First Interstate BancSystem, Inc. Reports Strong Second Quarter Earnings; Announces Quarterly Dividend of $0.22 Per Share

BILLINGS, Mont.--()--First Interstate BancSystem, Inc. (NASDAQ:FIBK) reports second quarter 2016 net income of $25.6 million, or $0.57 per share. This compares to net income of $20.1 million, or $0.45 per share, during first quarter 2016, and $22.2 million, or $0.49 per share, during second quarter 2015. During second quarter 2016, the Company recorded a non-recurring recovery of $3.8 million related to prior year litigation, which the Company considers non-core. Exclusive of non-core income, second quarter net income was $23.2 million, or $0.52 per share, compared to $20.1 million, or $0.45 per share, during first quarter 2016 and $22.2 million, or $0.49 per share, during second quarter 2015.

“We delivered a strong quarter driven by a significant increase in loan production, higher contributions across all of our major non-interest income areas, a stable net interest margin and improved efficiencies throughout the Company”

HIGHLIGHTS

  • Core pre-tax, pre-provision net income of $37.9 million, a 10.3% increase from first quarter 2016 and an 8.2% increase from the same period in the prior year.
  • Net interest margin ratio of 3.55%, a 1 basis point improvement from first quarter 2016 and an 8 basis point improvement from the same period in the prior year.
  • Total fee-based revenues of $30.7 million, a 19.1% increase from first quarter 2016 and a 6.1% increase from the same period in the prior year.
  • Mortgage banking revenues of $9.4 million, a 53.2% increase from first quarter 2016.
  • Loan growth of 6.1% year-over-year, of which 5.3% was organic.
  • Loan to deposit ratio of 77.5% as of June 30, 2016, compared to 75.0% a year ago.
  • Core efficiency ratio of 60.78%, as compared to 62.71% during first quarter 2016 and 63.14% during second quarter 2015.

“We delivered a strong quarter driven by a significant increase in loan production, higher contributions across all of our major non-interest income areas, a stable net interest margin and improved efficiencies throughout the Company,” said Kevin Riley, President and Chief Executive Officer of First Interstate BancSystem, Inc. “We generated 3.2% loan growth during second quarter with balanced contributions across the portfolio including strong increases in commercial real estate, construction, consumer and agricultural lending. Our position as a leading residential mortgage lender has also enabled us to capitalize on the positive housing trends in our markets and an increase in mortgage lending activity. As a result, we had a very strong quarter in mortgage banking. Going forward, we expect to see a continuation of these positive trends in revenue and operating efficiencies in the second half of 2016,” said Mr. Riley.

DIVIDEND DECLARATION

On July 21, 2016, the Company's board of directors declared a dividend of $0.22 per common share payable on August 12, 2016, to owners of record as of August 1, 2016. This dividend equates to a 3.2% annual yield based on the $27.97 average closing price of the Company's common stock during second quarter 2016.

NET INTEREST INCOME

The Company's net interest income, on a fully taxable equivalent or FTE basis, decreased $270 thousand, or less than 1.0%, to $68.7 million during second quarter 2016, as compared to $69.0 million during first quarter 2016, primarily due to a decrease in total earning assets as a result of seasonally lower deposits. The Company's net FTE interest income increased $2.3 million, or 3.5%, to $68.7 million during second quarter 2016, as compared to $66.4 million during second quarter 2015. This increase was primarily due to a shift in the mix of interest earning assets from lower-yielding investment securities into higher-yielding loans, which was partially offset by an 11 basis point reduction in loan yield during second quarter 2016, as compared to second quarter 2015.

Interest accretion attributable to the fair valuation of acquired loans contributed $1.7 million of interest income during second quarter 2016, of which approximately $779 thousand was related to early pay-offs. This compares to interest accretion of $1.6 million of interest income during first quarter 2016, of which approximately $549 thousand was related to early pay-offs, and interest accretion of $1.6 million during second quarter 2015, of which $470 was related to early pay-offs. In addition, the Company recovered previously charged-off interest of $133 thousand during second quarter 2016, compared to $265 thousand during first quarter 2016 and $753 thousand during second quarter 2015.

The Company's net interest margin ratio remained stable at 3.55% during second quarter 2016, a 1 basis point increase from 3.54% during first quarter 2016. 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 was 3.51% during second quarter 2016, 3.50% during first quarter 2016 and 3.40% during second quarter 2015.

NON-INTEREST INCOME

Non-interest income increased $8.9 million to $37.0 million during second quarter 2016, as compared to $28.1 million during first quarter 2016. During second quarter 2016, the Company recorded a non-recurring recovery related to prior year litigation expense of $3.8 million. The remaining increase was primarily due to increases in fee-based revenues, most notably mortgage banking revenues.

