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Form 8-K FIRST INTERSTATE BANCSYS For: Jul 20

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July 20, 2015 5:05 PM EDT



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 ------------------------------
FORM 8-K
 ------------------------------
 CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (date of earliest event reported): July 20, 2015
 ------------------------------
FIRST INTERSTATE BANCSYSTEM, INC.
(Exact name of registrant as specified in its charter)
 ------------------------------
 
 
 
 
 
Montana
 
001-34653
 
81-0331430
(State or other jurisdiction of
incorporation or organization)
 
(Commission
File No.)
 
(IRS Employer
Identification No.)
 
 
 
 
401 North 31st Street, Billings, MT
 
59116
(Address of principal executive offices)
 
(Zip code)
(406) 255-5390
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
 ------------------------------
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a- 12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 2.02 Results of Operations and Financial Condition.
On July 20, 2015, First Interstate BancSystem, Inc. (the “Registrant”) issued a press release regarding its financial results for the quarter ended June 30, 2015. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated by reference herein. The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibit 99.1 – Press Release dated July 20, 2015 regarding the Registrant’s financial results for the quarter ended June 30, 2015.




SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: July 20, 2015
 
 
 
 
 
FIRST INTERSTATE BANCSYSTEM, INC.
 
 
 
 
By:
/s/ ED GARDING
 
 
Ed Garding
 
 
President and Chief Executive Officer





For Immediate Release
 
 
Contact:
  
Marcy Mutch
  
NASDAQ: FIBK
 
  
Investor Relations Officer
First Interstate BancSystem, Inc.
(406) 255-5322
  
www.FIBK.com

    
First Interstate BancSystem, Inc. Reports Earnings Growth of 5.9% Quarter-Over-Quarter
                

Billings, MT - July 20, 2015 - First Interstate BancSystem, Inc. (NASDAQ: FIBK) reports second quarter 2015 net income of $22.2 million, or $0.49 per share. This compares to net income of $21.0 million, or $0.46 per share, during first quarter 2015, and $21.1 million, or $0.47 per share, during second quarter 2014.

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

“We continued to see strong improvement in our core earnings during the second quarter, with a 12% increase in total revenue and a 15% increase in pre-tax, pre-provision income compared to the second quarter of 2014,” said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “We saw a notable increase in organic loan demand in our markets, which, along with the Mountain West acquisition, drove a 13% increase in our total loans year-over-year. Organic loan demand was broad-based, with notable growth in our commercial, commercial real estate, consumer and agricultural portfolios. We also had a strong quarter of residential mortgage loan production, which resulted in a strong increase in our loan sale income," continued Mr. Garding. "As we continue to execute well on our growth strategies and complete our pending acquisition of Absarokee Bancorporation, we believe we can continue to deliver strong results for our shareholders,” said Mr. Garding.
RESULTS OF OPERATIONS
            
Net Interest Income. The Company's net interest income, on a fully taxable equivalent basis, increased $1.0 million to $66.4 million during second quarter 2015, as compared to $65.4 million during first quarter 2015, primarily due to the combined impact of one additional accrual day during second quarter 2015 and a shift in the mix of interest earning assets from lower yielding interest bearing deposits in banks to higher yielding loans.


1


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

The Company's net interest margin ratio increased 4 basis points to 3.47% during second quarter 2015, as compared to 3.43% during first quarter 2015. Exclusive of the accelerated interest accretion related to early payoffs of acquired loans and the impact of recoveries of charged-off interest, the Company's net interest margin ratio increased 2 basis points to 3.40% during second quarter 2015, compared to 3.38% during first quarter 2015. This increase was primarily driven by a shift in the mix of interest earning assets from lower yielding interest bearing deposits in banks to higher yielding loans and investment securities.
 
Non-Interest Income. Non-interest income increased $4.0 million to $31.8 million during second quarter 2015, as compared to $27.8 million during first quarter 2015, primarily due to increases in income from the origination and sale of mortgage loans and increases in other service charges, commissions and fees income.

