First Interstate BancSystem, Inc. Reports Third Quarter Financial Results

BILLINGS, Mont.--()--First Interstate BancSystem, Inc. (NASDAQ:FIBK) reports third quarter 2014 net income of $19.2 million, or $0.42 per diluted share. Included in third quarter 2014 net income are non-core expenses related to the acquisition of Mountain West Financial Corp. and litigation accruals aggregating $5.1 million. Exclusive of non-core items, the Company's third quarter 2014 core net income was $22.3 million, or $0.49 per diluted share, as compared to core net income of $21.4 million, or $0.48 per diluted share, for the second quarter 2014.

“The highlight of the third quarter was the successful completion of our merger with Mountain West Financial Corp.”

THIRD QUARTER HIGHLIGHTS

  • Successful completion of the merger with Mountain West Financial Corp. on July 31, 2014.
  • Improving asset quality as non-performing assets decreased $5.3 million to 1.08% of total assets as of September 30, 2014.
  • $5.4 million increase in net interest income; $4.5 million of which was attributable to the acquisition of Mountain West Financial Corp.
  • Strong non-interest income growth of $2.8 million, or 10.5%; 2.0% of which was attributable to the acquisition of Mountain West Financial Corp.
  • Stable net interest margin of 3.55%, as compared to 3.54% for the second quarter 2014.

“The highlight of the third quarter was the successful completion of our merger with Mountain West Financial Corp.,” said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “Since closing the merger at the end of July, we have been focused on making a smooth transition for Mountain West’s customers and employees. We are pleased with the early results and we expect this merger to deliver strong value for our shareholders," continued Mr. Garding.

“From an organic standpoint, our total loans were relatively flat during the third quarter, while we saw very strong core deposit inflows. The two strongest areas of deposit growth were non-interest bearing and interest bearing demand deposits, which each increased nearly 7% during the third quarter. As a result of the strong inflow, we saw a nice improvement in our deposit mix, with these two categories comprising 56% of our total deposits, up from 49% at the end of last quarter. We ended the quarter with a loan to deposit ratio of under 70%, which gives us a good opportunity to grow our net interest income as we redeploy our excess liquidity into higher yielding assets in the coming quarters,” said Mr. Garding.

DIVIDEND DECLARATION

On October 27, 2014, the Company's Executive Committee declared a dividend of $0.16 per common share payable on November 17, 2014 to owners of record as of November 6, 2014. This dividend equates to a 2.4% annual yield based on the $26.83 average closing price of the Company's common stock during the third quarter 2014.

ACQUISITION

On February 10, 2014, the Company entered into an agreement and plan of merger to acquire all of the outstanding stock of Mountain West Financial Corp., a Montana-based bank holding company that operates one wholly-owned subsidiary bank, Mountain West Bank, NA, with branches located in five of the Company's current market areas in Montana. The acquisition was completed on July 31, 2014, and the Company merged Mountain West Bank with its existing bank subsidiary, First Interstate Bank, on October 17, 2014.

Consideration for the acquisition was $74.5 million and consisted of cash of $38.5 million and the issuance of 1,378,230 shares of the Company's Class A common stock valued at $26.10 per share, the closing price of the Company's Class A common stock as quoted on the NASDAQ stock market on the acquisition date. As of the acquisition date, Mountain West Financial Corp. had total assets with fair values of $612 million, total loans with fair values of $360 million and deposits with fair values of $515 million. In conjunction with the acquisition, the Company recorded provisional goodwill of $21 million and core deposit intangible assets of $11 million.

RESULTS OF OPERATIONS

Net Interest Income. The Company's net interest income, on a fully taxable equivalent, or FTE, basis, increased $5.3 million to $66.1 million during third quarter 2014, as compared to $60.8 million during second quarter 2014. Net interest income was positively impacted this quarter by the addition of Mountain West Bank and the recognition of $1.3 million of interest accretion related to the fair valuation of acquired loans, $745 thousand of which was due to early loan payoffs. The remaining increase in net FTE interest income was primarily due to one additional accrual day during third quarter 2014.

