         Average Average         Average
Balance     Interest     Rate Balance     Interest     Rate Balance     Interest     Rate
Interest earning assets:
Loans (1) (2) $ 4,436,786 $ 56,019 5.06 % $ 4,344,993 $ 54,192 5.06 % $ 4,256,579 $ 55,270 5.21 %
Investment securities (2) 2,091,438 9,017 1.73 2,108,643 9,370 1.80 2,153,342 9,588 1.79
Interest bearing deposits in banks 356,911 225 0.25 368,784 231 0.25 335,761 212 0.25
Federal funds sold 1,958       3       0.61   1,099       1       0.37   3,322       5       0.60  
Total interest earnings assets 6,887,093 65,264 3.80 6,823,519 63,794 3.79 6,749,004 65,075 3.87
Non-earning assets 669,029                   664,441                   601,023                  
Total assets $ 7,556,122                   $ 7,487,960                   $ 7,350,027                  
Interest bearing liabilities:
Demand deposits $ 1,878,483 $ 513 0.11 % $ 1,837,714 $ 512 0.11 % $ 1,722,138 $ 475 0.11 %
Savings deposits 1,653,034 598 0.15 1,639,484 595 0.15 1,544,648 598 0.16
Time deposits 1,148,832 2,216 0.77 1,172,866 2,317 0.80 1,312,863 2,965 0.91
Repurchase agreements 438,744 63 0.06 456,557 66 0.06 466,533 74 0.06
Other borrowed funds 8 6 10
Long-term debt 36,897 476 5.17 36,909 473 5.20 37,142 483 5.22
Subordinated debentures held by subsidiary trusts 82,477       592       2.88   82,477       588       2.89   82,477       601       2.92  
Total interest bearing liabilities 5,238,475 4,458 0.34 5,226,013 4,551 0.35 5,165,811 5,196 0.40
Non-interest bearing deposits 1,443,239 1,403,822 1,356,133
Other non-interest bearing liabilities 44,291 50,185 49,323
Stockholders’ equity 830,117                   807,940                   778,760                  
Total liabilities and stockholders’ equity $ 7,556,122                   $ 7,487,960                   $ 7,350,027                  
Net FTE interest income 60,806 59,243 59,879
Less FTE adjustments (2)         (1,079 )                 (1,107 )                 (1,119 )        
Net interest income from consolidated statements of income         $ 59,727                   $ 58,136                   $ 58,760          
Interest rate spread                 3.46 %                 3.44 %                 3.47 %
Net FTE interest margin (3)                 3.54 %                 3.52 %                 3.56 %
Cost of funds, including non-interest bearing demand deposits (4)                 0.27 %                 0.28 %                 0.32 %
 

(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, 2014     June 30, 2013
Average         Average Average         Average
Balance     Interest     Rate Balance     Interest     Rate
Interest earning assets:
Loans (1) (2) $ 4,391,143 $ 110,211 5.06 % $ 4,236,866 $ 111,184 5.29 %
Investment securities (2) 2,099,993 18,387 1.77 2,178,758 19,567 1.81
Interest bearing deposits in banks 362,815 456 0.25 405,919 510 0.25
Federal funds sold 1,531       4       0.53   2,924       9       0.62  
Total interest earnings assets 6,855,482 129,058 3.80 6,824,467 131,270 3.88
Non-earning assets 666,748                   599,661                  
Total assets $ 7,522,230                   $ 7,424,128                  
Interest bearing liabilities:
Demand deposits $ 1,858,211 $ 1,025 0.11 % $ 1,725,457 $ 949 0.11 %
Savings deposits 1,646,296 1,193 0.15 1,547,381 1,251 0.16
Time deposits 1,160,783 4,533 0.79 1,338,903 6,193 0.93
Repurchase agreements 447,601 129 0.06 489,230 174 0.07
Other borrowed funds 7 9
Long-term debt 36,903 949 5.19 37,148 963 5.23
Preferred stock pending redemption 4,696 159 6.83
Subordinated debentures held by subsidiary trusts 82,477       1,180       2.89   82,477       1,297       3.17  
Total interest bearing liabilities 5,232,278 9,009 0.35 5,225,301 10,986 0.42
Non-interest bearing deposits 1,423,639 1,377,374
Other non-interest bearing liabilities 47,223 51,554
Stockholders’ equity 819,090                   769,899                  
Total liabilities and stockholders’ equity $ 7,522,230                   $ 7,424,128                  
Net FTE interest income 120,049 120,284
Less FTE adjustments (2)         (2,186 )                 (2,247 )        
Net interest income from consolidated statements of income         $ 117,863                   $ 118,037          
Interest rate spread                 3.45 %                 3.46 %
Net FTE interest margin (3)                 3.53 %                 3.55 %
Cost of funds, including non-interest bearing demand deposits (4)                 0.27 %                 0.34 %
 

(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 principles in the United States of America, or GAAP, this release contains certain non-GAAP financial measures that management uses to provide supplemental perspectives on capital adequacy, operating results, performance trends and financial condition. These non-GAAP financial measures 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 Company adjusts certain capital adequacy measures to exclude intangible assets except mortgage servicing rights. Management believes these non-GAAP 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 the Company’s capitalization to other companies.