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

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

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

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

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

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

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

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

2


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

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

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

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

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

Second Quarter 2015 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss second quarter 2015 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Tuesday, July 21, 2015. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-877-507-0356 or by logging on to www.FIBK.com. The call will be recorded and made available for replay after 1:00 p.m. Eastern Time (11:00 a.m. Mountain Time) on July 21, 2015 through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on August 21, 2015, by dialing 1-877-344-7529 (using conference ID 10068509). The call will also be archived on our website, www.FIBK.com, for one year.
    
About First Interstate BancSystem, Inc.
    
First Interstate BancSystem, Inc. is a financial and bank holding company incorporated in 1971 and headquartered in Billings, Montana. The Company operates 80 banking offices, including detached drive-up facilities, in 42 communities in Montana, Wyoming and western South Dakota. Through First Interstate Bank, the Company delivers a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities throughout the Company's market areas.


3


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.
P.O. Box 30918     Billings, Montana 59116     (406) 255-5390
www.FIBK.com

4



FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Financial Summary
(Unaudited, $ in thousands, except per share data)
 
 
2015
 
2014
INCOME STATEMENT SUMMARIES
 
2nd Qtr
 
1st Qtr
 
4th Qtr
 
3rd Qtr
 
2nd Qtr
Net interest income
 
$
65,288

 
$
64,325

 
$
65,516

 
$
65,082

 
$
59,727

Net interest income on a fully-taxable equivalent ("FTE") basis
 
66,399

 
65,381

 
66,585

 
66,129

 
60,806

Provision for loan losses
 
1,340

 
1,095

 
118

 
261

 
(2,001
)
Non-interest income:
 
 
 
 
 
 
 
 
 
 
Other service charges, commissions and fees
 
11,173

 
9,867

 
11,429

 
10,458

 
9,699

Income from the origination and sale of loans
 
8,802

 
5,906

 
5,554

 
7,346

 
6,380

Wealth management revenues
 
4,897

 
4,937

 
4,775

 
5,157

 
4,609

Service charges on deposit accounts
 
4,053

 
3,944

 
4,432

 
4,331

 
3,929

Investment securities gains (losses), net
 
46

 
6

 
(19
)
 
(8
)
 
17

Other income
 
2,799

 
3,122

 
5,190

 
2,079

 
1,937

Total non-interest income
 
31,770

 
27,782

 
31,361

 
29,363

 
26,571

Non-interest expense:
 
 
 
 
 
 
 
 
 
 
Salaries and wages
 
26,093

 
25,349

 
23,717

 
25,914

 
24,440

Employee benefits
 
8,070

 
7,780

 
6,812

 
7,841

 
7,164

Occupancy, net
 
4,529

 
4,492

 
4,770

 
4,534

 
4,253

Furniture and equipment
 
3,703

 
3,793

 
4,120

 
3,338

 
3,157

Outsourced technology services
 
2,593

 
2,463

 
2,468

 
2,346

 
2,309

Other real estate owned income, net
 
(823
)
 
(61
)
 
(61
)
 
(58
)
 
(134
)
Core deposit intangible amortization
 
855

 
854

 
855

 
688

 
354

Non-core expenses (income)
 
(7
)
 
70

 
2,368

 
5,052

 
597

Other expenses
 
16,965

 
14,852

 
16,604

 
15,303

 
13,780

Total non-interest expense
 
61,978

 
59,592

 
61,653

 
64,958

 
55,920

Income before taxes
 
33,740

 
31,420

 
35,106

 
29,226

 
32,379

Income taxes
 
11,518

 
10,440

 
12,330

 
10,071

 
11,302

Net income
 
$
22,222

 
$
20,980

 
$
22,776

 
$
19,155

 
$
21,077

Core net income**
 
$
22,189


$
21,020

 
$
24,260

 
$
22,302

 
$
21,438

        Pre-tax, pre-provision net income**
 
$
35,080

 
$
32,515

 
$
35,224

 
$
29,487

 
$
30,378

 
 
 
 
 
 
 
 
 
 
 
PER COMMON SHARE DATA
 
 
 
