First Interstate BancSystem, Inc. (NASDAQ: FIBK) reports first quarter 2015 net income of $21.0 million, or $0.46 per share. This compares to net income of $22.8 million, or $0.49 per share, during fourth quarter 2014, and $21.4 million, or $0.48 per share, during first quarter 2014.

FIRST QUARTER HIGHLIGHTS
  • Pre-tax, pre-provision net income of $32.5 million, a 16.5% increase from the same period in the prior year
  • Net interest margin ratio of 3.43%, a 5 basis point improvement compared to fourth quarter 2014
  • Net interest income of $64.3 million, a 10.6% increase from the same period in the prior year
  • Criticized loans declined to 6.8% of total loans as of March 31, 2015, compared to 7.2% as of December 31, 2014
  • 12.9% loan growth year-over-year, of which 4.6% was organic
  • 13.6% deposit growth year-over-year, of which 5.2% was organic

"We had strong year-over-year improvement in our core earnings during the first quarter of 2015, with an 11% increase in total revenue and a 17% increase in pre-tax, pre-provision income," said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. "Our strong growth in pre-tax, pre-provision income reflects the positive benefits of the Mountain West Bank acquisition, as well as consistent organic growth across most of our key business lines," Garding continued. "We are excited about our pending acquisition of Absarokee Bancorporation, the parent company of United Bank, which will provide a strong presence in a complementary market adjacent to our Billings, Montana headquarters and serve as another catalyst for the profitable growth of our franchise," said Mr. Garding.

DIVIDEND DECLARATION

On April 20, 2015, the Executive Committee of the Company's board of directors declared a dividend of $0.20 per common share payable on May 15, 2015 to owners of record as of May 1, 2015. This dividend equates to a 3.1% annual yield based on the $26.12 average closing price of the Company's common stock during first quarter 2015.

ACQUISITION

On March 26, 2015, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") to acquire Absarokee Bancorporation, Inc. ("Absarokee"), parent company of United Bank, headquartered in Absarokee, Montana. With total assets of $74 million, Absarokee currently operates United Bank branches in the Montana communities of Absarokee, Columbus and Laurel. Pursuant to the terms of the Merger Agreement, the Company will pay cash consideration of approximately $7.2 million, subject to certain financial performance and other adjustments, the amount of which will be determined prior to the closing date of the transaction. Subject to regulatory approval, the transaction is currently expected to close during third quarter 2015. The Company expects to merge United Bank with its existing bank subsidiary, First Interstate Bank, upon consummation of the transaction.

RESULTS OF OPERATIONS

Net Interest Income. The Company's net interest income, on a fully taxable equivalent basis, decreased $1.2 million to $65.4 million during first quarter 2015, as compared to $66.6 million during fourth quarter 2014, primarily due to two fewer accrual days during first quarter 2015. The impact of the reduction in loan yield was more than offset by an increase in average loans outstanding and a 2 basis point reduction in funding costs during first quarter 2015, as compared to fourth quarter 2014. Interest accretion related to the fair valuation of acquired loans contributed $1.1 million of interest income during both first quarter 2015 and fourth quarter 2014, and recoveries of charged-off loan interest were $591 during first quarter 2015, as compared to $956 during fourth quarter 2014.

The Company's net interest margin ratio increased 5 basis points to 3.43% during first quarter 2015, as compared to 3.38% during fourth quarter 2014. Exclusive of the accelerated interest accretion related to early payoffs of acquired loans and the impact of recoveries of charged-off interest, the Company's net interest margin ratio increased 6 basis points to 3.38% during first quarter 2015, compared to 3.32% during fourth quarter 2014. This increase was primarily driven by a shift in the mix of interest earning assets from lower yielding interest bearing deposits in banks to higher yielding loans and investment securities, which increased the Company's net interest margin ratio by approximately 8 basis points compared to fourth quarter 2014. This increase was partially offset by a 2 basis point decline in the net interest margin ratio due to lower yields on average outstanding loans during first quarter 2015.

Non-Interest Income. Non-interest income decreased $3.6 million to $27.8 million during first quarter 2015, as compared to $31.4 million during fourth quarter 2014. During fourth quarter 2014, the Company recognized gains aggregating $1.2 million on the sale of two bank buildings, received an insurance death benefit of $823 thousand and recorded a volume bonus of $616 thousand from its card payment network. Also contributing to the decrease in non-interest income during first quarter 2015, as compared to fourth quarter 2014, were decreases of $1.2 million in debit card interchange fees resulting from normal seasonal declines in transaction volumes. These decreases were partially offset by a $1.0 million reversal of accrued costs associated with the settlement of secondary investor claims acquired as part of the 2014 Mountain West Financial Corp acquisition.