The Company's net interest margin ratio increased to 3.55% during third quarter 2014, as compared to 3.54% during the second quarter 2014. The yield on interest earning assets was 3.80% during the third quarter and the second quarter of 2014. Funding costs declined to 0.26% during the third quarter 2014, a one basis point reduction from second quarter 2014. The fair value discount on the early payoffs of acquired loans of $745 thousand had a positive impact of 5 basis points this quarter. The Company recovered charged off interest of $732 thousand this quarter, compared to $1.4 million during second quarter 2014. Exclusive of the fair value discount on the early payoff of acquired loans and the impact of interest recoveries, the Company's net interest margin ratio was 3.47% during the third quarter 2014 and 3.46% during the second quarter of 2014.

Non-Interest Income. Non-interest income increased $2.8 million to $29.4 million during third quarter 2014, as compared to $26.6 million during second quarter 2014. The increase attributable to the acquisition of Mountain West Bank was $523 thousand, with the remaining $2.3 million growth due to increases in income from the origination and sale of mortgage loans, debit and credit card interchange fees, service charges on deposit accounts and wealth management revenues.

Income from the origination and sale of loans increased $1.0 million to $7.4 million during third quarter 2014, as compared to $6.4 million during second quarter 2014, primarily due to increased mortgage loan production. The Company's mortgage loan production increased during third quarter 2014, as compared to second quarter 2014, as a result of a 10% increase in purchase volume. Loans originated for home purchases accounted for approximately 81% of the Company's mortgage loan production during third quarter 2014, as compared to 76% during second quarter 2014.

Other service charges, commissions and fees increased $759 thousand to $10.5 million during third quarter 2014, as compared to $9.7 million during second quarter 2014, primarily due to higher interchange fees earned on debit and credit card transactions resulting from higher transaction volumes.

Wealth management revenues increased $548 thousand to $5.2 million during third quarter 2014, as compared to $4.6 million during second quarter 2014, primarily due to a change in fee schedules effective July 1st and as a result of one-time administration fees.

Non-Interest Expense. Non-interest expense increased $9.1 million to $65.0 million during third quarter 2014, as compared to $55.9 million during second quarter 2014. Included in non-interest expense are $5.1 million of expenses which the Company considers to be non-core related to the acquisition and pending litigation. Exclusive of these non-core expenses, core non-interest expense was $59.9 million during third quarter 2014, compared to $55.3 million during second quarter 2014. Increases in core non-interest expense during third quarter 2014, as compared to second quarter 2014, were primarily due to inclusion of two months of Mountain West Bank operating expenses of $3.0 million, higher salaries and wages expense, and an increase in other expenses.

Salaries and wages expense increased $1.5 million to $25.9 million during third quarter 2014, as compared to $24.4 million during second quarter 2014, primarily due to the additional Mountain West Bank salary expense and also as a result of increases in commissioned pay reflective of increased mortgage loan origination.

Employee benefits expense increased $677 thousand to $7.8 million during third quarter 2014, as compared to $7.1 million during second quarter 2014, primarily due to the additional Mountain West Bank employee benefits expense. Additionally, during second quarter 2014, employee benefits expense was reduced by $500 thousand due to the reversal of previously accrued health insurance expense reflective of favorable claims experienced during the first half of 2014.

Other expenses increased $1.5 million to $15.3 million during third quarter 2014, as compared to $13.8 million during second quarter 2014, primarily due to the addition of Mountain West Bank operating expenses and also as a result of debit and credit card issuance costs related to the breach of payment data systems of major retailers.

BALANCE SHEET

Total loans increased $348 million to $4.9 billion as of September 30, 2014, from $4.5 billion as of June 30, 2014, as a result of the acquisition of Mountain West Bank. Exclusive of the acquisition, overall loan growth was flat for the third quarter 2014.

Residential real estate loans grew $63 million to $957 million as of September 30, 2014. Growth of $44 million is attributable to the acquisition, and $19 million was the result of the origination of 1-4 family residential real estate loans not meeting the requirements for sale on the secondary market. These loans are generally five to fifteen year adjustable rate and conventional mortgages.

Consumer loans increased $38 million to $745 million as of September 30, 2014, with an increase of $9 million attributable to the acquisition, and the remainder primarily due to increases in indirect consumer loans. Indirect consumer loans grew organically $26 million to $538 million as of September 30, 2014. Management attributes the increase in indirect consumer loans to continued expansion of the Company's indirect lending program within existing markets.

Goodwill and core deposit intangible assets increased $21 million and $10 million, to $205 million and $14 million, respectively, as of September 30, 2014, as a result of the acquisition.