Mortgage banking revenues of $9.4 million during second quarter 2016 increased $3.3 million, or 53.2%, from $6.1 million during first quarter 2016, primarily due to seasonal increases in loan production volume and, to a lesser extent, increases in margins on loans sold into the secondary market. During second quarter 2016, the Company's overall mortgage loan production increased 41%, as compared to first quarter 2016. Loans originated for new home purchases accounted for approximately 67% of the Company's mortgage loan production during second quarter 2016, as compared to 59% during first quarter 2016.

NON-INTEREST EXPENSE

Non-interest expense increased $1.2 million to $62.9 million during second quarter 2016, as compared to $61.7 million during first quarter 2016. During second quarter 2016, as compared to first quarter 2016, increases in incentive compensation expense were partially offset by decreases in payroll taxes and one-time separation and special bonus expenses.

Non-interest expense increased $924 thousand to $62.9 million during second quarter 2016, as compared to $62.0 million during second quarter 2015. During 2016, the Company incurred additional non-interest expense as a result of its focus on getting the right people, processes and technology systems in place for future growth. Non-interest expenses recorded during second quarter 2016 were partially offset by lower fraud losses and contract termination fees, as compared to second quarter 2015.

Effective January 1, 2016, the Company began capturing certain software costs separately from equipment costs, resulting in an increase of approximately $2.4 million in other expenses and a corresponding decrease in occupancy and equipment expense during second quarter 2016, as compared to second quarter 2015.

LOANS

Total loans grew organically 3.2% to $5.4 billion as of June 30, 2016, from $5.2 billion as of March 31, 2016, with the most significant growth occurring in commercial real estate, commercial construction, indirect consumer and agricultural loans. Commercial real estate loans increased $52 million, or 3.0%, to $1.8 billion as of June 30, 2016, from $1.8 billion as of March 31, 2016, and commercial construction loans increased 14.9% to $118 million as of June 30, 2016, from $102 million as of March 31, 2016. Management attributes this growth to continued business expansion in the Company's market areas, particularly in the Billings, Jackson and Rapid City markets.

Indirect consumer loans increased $37 million, or 5.6%, to $688 million as of June 30, 2016, from $651 million as of March 31, 2016, primarily due to the continued growth of our indirect lending program within our existing market areas and continuing increases in the average loan amounts advanced during second quarter.

Agricultural loans increased $14 million, or 10.8%, to $140 million as of June 30, 2016, from $126 million as of March 31, 2016, and agricultural real estate loans increased $14 million, or 9.0% to $167 million as of June 30, 2016, from $153 million as of March 31, 2016. This growth is primarily attributable to seasonal increases in credit lines that typically occur during the second and third quarters of the year.

Year-over-year, total loans increased 6.1% to $5.4 billion as of June 30, 2016, from $5.1 billion as of June 30, 2015. Exclusive of acquisitions, the Company experienced organic loan growth of 5.3% year-over-year, with all loan categories except agricultural loans showing increases.

DEPOSITS

The Company historically experiences a slight decrease in total deposits during the second quarter of each year. Total deposits decreased 1.8%, to $7.0 billion as of June 30, 2016, from $7.1 billion as of March 31, 2016. This compares to a 2.4% decline experienced during the same period in the prior year. Year-over-year, total deposits increased 2.6% to $7.0 billion as of June 30, 2016, from $6.8 billion as of June 30, 2015, with all categories except time deposits experiencing growth. As of June 30, 2016, the mix of total deposits was 26% non-interest bearing, 30% interest bearing demand, 29% savings, and 15% time, as compared to 26% non-interest bearing, 30% interest bearing demand, 27% savings, and 17% time as of June 30, 2015.

OTHER LIABILITIES

Other liabilities increased 25.6% to $82 million as of June 30, 2016, from $65 million as of March 31, 2016, largely due to increases in deferred tax liabilities primarily related to fluctuations on unrealized gains and losses in investment securities, and increases in derivative liabilities associated with interest rate swaps and mortgage banking forward loan sale commitments.

CAPITAL

At June 30, 2016, the Company exceeded all "well-capitalized" regulatory capital adequacy requirements. During second quarter 2016, the Company repurchased and retired 27,635 shares of its Class A common stock with an aggregate value of $733 thousand and paid common stock dividends of $10 million, or $0.22 per share.

CREDIT QUALITY

Credit quality declined during second quarter 2016, with non-performing assets increasing to $87 million, or 1.01% of total assets, as of June 30, 2016, from $77 million, or 0.89% of total assets, as of March 31, 2016. Non-accrual loans, the largest component of non-performing assets, increased $10 million, to $74 million as of June 30, 2016, from $64 million as of March 31, 2016. Approximately 68% of the increase is related to hospitality industries and is the result of placement of the loans of four commercial real estate borrowers on non-accrual status during second quarter 2016.