First quarter 2015 non-interest income increased $3.7 million, as compared to the same period in 2014, primarily due to the reversal of previously accrued settlement costs discussed above combined with increases in income from the origination and sale of mortgage loans. Income from the origination and sale of loans increased $1.2 million, or 27%, to $5.9 million during first quarter 2015, as compared to $4.7 million during first quarter 2014. Overall mortgage loan production increased 53% during first quarter 2015, as compared to first quarter 2014. Loans originated for home purchases accounted for approximately 57% of the Company's mortgage loan production during first quarter 2015, as compared to 71% during fourth quarter 2014 and 68% during first quarter 2014.

Non-Interest Expense. Non-interest expense decreased $2.1 million to $59.6 million during first quarter 2015, as compared to $61.7 million during fourth quarter 2014. First quarter 2015 and fourth quarter 2014 non-interest expense includes $70 thousand and $2.4 million, respectively, of acquisition expenses which the Company considers non-core. Exclusive of these non-core expenses, non-interest expense remained flat during first quarter 2015, as compared to fourth quarter 2014. During first quarter 2015, decreases in advertising, business meals, donations, occupancy and furniture and equipment expenses were largely offset by higher incentive bonus accruals and increases in payroll tax expense that typically occur during the first part of the year until annual compensation tax limits are met.

First quarter 2015 non-interest expense increased $5.3 million, as compared to the same period in 2014, due to the additional operating costs of Mountain West Financial Corp, which was acquired on July 31, 2014, and inflationary wage increases.

BALANCE SHEET

Total loans increased $30 million, or less than 1%, to $4.9 billion as of March 31, 2015, as compared to December 31, 2014. The most notable growth occurred in commercial real estate, commercial and indirect consumer loans, which grew 1.9%, 1.9% and 2.4%, respectively, as compared to December 31, 2014. Growth in commercial real estate, commercial and indirect consumer loans during first quarter 2015, as compared to December 31, 2014, was partially offset by seasonal declines in agricultural and agricultural real estate loans.

Commercial real estate loans increased $31 million, to $1,670 million as of March 31, 2015, from $1,639 million as of December 31, 2014, and commercial loans increased $14 million, to $754 million as of March 31, 2015, from $740 million as of December 31, 2014. Management attributes this growth to continuing business expansion in the Company's market areas and the movement of completed commercial construction projects from construction loans to permanent financing.

Indirect consumer loans grew $13 million to $566 million as of March 31, 2015, from $553 million as of December 31, 2014, due to continuing expansion of the Company's indirect lending program within existing markets.

Agricultural loans decreased $7 million to $118 million as of March 31, 2015, from $125 million as of December 31, 2014. Management attributes this decrease to seasonal reductions in credit lines that typically occur during the first and fourth quarters of each year. In addition, agricultural real estate loans decreased $11 million to $157 million as of March 31, 2015, from $168 million as of December 31, 2014, primarily due to scheduled repayments.

Total deposits decreased $38 million, or less than 1.0%, to $7.0 billion as of March 31, 2015, as compared to December 31, 2014, with all deposit categories except savings deposits showing decreases. The mix of deposits continued to shift away from time deposits to savings and non-interest bearing demand deposits. As of March 31, 2015, the mix of total deposits was 25% non-interest bearing demand, 30% interest bearing demand, 28% savings and 17% time. This compares to 26% non-interest bearing demand, 30% interest bearing demand, 26% savings and 18% time as of December 31, 2014.

ASSET QUALITY

Non-performing assets grew to $94 million, or 1.11% of total assets, as of March 31, 2015, from $78 million, or 0.91% of total assets as of December 31, 2014. Non-accrual loans, the largest component of non-performing assets, increased $12 million, to $74 million as of March 31, 2015, from $62 million as of December 31, 2014, primary due to placement of the loans of one commercial and one commercial real estate borrower on non-accrual status.

Criticized loans declined to $335 million, or 6.8% of total loans as of March 31, 2015, compared to $353 million, or 7.2% of total loans as of December 31, 2014. This decline in the level of criticized loans is primarily due to borrower repayment of loan balances.

The Company recorded a provision for loan losses of $1.1 million during first quarter 2015, compared to $118 thousand during fourth quarter 2014. Higher provision for loan losses recorded during first quarter 2015, as compared to fourth quarter 2014, is reflective of increases in loss exposure on non-performing loans. The Company's allowance for loan losses as a percentage of period end loans remained stable at 1.53% as of March 31, 2015, compared to 1.52% as of December 31, 2014.

