First Interstate BancSystem, Inc. (NASDAQ:FIBK) reports second quarter 2015 net income of $22.2 million, or $0.49 per share. This compares to net income of $21.0 million, or $0.46 per share, during first quarter 2015, and $21.1 million, or $0.47 per share, during second quarter 2014.

SECOND QUARTER HIGHLIGHTS
  • Pre-tax, pre-provision income of $35.1 million, a 7.9% increase from the prior quarter and a 15.5% increase from the same period in the prior year.
  • Organic loan growth of 3.6% over prior quarter and 5.3% year-over-year.
  • Loan to deposit ratio of 75.0% as of June 30, 2015, compared to 72.9% a year ago.
  • Net interest margin ratio of 3.47%, a 4 basis point improvement compared to first quarter 2015.
  • Income from the origination and sale of mortgage loans increased 49.0%, to $8.8 million, as compared to first quarter 2015.
  • Improvement in non-performing assets, which declined to 1.01% of total assets as of June 30, 2015, as compared to 1.11% of total assets as of March 31, 2015.

"We continued to see strong improvement in our core earnings during the second quarter, with a 12% increase in total revenue and a 15% increase in pre-tax, pre-provision income compared to the second quarter of 2014," said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. "We saw a notable increase in organic loan demand in our markets, which, along with the Mountain West acquisition, drove a 13% increase in our total loans year-over-year. Organic loan demand was broad-based, with notable growth in our commercial, commercial real estate, consumer and agricultural portfolios. We also had a strong quarter of residential mortgage loan production, which resulted in a strong increase in our loan sale income," continued Mr. Garding. "As we continue to execute well on our growth strategies and complete our pending acquisition of Absarokee Bancorporation, we believe we can continue to deliver strong results for our shareholders," said Mr. Garding.

RESULTS OF OPERATIONS

Net Interest Income. The Company's net interest income, on a fully taxable equivalent basis, increased $1.0 million to $66.4 million during second quarter 2015, as compared to $65.4 million during first quarter 2015, primarily due to the combined impact of one additional accrual day during second quarter 2015 and a shift in the mix of interest earning assets from lower yielding interest bearing deposits in banks to higher yielding loans.

The yield on average loans decreased 7 basis points to 4.89% during second quarter 2015, as compared to 4.96% during first quarter 2015. The impact of the reduction in loan yield was more than offset by a 2.0% increase in average loans outstanding during second quarter 2015, as compared to first quarter 2015. Interest accretion related to the fair valuation of acquired loans contributed $1.6 million of interest income during second quarter 2015, of which $470 thousand was related to early payoffs of acquired loans. This compares to interest accretion of $1.1 million during first quarter 2015, of which $351 thousand was related to early payoffs. Recoveries of charged-off loan interest were $753 during second quarter 2015, as compared to $591 during first quarter 2015.

The Company's net interest margin ratio increased 4 basis points to 3.47% during second quarter 2015, as compared to 3.43% during first quarter 2015. 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 2 basis points to 3.40% during second quarter 2015, compared to 3.38% during first quarter 2015. 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.

Non-Interest Income. Non-interest income increased $4.0 million to $31.8 million during second quarter 2015, as compared to $27.8 million during first quarter 2015, primarily due to increases in income from the origination and sale of mortgage loans and increases in other service charges, commissions and fees income.

Income from the origination and sale of loans increased $2.9 million, or 49.0%, to $8.8 million during second quarter 2015, as compared to $5.9 million during first quarter 2015. During the second quarter of 2015, the Company sold $10.6 million of seasoned portfolio loans at an aggregate gain of $410 thousand. In addition, mortgage loan production increased 29.5% during second quarter 2015, as compared to first quarter 2015. Loans originated for home purchases accounted for approximately 65% of the Company's loan production during second quarter 2015, as compared to approximately 57% during first quarter 2015.

Other service charges, commissions and fees income increased $1.3 million, or 13.2%, to $11.2 million during second quarter 2015, as compared to $9.9 million during first quarter 2015, primarily due to increases in interchange fee income due to higher debit and credit card transaction volumes.

Also, during second quarter 2015, the Company recorded a $863 thousand gain on the sale of land. This gain is included in other income in the accompanying financial summary. Other income decreased $323 thousand, or 10.3%, to $2.8 million during second quarter 2015, as compared to $3.1 million during first quarter 2015. Included in first quarter 2015 other income is income from the reversal of $1.0 million of accrued costs associated with the settlement of secondary investor claims acquired as part of the 2014 Mountain West Financial Corp acquisition.

