First Interstate BancSystem, Inc. Reports Second Quarter Earnings and Closing of Cascade Bancorp Acquisition

BILLINGS, Mont.--()--First Interstate BancSystem, Inc. (NASDAQ: FIBK) reports second quarter 2017 net income of $21.9 million, or $0.45 per share. This compares to net income of $23.1 million, or $0.51 per share, during first quarter 2017, and $25.6 million, or $0.57 per share, during second quarter 2016.

“We delivered a solid quarter highlighted by positive trends across most of our key metrics including stronger loan growth, higher mortgage banking revenue, an expanding net interest margin and stable core expense levels”

Exclusive of non-core items, the Company's second quarter core net income was $28.2 million, or $0.59 per share, as compared to $23.6 million, or $0.52 per share, during first quarter 2017, and $23.2 million, or $0.52 per share, during second quarter 2016.

HIGHLIGHTS

  • Successful completion of the acquisition of Cascade Bancorp on May 30, 2017, one month ahead of schedule.
  • Net interest margin expansion of 11 basis points.
  • Net interest income increased $10.4 million, or 15.1%, quarter-over-quarter.
  • Strong non-interest income growth of $8.1 million, or 27.7%, quarter-over-quarter. Exclusive of the one-time gain on sale, non-interest income increased $4.6 million, or 15.9%, quarter-over-quarter.
  • Non-interest expense, exclusive of acquisition costs, increased $7.3 million, or 11.6% quarter-over-quarter.
  • Annualized organic loan growth of approximately 7%.

“We delivered a solid quarter highlighted by positive trends across most of our key metrics including stronger loan growth, higher mortgage banking revenue, an expanding net interest margin and stable core expense levels,” said Kevin P. Riley, President and Chief Executive Officer of First Interstate BancSystem, Inc. “Our performance benefited from the addition of Cascade Bancorp’s operations at the end of May. Through this merger, we have added a talented group of bankers and a loyal customer base. With our similar approach to community banking and shared values, we have had a smooth transition and we are excited about the opportunities to leverage our combined strength to enhance client and revenue growth in our new markets.

“We anticipate a continuation of our positive trends in the second half of the year. With the integration of Cascade proceeding as scheduled, we are on track to capture all of the synergies projected for this transaction by the end of the third quarter. We believe this will position us well to increase our earnings power in the fourth quarter and into 2018,” said Mr. Riley.

DIVIDEND DECLARATION

On July 20, 2017, the Company's board of directors declared a dividend of $.24 per common share, payable on August 11, 2017, to owners of record as of August 2, 2017. The dividend equates to a 2.56% annual yield based on the $37.54 average closing pricing of the Company's common stock during the second quarter 2017.

ACQUISITION

On November 17, 2016, the Company entered into an agreement and plan of merger (the "Agreement") to acquire all of the outstanding stock of Cascade Bancorp, parent company of Bank of the Cascades (BOTC), an Oregon-based community bank with 46 banking offices across Oregon, Idaho and Washington. The acquisition was completed on May 30, 2017, and the Company will merge Bank of the Cascades with its existing bank subsidiary, First Interstate Bank, on August 11, 2017.

Consideration for the acquisition totaled $534 million and consisted of cash of $145.6 million and the issuance of 11.3 million shares of the Company's Class A common stock valued at $34.30 per share, the closing price of the Company's Class A common stock as quoted on the NASDAQ stock exchange on the acquisition date. As of the acquisition date, Cascade Bancorp had total assets with fair values of $3.3 billion, total loans with fair values of $2.1 billion and deposits with fair values of $2.7 billion. The Company has recorded the fair values of the assets and liabilities acquired from BOTC only provisionally, and will finalize the amounts in the coming months. In conjunction with the acquisition, the Company recorded provisional goodwill of $232 million and core deposit intangible assets of $47 million.

NET INTEREST INCOME

The Company's net interest income, on a fully taxable equivalent basis, increased $10.4 million, or 14.9%, to $80.4 million during second quarter 2017, as compared to $70.0 million during first quarter 2017, and increased $11.6 million, or 16.9%, from $68.7 million during second quarter 2016.

Net interest income was positively impacted this quarter by the recovery of previously charged-off interest of $2.1 million, compared to $413 thousand during first quarter 2017 and $133 thousand during the second quarter of 2016.

Interest accretion attributable to the fair valuation of acquired loans contributed $1.7 million of interest income during the second quarter of 2017, of which approximately $330 thousand was related to early payoffs. This compares to interest accretion of $1.2 million during the first quarter of 2017, of which approximately $417 thousand was related to early payoffs, and interest accretion of $1.7 million during the second quarter of 2016, of which, approximately $779 thousand was due to early payoffs. The quarter-over-quarter increase in interest accretion attributable to the fair valuation of acquired loans is solely attributable to the BOTC portfolio.

The Company's net interest margin ratio increased to 3.60% during the second quarter of 2017, as compared to 3.49% during the first quarter of 2017. Exclusive of the impact of recovery of charged-off interest and the impact of interest accretion on acquired loans, the Company's core net interest margin ratio was 3.43 % this quarter compared to 3.41% during the first quarter of 2017 and 3.46% during the same quarter of 2016.