Total deposits increased $780 million to $7.0 billion as of September 30, 2014, from $6.2 billion as of June 30, 2014, as a result of an increase in deposits from the acquisition of $512 million and organic growth of $268 million. During third quarter 2014, the mix of deposits continued to shift away from higher costing time deposits to lower costing demand deposits, the result of sustained low interest rates. As of September 30, 2014, time deposits comprised 18.0% of total deposits, as compared to 18.4% of total deposits as of June 30, 2014.

Subordinated debentures held by subsidiary trusts increased $20 million, to $103 million as of September 30, 2014 as a result of the merger with Mountain West Financial Corp. The Company intends to repay the $20 million of Mountain West Financial Corp. debentures by year end.

ASSET QUALITY

Non-performing assets continued to decrease during third quarter 2014, ending the quarter at $92 million, or 1.08% of total assets, as of September 30, 2014, the lowest level since 2008. This compares to $97 million, or 1.27% of total assets as of June 30, 2014.

During third quarter 2014, the Company recorded net charged-off loans of $4 million, which was comprised of gross charge-offs of $6 million and gross recoveries of $2 million.

The Company recorded a $261 thousand provision for loan losses during third quarter 2014, compared to a $2 million reversal in the second quarter 2014, as a result of an increase in criticized assets in third quarter. The allowance for loan losses as a percentage of period end loans decreased to 1.53% as of September 30, 2014, from 1.74% as of June 30, 2014, due to the addition of Mountain West Bank loans, which were recorded at fair value on the date of acquisition and for which no allowance for loan losses was required under generally accepted accounting principles as of September 30, 2014.

STOCK REPURCHASE

Pursuant to a stock repurchase program approved by the Company's Board of Directors on November 25, 2013, the Company repurchased and retired 36,703 shares of its Class A common stock during third quarter 2014. The shares were repurchased in a combination of open market and privately negotiated transactions at an aggregate weighted average purchase price of $25.47 per share. Under the stock repurchase program, the Company may repurchase up to an additional 1,637,879 shares of its Class A common stock prior to expiration of the plan on November 25, 2014.

Third Quarter 2014 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss third quarter 2014 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Tuesday, October 28, 2014. 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 October 28, 2014 through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on November 28, 2014, by dialing 1-877-344-7529 (using conference ID 10053260). 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 79 banking offices, including detached drive-up facilities, in 42 communities in Montana, Wyoming and western South Dakota. Through First Interstate Bank, the Company delivers a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities throughout the Company's market areas.

Cautionary Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. Any statements about our plans, objectives, expectations, strategies, beliefs, or future performance or events constitute forward-looking statements. Such statements are identified as those that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “may” or similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other important factors that could cause actual results to differ materially from any results, performance or events expressed or implied by such forward-looking statements. The following factors, among others, may cause actual results to differ materially from current expectations in the forward-looking statements, including those set forth in this report: continuing or worsening business and economic conditions, adverse economic conditions affecting Montana, Wyoming and western South Dakota, credit losses, lending risk, adequacy of the allowance for loan losses, impairment of goodwill, changes in interest rates, access to low-cost funding sources, dependence on the Company’s management team, ability to attract and retain qualified employees, governmental regulation and changes in regulatory, tax and accounting rules and interpretations, failure of technology, inability to meet liquidity requirements, failure to manage growth, competition, ineffective internal operational controls, environmental remediation and other costs, reliance on external vendors, litigation pertaining to fiduciary responsibilities, failure to effectively implement technology-driven products and services, soundness of other financial institutions, inability of our bank subsidiary to pay dividends, implementation of new lines of business or new product or service offerings, change in dividend policy, volatility of Class A common stock, decline in market price of Class A common stock, dilution as a result of future equity issuances, uninsured nature of any investment in Class A common stock, voting control of Class B stockholders, anti-takeover provisions, controlled company status, and subordination of common stock to Company debt.