Non-Interest Expense. Non-interest expense increased $2.4 million, or 4.0%, to $62.0 million during second quarter 2015, as compared to $59.6 million during first quarter 2015. During second quarter 2015, the Company recorded one-time contract termination expense of $876 thousand related to a change in payment service provider. In addition, the Company recognized unusually high fraud losses primarily related to fraudulent credit card activity during second quarter 2015. Fraud losses were $719 thousand during second quarter 2015, an increase of $520 thousand from first quarter 2015.

BALANCE SHEET

Total assets decreased $142 million, or 1.7%, to $8.4 billion as of June 30, 2015, from $8.5 billion as of March 31, 2015. Second quarter 2015 loan growth was funded through available funds resulting in decreases in investment securities and interest bearing deposits in banks.

Total loans increased $177 million, or 3.6%, to $5.1 billion as of June 30, 2015, from $4.9 billion as of March 31, 2015, with the most notable growth occurring in commercial, commercial real estate, agricultural and consumer loans.

Continuing business expansion in the Company's market areas and the movement of completed commercial construction projects from construction loans to permanent financing resulted in increases in the commercial and commercial real estate loan portfolios. Commercial loans increased $65 million, or 8.6%, to $819 million as of June 30, 2015, from $754 million as of March 31, 2015, and commercial real estate loans increased $33 million, or 2.0%, to $1.7 billion as of June 30, 2015.

Agricultural loans increased $25 million, or 21.3%, to $143 million as of June 30, 2015, from $118 million as of March 31, 2015. Growth in agricultural loans is primarily attributable to seasonal increases in credit lines that typically occur during the second and third quarters of each year.

Consumer loans grew $31 million or 4.0%, to $799 million as of June 30, 2015, from $768 million as of March 31, 2015. Approximately 76% of this increase occurred in the indirect consumer loan portfolio, which grew $23 million to $589 million as of June 30, 2015, from $566 million as of March 31, 2015, due to the combined impacts of heightened consumer demand for recreational vehicles and increased dealer volume resulting from the Company's historical expansion efforts within its existing market areas.

The Company has historically experienced a decrease in total deposits during the second quarter of the year. As of June 30, 2015, total deposits decreased $164 million, or 2.4%, to $6.8 billion, as compared to $7.0 billion as of March 31, 2015. As of June 30, 2015, the mix of total deposits was 26% non-interest bearing demand, 30% interest bearing demand, 27% savings and 17% time.

ASSET QUALITY

Non-performing assets declined to $85 million, or 1.01% of total assets, as of June 30, 2015, from $94 million, or 1.11% of total assets, as of March 31, 2015, with all categories of non-performing assets showing improvement. Loans past due 90 days or more and still accruing interest decreased 58.4% to $2.2 million as of June 30, 2015, from $5.2 million as of March 31, 2015, primarily due to the renewal of past due loans that were in the process of renewal at March 31, 2015.

OREO decreased 22.2% to $11.8 million as of June 30, 2015, from $15.1 million as of March 31, 2015. During second quarter 2015, the Company recorded OREO additions of $1.1 million and sold OREO property with carrying values of $4.5 million at a $986 thousand net gain.

The Company recorded a provision for loan losses of $1.3 million during second quarter 2015, compared to $1.1 million during first quarter 2015. Higher provision for loan losses recorded during second quarter 2015, as compared to first quarter 2015, is reflective of loan growth and increases in estimated loss exposure on certain non-performing loans. The Company's allowance for loan losses as a percentage of period end loans declined slightly to 1.50% as of June 30, 2015, compared to 1.53% as of March 31, 2015.

Second Quarter 2015 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss second quarter 2015 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Tuesday, July 21, 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 July 21, 2015 through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on August 21, 2015, by dialing 1-877-344-7529 (using conference ID 10068509). 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.
 