PROVISION FOR LOAN LOSSES

The Company recorded a provision for loan losses of $2.4 million during second quarter 2017, compared to $1.7 million during first quarter 2017, and $2.6 million during second quarter 2016. Fluctuations in the provision for loan losses reflect management's estimate of possible loan losses based upon evaluation of the borrowers' ability to repay, collateral value underlying loans, loan loss trends, and estimated effects of current economic conditions on our loan portfolio.

NON-INTEREST INCOME

Total non-interest income increased $8.1 million, or 27.7%, to $37.2 million during second quarter 2017, as compared to $29.1 million during first quarter 2017. Exclusive of the non-core litigation recovery of $3.8 million, total non-interest income increased $3.1 million from $34.1 million during second quarter 2016.

Second quarter increases, as compared to first quarter 2017, were partially attributable to a one-time gain of $3.4 million recognized on the sale of the custodial rights to all the Company's health savings accounts (HSA) held by First Interstate Bank. In total, the Company sold the custodial rights to HealthEquity for $6.5 million, of which $3.1 million was attributable to BOTC and considered a fair market value purchase accounting adjustment. Total health savings accounts of approximately $58 million will be transferred to HealthEquity during the third quarter of 2017.

Payment services revenues increased $1.8 million, or 21.1%, to $10.2 million during second quarter 2017, as compared to $8.4 million during first quarter 2017. $1.1 million, or 60%, of this growth was directly attributable to BOTC. Exclusive of the impact from BOTC, payment services revenues increased by 8% on a linked quarter basis and 5% over the same quarter last year. This increase in payment services revenue is attributable to increased debit card and credit card volume.

Mortgage banking revenues increased $1.1 million, or 16.7%, to $7.6 million during second quarter 2017, as compared to $6.5 million during first quarter 2017. $629 thousand, or 57%, of this growth was directly attributable to BOTC. During second quarter 2017, loans originated for home purchases accounted for approximately 79% of production versus 67% of production during the same period last year.

NON-INTEREST EXPENSE

Non-interest expense increased $16.7 million, or 26.2%, to $80.4 million during second quarter 2017. Included in non-interest expenses are $10.1 million of expenses related to the acquisition which the Company considers to be non-core. Exclusive of these non-core expenses, core non-interest expense was $70.3 million during the second quarter of 2017, compared to $63.0 million during first quarter 2017 and $63.8 million during second quarter 2016, with the increase primarily attributable to the BOTC transaction.

Salaries and wages expense increased $2.3 million, or 8.9%, to $28 million during second quarter 2017, as compared to $25.7 million during first quarter 2017. BOTC salaries and First Interstate Bank severance payments unrelated to the acquisition account for $2.1 million of this increase.

Core deposit intangible amortization expense increased $433 thousand, from $630 thousand during first quarter 2017, to $1.1 million during second quarter 2017 and increased $236 thousand from $827 thousand during second quarter 2016. The increase in amortization expense is directly attributable to the higher level of core deposit intangibles recorded as a result of the acquisition.

Other expenses increased $3.4 million, or 17.1%, to $23.4 million during second quarter 2017, as compared to $20 million during first quarter 2017, primarily due to normal fluctuations in operating expenses and the acquisition of BOTC.

BALANCE SHEET

As a result of the recent acquisition of BOTC, total loans increased $2.2 billion, or 39.9%, to $7.6 billion as of June 30, 2017, compared to $5.4 billion as of March 31, 2017. Exclusive of the acquisition and the disposition of $31.7 million of shared national credits acquired from BOTC, total loans grew organically $96.2 million or 1.8% from March 31, 2017.

Total real estate loans increased $1.7 billion, or 48.3%, to $5.1 billion as of June 30, 2017. Included in this portfolio, commercial real estate loans increased $1.0 billion, or 54.8%, to $2.8 billion as of June 30, 2017. Exclusive of the acquisition, total commercial real estate loans increased organically $38.8 million, or 2.1% quarter over quarter. Construction loans increased $215.8 million, or 46.4%, to $681.2 million as of June 30, 2017, from $465.4 million as of March 31, 2017. Exclusive of acquired BOTC loans, construction loans decreased $21.5 million, or 4.6%, quarter-over-quarter.

Indirect consumer loans increased $16.5 million, or 2.2%, to $779.0 million as of June 30 2017, from $762.5 million as of March 31, 2017, with all of the increase attributable to organic growth. The BOTC acquisition will provide the Company with the opportunity to expand this portfolio to clients in Washington, Oregon and Idaho.

Agriculture loans increased $23.6 million, or 18.8%, to $149.1 million as of June 30, 2017. Exclusive of the acquisition, total agriculture loans increased organically $22.9 million, or 18.3% quarter-over-quarter.

Goodwill and intangible assets, excluding mortgage servicing rights, increased $276.4 million, from $249.9 million as of March 31, 2017, to $526.3 million as of June 30, 2017. The increase is attributable to goodwill and core deposit intangibles acquired in the acquisition.