CAPITAL

Pursuant to a stock repurchase program approved by the Company's Board of Directors on January 22, 2015, the Company repurchased and retired 565,875 shares of its Class A common stock during first quarter 2015. The shares were repurchased in open market transactions at an average purchase price of $25.93 per share. Under the stock repurchase program, the Company may repurchase up to an additional 434,125 shares of its Class A common stock.

On January 1, 2015, the Company adopted the revised regulatory capital framework in accordance with the Basel III international accord. At March 31, 2015, the Company exceeded all "well-capitalized" regulatory capital adequacy requirements.

First Quarter 2015 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss first quarter 2015 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Tuesday, April 28, 2015. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-877-507-0356 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 April 28, 2015 through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on May 28, 2015, by dialing 1-877-344-7529 (using conference ID 10063615). 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 80 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.
 

RST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary

(Unaudited, $ in thousands, except per share data)
 
      2015   2014

INCOME STATEMENT SUMMARIES
1st Qtr 4th Qtr   3rd Qtr   2nd Qtr   1st Qtr
Net interest income $ 64,325 $ 65,516 $ 65,082 $ 59,727 $ 58,136
Net interest income on a fully-taxable equivalent ("FTE") basis 65,381 66,585 66,129 60,806 59,243
Provision for loan losses 1,095 118 261 (2,001 ) (5,000 )
Non-interest income:
Other service charges, commissions and fees 9,867 11,429 10,458 9,699 9,156
Income from the origination and sale of loans 5,906 5,554 7,346 6,380 4,660
Wealth management revenues 4,937 4,775 5,157 4,609 4,455
Service charges on deposit accounts 3,944 4,432 4,331 3,929 3,875
Investment securities gains (losses), net 6 (19 ) (8 ) 17 71
Other income 3,122   5,190   2,079   1,937   1,889  
Total non-interest income 27,782 31,361 29,363 26,571 24,106
Non-interest expense:
Salaries and wages 25,349 23,717 25,914 24,440 22,442
Employee benefits 7,780 6,812 7,841 7,164 8,313
Occupancy, net 4,492 4,770 4,534 4,253 4,239
Furniture and equipment 3,793 4,120 3,338 3,157 3,201
Outsourced technology services 2,463 2,468 2,346 2,309 2,300
Other real estate owned income, net (61 ) (61 ) (58 ) (134 ) (19 )
Core deposit intangible amortization 854 855 688 354 354
Non-core expenses 70 2,368 5,052 597
Other expenses 14,852   16,604   15,303   13,780   13,508  
Total non-interest expense 59,592   61,653   64,958   55,920   54,338  
Income before taxes 31,420 35,106 29,226 32,379 32,904
Income taxes 10,440   12,330   10,071   11,302   11,511  
Net income $ 20,980   $ 22,776   $ 19,155   $ 21,077   $ 21,393  
Core net income** $ 21,020   $ 24,260   $ 22,302   $ 21,438   $ 21,349  
Pre-tax, pre-provision net income** $ 32,515   $ 35,224   $ 29,487   $ 30,378   $ 27,904  
 

PER COMMON SHARE DATA
Net income - basic $ 0.46 $ 0.50 $ 0.43 $ 0.48 $ 0.49
Net income - diluted 0.46 0.49 0.42 0.47 0.48
Core net income - diluted 0.46 0.53 0.49 0.48 0.48
Cash dividend paid 0.20 0.16 0.16 0.16 0.16
Book value at period end 20.13 19.85 19.40 18.95 18.60
Tangible book value at period end** 15.36 15.07 14.61 14.71 14.37
 

OUTSTANDING COMMON SHARES
At period-end 45,429,468 45,788,415 45,672,922 44,255,012 44,390,095
Weighted-average shares - basic 45,378,230 45,485,548 44,911,858 44,044,260 43,997,815
Weighted-average shares - diluted 45,840,191 46,037,344 45,460,288 44,575,963 44,620,776
 

SELECTED ANNUALIZED RATIOS
Return on average assets 1.00 % 1.05 % 0.93 % 1.12 % 1.16 %
Core return on average assets** 1.00 1.12 1.09 1.14 1.16
Return on average common equity 9.38 10.09 8.55 10.18 10.74
Core return on average common equity** 9.40 10.75 9.96 10.36 10.72
Return on average tangible common equity** 12.35 13.34 11.17 13.16 14.00
Net FTE interest income to average earning assets 3.43 3.38 3.55 3.54 3.52
 