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary

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

INCOME STATEMENT SUMMARIES
2nd Qtr   1st Qtr 4th Qtr   3rd Qtr   2nd Qtr
Net interest income $ 65,288 $ 64,325 $ 65,516 $ 65,082 $ 59,727
Net interest income on a fully-taxable equivalent ("FTE") basis 66,399 65,381 66,585 66,129 60,806
Provision for loan losses 1,340 1,095 118 261 (2,001 )
Non-interest income:
Other service charges, commissions and fees 11,173 9,867 11,429 10,458 9,699
Income from the origination and sale of loans 8,802 5,906 5,554 7,346 6,380
Wealth management revenues 4,897 4,937 4,775 5,157 4,609
Service charges on deposit accounts 4,053 3,944 4,432 4,331 3,929
Investment securities gains (losses), net 46 6 (19 ) (8 ) 17
Other income   2,799     3,122     5,190     2,079     1,937  
Total non-interest income 31,770 27,782 31,361 29,363 26,571
Non-interest expense:
Salaries and wages 26,093 25,349 23,717 25,914 24,440
Employee benefits 8,070 7,780 6,812 7,841 7,164
Occupancy, net 4,529 4,492 4,770 4,534 4,253
Furniture and equipment 3,703 3,793 4,120 3,338 3,157
Outsourced technology services 2,593 2,463 2,468 2,346 2,309
Other real estate owned income, net (823 ) (61 ) (61 ) (58 ) (134 )
Core deposit intangible amortization 855 854 855 688 354
Non-core expenses (income) (7 ) 70 2,368 5,052 597
Other expenses   16,965     14,852     16,604     15,303     13,780  
Total non-interest expense   61,978     59,592     61,653     64,958     55,920  
Income before taxes 33,740 31,420 35,106 29,226 32,379
Income taxes   11,518     10,440     12,330     10,071     11,302  
Net income $ 22,222   $ 20,980   $ 22,776   $ 19,155   $ 21,077  
Core net income** $ 22,189   $ 21,020   $ 24,260   $ 22,302   $ 21,438  
Pre-tax, pre-provision net income** $ 35,080   $ 32,515   $ 35,224   $ 29,487   $ 30,378  
 

PER COMMON SHARE DATA
Net income - basic $ 0.49 $ 0.46 $ 0.50 $ 0.43 $ 0.48
Net income - diluted 0.49 0.46 0.49 0.42 0.47
Core net income - diluted 0.49 0.46 0.53 0.49 0.48
Cash dividend paid 0.20 0.20 0.16 0.16 0.16
Book value at period end 20.32 20.13 19.85 19.40 18.95
Tangible book value at period end** 15.58 15.36 15.07 14.61 14.71
 

OUTSTANDING COMMON SHARES
At period-end 45,506,583 45,429,468 45,788,415 45,672,922 44,255,012
Weighted-average shares - basic 45,143,122 45,378,230 45,485,548 44,911,858 44,044,260
Weighted-average shares - diluted 45,606,686 45,840,191 46,037,344 45,460,288 44,575,963
 

SELECTED ANNUALIZED RATIOS
Return on average assets 1.06 % 1.00 % 1.05 % 0.93 % 1.12 %
Core return on average assets** 1.06 1.00 1.12 1.09 1.14
Return on average common equity 9.68 9.38 10.09 8.55 10.18
Core return on average common equity** 9.66 9.40 10.75 9.96 10.36
Return on average tangible common equity**

12.65
12.35 13.34 11.17 13.16
Net FTE interest income to average earning assets 3.47 3.43 3.38 3.55 3.54
 
 

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
  2015   2014
BALANCE SHEET SUMMARIES Jun 30 Mar 31 Dec 31   Sept 30   Jun 30
Assets:
Cash and cash equivalents $ 506,434 $ 637,803 $ 798,670 $ 819,963 $ 503,648
Investment securities 2,139,433 2,340,904 2,287,110 2,169,774 2,093,985
Loans held for investment:
Commercial real estate 1,704,073 1,670,829 1,639,422 1,686,509 1,464,947
Construction real estate 403,228 406,305 418,269 367,420 361,009
Residential real estate 999,038 997,123 999,903 957,282 894,502
Agricultural real estate 158,506 156,734 167,659 158,940 162,428
Consumer 799,126 768,462 762,471 745,482 707,035
Commercial 819,119 754,149 740,073 736,908 727,482
Agricultural 142,629 117,569 124,859 136,587 130,280
Other 2,905 377 3,959 2,316 2,016
Mortgage loans held for sale   75,322     55,758     40,828     62,938     56,663  
Total loans 5,103,946 4,927,306 4,897,443 4,854,382 4,506,362
Less allowance for loan losses   76,552     75,336     74,200     74,231     78,266  
Net loans   5,027,394     4,851,970     4,823,243     4,780,151     4,428,096  
Premises and equipment, net 189,488 192,748 195,212 207,181 180,341
Goodwill and intangible assets (excluding mortgage servicing rights) 215,958 216,815 218,870 218,799 187,502
Company owned life insurance 177,625 154,741 153,821 152,761 138,899
Other real estate owned, net 11,773 15,134 13,554 18,496 16,425
Mortgage servicing rights, net 14,654 14,093 14,038 13,894 13,443
Other assets   103,459     104,334     105,418     100,333     89,040  
Total assets $ 8,386,218   $ 8,528,542   $ 8,609,936   $ 8,481,352   $ 7,651,379  
 