Total deposits increased $2.7 billion to $10.0 billion as of June 30, 2017, from $7.3 billion as of March 31, 2017, as a result of the acquisition. Exclusive of the $2.7 billion in deposits that were acquired as a result of the BOTC acquisition, deposits remained stable quarter-over-quarter. As of June 30, 2017, the mix of total deposits was 29% non-interest bearing demand, 28% interest bearing demand, 31% savings and 12% time, a slight shift from the prior quarter as BOTC deposit balances were more heavily weighted to non-interest bearing demand deposits.

CREDIT QUALITY

As of June 30, 2017 non-performing assets increased to $97.3 million, or 9.9%, compared to $88.5 million as of March 31, 2017. Non-accrual loans increased approximately $2.1 million, to $76.7 million as of June 30, 2017, as compared to $74.6 million during first quarter 2017 as a result of a commercial real estate loan and a commercial loan in Montana. Accruing loans past due 90 days or more increased $4.8 million, or over 100%, primarily due to the BOTC acquisition. Other real estate owned increased $1.9 million primarily as a result of a commercial property acquired from BOTC.

Criticized loans increased $46.1 million, or 12%, to $429.7 million as of June 30, 2017, from $383.6 million as of March 31, 2017 as a result of the BOTC acquisition. BOTC criticized loans of $62.0 million resulted in increases to special mention of $35 million, substandard of $23 million and doubtful of $4 million. First Interstate Bank criticized loans decreased by $16 million, mainly in the special mention and substandard categories.

Net loan charge-offs increased $1.2 million to $2.9 million during second quarter 2017, as compared to $1.7 million during first quarter 2017, and increased $0.8 million from $2.1 million from second quarter 2016. The Company's allowance for loan losses as a percentage of period end loans decreased from 1.41% as of March 31, 2017, to 1.00% as of June 30, 2017, as a result of higher loan balances from BOTC acquired loans, which were recorded at fair value in purchase accounting, with no corresponding allowance for loan losses. The provisional purchase accounting mark on the loans acquired in the BOTC transaction was $31.7 million.

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 professional fees, and nonrecurring litigation expenses and recoveries. 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 may be presented before or 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.

See the Non-GAAP Financial Measures table included herein for a reconciliation of the above described non-GAAP financial measures to their most directly comparable GAAP financial measures.

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: declining business and economic conditions, adverse economic conditions affecting Montana, Wyoming, South Dakota, Oregon, Washington and Idaho, lending risk, changes in interest rates, credit losses, adequacy of the allowance for loan losses, declining oil and gas prices, declining demand for coal, additional regulatory requirements now that our assets exceed $10 billion, failure to integrate or profitably operate acquired organizations, access to low-cost funding sources, impairment of goodwill, changes in accounting standards, 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, stringent capital requirements, future FDIC insurance premium increases, CFPB restrictions on our ability to originate and sell mortgage loans, failure of technology, cyber-security, unfavorable resolution of litigation, inability to meet liquidity requirements, environmental remediation and other costs, ineffective internal operational controls, competition, reliance on external vendors, soundness of other financial institutions, failure to effectively implement technology-driven products and services, inability of our bank subsidiary to pay dividends, risks associated with introducing new lines of business, products or services, implementation of new lines of business or net product or services offerings, successful completion of the merger and integration of Cascade Bancorp, uninsured nature of any investment in Class A and Class B common stock, volatility of Class A and Class B common stock, decline in market price of Class A common stock, litigation pertaining to fiduciary responsibilities, change in dividend policy, uninsured nature of any investment in Class A and Class B common stock, voting control of Class B stockholders, anti-takeover provisions, dilution as a result of future equity issuances, 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.

Second Quarter 2017 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss second quarter 2017 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Thursday, July 27, 2017. 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 27, 2017 through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on August 27, 2017, by dialing 1-877-344-7529 (using conference ID 10110142). 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 banking offices, including detached drive-up facilities, in communities across Montana, Wyoming, South Dakota, Washington, Oregon and Idaho. Through First Interstate Bank and Bank of the Cascades, the Company delivers a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities throughout the Company's market areas.

       
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Income

(Unaudited)

 
Quarter Ended % Change
(In thousands, except per share data)    

June 30,
2017

 

Mar 31,
2017

 

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

2Q17 vs
1Q17

 