 
 
 
 
 
 
 
Net income - basic
 
$
0.49

 
$
0.46

 
$
0.50

 
$
0.43

 
$
0.48

Net income - diluted
 
0.49

 
0.46

 
0.49

 
0.42

 
0.47

Core net income - diluted
 
0.49

 
0.46

 
0.53

 
0.49

 
0.48

Cash dividend paid
 
0.20

 
0.20

 
0.16

 
0.16

 
0.16

Book value at period end
 
20.32

 
20.13

 
19.85

 
19.40

 
18.95

Tangible book value at period end**
 
15.58

 
15.36

 
15.07

 
14.61

 
14.71

 
 
 
 
 
 
 
 
 
 
 
OUTSTANDING COMMON SHARES
 
 
 
 
 
 
 
 
 
 
At period-end
 
45,506,583

 
45,429,468

 
45,788,415

 
45,672,922

 
44,255,012

Weighted-average shares - basic
 
45,143,122

 
45,378,230

 
45,485,548

 
44,911,858

 
44,044,260

Weighted-average shares - diluted
 
45,606,686

 
45,840,191

 
46,037,344

 
45,460,288

 
44,575,963

 
 
 
 
 
 
 
 
 
 
 
SELECTED ANNUALIZED RATIOS
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
1.06
%
 
1.00
%
 
1.05
%
 
0.93
%
 
1.12
%
Core return on average assets**
 
1.06

 
1.00

 
1.12

 
1.09

 
1.14

Return on average common equity
 
9.68

 
9.38

 
10.09

 
8.55

 
10.18

Core return on average common equity**
 
9.66

 
9.40

 
10.75

 
9.96

 
10.36

Return on average tangible common equity**
 
12.65

 
12.35

 
13.34

 
11.17

 
13.16

Net FTE interest income to average earning assets
 
3.47

 
3.43

 
3.38

 
3.55

 
3.54

 
 
 
 
 
 
 
 
 
 
 



5


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Financial Summary - continued
(Unaudited, $ in thousands)
 
 
2015
 
2014
BALANCE SHEET SUMMARIES
 
Jun 30
 
Mar 31
 
Dec 31
 
Sept 30
 
Jun 30
Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
506,434

 
$
637,803

 
$
798,670

 
$
819,963

 
$
503,648

Investment securities
 
2,139,433

 
2,340,904

 
2,287,110

 
2,169,774

 
2,093,985

Loans held for investment:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
1,704,073

 
1,670,829

 
1,639,422

 
1,686,509

 
1,464,947

Construction real estate
 
403,228

 
406,305

 
418,269

 
367,420

 
361,009

Residential real estate
 
999,038

 
997,123

 
999,903

 
957,282

 
894,502

Agricultural real estate
 
158,506

 
156,734

 
167,659

 
158,940

 
162,428

Consumer
 
799,126

 
768,462

 
762,471

 
745,482

 
707,035

Commercial
 
819,119

 
754,149

 
740,073

 
736,908

 
727,482

Agricultural
 
142,629

 
117,569

 
124,859

 
136,587

 
130,280

Other
 
2,905

 
377

 
3,959

 
2,316

 
2,016

Mortgage loans held for sale
 
75,322

 
55,758

 
40,828

 
62,938

 
56,663

Total loans
 
5,103,946

 
4,927,306

 
4,897,443

 
4,854,382

 
4,506,362

Less allowance for loan losses
 
76,552

 
75,336

 
74,200

 
74,231

 
78,266

Net loans
 
5,027,394

 
4,851,970

 
4,823,243

 
4,780,151

 
4,428,096

Premises and equipment, net
 
189,488

 
192,748

 
195,212

 
207,181

 
180,341

Goodwill and intangible assets (excluding mortgage servicing rights)
 