 

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
      2015 2014
BALANCE SHEET SUMMARIES Mar 31 Dec 31   Sept 30   Jun 30   Mar 31
Assets:
Cash and cash equivalents $ 637,803 $ 798,670 $ 819,963 $ 503,648 $ 610,531
Investment securities 2,340,904 2,287,110 2,169,774 2,093,985 2,095,088
Loans held for investment:
Commercial real estate 1,670,829 1,639,422 1,686,509 1,464,947 1,452,967
Construction real estate 406,305 418,269 367,420 361,009 354,349
Residential real estate 997,123 999,903 957,282 894,502 868,836
Agricultural real estate 156,734 167,659 158,940 162,428 160,570
Consumer 768,462 762,471 745,482 707,035 670,406
Commercial 754,149 740,073 736,908 727,482 707,237
Agricultural 117,569 124,859 136,587 130,280 108,376
Other 377 3,959 2,316 2,016 3,626
Mortgage loans held for sale 55,758   40,828   62,938   56,663   38,471  

Total loans
4,927,306 4,897,443 4,854,382 4,506,362 4,364,838
Less allowance for loan losses 75,336   74,200   74,231   78,266   81,371  
Net loans 4,851,970   4,823,243   4,780,151   4,428,096   4,283,467  
Premises and equipment, net 192,748 195,212 207,181 180,341 179,942
Goodwill and intangible assets (excluding mortgage servicing rights) 216,815 218,870 218,799 187,502 187,858
Company owned life insurance 154,741 153,821 152,761 138,899 138,027
Other real estate owned, net 15,134 13,554 18,496 16,425 16,594
Mortgage servicing rights, net 14,093 14,038 13,894 13,443 13,474
Other assets 104,334   105,418   100,333   89,040   92,844  
Total assets $ 8,528,542   $ 8,609,936   $ 8,481,352   $ 7,651,379   $ 7,617,825  
 
Liabilities and stockholders' equity:
Deposits:
Non-interest bearing $ 1,757,664 $ 1,791,364 $ 1,637,151 $ 1,533,484 $ 1,458,460
Interest bearing 5,210,495   5,214,848   5,322,348   4,645,558   4,676,677  
Total deposits 6,968,159   7,006,212   6,959,499   6,179,042   6,135,137  
Securities sold under repurchase agreements 462,073 502,250 432,478 462,985 488,898
Accounts payable, accrued expenses and other liabilities 58,335 72,006 63,713 51,456 48,770
Long-term debt 43,048 38,067 36,882 36,893 36,905
Subordinated debentures held by subsidiary trusts 82,477   82,477   102,916   82,477   82,477  
Total liabilities 7,614,092   7,701,012   7,595,488   6,812,853   6,792,187  
Stockholders' equity:
Common stock 310,544 323,596 321,132 283,697 286,553
Retained earnings 599,727 587,862 572,362 560,469 546,444
Accumulated other comprehensive income (loss) 4,179   (2,534 ) (7,630 ) (5,640 ) (7,359 )
Total stockholders' equity 914,450   908,924   885,864   838,526   825,638  
Total liabilities and stockholders' equity $ 8,528,542   $ 8,609,936   $ 8,481,352   $ 7,651,379   $ 7,617,825  
 

CONSOLIDATED CAPITAL RATIOS
Total risk-based capital 15.43 % * 16.15 % 16.34 % 16.69 % 16.83 %
Tier 1 risk-based capital 13.94 * 14.52 14.71 15.02 15.16
Tier 1 common capital to total risk-weighted assets 12.58 * 13.08 12.89 13.45 13.55
Leverage Ratio 8.78 * 9.61 10.42 10.35 10.27
Tangible common stockholders' equity to tangible assets** 8.39 8.22 8.07 8.72 8.58
 
 

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
      2015   2014
ASSET QUALITY Mar 31 Dec 31   Sep 30   Jun 30   Mar 31
Allowance for loan losses $ 75,336 $ 74,200 $ 74,231 $ 78,266 $ 81,371
As a percentage of period-end loans 1.53 % 1.52 % 1.53 % 1.74 % 1.86 %
 
Net charge-offs (recoveries) during quarter $ (41 ) $ 149 $ 4,296 $ 1,104 $ (1,032 )
Annualized as a percentage of average loans 0.00 % 0.01 % 0.36 % 0.10 % (0.10 )%
 