2Q17 vs
2Q16

Net interest income $ 79,323   $ 68,893   $ 73,601   $ 70,581   $ 67,633 15.1 %   17.3 %
Net interest income on a fully-taxable equivalent ("FTE") basis 80,378 69,950 74,724 71,739 68,742 14.9 16.9
Provision for loan losses 2,355 1,730 1,078 2,363 2,550 36.1 (7.6 )
Non-interest income:
Payment services revenues 10,225 8,445 8,716 9,019 8,648 21.1 18.2
Mortgage banking revenues 7,643 6,548 8,911 11,303 10,281 16.7 (25.7 )
Wealth management revenues 5,084 5,013 5,724 4,995 5,166 1.4 (1.6 )
Service charges on deposit accounts 5,060 4,350 4,645 4,692 4,626 16.3 9.4
Other service charges, commissions and fees   3,358     2,676       3,425       2,628     2,845 25.5     18.0  
Total fee-based revenues 31,370 27,032 31,421 32,637 31,566 16.0 (0.6 )
Investment securities gains (losses) 5 2 18 225 108 150.0 (95.4 )
Other income 5,805 2,073 2,979 2,299 2,457 180.0 136.3
Non-core litigation recovery             400           3,750 NM     NM  
Total non-interest income 37,180 29,107 34,818 35,161 37,881 27.7 (1.9 )
Non-interest expense:
Salaries and wages 28,037 25,741 28,929 26,908 27,579 8.9 1.7
Employee benefits 9,811 9,616 8,908 8,610 8,066 2.0 21.6
Occupancy and equipment 7,919 7,062 6,823 6,811 6,744 12.1 17.4
Core deposit intangible amortization 1,063 630 898 875 827 68.7 28.5
Other expenses   23,402     19,987       22,557       20,994     20,411 17.1     14.7  
Subtotal 70,232 63,036 68,115 64,198 63,627 11.4 10.4
Other real estate owned (income) expense 34 (48 ) (153 ) 8 140 (170.8 ) (75.7 )
Acquisition expenses   10,133     705       1,624       1,197     1,337.3     NM  
Total non-interest expense   80,399     63,693       69,586       65,403     63,767 26.2     26.1  
Income before taxes 33,749 32,577 37,755 37,976 39,197 3.6 (13.9 )
Income taxes   11,881     9,451       12,990       12,783     13,643 25.7     (12.9 )
Net income $ 21,868   $ 23,126     $ 24,765     $ 25,193   $ 25,554 (5.4 )%   (14.4 )%
 
Weighted-average basic shares outstanding 47,613 44,680 44,530 44,415 44,269 6.6 % 7.6 %
Weighted-average diluted shares outstanding 48,074 45,239 44,953 44,806 44,645 6.3 7.7
Earnings per share - basic $ 0.46 $ 0.52 $ 0.56 $ 0.57 $ 0.58 (11.5 ) (20.7 )
Earnings per share - diluted 0.45 0.51 0.55 0.56 0.57 (11.8 ) (21.1 )
 
Core net income** $ 28,167 $ 23,563 $ 25,516 $ 25,798 $ 23,154 19.5 % 21.7 %
Core pre-tax, pre-provision net income** 46,231 35,010 40,039 41,311 37,889 32.1 22.0
Core earnings per share - diluted** 0.59 0.52 0.57 0.58 0.52 13.5 13.5
 
NM - not meaningful
**Non-GAAP financial measure - see Non-GAAP Financial Measures included herein for a reconciliation of net income (GAAP) to core net income (non-GAAP) and core pre-tax, pre-provision net income (non-GAAP); and earnings per share - diluted (GAAP) to core earnings per share - diluted (non-GAAP).
 
           
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

(Unaudited)

 
% Change
(In thousands, except per share data)    

Jun 30,
2017

 

Mar 31,
2017

 

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

2Q17 vs
1Q17

 

2Q17 vs
2Q16

Assets:      
Cash and cash equivalents $ 919,775 $ 807,952 $ 782,023 $ 701,367 $ 476,051 13.8 % 93.2 %
Investment securities 2,609,636 2,148,559 2,124,468 2,072,273 2,061,828 21.5 26.6
Loans held for investment 7,525,590 5,376,542 5,416,750 5,462,936 5,340,189 40.0 40.9
Mortgage loans held for sale   30,383     23,237       61,794       67,979     73,053 30.8     (58.4 )
Total loans 7,555,973 5,399,779 5,478,544 5,530,915 5,413,242 39.9 39.6
Less allowance for loan losses   75,701     76,231       76,214       81,235     80,340 (0.7 )   (5.8 )
Net loans   7,480,272     5,323,548       5,402,330       5,449,680     5,332,902 40.5     40.3  
Premises and equipment 243,152 195,472 194,457 191,064 187,538 24.4 29.7
Goodwill and intangible assets (excluding mortgage servicing rights) 526,289 249,851 222,468 223,368 213,420 110.6 146.6
Company owned life insurance 257,538 199,262 198,116 197,070 189,524 29.2 35.9
Other real estate owned 11,286 9,428 10,019 9,447 7,908 19.7 42.7
Mortgage servicing rights 23,715 19,454 18,457 17,322 16,038 21.9 47.9
Other assets   164,679     107,708       111,557       112,256     120,167 52.9     37.0  
Total assets $ 12,236,342   $ 9,061,234     $ 9,063,895     $ 8,973,847   $ 8,605,376 35.0 %   42.2 %
 
Liabilities and stockholders' equity:
Deposits $ 10,020,000 $ 7,300,179 $ 7,376,110 $ 7,328,581 $ 6,981,448 37.3 % 43.5 %
Securities sold under repurchase agreements 579,772 587,570 537,556 476,768 466,399 (1.3 ) 24.3
Long-term debt 43,017 27,994 27,970 27,949 27,928 53.7 54.0
Subordinated debentures held by subsidiary trusts 82,477 82,477 82,477 82,477 82,477
Other liabilities   105,698     61,418       57,189       75,568     81,999 72.1     28.9  
Total liabilities   10,830,964     8,059,638       8,081,302       7,991,343     7,640,251 34.4     41.8  
Stockholders' equity:
Common stock 685,289 297,173 296,071 293,960 290,366 130.6 136.0
Retained earnings 718,093 707,016 694,650 679,722 664,337 1.6 8.1
Accumulated other comprehensive income (loss)   1,996     (2,593 )     (8,128 )     8,822     10,422 (177.0 )   (80.8 )
Total stockholders' equity   1,405,378     1,001,596       982,593       982,504     965,125 40.3     45.6  
Total liabilities and stockholders' equity $ 12,236,342   $ 9,061,234     $ 9,063,895     $ 8,973,847   $ 8,605,376 35.0 %   42.2 %
 