215,958

 
216,815

 
218,870

 
218,799

 
187,502

Company owned life insurance
 
177,625

 
154,741

 
153,821

 
152,761

 
138,899

Other real estate owned, net
 
11,773

 
15,134

 
13,554

 
18,496

 
16,425

Mortgage servicing rights, net
 
14,654

 
14,093

 
14,038

 
13,894

 
13,443

Other assets
 
103,459

 
104,334

 
105,418

 
100,333

 
89,040

Total assets
 
$
8,386,218

 
$
8,528,542

 
$
8,609,936

 
$
8,481,352

 
$
7,651,379

 
 
 
 

 
 
 
 
 
 
Liabilities and stockholders' equity:
 
 
 

 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
Non-interest bearing
 
$
1,757,641

 
$
1,757,664

 
$
1,791,364

 
$
1,637,151

 
$
1,533,484

Interest bearing
 
5,046,760

 
5,210,495

 
5,214,848

 
5,322,348

 
4,645,558

Total deposits
 
6,804,401

 
6,968,159

 
7,006,212

 
6,959,499

 
6,179,042

Securities sold under repurchase agreements
 
469,145

 
462,073

 
502,250

 
432,478

 
462,985

Accounts payable, accrued expenses and other liabilities
 
62,272

 
58,335

 
72,006

 
63,713

 
51,456

Long-term debt
 
43,068

 
43,048

 
38,067

 
36,882

 
36,893

Subordinated debentures held by subsidiary trusts
 
82,477

 
82,477

 
82,477

 
102,916

 
82,477

Total liabilities
 
7,461,363

 
7,614,092

 
7,701,012

 
7,595,488

 
6,812,853

Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Common stock
 
313,125

 
310,544

 
323,596

 
321,132

 
283,697

Retained earnings
 
612,875

 
599,727

 
587,862

 
572,362

 
560,469

Accumulated other comprehensive income (loss)
 
(1,145
)
 
4,179

 
(2,534
)
 
(7,630
)
 
(5,640
)
Total stockholders' equity
 
924,855

 
914,450

 
908,924

 
885,864

 
838,526

Total liabilities and stockholders' equity
 
$
8,386,218

 
$
8,528,542

 
$
8,609,936

 
$
8,481,352

 
$
7,651,379

 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED CAPITAL RATIOS
 
 
 
 
 
 
 
 
 
 
Total risk-based capital
 
15.37
%
*
15.43
%
 
16.15
%
 
16.34
%
 
16.69
%
Tier 1 risk-based capital
 
13.88

*
13.94

 
14.52

 
14.71

 
15.02

Tier 1 common capital to total risk-weighted assets
 
12.55

*
12.58

 
13.08

 
12.89

 
13.45

Leverage Ratio
 
10.11

*
8.78

 
9.61

 
10.42

 
10.35

Tangible common stockholders' equity to tangible assets**
 
8.68

 
8.39

 
8.22

 
8.07

 
8.72




6


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Financial Summary - continued
(Unaudited, $ in thousands)
 
 
2015
 
2014
ASSET QUALITY
 
Jun 30
 
Mar 31
 
Dec 31
 
Sep 30
 
Jun 30
Allowance for loan losses
 
$
76,552

 
$
75,336

 
$
74,200

 
$
74,231

 
$
78,266

As a percentage of period-end loans
 
1.50
%
 
1.53
%
 
1.52
%
 
1.53
%
 
1.74
%
 
 
 
 
 
 
 
 
 
 
 
Net charge-offs (recoveries) during quarter
 
$
124

 
$
(41
)
 
$
149

 
$
4,296

 
$
1,104

Annualized as a percentage of average loans
 
0.01
%
 
—
%
 
0.01
%
 
0.36
%
 
0.10
%
 
 
 
 
 
 
 
 
 
 

Non-performing assets:
 
 
 
 
 
 
 
 
 

Non-accrual loans
 
$
70,848

 
$
73,941

 
$
62,182

 
$
71,915

 
$
79,166

Accruing loans past due 90 days or more
 
2,153

 
5,175

 
2,576

 
1,348

 
1,494

Total non-performing loans
 
73,001

 
79,116

 
64,758

 
73,263

 
80,660

Other real estate owned
 
11,773

 
15,134

 
13,554

 
18,496

 
16,425

Total non-performing assets
 
84,774

 
94,250

 
78,312

 
91,759

 
97,085

As a percentage of:
 