These factors are not necessarily all of the factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made and we do not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

         
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary

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

 
2014 2013

CONDENSED INCOME STATEMENTS

3rd Qtr     2nd Qtr     1st Qtr 4th Qtr     3rd Qtr
Net interest income $ 65,082 $ 59,727 $ 58,136 $ 59,974 $ 58,956
Net interest income on a fully-taxable equivalent ("FTE") basis 66,129 60,806 59,243 61,109 60,066
Provision for loan losses 261 (2,001 ) (5,000 ) (4,000 ) (3,000 )
Non-interest income:
Other service charges, commissions and fees 10,458 9,699 9,156 9,458 9,286
Income from the origination and sale of loans 7,346

6,380

4,660 5,602 7,934
Wealth management revenues 5,157 4,609 4,455 4,350 4,581
Service charges on deposit accounts 4,331 3,929 3,875 4,086 4,360
Investment securities gains (losses), net (8 ) 17 71 (25 ) 30
Other income 2,079   1,937   1,889   2,203   1,416  
Total non-interest income 29,363 26,571 24,106 25,674 27,607
Non-interest expense:
Salaries and wages 25,914 24,440 22,442 24,335 22,843
Employee benefits 7,841 7,164 8,313 7,289 7,328
Occupancy, net 4,534 4,253 4,239 4,206 4,292
Furniture and equipment 3,338 3,157 3,201 3,192 3,147
Outsourced technology services 2,346 2,309 2,300 2,382 2,295
Other real estate owned (income) expense, net (58 ) (134 ) (19 ) 1,292 18
Core deposit intangible amortization 688 354 354 354 355
Non-core expenses 5,052 597
Other expenses 15,303   13,780   13,508   14,735   12,301  
Total non-interest expense 64,958   55,920   54,338   57,785   52,579  
Income before taxes 29,226 32,379 32,904 31,863 36,984
Income taxes 10,071   11,302   11,511   11,088   13,172  
Net income $ 19,155   $ 21,077   $ 21,393   $ 20,775   $ 23,812  
Core net income** $ 22,302   $ 21,438   $ 21,349   $ 20,791   $ 23,793  
 

PER COMMON SHARE DATA

Net income - basic $ 0.43 $ 0.48 $ 0.49 $ 0.47 $ 0.54
Net income - diluted 0.42 0.47 0.48 0.47 0.54
Core net income - diluted 0.49 0.48 0.48 0.47 0.54
Cash dividend paid 0.16 0.16 0.16 0.14 0.14
Book value at period end 19.40 18.95 18.60 18.15 17.98
Tangible book value at period end** 14.61 14.71 14.37 13.89 13.71
 

OUTSTANDING COMMON SHARES

At period-end 45,672,922 44,255,012 44,390,095 44,155,063 44,089,962
Weighted-average shares - basic 44,911,858 44,044,260 43,997,815 43,888,261 43,699,566
Weighted-average shares - diluted 45,460,288 44,575,963 44,620,776 44,541,497 44,284,844
 

SELECTED ANNUALIZED RATIOS

Return on average assets 0.93 % 1.12 % 1.16 % 1.10 % 1.28 %
Core return on average assets** 1.09 1.14 1.16 1.10 1.28
Return on average common equity 8.55 10.18 10.74 10.32 12.13
Core return on average common equity** 9.96 10.36 10.72 10.31 12.12
Return on average tangible common equity** 11.17 13.16 14.00 13.49 16.01
Net FTE interest income to average earning assets 3.55 3.54 3.52 3.52 3.52
 
         
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)

 
2014 2013

BALANCE SHEET SUMMARIES

Sept 30   Jun 30     Mar 31 Dec 31     Sep 30
Assets:
Cash and cash equivalents $ 819,963 $ 503,648 $ 610,531 $ 534,827 $ 542,343
Investment securities 2,169,774 2,093,985 2,095,088 2,151,543 2,145,083
Loans held for investment:
Commercial real estate 1,686,509 1,464,947 1,452,967 1,449,174 1,441,297
Construction real estate 367,420 361,009 354,349 351,635 341,284
Residential real estate 957,282 894,502 868,836 867,912 841,707
Agricultural real estate 158,940 162,428 160,570 173,534 176,594
Consumer 745,482 707,035 670,406 671,587 672,184
Commercial 736,908 727,482 707,237 676,544 681,416
Agricultural 136,587 130,280 108,376 111,872 123,565
Other 2,316 2,016 3,626 1,734 1,912
Mortgage loans held for sale 62,938   56,663   38,471   40,861   52,133  
Total loans 4,854,382 4,506,362 4,364,838 4,344,853 4,332,092
Less allowance for loan losses 74,231   78,266   81,371   85,339   92,990  
Net loans 4,780,151   4,428,096   4,283,467   4,259,514   4,239,102  
Premises and equipment, net 207,181 180,341 179,942 179,690 179,785
Goodwill 204,646 183,673 183,673 183,673 183,673
Company owned life insurance 152,761 138,899 138,027 122,175 76,701
Other real estate owned, net 18,496 16,425 16,594 15,504 18,537
Core deposit intangible assets 14,137 3,811 4,165 4,519 4,873
Mortgage servicing rights, net 13,894 13,443 13,474 13,546 13,518
Other assets 100,349   89,058   92,864   99,660   96,485  
Total assets $ 8,481,352   $ 7,651,379   $ 7,617,825   $ 7,564,651   $ 7,500,100  
 