Common shares outstanding at period end 56,445 45,144 44,926 44,880 44,746 25.0 % 26.1 %
Book value at period end $ 24.90 $ 22.19 $ 21.87 $ 21.89 $ 21.57 12.2 15.4
Tangible book value at period end** 15.57 16.65 16.91 16.91 16.8 (6.5 ) (7.3 )
 
**Non-GAAP financial measure - see Non-GAAP Financial Measures included herein for a reconciliation of book value at period end (GAAP) to tangible book value at period end (non-GAAP).
 
           
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Loans and Deposits

(Unaudited)

 
% Change
(In thousands)    

Jun 30,
2017

 

Mar 31,
2017

 

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

2Q17 vs
1Q17

 

2Q17 vs
2Q16

     
Loans:
Real Estate:
Commercial real estate $ 2,816,526 $ 1,819,654 $ 1,834,445 $ 1,843,120 $ 1,816,813 54.8 % 55.0 %
Construction:
Land acquisition and development 339,884 200,412 208,512 212,680 218,650 69.6 55.4
Residential 219,756 143,852 147,896 137,014 113,944 52.8 92.9
Commercial   121,605     121,154     125,589     128,154     117,643 0.4     3.4  
Total construction 681,245 465,418 481,997 477,848 450,237 46.4 51.3
Residential real estate 1,466,014 1,004,045 1,027,393 1,047,150 1,030,593 46.0 42.2
Agricultural real estate   163,175     167,749     170,248     172,949     166,872 (2.7 )   (2.2 )
Total real estate 5,126,960 3,456,866 3,514,083 3,541,067 3,464,515 48.3 48.0
Consumer
Indirect 779,026 762,477 752,409 731,901 687,768 2.2 13.3
Other 175,737 145,443 148,087 153,624 153,185 20.8 14.7
Credit card   75,631     65,241     69,770     66,860     66,221 15.9     14.2  
Total consumer 1,030,394 973,161 970,266 952,385 907,174 5.9 13.6
Commercial 1,210,869 817,841 797,942 814,392 824,962 48.1 46.8
Agricultural 149,129 125,492 132,858 152,800 139,892 18.8 6.6
Other   8,238     3,182     1,601     2,292     3,646 158.9     125.9  
Loans held for investment 7,525,590 5,376,542 5,416,750 5,462,936 5,340,189 40.0 40.9
Loans held for sale   30,383     23,237     61,794     67,979     73,053 30.8     (58.4 )
Total loans $ 7,555,973   $ 5,399,779   $ 5,478,544   $ 5,530,915   $ 5,413,242 39.9 %   39.6 %
 
 
Deposits:
Non-interest bearing $ 2,897,813 $ 1,840,647 $ 1,906,257 $ 1,965,872 $ 1,783,609 57.4 % 62.5 %
Interest bearing:
Demand 2,853,362 2,266,017 2,276,494 2,174,443 2,107,950 25.9 35.4
Savings 3,066,036 2,192,679 2,141,761 2,095,678 2,003,343 39.8 53.0
Time, $100 and over 469,556 425,870 461,368 485,253 479,077 10.3 (2.0 )
Time, other   733,233     574,966     590,230     607,335     607,469 27.5     20.7  
Total interest bearing   7,122,187     5,459,532     5,469,853     5,362,709     5,197,839 30.5     37.0  
Total deposits $ 10,020,000   $ 7,300,179   $ 7,376,110   $ 7,328,581   $ 6,981,448 37.3 %   43.5 %
 
Total core deposits(1) $ 9,550,444 $ 6,874,309 $ 6,914,742 $ 6,843,328 $ 6,502,371 38.9 % 46.9 %
 

(1) Core deposits are defined as total deposits less time deposits, $100 and over

 
         
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Credit Quality

(Unaudited)

 
% Change
(In thousands)  

Jun 30,
2017

 

Mar 31,
2017

 

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

2Q17 vs
1Q17

 

2Q17 vs
2Q16

   
Allowance for Loan Losses:
Allowance for loan losses $ 75,701 $ 76,231 $ 76,214 $ 81,235 $ 80,340 (0.7 )% (5.8 )%
As a percentage of period-end loans 1.00 % 1.41 % 1.39 % 1.47 % 1.48 %
 
Net charge-offs during quarter $ 2,883 $ 1,713 $ 6,099 $ 1,468 $ 2,134 68.3 % 35.1 %
Annualized as a percentage of average loans 0.19 % 0.13 % 0.44 % 0.11 % 0.16 %
 