Liabilities and stockholders' equity:
Deposits:
Non-interest bearing $ 1,757,641 $ 1,757,664 $ 1,791,364 $ 1,637,151 $ 1,533,484
Interest bearing   5,046,760     5,210,495     5,214,848     5,322,348     4,645,558  
Total deposits   6,804,401     6,968,159     7,006,212     6,959,499     6,179,042  
Securities sold under repurchase agreements 469,145 462,073 502,250 432,478 462,985
Accounts payable, accrued expenses and other liabilities 62,272 58,335 72,006 63,713 51,456
Long-term debt 43,068 43,048 38,067 36,882 36,893
Subordinated debentures held by subsidiary trusts   82,477     82,477     82,477     102,916     82,477  
Total liabilities   7,461,363     7,614,092     7,701,012     7,595,488     6,812,853  
Stockholders' equity:
Common stock 313,125 310,544 323,596 321,132 283,697
Retained earnings 612,875 599,727 587,862 572,362 560,469
Accumulated other comprehensive income (loss)   (1,145 )   4,179     (2,534 )   (7,630 )   (5,640 )
Total stockholders' equity   924,855     914,450     908,924     885,864     838,526  
Total liabilities and stockholders' equity $ 8,386,218   $ 8,528,542   $ 8,609,936   $ 8,481,352   $ 7,651,379  
 

CONSOLIDATED CAPITAL RATIOS
Total risk-based capital 15.37 % * 15.43 % 16.15 % 16.34 % 16.69 %
Tier 1 risk-based capital 13.88 * 13.94 14.52 14.71 15.02
Tier 1 common capital to total risk-weighted assets 12.55 * 12.58 13.08 12.89 13.45
Leverage Ratio 10.11 * 8.78 9.61 10.42 10.35
Tangible common stockholders' equity to tangible assets** 8.68 8.39 8.22 8.07 8.72
 
 

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)
 
  2015   2014
ASSET QUALITY Jun 30   Mar 31 Dec 31   Sep 30   Jun 30
Allowance for loan losses $ 76,552 $ 75,336 $ 74,200 $ 74,231 $ 78,266
As a percentage of period-end loans 1.50 % 1.53 % 1.52 % 1.53 % 1.74 %
 
Net charge-offs (recoveries) during quarter $ 124 $ (41 ) $ 149 $ 4,296 $ 1,104
Annualized as a percentage of average loans 0.01 % % 0.01 % 0.36 % 0.10 %
 
Non-performing assets:
Non-accrual loans $ 70,848 $ 73,941 $ 62,182 $ 71,915 $ 79,166
Accruing loans past due 90 days or more   2,153     5,175     2,576     1,348     1,494  
Total non-performing loans 73,001 79,116 64,758 73,263 80,660
Other real estate owned   11,773     15,134     13,554     18,496     16,425  
Total non-performing assets 84,774 94,250 78,312 91,759 97,085
As a percentage of:
Total loans and OREO 1.66 % 1.91 % 1.59 % 1.88 % 2.15 %
Total assets   1.01 %   1.11 %   0.91 %   1.08 %   1.27 %
 
 

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
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
Q2 2015 1,340 124 76,552 31,178 15,127 73,001 84,774
 
       

CRITICIZED LOANS
Special Mention Substandard Doubtful Total
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
Q2 2015 155,707 159,899 31,701 347,307
 
*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
June 30, 2015   March 31, 2015   June 30, 2014
Average     Average Average     Average Average     Average
Balance   Interest   Rate Balance   Interest   Rate Balance   Interest   Rate
Interest earning assets:

Loans (1) (2)
$ 4,991,416 $ 60,911 4.89 % $ 4,895,146 $ 59,816 4.96 % $ 4,436,786 $ 56,019 5.06 %
Investment securities (2) 2,319,636 9,642 1.67 2,294,433 9,641 1.70 2,091,438 9,017 1.73
Interest bearing deposits in banks 369,345 271 0.29 546,583 389 0.29 356,911 225 0.25
Federal funds sold   3,168     5     0.63     1,174     2     0.69     1,958     3     0.61  
Total interest earnings assets 7,683,565 70,829 3.70 7,737,336 69,848 3.66 6,887,093 65,264 3.80
Non-earning assets   743,545           752,077           669,029        
Total assets $ 8,427,110         $ 8,489,413         $ 7,556,122        
Interest bearing liabilities:
Demand deposits $ 2,086,443 $ 524 0.10 % $ 2,089,203 $ 506 0.10 % $ 1,878,483 $ 513 0.11 %
Savings deposits 1,874,508 624 0.13 1,882,816 628 0.14 1,653,034 598 0.15
Time deposits 1,175,753 2,091 0.71 1,220,590 2,175 0.72 1,148,832 2,216 0.77
Repurchase agreements 448,810 53 0.05 479,525 54 0.05 438,744 63 0.06
Other borrowed funds 7 4 8
Long-term debt 43,039 538 5.01 38,113 515 5.48 36,897 476 5.17
Subordinated debentures held by subsidiary trusts   82,477     600     2.92     82,477     589     2.90     82,477     592     2.88  
Total interest bearing liabilities 5,711,037 4,430 0.31 5,792,728 4,467 0.31 5,238,475 4,458 0.34
Non-interest bearing deposits 1,739,329 1,723,001 1,443,239
Other non-interest bearing liabilities 55,515 66,391 44,291
Stockholders' equity   921,229           907,293           830,117        
Total liabilities and stockholders' equity $ 8,427,110         $ 8,489,413         $ 7,556,122        
Net FTE interest income 66,399 65,381 60,806
Less FTE adjustments (2)       (1,111 )           (1,056 )           (1,079 )    
Net interest income from consolidated statements of income     $ 65,288           $ 64,325           $ 59,727      
Interest rate spread         3.39 %         3.35 %         3.46 %
Net FTE interest margin (3)         3.47 %         3.43 %         3.54 %
Cost of funds, including non-interest bearing demand deposits (4)         0.24 %         0.24 %         0.27 %
 
(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.
 
 

FIRST INTERSTATE BANCSYSTEM, INC AND SUBSIDIARIES

Average Balance Sheets

(Unaudited, $ in thousands)
 
  Six Months Ended
June 30, 2015  

June 30, 2014
Average     Average Average     Average
Balance   Interest   Rate Balance   Interest   Rate
Interest earning assets:
Loans (1) (2) $ 4,943,547 $ 120,727 4.92 % $ 4,391,143 $ 110,211 5.06 %
Investment securities (2) 2,307,104 19,283 1.69 2,099,993 18,387 1.77
Interest bearing deposits in banks 457,475 660 0.29 362,815 456 0.25
Federal funds sold   2,176     7     0.65     1,531     4     0.53  
Total interest earnings assets 7,710,302 140,677 3.68 6,855,482 129,058 3.80
Non-earning assets   747,788           666,748        
Total assets $ 8,458,090         $ 7,522,230        
Interest bearing liabilities:
Demand deposits $ 2,087,815 $ 1,030 0.10 % $ 1,858,211 $ 1,025 0.11 %
Savings deposits 1,878,640 1,252 0.13 1,646,296 1,193 0.15
Time deposits 1,198,048 4,266 0.72 1,160,783 4,533 0.79
Repurchase agreements 464,083 107 0.05 447,601 129 0.06
Other borrowed funds 5 7
Long-term debt 40,589 1,052 5.23 36,903 949 5.19
Subordinated debentures held by subsidiary trusts   82,477     1,190     2.91     82,477     1,180     2.89  
Total interest bearing liabilities 5,751,657 8,897 0.31 5,232,278 9,009 0.35
Non-interest bearing deposits 1,731,210 1,423,639
Other non-interest bearing liabilities 60,924 47,223
Stockholders' equity   914,299           819,090        
Total liabilities and stockholders' equity $ 8,458,090         $ 7,522,230        
Net FTE interest income 131,780 120,049
Less FTE adjustments (2)       (2,167 )           (2,186 )    
Net interest income from consolidated statements of income     $ 129,613           $ 117,863      
Interest rate spread         3.37 %         3.45 %
Net FTE interest margin (3)         3.45 %         3.53 %
Cost of funds, including non-interest bearing demand deposits (4)         0.24 %         0.27 %
 
(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 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.
     