Criticized loans were $360 million, or 6.6% of total loans, as of June 30, 2016, compared to $347 million, or 6.6% of total loans, as of March 31, 2016. This increase in criticized loans was primarily concentrated in commercial and commercial real estate loans, with approximately 22% of the increase related to loans in the energy sector.

During second quarter 2016, the Company recorded net loan charge-offs of $2 million, which was comprised of charge-offs of $3 million and recoveries of $1 million.

The Company's allowance for loan losses remained stable at $80 million, or 1.48% of period end loans, as of June 30, 2016, as compared to $80 million, or 1.52% of period end loans, as of March 31, 2016. In determining the allowance for loan losses, the Company estimates losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates and other qualitative factors such as changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates. During second quarter 2016, the Company performed an in-depth review of the qualitative factors used in determining the appropriate level of the allowance for loan losses utilizing post-crisis loss experience. This review resulted in the adjustment of certain qualitative factors. The adjustment of qualitative factors combined with the Company's assessment of losses on specific loans with identified weaknesses did not result in a material impact to the overall level of the Company's allowance for loan losses. The Company maintains its allowance for loan losses at an amount it believes is sufficient to provide for estimated losses inherent in its loan portfolio at each balance sheet date.

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 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, credit losses, adverse economic conditions affecting Montana, Wyoming and South Dakota, declining oil and gas prices, lending risk, adequacy of the allowance for loan losses, impairment of goodwill, failure to integrate or profitably operate acquired organizations, additional regulatory requirements if our assets exceed $10 billion, access to low-cost funding sources, changes in interest rates, 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, 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, implementation of new lines of business or new product or service offerings, 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, litigation pertaining to fiduciary responsibilities, change in dividend policy, uninsured nature of any investment in Class A common stock, volatility of Class A common stock, decline in market price of Class A 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 2016 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss second quarter 2016 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Tuesday, July 26, 2016. 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 26, 2016, through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on August 26, 2016, by dialing 1-877-344-7529 (using conference ID 10089295). 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 76 banking offices, including detached drive-up facilities, in 44 communities in Montana, Wyoming and 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.

 

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

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

Jun 30,
2016

 

Mar 31,
2016

 

Dec 31,
2015

 

Sep 30,
2015

 

Jun 30,
2015

2Q16 vs
1Q16

 

2Q16 vs
2Q15

Net interest income $ 67,633   $ 67,950   $ 68,420   $ 66,330   $ 65,288 (0.5 )%   3.6 %
Net interest income on a fully-taxable equivalent ("FTE") basis 68,742 69,012 69,492 67,400 66,399 (0.4 ) 3.5
Provision for loan losses 2,550 4,000 3,289 1,098 1,340 (36.3 ) 90.3
Non-interest income:
Payment services revenues 8,648 7,991 8,367 8,574 8,437 8.2 2.5
Mortgage banking revenues 9,409 6,141 7,282 7,983 8,802 53.2 6.9
Wealth management revenues 5,166 4,575 4,840 5,233 4,897 12.9 5.5
Service charges on deposit accounts 4,626 4,463 4,655 4,379 4,053 3.7 14.1
Other service charges, commissions and fees 2,845     2,608     2,652     2,521     2,736   9.1     4.0  
Total fee-based revenues 30,694 25,778 27,796 28,690 28,925 19.1 6.1
Investment securities gains (losses) 108 (21 ) 62 23 46 NM NM
Other income** 2,457 2,293 2,798 2,465 2,792 7.2 (12.0 )
Non-core litigation recovery 3,750                   NM   NM
Total non-interest income 37,009 28,050 30,656 31,178 31,763 31.9 16.5
Non-interest expense:
Salaries and wages 26,707 24,682 24,549 25,460 26,093 8.2 2.4
Employee benefits** 8,066 9,609 7,337 8,008 8,063 (16.1 )
Occupancy and equipment 6,744 6,920 8,624 8,262 8,232 (2.5 ) (18.1 )
Core deposit intangible amortization 827 827 837 842 855 (3.3 )
Other expenses 20,411     19,670     19,060     18,780     19,558   3.8     4.4  
Subtotal 62,755 61,708 60,407 61,352 62,801 1.7 (0.1 )
Other real estate owned (income) expense 140 (39 ) 129 (720 ) (823 ) (459.0 ) (117.0 )
Non-core acquisition and litigation expenses         166     5,566     (7 ) NM   NM
Total non-interest expense 62,895     61,669     60,702     66,198     61,971   2.0     1.5  
Income before taxes 39,197 30,331 35,085 30,212 33,740 29.2 16.2
Income taxes 13,643     10,207     11,654     10,050     11,518   33.7     18.4  
Net income $ 25,554     $ 20,124     $ 23,431     $ 20,162     $ 22,222   27.0 %   15.0 %
 