 
Non-Performing Assets:
Non-accrual loans $ 76,687 $ 74,580 $ 72,793 $ 71,469 $ 74,311 2.8 % 3.2 %
Accruing loans past due 90 days or more   9,362       4,527       3,789       8,131       4,454   106.8     110.2  
Total non-performing loans 86,049 79,107 76,582 79,600 78,765 8.8 9.2
Other real estate owned   11,286       9,428       10,019       9,447       7,908   19.7     42.7  
Total non-performing assets $ 97,335     $ 88,535     $ 86,601     $ 89,047     $ 86,673   9.9 %   12.3 %
 
Non-performing assets as a percentage of:
Total loans and OREO 1.29 % 1.64 % 1.58 % 1.61 % 1.60 %
Total assets 0.80 0.98 0.96 0.99 1.01
 
Accruing Loans 30-89 Days Past Due $ 44,554 $ 33,996 $ 35,407 $ 32,439 $ 25,048 31.1 % 77.9 %
Accruing TDRs 14,956 16,379 22,343 17,163 16,408 (8.7 ) (8.8 )
 
 
Criticized Loans:
Special Mention $ 163,076 $ 144,806 $ 163,581 $ 152,868 $ 142,560 12.6 % 14.4 %
Substandard 222,411 200,347 172,325 175,555 176,021 11.0 26.4
Doubtful   44,189       38,409       36,336       41,540       41,344   15.0     6.9  
Total $ 429,676     $ 383,562     $ 372,242     $ 369,963     $ 359,925   12.0 %   19.4 %
 
     
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Selected Ratios - Annualized

(Unaudited)

 

Jun 30,
2017

 

Mar 31,
2017

 

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

   
Annualized Financial Ratios (GAAP)
Return on average assets 0.88 % 1.05 % 1.09 % 1.15 % 1.20 %
Return on average common equity 7.68 9.48 9.95 10.30 10.83
Yield on average earning assets 3.89 3.77 3.84 3.80 3.78
Cost of average interest bearing liabilities 0.40 0.37 0.30 0.30 0.30
Interest rate spread 3.49 3.40 3.54 3.50 3.48
Net interest margin ratio 3.60 3.49 3.62 3.58 3.55
Efficiency ratio 69.01 64.99 64.18 61.85 60.43
Loan to deposit ratio 75.41 73.97 74.27 75.47 77.54
 
 
Annualized Financial Ratios - Operating** (Non-GAAP)
Core return on average assets 1.13 % 1.07 % 1.13 % 1.17 % 1.09 %
Core return on average common equity 9.90 9.66 10.25 10.55 9.81
Core efficiency ratio 58.84 63.00 61.60 59.36 61.11
Return on average tangible common equity 10.97 12.54 12.84 13.22 13.98
Tangible common stockholders' equity to tangible assets 7.51 8.53 8.59 8.68 8.96
 
 
Consolidated Capital Ratios:
Total risk-based capital to total risk-weighted assets 12.48 % * 14.94 % 15.13 % 14.87 % 15.03 %
Tier 1 risk-based capital to total risk-weighted assets 11.61 * 13.75 13.89 13.56 13.72
Tier 1 common capital to total risk-weighted assets 10.68 * 12.50 12.65 12.32 12.45
Leverage Ratio 10.58 * 10.09 10.11 10.22 10.35
 
*Preliminary estimate - may be subject to change.
**Non-GAAP financial measures - see Non-GAAP Financial Measures included herein for a reconciliation of return on average assets, return on average common equity and efficiency ratio (GAAP) to core return on average assets, core return on average common equity, return on average tangible common equity, core efficiency ratio and tangible common stockholders' equity to tangible assets (non-GAAP).
 
   
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Average Balance Sheets

(Unaudited)

 
Three Months Ended
June 30, 2017     March 31, 2017     June 30, 2016
(In thousands)    

Average
Balance

  Interest  

Average
Rate

Average
Balance

 

Interest

 

Average
Rate

Average
Balance

 

Interest

 

Average
Rate

Interest earning assets:            
Loans (1) (2) $ 6,128,867 $ 74,502 4.88 % $ 5,420,245 $ 64,329 4.81 % $ 5,324,812 $ 63,248 4.78 %
Investment securities (2) 2,285,759 11,086 1.95 % 2,107,897 9,971 1.92 2,095,347 9,335 1.79
Interest bearing deposits in banks 547,769 1,333 0.98 % 596,909 1,212 0.82 359,807 482 0.54
Federal funds sold   1,232     3     0.98 %   678     2     1.20     1,888     3     0.64  
Total interest earnings assets 8,963,627 86,924 3.89 % 8,125,729 75,514 3.77 % 7,781,854 73,068 3.78 %
Non-earning assets   1,012,197           808,198           756,723        
Total assets $ 9,975,824         $ 8,933,927         $ 8,538,577        
Interest bearing liabilities:
Demand deposits $ 2,434,668 $ 1,318 0.22 % $ 2,231,310 $ 998 0.18 % $ 2,133,509 $ 514 0.10 %
Savings deposits 2,463,514 1,872 0.30 % 2,167,230 1,298 0.24 1,983,262 652 0.13
Time deposits 1,061,495 1,821 0.69 % 1,025,852 1,822 0.72 1,097,448 1,942 0.71
Repurchase agreements 565,696 271 0.19 % 559,641 248 0.18 470,264 92 0.08
Other borrowed funds 31 %