 
 
 
 
 
 
 
 
 
Total loans and OREO
 
1.66
%
 
1.91
%
 
1.59
%
 
1.88
%
 
2.15
%
Total assets
 
1.01
%
 
1.11
%
 
0.91
%
 
1.08
%
 
1.27
%
    
ASSET QUALITY TRENDS
Provision for Loan Losses
 
Net
Charge-offs (Recoveries)
 
Allowance for Loan Losses
 
Accruing Loans 30-89 Days Past Due
 
Accruing TDRs
 
Non-Performing Loans
 
Non-Performing Assets
Q2 2012
$
12,000

 
$
25,108

 
$
102,794

 
$
55,074

 
$
35,959

 
$
136,374

 
$
190,191

Q3 2012
9,500

 
13,288

 
99,006

 
48,277

 
35,428

 
127,270

 
167,241

Q4 2012
8,000

 
6,495

 
100,511

 
34,602

 
31,932

 
110,076

 
142,647

Q1 2013
500

 
3,107

 
97,904

 
41,924

 
35,787

 
100,535

 
133,005

Q2 2013
375

 
(249
)
 
98,528

 
39,408

 
23,406

 
105,471

 
128,253

Q3 2013
(3,000
)
 
2,538

 
92,990

 
39,414

 
21,939

 
96,203

 
114,740

Q4 2013
(4,000
)
 
3,651

 
85,339

 
26,944

 
21,780

 
96,671

 
112,175

Q1 2014
(5,000
)
 
(1,032
)
 
81,371

 
41,034

 
19,687

 
89,778

 
106,372

Q2 2014
(2,001
)
 
1,104

 
78,266

 
24,250

 
23,531

 
80,660

 
97,085

Q3 2014
261

 
4,296

 
74,231

 
38,400

 
20,956

 
73,263

 
91,759

Q4 2014
118

 
149

 
74,200

 
28,848

 
20,952

 
64,758

 
78,312

Q1 2015
1,095

 
(41
)
 
75,336

 
40,744

 
16,070

 
79,116

 
94,250

Q2 2015
1,340

 
124

 
76,552

 
31,178

 
15,127

 
73,001

 
84,774

    
CRITICIZED LOANS
Special Mention
 
Substandard
 
Doubtful
 
Total
Q2 2012
$
220,509

 
$
243,916

 
$
81,473

 
$
545,898

Q3 2012
223,306

 
229,826

 
66,179

 
519,311

Q4 2012
209,933

 
215,188

 
42,459

 
467,580

Q1 2013
197,645

 
197,095

 
43,825

 
438,565

Q2 2013
192,390

 
161,786

 
52,266

 
406,442

Q3 2013
180,850

 
168,278

 
42,415

 
391,543

Q4 2013
159,081

 
154,100

 
45,308

 
358,489

Q1 2014
174,834

 
161,103

 
31,672

 
367,609

Q2 2014
160,271

 
155,744

 
29,115

 
345,130

Q3 2014
156,469

 
156,123

 
39,450

 
352,042

Q4 2014
154,084

 
163,675

 
34,854

 
352,613

Q1 2015
140,492

 
156,887

 
37,476

 
334,855

Q2 2015
155,707

 
159,899

 
31,701

 
347,307


*Preliminary estimate - may be subject to change.
**See Non-GAAP Financial Measures included herein for a discussion regarding core net income, pre-tax, pre-provision net income, tangible book value per common share, core return on average assets, core return on average common equity, return on average tangible common equity and tangible common stockholders' equity to tangible assets.