Weighted-average basic shares outstanding 44,269 44,719 45,066 45,150 45,143 (1.0 )% (1.9 )%
Weighted-average diluted shares outstanding 44,645 45,114 45,549 45,579 45,607 (1.0 ) (2.1 )
Earnings per share - basic $ 0.58 $ 0.45 $ 0.52 $ 0.45 $ 0.49 28.9 18.4
Earnings per share - diluted 0.57 0.45 0.51 0.44 0.49 26.7 16.3
 
Core net income*** $ 23,154 $ 20,137 $ 23,496 $ 23,610 $ 22,189 15.0 % 4.3 %
Core pre-tax, pre-provision net income*** 37,889 34,352 38,478 36,853 35,027 10.3 8.2
Core earnings per share - diluted*** 0.52 0.45 0.52 0.52 0.49 15.6 6.1
 
NM - not meaningful

** Beginning in second quarter 2016, income earned on deferred compensation plan assets is reported in non-interest income net of employee benefits expense directly related to these earnings. Prior period amounts and ratios have been revised to conform to the current period presentation.

*** 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 share and per share data)  

Jun 30,
2016

 

Mar 31,
2016

 

Dec 31,
2015

 

Sep 30,
2015

 

Jun 30,
2015

2Q16 vs
1Q16

 

2Q16 vs
2Q15

Assets:      
Cash and cash equivalents $ 476,051 $ 655,528 $ 780,457 $ 708,295 $ 506,434 (27.4 )% (6.0 )%
Investment securities 2,061,828 2,144,740 2,057,505 2,067,636 2,139,433 (3.9 ) (3.6 )
Loans held for investment 5,340,189 5,191,469 5,193,321 5,120,794 5,028,624 2.9 6.2
Mortgage loans held for sale 73,053     52,989     52,875     55,686     75,322   37.9     (3.0 )
Total loans 5,413,242 5,244,458 5,246,196 5,176,480 5,103,946 3.2 6.1
Less allowance for loan losses 80,340     79,924     76,817     74,256     76,552   0.5     4.9  
Net loans 5,332,902     5,164,534     5,169,379     5,102,224     5,027,394   3.3     6.1  
Premises and equipment 187,538 188,714 190,812 190,386 189,488 (0.6 ) (1.0 )
Goodwill and intangible assets (excluding mortgage servicing rights) 213,420 214,248 215,119 215,843 215,958 (0.4 ) (1.2 )
Company owned life insurance 189,524 188,396 187,253 185,990 177,625 0.6 6.7
Other real estate owned 7,908 9,257 6,254 8,031 11,773 (14.6 ) (32.8 )
Mortgage servicing rights 16,038 15,574 15,621 15,336 14,654 3.0 9.4
Other assets 120,167     109,689     105,796     110,789     103,459   9.6     16.1  
Total assets $ 8,605,376     $ 8,690,680     $ 8,728,196     $ 8,604,530     $ 8,386,218   (1.0 )%   2.6 %
 
Liabilities and stockholders' equity:
Deposits $ 6,981,448 $ 7,107,463 $ 7,088,937 $ 7,035,794 $ 6,804,401 (1.8 )% 2.6 %
Securities sold under repurchase agreements 466,399 465,523 510,635 437,533 469,145 0.2 (0.6 )
Long-term debt 27,928 27,907 27,885 43,089 43,068 0.1 (35.2 )
Subordinated debentures held by subsidiary trusts 82,477 82,477 82,477 82,477 82,477
Other liabilities 81,999     65,296     67,769     67,062     62,272   25.6     31.7  
Total liabilities 7,640,251     7,748,666     7,777,703     7,665,955     7,461,363   (1.4 )   2.4  
Stockholders' equity:
Common stock 290,366 288,782 311,720 309,167 313,125 0.5 (7.3 )
Retained earnings 664,337 648,631 638,367 623,967 612,875 2.4 8.4
Accumulated other comprehensive income (loss) 10,422     4,601     406     5,441     (1,145 ) NM   NM
Total stockholders' equity 965,125     942,014     950,493     938,575     924,855   2.5     4.4  
Total liabilities and stockholders' equity $ 8,605,376     $ 8,690,680     $ 8,728,196     $ 8,604,530     $ 8,386,218   (1.0 )%   2.6 %
 
Common shares outstanding at period end 44,746 44,707 45,428 45,345 45,507 0.1 % (1.7 )%
Book value at period end $ 21.57 $ 21.07 $ 20.92 $ 20.70 $ 20.32 2.4 6.2
Tangible book value at period end*** 16.80 16.28 16.19 15.94 15.58 3.2 7.8
 
NM - not meaningful

*** 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,
2016

 