8

12
Long-term debt 28,148 481 6.85 % 27,960 453 6.57 27,896 451 6.50
Subordinated debentures held by subsidiary trusts   82,477     783     3.81 %   82,477     745     3.66     82,477     675     3.29  
Total interest bearing liabilities 6,636,029 6,546 0.40 %

6,094,478

5,564 0.37 % 5,794,868 4,326 0.30 %
Non-interest bearing deposits 2,131,080 1,802,391 1,738,008
Other non-interest bearing liabilities 67,288 48,014 56,864
Stockholders’ equity   1,141,427           989,044           948,837        
Total liabilities and stockholders’ equity $ 9,975,824         $

8,933,927

        $ 8,538,577        
Net FTE interest income $ 80,378 69,950 $ 68,742
Less FTE adjustments (2)       (1,055 )           (1,057 )           (1,109 )    
Net interest income from consolidated statements of income     $ 79,323           $ 68,893           $ 67,633      
Interest rate spread 3.49 % 3.40 % 3.48 %
Net FTE interest margin (3) 3.60 % 3.49 % 3.55 %
Cost of funds, including non-interest bearing demand deposits (4) 0.30 % 0.29 % 0.23 %
 
(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)

 
Six Months Ended
June 30, 2017     June 30, 2016
(In thousands)    

Average
Balance

  Interest  

Average
Rate

Average
Balance

  Interest  

Average
Rate

Interest earning assets:        
Loans (1) (2) $ 5,776,514 $ 138,831

4.85

% $ 5,273,859 $ 126,618 4.83 %
Investment securities (2) 2,197,319 21,057 1.93 % 2,101,662 18,760 1.80
Interest bearing deposits in banks 572,203 2,545 0.90 % 433,323 1,127

0.52

Federal funds sold   957     5     1.05 %   1,590     5     0.63  
Total interest earnings assets 8,546,993 162,438 3.83 %

7,810,434

146,510

3.77

%
Non-earning assets   910,761           755,849        
Total assets $ 9,457,754         $

8,566,283

       
Interest bearing liabilities:
Demand deposits $ 2,333,551 $ 2,316 0.20 % $ 2,140,520 $ 1,072 0.10 %
Savings deposits 2,316,191 3,170 0.28 % 1,984,247 1,302 0.13
Time deposits 1,043,772 3,643 0.70 % 1,107,748 3,962 0.72
Repurchase agreements 562,686 520 0.19 % 473,736 182 0.08
Other borrowed funds 19 % 10
Long-term debt 28,055 934 6.71 % 28,513 900

6.35

Subordinated debentures held by subsidiary trusts   82,477     1,527     3.73 %   82,477     1,338     3.26  
Total interest bearing liabilities 6,366,751 12,110 0.38 % 5,817,251 8,756 0.30 %
Non-interest bearing deposits 1,967,644 1,746,762
Other non-interest bearing liabilities 57,703 57,004
Stockholders’ equity   1,065,656           945,266        
Total liabilities and stockholders’ equity $ 9,457,754         $ 8,566,283        
Net FTE interest income $ 150,328 137,754
Less FTE adjustments (2)       (2,112 )           (2,171 )    
Net interest income from consolidated statements of income     $ 148,216           $ 135,583      
Interest rate spread 3.45 %

3.47

%
Net FTE interest margin (3) 3.55 %

3.55

%
Cost of funds, including non-interest bearing demand deposits (4) 0.29 % 0.23 %
 
(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
Non-GAAP Financial Measures

(Unaudited)

 
As Of or For the Quarter Ended
(In thousands, except per share data)        

Jun 30,
2017

 

Mar 31,
2017

 

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

       
Net income (GAAP) (A) $21,868 $23,126 $24,765 $25,193 $25,554
Adj: investment securities (gains) losses, net (5) (2) (18) (225) (108)
Plus: acquisition & nonrecurring litigation expenses 10,132 705 1,624 1,197
Less: nonrecurring litigation recovery (400) (3,750)
Adj: income tax (benefit) expense (3,828)   (266)   (455)   (367)   1,458
Total core net income (Non-GAAP) (B) $28,167   $23,563   $25,516   $25,798   $23,154
 
Net income (GAAP) $21,868 $23,126 $24,765 $25,193 $25,554
Add back: income tax expense 11,881 9,451 12,990 12,783 13,643
Add back: provision for loan losses 2,355 1,730 1,078 2,363 2,550
Adj: investment securities (gains) losses, net (5) (2) (18) (225) (108)
Add back: acquisition & nonrecurring litigation expenses 10,132 705 1,624 1,197
Subtract: nonrecurring litigation recovery     (400)     (3,750)
Core pre-tax, pre-provision net income (Non-GAAP) $46,231   $35,010   $40,039   $41,311   $37,889
 
Weighted-average diluted shares outstanding (C) 48,074 45,239 44,953 44,806 44,645
Earnings per share - diluted (GAAP) (A)/(C) $0.45 $0.51 $0.55 $0.56 $0.57
Core earnings per share - diluted (Non-GAAP) (B)/(C) 0.59 0.52 0.57 0.58 0.52
 