Non-performing assets:
Non-accrual loans $ 73,941 $ 62,182 $ 71,915 $ 79,166 $ 88,114
Accruing loans past due 90 days or more 5,175   2,576   1,348   1,494   1,664  
Total non-performing loans 79,116 64,758 73,263 80,660 89,778
Other real estate owned 15,134   13,554   18,496   16,425   16,594  
Total non-performing assets 94,250 78,312 91,759 97,085 106,372
As a percentage of:
Total loans and OREO 1.91 % 1.59 % 1.88 % 2.15 % 2.43 %
Total assets 1.11 % 0.91 % 1.08 % 1.27 % 1.40 %

ASSET QUALITY TRENDS
    Provision for Loan Losses     Net

Charge-offs (Recoveries)
    Allowance for Loan Losses     Accruing Loans 30-89 Days Past Due     Accruing TDRs     Non-Performing Loans     Non-Performing Assets
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 ) 1,104 78,266 24,250 23,531 80,660 97,085
Q3 2014 261 4,296 74,231 38,400 20,956 73,263 91,759
Q4 2014 118 149 74,200 28,848 20,952 64,758 78,312
Q1 2015 1,095 (41 ) 75,336 40,744 16,070 79,116 94,250

CRITICIZED LOANS
    Special Mention     Substandard     Doubtful     Total
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
Q3 2014 156,469 156,123 39,450 352,042
Q4 2014 154,084 163,675 34,854 352,613
Q1 2015 140,492 156,887 37,476 334,855

*Preliminary estimate - may be subject to change.

**See Non-GAAP Financial Measures included herein for a discussion regarding core net income, pre-tax, pre-provision 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
March 31, 2015   December 31, 2014   March 31, 2014
Average

Balance
  Interest   Average

Rate
  AverageBalance   Interest   AverageRate   Average

Balance
  Interest   Average

Rate
Interest earning assets:            
Loans (1) (2) $ 4,895,146 $ 59,816 4.96 % $ 4,870,509 $ 61,619 5.02 % $ 4,344,993 $ 54,192 5.06 %
Investment securities (2) 2,294,433 9,641 1.70 2,195,178 9,413 1.70 2,108,643 9,370 1.80
Interest bearing deposits in banks 546,583 389 0.29 745,171 504 0.27 368,784 231 0.25
Federal funds sold 1,174   2   0.69   597       1,099   1   0.37  
Total interest earnings assets 7,737,336 69,848 3.66 7,811,455 71,536 3.63 6,823,519 63,794 3.79
Non-earning assets 752,077       774,963       664,441      
Total assets $ 8,489,413       $ 8,586,418       $ 7,487,960      
Interest bearing liabilities:
Demand deposits $ 2,089,203 $ 506 0.10 % $ 2,148,522 $ 538 0.10 % $ 1,837,714 $ 512 0.11 %
Savings deposits 1,882,816 628 0.14 1,845,601 634 0.14 1,639,484 595 0.15
Time deposits 1,220,590 2,175 0.72 1,252,410 2,369 0.75 1,172,866 2,317 0.80
Repurchase agreements 479,525 54 0.05 481,901 56 0.05 456,557 66 0.06
Other borrowed funds 4 11 6
Long-term debt 38,113 515 5.48 38,037 558 5.82 36,909 473 5.20
Subordinated debentures held by subsidiary trusts 82,477   589   2.90   98,930   796   3.19   82,477   588   2.89  
Total interest bearing liabilities 5,792,728 4,467 0.31 5,865,412 4,951 0.33 5,226,013 4,551 0.35
Non-interest bearing deposits 1,723,001 1,751,023 1,403,822
Other non-interest bearing liabilities 66,391 74,378 50,185
Stockholders' equity 907,293       895,605       807,940      
Total liabilities and stockholders' equity $ 8,489,413       $ 8,586,418       $ 7,487,960      
Net FTE interest income 65,381 66,585 59,243
Less FTE adjustments (2)   (1,056 )     (1,069 )     (1,107 )  
Net interest income from consolidated statements of income   $ 64,325       $ 65,516       $ 58,136    
Interest rate spread     3.35 %     3.30 %     3.44 %
Net FTE interest margin (3)     3.43 %     3.38 %     3.52 %
Cost of funds, including non-interest bearing demand deposits (4)     0.24 %     0.26 %     0.28 %

(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 an 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 certain non-core revenues and expenses, including investment securities net gains or losses, acquisition expenses consisting primarily of travel expenses and professional fees, and nonrecurring litigation expenses. 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.