Mar 31,
2016

 

Dec 31,
2015

 

Sep 30,
2015

  Jun 30,
2015

2Q16 vs
1Q16

 

2Q16 vs
2Q15

     
Loans:
Real Estate:
Commercial real estate $ 1,816,813 $ 1,764,492 $ 1,793,258 $ 1,750,797 $ 1,704,073 3.0 % 6.6 %
Construction:
Land acquisition and development 218,650 219,450 224,066 212,990 211,889 (0.4 ) 3.2
Residential 113,944 113,317 111,763 112,495 101,023 0.6 12.8
Commercial 117,643     102,382     94,890     93,775     90,316   14.9     30.3  
Total construction 450,237 435,149 430,719 419,260 403,228 3.5 11.7
Residential real estate 1,030,593 1,021,443 1,032,851 1,020,445 999,038 0.9 3.2
Agricultural real estate 166,872     153,054     156,234     163,116     158,506   9.0     5.3  
Total real estate 3,464,515 3,374,138 3,413,062 3,353,618 3,264,845 2.7 6.1
Consumer
Indirect 687,768 651,057 622,529 616,142 589,479 5.6 16.7
Other 153,185 150,774 153,717 150,170 144,919 1.6 5.7
Credit card 66,221     63,624     68,107     65,649     64,728   4.1     2.3  
Total consumer 907,174 865,455 844,353 831,961 799,126 4.8 13.5
Commercial 824,962 825,043 792,416 778,648 819,119 0.7
Agricultural 139,892 126,290 142,151 154,855 142,629 10.8 (1.9 )
Other 3,646     543     1,339     1,712     2,905   571.5     25.5  
Loans held for investment 5,340,189 5,191,469 5,193,321 5,120,794 5,028,624 2.9 6.2
Loans held for sale 73,053     52,989     52,875     55,686     75,322   37.9     (3.0 )
Total loans $ 5,413,242     $ 5,244,458     $ 5,246,196     $ 5,176,480     $ 5,103,946   3.2 %   6.1 %
 
 
Deposits:
Non-interest bearing $ 1,783,609 $ 1,860,472 $ 1,823,716 $ 1,832,535 $ 1,757,641 (4.1 )% 1.5 %
Interest bearing:
Demand 2,107,950 2,142,326 2,178,373 2,134,203 2,028,648 (1.6 ) 3.9
Savings 2,003,343 2,001,329 1,955,256 1,918,724 1,868,877 0.1 7.2
Time, $100 and over 479,077 478,527 487,372 496,539 490,088 0.1 (2.2 )
Time, other 607,469     624,809     644,220     653,793     659,147   (2.8 )   (7.8 )
Total interest bearing 5,197,839     5,246,991     5,265,221     5,203,259     5,046,760   (0.9 )   3.0  
Total deposits $ 6,981,448     $ 7,107,463     $ 7,088,937     $ 7,035,794     $ 6,804,401   (1.8 )%   2.6 %
 
Total core deposits(1) $ 6,502,371 $ 6,628,936 $ 6,601,565 $ 6,539,255 $ 6,314,313 (1.9 )% 3.0 %
 
(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,
2016
 

Mar 31,
2016

 

Dec 31,
2015

 

Sep 30,
2015

 

Jun 30,
2015

2Q16 vs
1Q16

 

2Q16 vs
2Q15

     
Allowance for Loan Losses:
Allowance for loan losses $ 80,340 $ 79,924 $ 76,817 $ 74,256 $ 76,552 0.5 % 4.9 %
As a percentage of period-end loans 1.48 % 1.52 % 1.46 % 1.43 % 1.50 %
 
Net charge-offs during quarter $ 2,134 $ 893 $ 728 $ 3,394 $ 124 139.0 % NM
Annualized as a percentage of average loans 0.16 % 0.07 % 0.06 % 0.26 % 0.01 %
 
 
Non-Performing Assets:
Non-accrual loans $ 74,311 $ 63,837 $ 66,385 $ 66,359 $ 70,848 16.4 % 4.9 %
Accruing loans past due 90 days or more 4,454     4,362     5,602     3,357     2,153   2.1     106.9  
Total non-performing loans 78,765 68,199 71,987 69,716 73,001 15.5 7.9
Other real estate owned 7,908     9,257     6,254     8,031     11,773   (14.6 )   (32.8 )
Total non-performing assets $ 86,673     $ 77,456     $ 78,241     $ 77,747     $ 84,774   11.9 %   2.2 %
Non-performing assets as a percentage of:
Total loans and OREO 1.60 % 1.47 % 1.49 % 1.50 % 1.66 %
Total assets 1.01 0.89 0.90 0.90 1.01
 