Total non-interest income (GAAP) (D) $37,180 $29,107 $34,818 $35,161 $37,881
Adj: investment securities (gains) losses, net (5) (2) (18) (225) (108)
Adj: nonrecurring litigation recovery     (400)     (3,750)
Total core non-interest income (Non-GAAP) 37,175 29,105 34,400 34,936 34,023
Net interest income (GAAP) (E) 79,323   68,893   73,601   70,581   67,633
Total core revenue (Non-GAAP) 116,498 97,998 108,001 105,517 101,656
Add: FTE adjustments 1,055   1,057   1,123   1,158   1,109
Total core revenue for core efficiency ratio (Non-GAAP) (F) $117,553   $99,055   $109,124   $106,675   $102,765
 
Total non-interest expense (GAAP) (G)

$80,399

$63,693 $69,586 $65,403 $63,767
Less: acquisition & nonrecurring litigation expenses (10,132)   (705)   (1,624)   (1,197)  
Core non-interest expense (Non-GAAP)

70,267

62,988 67,962 64,206 63,767
Less: amortization of core deposit intangible (1,063) (630) (898) (875) (827)
Adj: OREO (expense) income (34)   48   153   (8)   (140)
Non-interest expense for core efficiency ratio (Non-GAAP) (H)

$69,170

  $62,406   $67,217   $63,323   $62,800
 
Efficiency ratio (GAAP) (G)/[(D)+(E)] 69.01% 64.99% 64.18% 61.85% 60.43%
Core efficiency ratio (Non-GAAP) (H)/(F) 58.84 63.00 61.60 59.36 61.11
 
     
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Non-GAAP Financial Measures - Continued

(Unaudited)

 
As Of or For the Quarter Ended
(In thousands, except per share data)        

Jun 30,
2017

 

Mar 31,
2017

 

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

       
Annualized net income (I) $ 87,712 $ 93,789 $ 98,522 $ 100,224 $ 102,778
Annualized core net income (J) 112,978 95,561 101,505 102,631 93,125
Total quarterly average assets (K) 9,975,824 8,933,927 9,016,101 8,745,473 8,538,577
 
Return on average assets (GAAP) (I)/(K) 0.88 % 1.05 % 1.09 % 1.15 % 1.20 %
Core return on average assets (Non-GAAP) (J)/(K) 1.13 1.07 1.13 1.17 1.09
 
Total quarterly average stockholders' equity (GAAP) (L) $ 1,141,427 $ 989,044 $ 990,056 $ 973,134 $ 948,837
Less: average goodwill and other intangible assets (excluding mortgage servicing rights)   (341,603 )     (240,902 )     (223,013 )     (215,130 )     (213,911 )
Average tangible common stockholders' equity (Non-GAAP) (M) $ 799,824     $ 748,142     $ 767,043     $ 758,004     $ 734,926  
 
Total stockholders' equity, period-end (GAAP) (N) $ 1,405,378 $ 1,001,596 $ 982,364 $ 982,504 $ 965,125
Less: goodwill and other intangible assets (excluding mortgage servicing rights)   (526,289 )     (249,851 )     (222,468 )     (223,368 )     (213,420 )
Total tangible common stockholders' equity (Non-GAAP) (O) $ 879,089     $ 751,745     $ 759,896     $ 759,136     $ 751,705  
 
Return on average common equity (GAAP) (I)/(L) 7.68 % 9.48 % 9.95 % 10.30 % 10.83 %
Core return on average common equity (Non-GAAP) (J)/(L) 9.90 9.66 10.25 10.55 9.81
Return on average tangible common equity (Non-GAAP) (I)/(M) 10.97 12.54 12.84 13.22 13.98
 
Total assets (GAAP) (P) $ 12,236,351 $ 9,061,234 $ 9,063,895 8,973,847 8,605,376
Less: goodwill and other intangible assets (excluding mortgage servicing rights)   (526,289 )     (249,851 )     (222,468 )     (223,368 )     (213,420 )
Tangible assets (Non-GAAP) (Q) $ 11,710,062     $ 8,811,383     $ 8,841,427     $ 8,750,479     $ 8,391,956  
 
Total common shares outstanding, period end (R) 56,445 45,144 44,926 44,880 44,746
 
Book value per share, period end (GAAP) (N)/(R) $ 24.90 $ 22.19 $ 21.87 $ 21.89 $ 21.57
Tangible book value per share, period-end (Non-GAAP) (O)/(R) 15.57 16.65 16.91 16.91 16.80
Average common stockholders' equity to average assets (GAAP) (L)/(K) 11.44 % 11.07 % 10.98 % 11.13 % 11.11 %
Tangible common stockholders' equity to tangible assets (Non-GAAP) (O)/(Q) 7.51 8.53 8.59 8.68 8.96
 

Contacts

First Interstate BancSystem, Inc.
Margie Morse, 406-255-5053
Investor Relations Officer
investor.relations@fib.com
www.FIBK.com

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Release Summary

First Interstate BancSystem, Inc. Reports Second Quarter Earnings and Closing of Cascade Bancorp Acquisition

First Interstate BancSystem, Inc.