The Company also adjusts earnings and certain performance ratios to exclude non-core revenues and expenses, including investment securities net gains or losses and acquisition expenses consisting primarily of travel expenses and professional fees. Management believes these non-GAAP financial measures are useful to investors in evaluating operating trends by excluding amounts which the Company views as unrelated to its normalized operations. These non-core income and expense adjustments are presented net of estimated income tax expense.

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

 
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures

(Unaudited, $ in thousands, except share and per share data)
 
          2014     2013
Jun 30     Mar 31 Dec 31     Sep 30     Jun 30
Net income $ 21,077 $ 21,393 $ 20,775 $ 23,812 $ 21,505
Adj: investment securities (gains) losses, net (17 ) (71 ) 25 (30 ) 12
Plus: acquisition expenses 597
Adj: income taxes (219 ) 27   (9 ) 11   (5 )
Total core net income (A) $ 21,438   $ 21,349   $ 20,791   $ 23,793   $ 21,512  
 
Total non-interest income $ 26,571 $ 24,106 $ 25,674 $ 27,607 $ 29,579
Adj: investment securities (gains) losses, net (17 ) (71 ) 25   (30 ) 12  
Total core non-interest income 26,554 24,035 25,699 27,577 29,591
Net interest income 59,727   58,136   59,974   58,956   58,760  
Total core revenue $ 86,281   $ 82,171   $ 85,673   $ 86,533   $ 88,351  
 
Total non-interest expense $ 55,920 $ 54,338 $ 57,785 $ 52,579 $ 55,020
Less: acquisition expenses (597 )        
Core non-interest expense $ 55,323   $ 54,338   $ 57,785   $ 52,579   $ 55,020  
 
Total quarterly average stockholders' equity (B) $ 830,117 $ 807,940 $ 799,198 $ 778,809 $ 778,760
Less: average goodwill and other intangible assets (excluding mortgage servicing rights) (187,710 ) (188,078 ) (188,415 ) (188,778 ) (189,135 )
Average tangible common stockholders' equity (C) $ 642,407   $ 619,862   $ 610,783   $ 590,031   $ 589,625  
 
Total stockholders' equity, period-end $ 838,526 $ 825,638 $ 801,581 $ 792,860 $ 769,954
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (187,502 ) (187,858 ) (188,214 ) (188,569 ) (188,925 )
Total tangible common stockholders' equity (D) $ 651,024   $ 637,780   $ 613,367   $ 604,291   $ 581,029  
 
Total assets $ 7,651,379 $ 7,617,825 7,564,651 7,500,100 7,291,508
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (187,502 ) (187,858 ) (188,214 ) (188,569 ) (188,925 )
Tangible assets (E) $ 7,463,877   $ 7,429,967   $ 7,376,437   $ 7,311,531   $ 7,102,583  
 
Total quarterly average assets (F) $ 7,556,122 $ 7,487,960 $ 7,491,253 $ 7,374,165 $ 7,350,027
 
Total common shares outstanding, period end (G) 44,255,012 44,390,095 44,155,063 44,089,962 43,835,881
Weighted-average common shares - diluted (H)

44,575,963
44,620,776 44,541,497 44,284,844 43,908,287
 
Core earnings per share, diluted (A/H) $ 0.48 $ 0.48 $ 0.47 $ 0.54 $ 0.49
Tangible book value per share, period-end (D/G) 14.71 14.37 13.89 13.71 13.25
 
Annualized net income (I) $ 84,540 $ 86,761 $ 82,423 $ 94,472 $ 86,256
Annualized core net income (J) 85,988 86,582 82,486 94,396 86,284
 
Core return on average assets (J/F) 1.14 % 1.16 % 1.10 % 1.28 % 1.17 %
Core return on average common equity (J/B) 10.36 10.72 10.32 12.12 11.08
Return on average tangible common equity (I/C) 13.16 14.00 13.49 16.01 14.63
Tangible common stockholders' equity to tangible assets (D/E) 8.72 8.58 8.32 8.26 8.18

Copyright Business Wire 2010

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