2015 2014

As Of or For the Quarter Ended
Jun 30   Mar 31 Dec 31   Sep 30   Jun 30
Net income $ 22,222 $ 20,980 $ 22,776 $ 19,155 $ 21,077
Add back: income tax expense 11,518 10,440 12,330 10,071 11,302
Add back: provision for loan losses   1,340     1,095     118     261     (2,001 )
Pre-tax, pre-provision net income $ 35,080   $ 32,515   $ 35,224   $ 29,487   $ 30,378  
 
Net income $ 22,222 $ 20,980 $ 22,776 $ 19,155 $ 21,077
Adj: investment securities (gains) losses, net (46 ) (6 ) 19 8 (17 )
Plus: acquisition & nonrecurring litigation expenses (7 ) 70 2,368 5,052 597
Adj: income taxes   20     (24 )   (903 )   (1,913 )   (219 )

Total core net income
(A)   22,189     21,020     24,260     22,302     21,438  
 
Total non-interest income $ 31,770 $ 27,782 $ 31,361 $ 29,363 $ 26,571
Adj: investment securities (gains) losses, net   (46 )   (6 )   19     8     (17 )
Total core non-interest income 31,724 27,776 31,380 29,371 26,554
Net interest income   65,288     64,325     65,516     65,082     59,727  

Total core revenue
$ 97,012   $ 92,101   $ 96,896   $ 94,453   $ 86,281  
 
Total non-interest expense $ 61,978 $ 59,592 $ 61,653 $ 64,958 $ 55,920
Less: acquisition & nonrecurring litigation expenses   7     (70 )   (2,368 )   (5,052 )   (597 )
Core non-interest expense $ 61,985   $ 59,522   $ 59,285   $ 59,906   $ 55,323  
 
Total quarterly average stockholders' equity (B) $ 921,229 $ 907,293 $ 895,605 $ 888,464 $ 830,117
Less: average goodwill and other intangible assets (excluding mortgage servicing rights)  

(216,457
)   (218,511 )   (218,407 )   (208,346 )   (187,710 )

Average tangible common stockholders' equity
(C) $

704,772
  $ 688,782   $ 677,198   $ 680,118   $ 642,407  
 
Total stockholders' equity, period-end $ 924,855 $ 914,450 $ 908,924 $ 885,864 $ 838,526
Less: goodwill and other intangible assets (excluding mortgage servicing rights)   (215,958 )   (216,815 )   (218,870 )   (218,799 )   (187,502 )
Total tangible common stockholders' equity (D) $ 708,897   $ 697,635   $ 690,054   $ 667,065   $ 651,024  
 
Total assets $ 8,386,218 $ 8,528,542 $ 8,609,936 8,481,352 7,651,379
Less: goodwill and other intangible assets (excluding mortgage servicing rights)   (215,958 )   (216,815 )   (218,870 )   (218,799 )   (187,502 )
Tangible assets (E) $ 8,170,260   $ 8,311,727   $ 8,391,066   $ 8,262,553   $ 7,463,877  
 
Total quarterly average assets (F) $ 8,427,110 $ 8,489,413 $ 8,586,418 $ 8,150,404 $ 7,556,122
 
Total common shares outstanding, period end (G) 45,506,583 45,429,468 45,788,415 45,672,922 44,255,012
Weighted-average common shares - diluted (H) 45,606,686 45,840,191 46,037,344 45,460,288 44,575,963
 
Core earnings per share, diluted (A/H) $ 0.49 $ 0.46 $ 0.53 $ 0.49 $ 0.48
Tangible book value per share, period-end (D/G) 15.58 15.36 15.07 14.61 14.71
 
Annualized net income (I) $ 89,132 $ 85,086 $ 90,361 $ 75,995 $ 84,540
Annualized core net income (J) 89,000 85,248 96,249 88,481 85,988
 
Core return on average assets (J/F) 1.06 % 1.00 % 1.12 % 1.09 % 1.14 %
Core return on average common equity (J/B) 9.66 9.40 10.75 9.96 10.36
Return on average tangible common equity (I/C)

12.65
12.35 13.34 11.17 13.16
Tangible common stockholders' equity to tangible assets (D/E) 8.68 8.39 8.22 8.07 8.72
 

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