Accruing Loans 30-89 Days Past Due $ 25,048 $ 25,001 $ 42,869 $ 38,793 $ 31,178 0.2 % (19.7 )%
Accruing TDRs 16,408 12,070 15,419 16,702 15,127 35.9 8.5
 
 
Criticized Loans:
Special Mention $ 142,560 $ 144,993 $ 127,270 $ 155,157 $ 155,707 (1.7 )% (8.4 )%
Substandard 176,021 167,826 162,785 163,846 159,899 4.9 10.1
Doubtful 41,344     34,578     30,350     24,547     31,701   19.6     30.4  
Total $ 359,925     $ 347,397     $ 320,405     $ 343,550     $ 347,307   3.6 %   3.6 %
 
NM - not meaningful
 
 

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Selected Ratios
(Unaudited)

 
  Jun 30,
2016
 

Mar 31,
2016

 

Dec 31,
2015

 

Sep 30,
2015

 

Jun 30,
2015

     
Annualized Financial Ratios (GAAP)
Return on average assets 1.20 % 0.94 % 1.07 % 0.94 % 1.06 %
Return on average common equity 10.83 8.60 9.83 8.60 9.68
Yield on average earning assets 3.78 3.77 3.73 3.70 3.70
Cost of average interest bearing liabilities 0.30 0.31 0.32 0.31 0.31
Interest rate spread 3.48 3.46 3.41 3.39 3.39
Net interest margin ratio 3.55 3.54 3.49 3.47 3.47
Efficiency ratio** 60.10 64.24 61.27 67.89 63.85
Loan to deposit ratio 77.54 73.79 74.01 73.57 75.01
 
 
Annualized Financial Ratios - Operating*** (Non-GAAP)
Core return on average assets 1.09 % 0.94 % 1.07 % 1.10 % 1.06 %
Core return on average common equity 9.81 8.60 9.86 10.07 9.66
Return on average tangible common equity 13.98 11.13 12.73 11.20 12.65
Core efficiency ratio 60.78 62.71 59.52 61.40 63.14
Tangible common stockholders' equity to tangible assets 8.96 8.59 8.64 8.62 8.68
 
 
Consolidated Capital Ratios:
Total risk-based capital 15.03 % * 15.04 % 15.36 % 15.28 % 15.37 %
Tier 1 risk-based capital

13.72

* 13.72 13.99 13.83 13.88
Tier 1 common capital to total risk-weighted assets 12.45 * 12.43 12.69 12.52 12.55
Leverage Ratio 10.35 * 10.07 10.12 10.13 10.11
 

* Preliminary estimate - may be subject to change.

** Beginning in second quarter 2016, income earned on deferred compensation plan assets is reported in non-interest income net of employee benefits expense directly related to these earnings. Prior period amounts and ratios have been revised to conform to the current period presentation.

*** 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, 2016   March 31, 2016   June 30, 2015
(In thousands)  

Average
Balance

  Interest  

Average
Rate

Average
Balance

  Interest  

Average
Rate

Average
Balance

  Interest  

Average
Rate

Interest earning assets:            
Loans (1) (2) $ 5,324,812 $ 63,248 4.78 % $ 5,222,905 $ 63,371 4.88 % $ 4,991,416 $ 60,911 4.89 %
Investment securities (2) 2,095,347 9,335 1.79 2,107,977 9,424 1.80 2,319,636 9,642 1.67
Interest bearing deposits in banks 359,807 482 0.54 506,839 645 0.51 369,345 271 0.29
Federal funds sold 1,888     3     0.64   1,292     2     0.62   3,168     5     0.63  
Total interest earnings assets 7,781,854 73,068 3.78 7,839,013 73,442 3.77 7,683,565 70,829 3.70
Non-earning assets 756,723           754,962           743,545          
Total assets $ 8,538,577           $ 8,593,975           $ 8,427,110          
Interest bearing liabilities:
Demand deposits $ 2,133,509 $ 514 0.10 % $ 2,147,532 $ 558 0.10 % $ 2,086,443 $ 524 0.10 %
Savings deposits 1,983,262 652 0.13 1,985,233 650 0.13 1,874,508 624 0.13
Time deposits 1,097,448 1,942 0.71 1,118,049 2,020 0.73 1,175,753 2,091 0.71
Repurchase agreements 470,264 92 0.08 477,207 90 0.08 448,810 53 0.05
Other borrowed funds 12 8 7
Long-term debt 27,896 451 6.50 29,129 449 6.20 43,039 538 5.01
Subordinated debentures held by subsidiary trusts 82,477     675     3.29   82,477     663     3.23   82,477     600     2.92  
Total interest bearing liabilities 5,794,868 4,326 0.30 5,839,635 4,430 0.31 5,711,037 4,430 0.31
Non-interest bearing deposits 1,738,008 1,755,515 1,739,329
Other non-interest bearing liabilities 56,864 57,145 55,515
Stockholders’ equity 948,837           941,680           921,229          
Total liabilities and stockholders’ equity $ 8,538,577           $ 8,593,975           $ 8,427,110          
Net FTE interest income $ 68,742 69,012 $ 66,399
Less FTE adjustments (2)     (1,109 )         (1,062 )         (1,111 )    
Net interest income from consolidated statements of income     $ 67,633           $ 67,950           $ 65,288      
Interest rate spread 3.48 % 3.46 % 3.39 %
Net FTE interest margin (3) 3.55 % 3.54 % 3.47 %
Cost of funds, including non-interest bearing demand deposits (4) 0.23 % 0.23 % 0.24 %
 