Liabilities and stockholders' equity:
Deposits:
Non-interest bearing $ 1,637,151 $ 1,533,484 $ 1,458,460 $ 1,491,683 $ 1,503,969
Interest bearing 5,322,348   4,645,558   4,676,677   4,642,067   4,604,656  
Total deposits 6,959,499   6,179,042   6,135,137   6,133,750   6,108,625  
Securities sold under repurchase agreements 432,478 462,985 488,898 457,437 428,110
Accounts payable, accrued expenses and other liabilities 63,713 51,456 48,770 52,489 50,900
Long-term debt 36,882 36,893 36,905 36,917 37,128
Subordinated debentures held by subsidiary trusts 102,916   82,477   82,477   82,477   82,477  
Total liabilities 7,595,488   6,812,853   6,792,187   6,763,070   6,707,240  
Stockholders' equity:
Common stock 321,132 283,697 286,553 285,535 283,352
Retained earnings 572,362 560,469 546,444 532,087 517,456
Accumulated other comprehensive income (loss) (7,630 ) (5,640 ) (7,359 ) (16,041 ) (7,948 )
Total stockholders' equity 885,864   838,526   825,638   801,581   792,860  
Total liabilities and stockholders' equity $ 8,481,352   $ 7,651,379   $ 7,617,825   $ 7,564,651   $ 7,500,100  
 

CONSOLIDATED CAPITAL RATIOS

Total risk-based capital 16.58 % * 16.69 % 16.83 % 16.75 % 16.68 %
Tier 1 risk-based capital 14.94 * 15.02 15.16 14.93 14.85
Tier 1 common capital to total risk-weighted assets 13.07 * 13.45 13.55 13.31 13.33
Leverage Ratio 10.59 * 10.35 10.27 10.08 10.01
Tangible common stockholders' equity to tangible assets** 8.07 8.72 8.58 8.32 8.26
 
             
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Summary - continued

(Unaudited, $ in thousands)

 
2014 2013

ASSET QUALITY

Sep 30     Jun 30     Mar 31 Dec 31 Sep 30
Allowance for loan losses $ 74,231 $ 78,266 $ 81,371 $ 85,339 $ 92,990
As a percentage of period-end loans 1.53 % 1.74 % 1.86 % 1.96 % 2.15 %
 
Net charge-offs (recoveries) during quarter $ 4,296 $ 1,104 $ (1,032 ) $ 3,651 $ 2,538
Annualized as a percentage of average loans 0.36 % 0.10 % (0.10 )% 0.34 % 0.23 %
 
Non-performing assets:
Non-accrual loans $ 71,915 $ 79,166 $ 88,114 $ 94,439 $ 94,015
Accruing loans past due 90 days or more 1,348   1,494   1,664   2,232   2,188  
Total non-performing loans 73,263 80,660 89,778 96,671 96,203
Other real estate owned 18,496   16,425   16,594   15,504   18,537  
Total non-performing assets 91,759 97,085 106,372 112,175 114,740
As a percentage of:
Total loans and OREO 1.88 % 2.15 % 2.43 % 2.57 % 2.64 %
Total assets 1.08 % 1.27 % 1.40 % 1.48 % 1.53 %
 
                  Accruing            
Provision Net Allowance Loans 30-89 Non- Non-
for Loan Charge-offs for Loan Days Past Accruing Performing Performing