7



FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Average Balance Sheets
(Unaudited, $ in thousands)
 
Three Months Ended
 
June 30, 2015
 
March 31, 2015
 
June 30, 2014
 
Average
Balance
Interest
Average
Rate
 
Average
Balance
Interest
Average
Rate
 
Average
Balance
Interest
Average
Rate
Interest earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (1) (2)
$
4,991,416

$
60,911

4.89
%
 
$
4,895,146

$
59,816

4.96
%
 
$
4,436,786

$
56,019

5.06
%
Investment securities (2)
2,319,636

9,642

1.67

 
2,294,433

9,641

1.70

 
2,091,438

9,017

1.73

Interest bearing deposits in banks
369,345

271

0.29

 
546,583

389

0.29

 
356,911

225

0.25

Federal funds sold
3,168

5

0.63

 
1,174

2

0.69

 
1,958

3

0.61

Total interest earnings assets
7,683,565

70,829

3.70

 
7,737,336

69,848

3.66

 
6,887,093

65,264

3.80

Non-earning assets
743,545

 
 
 
752,077

 
 
 
669,029

 
 
Total assets
$
8,427,110

 
 
 
$
8,489,413

 
 
 
$
7,556,122

 
 
Interest bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
2,086,443

$
524

0.10
%
 
$
2,089,203

$
506

0.10
%
 
$
1,878,483

$
513

0.11
%
Savings deposits
1,874,508

624

0.13

 
1,882,816

628

0.14

 
1,653,034

598

0.15

Time deposits
1,175,753

2,091

0.71

 
1,220,590

2,175

0.72

 
1,148,832

2,216

0.77

Repurchase agreements
448,810

53

0.05

 
479,525

54

0.05

 
438,744

63

0.06

Other borrowed funds
7

—

—

 
4

—

—

 
8

—

—

Long-term debt
43,039

538

5.01

 
38,113

515

5.48

 
36,897

476

5.17

Subordinated debentures held by subsidiary trusts
82,477

600

2.92

 
82,477

589

2.90

 
82,477

592

2.88

Total interest bearing liabilities
5,711,037

4,430

0.31

 
5,792,728

4,467

0.31

 
5,238,475

4,458

0.34

Non-interest bearing deposits
1,739,329

 
 
 
1,723,001

 
 
 
1,443,239

 
 
Other non-interest bearing liabilities
55,515

 
 
 
66,391

 
 
 
44,291

 
 
Stockholders’ equity
921,229

 
 
 
907,293

 
 
 
830,117

 
 
Total liabilities and stockholders’ equity
$
8,427,110

 
 
 
$
8,489,413

 
 
 
$
7,556,122

 
 
Net FTE interest income
 
66,399

 
 
 
65,381

 
 
 
60,806

 
Less FTE adjustments (2)
 
(1,111
)
 
 
 
(1,056
)
 
 
 
(1,079
)
 
Net interest income from consolidated statements of income
 
$
65,288

 
 
 
$
64,325

 
 
 
$
59,727

 
Interest rate spread
 
 
3.39
%
 
 
 
3.35
%
 
 
 
3.46
%
Net FTE interest margin (3)
 
 
3.47
%
 
 
 
3.43
%
 
 
 
3.54
%
Cost of funds, including non-interest bearing demand deposits (4)
 
 
0.24
%
 
 
 
0.24
%
 
 
 
0.27
%

(1)
Average loan balances include non-accrual loans. Interest income on loans includes amortization of deferred loan fees net of deferred loan costs, which is not material.
(2)
Interest income and average rates for tax exempt loans and securities are presented on an FTE basis.
(3)
Net FTE interest margin during the period equals the difference between annualized interest income on interest earning assets and the annualized interest expense on interest bearing liabilities, divided by average interest earning assets for the period.
(4)
Calculated by dividing total annualized interest on interest bearing liabilities by the sum of total interest bearing liabilities plus non-interest bearing deposits.