(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, 2016   June 30, 2015
(In thousands)  

Average
Balance

  Interest  

Average
Rate

Average
Balance
  Interest   Average
Rate
Interest earning assets:        
Loans (1) (2) $ 5,273,859 $ 126,618 4.83 % $ 4,943,547 $ 120,727 4.92 %
Investment securities (2) 2,101,662 18,760 1.80 2,307,104 19,283 1.69
Interest bearing deposits in banks 433,323 1,127 0.52 457,475 660 0.29
Federal funds sold 1,590     5     0.63   2,176     7     0.65  
Total interest earnings assets 7,810,434 146,510 3.77 7,710,302 140,677 3.68
Non-earning assets 755,849           747,788          
Total assets $ 8,566,283           $ 8,458,090          
Interest bearing liabilities:
Demand deposits $ 2,140,520 $ 1,072 0.10 % $ 2,087,815 $ 1,030 0.10 %
Savings deposits 1,984,247 1,302 0.13 1,878,640 1,252 0.13
Time deposits 1,107,748 3,962 0.72 1,198,048 4,266 0.72
Repurchase agreements 473,736 182 0.08 464,083 107 0.05
Other borrowed funds 10 5
Long-term debt 28,513 900 6.35 40,589 1,052 5.23
Subordinated debentures held by subsidiary trusts 82,477     1,338     3.26   82,477     1,190     2.91  
Total interest bearing liabilities 5,817,251 8,756 0.30 5,751,657 8,897 0.31
Non-interest bearing deposits 1,746,762 1,731,210
Other non-interest bearing liabilities 57,004 60,924
Stockholders’ equity 945,266           914,299          
Total liabilities and stockholders’ equity $ 8,566,283           $ 8,458,090          
Net FTE interest income $ 137,754 $ 131,780
Less FTE adjustments (2)     (2,171 )         (2,167 )    
Net interest income from consolidated statements of income     $ 135,583           $ 129,613      
Interest rate spread 3.47 % 3.37 %
Net FTE interest margin (3) 3.55 % 3.45 %
Cost of funds, including non-interest bearing demand deposits (4) 0.23 % 0.24 %
 

(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 share and per share data)       Jun 30,
2016
 

Mar 31,
2016

 

Dec 31,
2015

 

Sep 30,
2015

  Jun 30,
2015
       
Net income (GAAP) (A) $ 25,554 $ 20,124 $ 23,431 $ 20,162 $ 22,222
Adj: investment securities (gains) losses, net (108 ) 21 (62 ) (23 ) (46 )
Plus: acquisition & nonrecurring litigation expenses 166 5,566 (7 )
Less: nonrecurring litigation recovery (3,750 )
Adj: income tax (benefit) expense 1,458     (8 )   (39 )   (2,095 )   20  
Total core net income (Non-GAAP) (B) $ 23,154     $ 20,137     $ 23,496     $ 23,610     $ 22,189  
 
Net income (GAAP) $ 25,554 $ 20,124 $ 23,431 $ 20,162 $ 22,222
Add back: income tax expense 13,643 10,207 11,654 10,050 11,518
Add back: provision for loan losses 2,550 4,000 3,289 1,098 1,340
Adj: investment securities (gains) losses, net (108 ) 21 (62 ) (23 ) (46 )
Add back: acquisition & nonrecurring litigation expenses 166 5,566 (7 )
Subtract: nonrecurring litigation recovery (3,750 )                
Core pre-tax, pre-provision net income (Non-GAAP) $ 37,889     $ 34,352     $ 38,478     $ 36,853     $ 35,027  
 
Weighted-average diluted shares outstanding (C) 44,645 45,114 45,549 45,579 45,607
Earnings per share - diluted (GAAP) (A)/(C) $ 0.57 $ 0.45 $ 0.51 $ 0.44 $ 0.49
Core earnings per share - diluted (Non-GAAP) (B)/(C) 0.52 0.45 0.52 0.52 0.49
 