ASSET QUALITY TRENDS

Losses (Recoveries) Losses Due TDRs Loans Assets
Q3 2011 $ 14,000 $ 18,276 $ 120,303 $ 62,165 $ 35,616 $ 226,962 $ 252,042
Q4 2011 13,751 21,473 112,581 75,603 37,376 204,094 241,546
Q1 2012 11,250 7,929 115,902 58,531 36,838 185,927 230,683
Q2 2012 12,000 25,108 102,794 55,074 35,959 136,374 190,191
Q3 2012 9,500 13,288 99,006 48,277 35,428 127,270 167,241
Q4 2012 8,000 6,495 100,511 34,602 31,932 110,076 142,647
Q1 2013 500 3,107 97,904 41,924 35,787 100,535 133,005
Q2 2013 375 (249 ) 98,528 39,408 23,406 105,471 128,253
Q3 2013 (3,000 ) 2,538 92,990 39,414 21,939 96,203 114,740
Q4 2013 (4,000 ) 3,651 85,339 26,944 21,780 96,671 112,175
Q1 2014 (5,000 ) (1,032 ) 81,371 41,034 19,687 89,778 106,372
Q2 2014 (2,001 ) 1,104 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
 

CRITICIZED LOANS

      Special Mention     Substandard     Doubtful     Total
Q3 2011 $ 261,501 $ 305,145 $ 134,367 $ 701,013
Q4 2011 240,903 269,794 120,165 630,862
Q1 2012 242,071 276,165 93,596 611,832
Q2 2012 220,509 243,916 81,473 545,898
Q3 2012 223,306 229,826 66,179 519,311
Q4 2012 209,933 215,188 42,459 467,580
Q1 2013 197,645 197,095 43,825 438,565
Q2 2013 192,390 161,786 52,266 406,442
Q3 2013 180,850 168,278 42,415 391,543
Q4 2013 159,081 154,100 45,308 358,489
Q1 2014 174,834 161,103 31,672 367,609
Q2 2014 160,271 155,744 29,115 345,130
Q3 2014 156,469 156,123 39,450 352,042
 

*Preliminary estimate - may be subject to change.

**See Non-GAAP Financial Measures included herein for a discussion regarding core net income, tangible book value per common share, core return on average assets, core return on average common equity, return on average tangible common equity and tangible common stockholders' equity to tangible assets.

     
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Average Balance Sheets

(Unaudited, $ in thousands)

 
Three Months Ended
September 30, 2014     June 30, 2014     September 30, 2013
Average     Average Average     Average Average     Average
Balance   Interest   Rate Balance   Interest   Rate Balance   Interest   Rate
Interest earning assets:
Loans (1) (2) $ 4,751,928 $ 61,445 5.13 % $ 4,436,786 $ 56,019 5.06 % $ 4,327,995 $ 55,345 5.07 %
Investment securities (2) 2,094,449 8,953 1.70 2,091,438 9,017 1.73 2,115,301 9,479 1.78
Interest bearing deposits in banks 548,794 374 0.27 356,911 225 0.25 323,781 207 0.25
Federal funds sold 1,909     3     0.62   1,958     3     0.61   4,772     8     0.67  
Total interest earnings assets 7,397,080 70,775 3.80 6,887,093 65,264 3.80 6,771,849 65,039 3.81
Non-earning assets 753,324               669,029               602,316              
Total assets $ 8,150,404               $ 7,556,122               $ 7,374,165              
Interest bearing liabilities:
Demand deposits $ 2,100,931 $ 532 0.10 % $ 1,878,483 $ 513 0.11 % $ 1,748,317 $ 504 0.11 %
Savings deposits 1,751,595 616 0.14 1,653,034 598 0.15 1,568,744 601 0.15
Time deposits 1,217,023 2,339 0.76 1,148,832 2,216 0.77 1,260,452 2,716 0.85
Repurchase agreements 439,739 52 0.05 438,744 63 0.06 418,561 58 0.05
Other borrowed funds 1,781 27 6.01 8 10
Long-term debt 36,886 482 5.18 36,897 476 5.17 37,132 487 5.20
Subordinated debentures held by subsidiary trusts 89,142     598     2.66   82,477     592     2.88   82,477     607     2.92  
Total interest bearing liabilities 5,637,097 4,646 0.33 5,238,475 4,458 0.34 5,115,693 4,973 0.39
Non-interest bearing deposits 1,570,121 1,443,239 1,428,099
Other non-interest bearing liabilities 54,722 44,291 51,564
Stockholders’ equity 888,464               830,117               778,809              
Total liabilities and stockholders’ equity $ 8,150,404               $ 7,556,122               $ 7,374,165              
Net FTE interest income 66,129 60,806 60,066
Less FTE adjustments (2)       (1,047 )             (1,079 )             (1,110 )      
Net interest income from consolidated statements of income       $ 65,082               $ 59,727               $ 58,956        
Interest rate spread             3.47 %             3.46 %             3.42 %
Net FTE interest margin (3)             3.55 %             3.54 %             3.52 %
Cost of funds, including non-interest bearing demand deposits (4)             0.26 %             0.27 %             0.30 %

(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 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.