8


FIRST INTERSTATE BANCSYSTEM, INC AND SUBSIDIARIES
Average Balance Sheets
(Unaudited, $ in thousands)
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
Average
Balance
Interest
Average
Rate
 
Average
Balance
Interest
Average
Rate
Interest earning assets:
 
 
 
 
 
 
 
Loans (1) (2)
$
4,943,547

$
120,727

4.92
%
 
$
4,391,143

$
110,211

5.06
%
Investment securities (2)
2,307,104

19,283

1.69

 
2,099,993

18,387

1.77

Interest bearing deposits in banks
457,475

660

0.29

 
362,815

456

0.25

Federal funds sold
2,176

7

0.65

 
1,531

4

0.53

Total interest earnings assets
7,710,302

140,677

3.68

 
6,855,482

129,058

3.80

Non-earning assets
747,788

 
 
 
666,748

 
 
Total assets
$
8,458,090

 
 
 
$
7,522,230

 
 
Interest bearing liabilities:
 
 
 
 
 
 
 
Demand deposits
$
2,087,815

$
1,030

0.10
%
 
$
1,858,211

$
1,025

0.11
%
Savings deposits
1,878,640

1,252

0.13

 
1,646,296

1,193

0.15

Time deposits
1,198,048

4,266

0.72

 
1,160,783

4,533

0.79

Repurchase agreements
464,083

107

0.05

 
447,601

129

0.06

Other borrowed funds
5

—

—

 
7

—

—

Long-term debt
40,589

1,052

5.23

 
36,903

949

5.19

Subordinated debentures held by subsidiary trusts
82,477

1,190

2.91

 
82,477

1,180

2.89

Total interest bearing liabilities
5,751,657

8,897

0.31

 
5,232,278

9,009

0.35

Non-interest bearing deposits
1,731,210

 
 
 
1,423,639

 
 
Other non-interest bearing liabilities
60,924

 
 
 
47,223

 
 
Stockholders’ equity
914,299

 
 
 
819,090

 
 
Total liabilities and stockholders’ equity
$
8,458,090

 
 
 
$
7,522,230

 
 
Net FTE interest income
 
131,780

 
 
 
120,049

 
Less FTE adjustments (2)
 
(2,167
)
 
 
 
(2,186
)
 
Net interest income from consolidated statements of income
 
$
129,613

 
 
 
$
117,863

 
Interest rate spread
 
 
3.37
%
 
 
 
3.45
%
Net FTE interest margin (3)
 
 
3.45
%
 
 
 
3.53
%
Cost of funds, including non-interest bearing demand deposits (4)
 
 
0.24
%
 
 
 
0.27
%

(1)
Average loan balances include non-accrual loans. Interest income on loans includes amortization of deferred loan fees net of deferred loan costs, which is not material.
(2)
Interest income and average rates for tax exempt loans and securities are presented on a FTE basis.
(3)
Net FTE interest margin during the period equals the difference between annualized interest income on interest earning assets and the annualized interest expense on interest bearing liabilities, divided by average interest earning assets for the period.
(4)
Calculated by dividing total annualized interest on interest bearing liabilities by the sum of total interest bearing liabilities plus non-interest bearing deposits.





9


Non-GAAP Financial Measures
        
In addition to results presented in accordance with generally accepted accounting principles in the United States of America, or GAAP, this release contains certain non-GAAP financial measures that management uses to provide supplemental perspectives on capital adequacy, operating results, performance trends and financial condition. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies because other companies may not calculate these non-GAAP measures in the same manner. As a result, the usefulness of these measures to investors may be limited, and they should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP.
    
The Company adjusts certain capital adequacy measures to exclude intangible assets except mortgage servicing rights. Management believes these non-GAAP financial measures, which are intended to complement the capital ratios defined by banking regulators, are useful to investors in evaluating the Company's performance due to the importance that analysts place on these ratios and also allow investors to compare certain aspects of the Company's capitalization to other companies.

The Company also adjusts earnings and certain performance ratios to exclude certain non-core revenues and expenses, including investment securities net gains or losses, acquisition expenses consisting primarily of travel expenses and professional fees, and nonrecurring litigation expenses. Management believes these non-GAAP financial measures are useful to investors in evaluating operating trends by excluding amounts which the Company views as unrelated to its normalized operations. These non-core income and expense adjustments are presented net of estimated income tax expense.