In addition, the Company adjusts net income to exclude income tax expense and provision for loan losses. Management believes this non-GAAP financial measure is useful to investors in evaluating operating trends by excluding pre-tax amounts which the Company views as fluctuating widely based on economic conditions.

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)
 
    2015   2014

As Of or For the Quarter Ended
Mar 31 Dec 31   Sep 30   Jun 30   Mar 31
Net income $ 20,980 $ 22,776 $ 19,155 $ 21,077 $ 21,393
Add back: income tax expense 10,440 12,330 10,071 11,302 11,511
Add back: provision for loan losses   1,095     118     261     (2,001 )   (5,000 )
Pre-tax, pre-provision net income

$

32,515
 

$

35,224
 

$

29,487
 

$

30,378
 

$

27,904
 
 
Net income $ 20,980 $ 22,776 $ 19,155 $ 21,077 $ 21,393
Adj: investment securities (gains) losses, net (6 ) 19 8 (17 ) (71 )
Plus: acquisition & nonrecurring litigation expenses 70 2,368 5,052 597
Adj: income taxes   (24 )   (903 )   (1,913 )   (219 )   27  
Total core net income (A)   21,020     24,260     22,302     21,438     21,349  
 
Total non-interest income $ 27,782 $ 31,361 $ 29,363 $ 26,571 $ 24,106
Adj: investment securities (gains) losses, net   (6 )   19     8     (17 )   (71 )
Total core non-interest income 27,776 31,380 29,371 26,554 24,035
Net interest income   64,325     65,516     65,082     59,727     58,136  
Total core revenue $ 92,101   $ 96,896   $ 94,453   $ 86,281   $ 82,171  
 
Total non-interest expense $ 59,592 $ 61,653 $ 64,958 $ 55,920 $ 54,338
Less: acquisition & nonrecurring litigation expenses   (70 )   (2,368 )   (5,052 )   (597 )    
Core non-interest expense $ 59,522   $ 59,285   $ 59,906   $ 55,323   $ 54,338  
 
Total quarterly average stockholders' equity (B) $ 907,293 $ 895,605 $ 888,464 $ 830,117 $ 807,940
Less: average goodwill and other intangible assets (excluding mortgage servicing rights)   (218,511 )   (218,407 )   (208,346 )   (187,710 )   (188,078 )
Average tangible common stockholders' equity (C) $ 688,782   $ 677,198   $ 680,118   $ 642,407   $ 619,862  
 
Total stockholders' equity, period-end $ 914,450 $ 908,924 $ 885,864 $ 838,526 $ 825,638
Less: goodwill and other intangible assets (excluding mortgage servicing rights)   (216,815 )   (218,870 )   (218,799 )   (187,502 )   (187,858 )
Total tangible common stockholders' equity (D) $ 697,635   $ 690,054   $ 667,065   $ 651,024   $ 637,780  
 
Total assets $ 8,528,542 $ 8,609,936 $ 8,481,352 7,651,379 7,617,825
Less: goodwill and other intangible assets (excluding mortgage servicing rights)   (216,815 )   (218,870 )   (218,799 )   (187,502 )   (187,858 )
Tangible assets (E) $ 8,311,727   $ 8,391,066   $ 8,262,553   $ 7,463,877   $ 7,429,967  
 
Total quarterly average assets (F) $ 8,489,413 $ 8,586,418 $ 8,150,404 $ 7,556,122 $ 7,487,960
 
Total common shares outstanding, period end (G) 45,429,468 45,788,415 45,672,922 44,255,012 44,390,095
Weighted-average common shares - diluted (H) 45,840,191 46,037,344 45,460,288 44,575,963 44,620,776
 
Core earnings per share, diluted (A/H) $ 0.46 $ 0.53 $ 0.49 $ 0.48 $ 0.48
Tangible book value per share, period-end (D/G) 15.36 15.07 14.61 14.71 14.37
 
Annualized net income (I) $ 85,086 $ 90,361 $ 75,995 $ 84,540 $ 86,761
Annualized core net income (J) 85,248 96,249 88,481 85,988 86,582
 
Core return on average assets (J/F) 1.00 % 1.12 % 1.09 % 1.14 % 1.16 %
Core return on average common equity (J/B) 9.40 10.75 9.96 10.36 10.72
Return on average tangible common equity (I/C) 12.35 13.34 11.17 13.16 14.00
Tangible common stockholders' equity to tangible assets (D/E) 8.39 8.22 8.07 8.72 8.58

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