Total non-interest income (GAAP) (D) $ 37,009 $ 28,050 $ 30,656 $ 31,178 $ 31,763
Adj: investment securities (gains) losses, net (108 ) 21 (62 ) (23 ) (46 )
Adj: nonrecurring litigation recovery (3,750 )                
Total core non-interest income (Non-GAAP) 33,151 28,071 30,594 31,155 31,717
Net interest income (GAAP) (E) 67,633     67,950     68,420     66,330     65,288  
Total core revenue (Non-GAAP) 100,784 96,021 99,014 97,485 97,005
Add: FTE adjustments 1,109     1,062     1,072     1,070     1,111  
Total core revenue for core efficiency ratio (Non-GAAP) (F) $ 101,893     $ 97,083     $ 100,086     $ 98,555     $ 98,116  
 
Total non-interest expense (GAAP) (G) $ 62,895 $ 61,669 $ 60,702 $ 66,198 $ 61,971
Less: acquisition & nonrecurring litigation expenses         (166 )   (5,566 )   7  
Core non-interest expense (Non-GAAP) 62,895 61,669 60,536 60,632 61,978
Less: amortization of core deposit intangible (827 ) (827 ) (837 ) (842 ) (855 )
Adj: OREO (expense) income (140 )   39     (129 )   720     823  
Non-interest expense for core efficiency ratio (Non-GAAP) (H) $ 61,928     $ 60,881     $ 59,570     $ 60,510     $ 61,946  
 
Efficiency ratio (GAAP) (G)/[(D)+(E)] 60.10 % 64.24 % 61.27 % 67.89 % 63.85 %
Core efficiency ratio (Non-GAAP) (H)/(F) 60.78 62.71 59.52 61.40 63.14
 
 

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Non-GAAP Financial Measures - Continued
(Unaudited)

 
    As Of or For the Quarter Ended
(In thousands, except share and per share data)       Jun 30,
2016
 

Mar 31,
2016

 

Dec 31,
2015

 

Sep 30,
2015

  Jun 30,
2015
       
Annualized net income (I) $ 102,778 $ 80,938 $ 92,960 $ 79,991 $ 89,132
Annualized core net income (J) 93,125 80,991 93,218 93,670 89,000
Total quarterly average assets (K) 8,538,577 8,593,975 8,673,135 8,495,436 8,427,110
 
Return on average assets (GAAP) (I)/(K) 1.20 % 0.94 % 1.07 % 0.94 % 1.06 %
Core return on average assets (Non-GAAP) (J)/(K) 1.09 0.94 1.07 1.10 1.06
 
Total quarterly average stockholders' equity (GAAP) (L) $ 948,837 $ 941,680 $ 945,462 $ 929,757 $ 921,229
Less: average goodwill and other intangible assets (excluding mortgage servicing rights) (213,911 )   (214,797 )   (215,496 )   (215,829 )   (216,457 )
Average tangible common stockholders' equity (Non-GAAP) (M) $ 734,926     $ 726,883     $ 729,966     $ 713,928     $ 704,772  
 
Total stockholders' equity, period-end (GAAP) (N) $ 965,125 $ 942,014 $ 950,493 $ 938,575 $ 924,855
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (213,420 )   (214,248 )   (215,119 )   (215,843 )   (215,958 )
Total tangible common stockholders' equity (Non-GAAP) (O) $ 751,705     $ 727,766     $ 735,374     $ 722,732     $ 708,897  
 
Return on average common equity (GAAP) (I)/(L) 10.83 % 8.60 % 9.83 % 8.60 % 9.68 %
Core return on average common equity (Non-GAAP) (J)/(L) 9.81 8.60 9.86 10.07 9.66
Return on average tangible common equity (Non-GAAP) (I)/(M) 13.98 11.13 12.73 11.20 12.65
 
Total assets (GAAP) (P) $ 8,605,376 $ 8,690,680 $ 8,728,196 8,604,530 8,386,218
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (213,420 )   (214,248 )   (215,119 )   (215,843 )   (215,958 )
Tangible assets (Non-GAAP) (Q) $ 8,391,956     $ 8,476,432     $ 8,513,077     $ 8,388,687     $ 8,170,260  
 
Total common shares outstanding, period end (R) 44,746 44,707 45,428 45,345 45,507
 
Book value per share, period end (GAAP) (N)/(R) $ 21.57 $ 21.07 $ 20.92 $ 20.70 $ 20.32
Tangible book value per share, period-end (Non-GAAP) (O)/(R) 16.80 16.28 16.19 15.94 15.58
Average common stockholders' equity to average assets (GAAP) (L)/(K) 11.11 % 10.96 % 10.90 % 10.94 % 10.93 %
Tangible common stockholders' equity to tangible assets (Non-GAAP) (O)/(Q) 8.96 8.59 8.64 8.62 8.68
 

Contacts

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

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