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

         
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures

(Unaudited, $ in thousands, except share and per share data)

 
2014 2013
Sep 30     Jun 30     Mar 31 Dec 31     Sep 30
Net income $ 19,155 $ 21,077 $ 21,393 $ 20,775 $ 23,812
Adj: investment securities (gains) losses, net 8 (17 ) (71 ) 25 (30 )
Plus: acquisition & nonrecurring litigation expenses 5,052 597
Adj: income taxes (1,913 ) (219 ) 27   (9 ) 11  
Total core net income (A) 22,302   21,438   21,349   20,791   23,793  
 
Total non-interest income $ 29,363 $ 26,571 $ 24,106 $ 25,674 $ 27,607
Adj: investment securities (gains) losses, net 8   (17 ) (71 ) 25   (30 )
Total core non-interest income 29,371 26,554 24,035 25,699 27,577
Net interest income 65,082   59,727   58,136   59,974   58,956  
Total core revenue $ 94,453   $ 86,281   $ 82,171   $ 85,673   $ 86,533  
 
Total non-interest expense $ 64,958 $ 55,920 $ 54,338 $ 57,785 $ 52,579
Less: acquisition & nonrecurring litigation expenses (5,052 ) (597 )      
Core non-interest expense $ 59,906   $ 55,323   $ 54,338   $ 57,785   $ 52,579  
 
Total quarterly average stockholders' equity (B) $ 888,464 $ 830,117 $ 807,940 $ 799,198 $ 778,809
Less: average goodwill and other intangible assets (excluding mortgage servicing rights) (208,346 ) (187,710 ) (188,078 ) (188,415 ) (188,778 )
Average tangible common stockholders' equity (C) $ 680,118   $ 642,407   $ 619,862   $ 610,783   $ 590,031  
 
Total stockholders' equity, period-end $ 885,864 $ 838,526 $ 825,638 $ 801,581 $ 792,860
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (218,799 ) (187,502 ) (187,858 ) (188,214 ) (188,569 )
Total tangible common stockholders' equity (D) $ 667,065   $ 651,024   $ 637,780   $ 613,367   $ 604,291  
 
Total assets $ 8,481,352 $ 7,651,379 $ 7,617,825 7,564,651 7,500,100
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (218,799 ) (187,502 ) (187,858 ) (188,214 ) (188,569 )
Tangible assets (E) $ 8,262,553   $ 7,463,877   $ 7,429,967   $ 7,376,437   $ 7,311,531  
 
Total quarterly average assets (F) $ 8,150,404 $ 7,556,122 $ 7,487,960 $ 7,491,253 $ 7,374,165
 
Total common shares outstanding, period end (G) 45,672,922 44,255,012 44,390,095 44,155,063 44,089,962
Weighted-average common shares - diluted (H) 45,460,288 44,575,963 44,620,776 44,541,497 44,284,844
 
Core earnings per share, diluted (A/H) $ 0.49 $ 0.48 $ 0.48 $ 0.47 $ 0.54
Tangible book value per share, period-end (D/G) 14.61 14.71 14.37 13.89 13.71
 
Annualized net income (I) $ 75,995 $ 84,540 $ 86,761 $ 82,423 $ 94,472
Annualized core net income (J) 88,481 85,988 86,582 82,486 94,396
 
Core return on average assets (J/F) 1.09 % 1.14 % 1.16 % 1.10 % 1.28 %
Core return on average common equity (J/B) 9.96 10.36 10.72 10.32 12.12
Return on average tangible common equity (I/C) 11.17 13.16 14.00 13.49 16.01
Tangible common stockholders' equity to tangible assets (D/E) 8.07 8.72 8.58 8.32 8.26
 

Contacts

First Interstate BancSystem, Inc.
Marcy Mutch, 406-255-5322
Investor Relations Officer
investor.relations@fib.com
www.FIBK.com

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