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

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

10


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(Unaudited, $ in thousands, except share and per share data)
 
 
2015
 
2014
As Of or For the Quarter Ended
 
Jun 30
 
Mar 31
 
Dec 31
 
Sep 30
 
Jun 30
Net income
 
$
22,222

 
$
20,980

 
$
22,776

 
$
19,155

 
$
21,077

Add back: income tax expense
 
11,518

 
10,440

 
12,330

 
10,071

 
11,302

Add back: provision for loan losses
 
1,340

 
1,095

 
118

 
261

 
(2,001
)
Pre-tax, pre-provision net income
 
$
35,080

 
$
32,515

 
$
35,224

 
$
29,487

 
$
30,378

 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
22,222

 
$
20,980

 
$
22,776

 
$
19,155

 
$
21,077

Adj: investment securities (gains) losses, net
 
(46
)
 
(6
)
 
19

 
8

 
(17
)
Plus: acquisition & nonrecurring litigation expenses
 
(7
)
 
70

 
2,368

 
5,052

 
597

Adj: income taxes
 
20

 
(24
)
 
(903
)
 
(1,913
)
 
(219
)
Total core net income
(A)
22,189

 
21,020

 
24,260

 
22,302

 
21,438

 
 
 
 
 
 
 
 
 
 
 
Total non-interest income
 
$
31,770

 
$
27,782

 
$
31,361

 
$
29,363

 
$
26,571

Adj: investment securities (gains) losses, net
 
(46
)
 
(6
)
 
19

 
8

 
(17
)
Total core non-interest income
 
31,724

 
27,776

 
31,380

 
29,371

 
26,554

Net interest income
 
65,288

 
64,325

 
65,516

 
65,082

 
59,727

Total core revenue
 
$
97,012

 
$
92,101

 
$
96,896

 
$
94,453

 
$
86,281

 
 
 
 
 
 
 
 
 
 
 
Total non-interest expense
 
$
61,978

 
$
59,592

 
$
61,653

 
$
64,958

 
$
55,920

Less: acquisition & nonrecurring litigation expenses
 
7

 
(70
)
 
(2,368
)
 
(5,052
)
 
(597
)
Core non-interest expense
 
$
61,985

 
$
59,522

 
$
59,285

 
$
59,906

 
$
55,323

 
 
 
 
 
 
 
 
 
 
 
Total quarterly average stockholders' equity
(B)
$
921,229

 
$
907,293

 
$
895,605

 
$
888,464

 
$
830,117

Less: average goodwill and other intangible assets (excluding mortgage servicing rights)
 
(216,457
)
 
(218,511
)
 
(218,407
)
 
(208,346
)
 
(187,710
)
Average tangible common stockholders' equity
(C)
$
704,772

 
$
688,782

 
$
677,198

 
$
680,118

 
$
642,407

 
 
 
 
 
 
 
 
 
 
 
Total stockholders' equity, period-end
 
$
924,855

 
$
914,450

 
$
908,924

 
$
885,864

 
$
838,526

Less: goodwill and other intangible assets (excluding mortgage servicing rights)
 
(215,958
)
 
(216,815
)
 
(218,870
)
 
(218,799
)
 
(187,502
)
Total tangible common stockholders' equity
(D)
$
708,897

 
$
697,635

 
$
690,054

 
$
667,065

 
$
651,024

 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
8,386,218

 
$
8,528,542

 
$
8,609,936

 
8,481,352

 
7,651,379

Less: goodwill and other intangible assets (excluding mortgage servicing rights)
 
(215,958
)
 
(216,815
)
 
(218,870
)
 
(218,799
)
 
(187,502
)
Tangible assets
(E)
$
8,170,260

 
$
8,311,727

 
$
8,391,066

 
$
8,262,553

 
$
7,463,877

 
 
 
 
 
 
 
 
 
 
 
Total quarterly average assets
(F)
$
8,427,110

 
$
8,489,413

 
$
8,586,418

 
$
8,150,404

 
$
7,556,122

 
 
 
 
 
 
 
 
 
 
 
Total common shares outstanding, period end
(G)
45,506,583

 
45,429,468

 
45,788,415

 
45,672,922

 
44,255,012

Weighted-average common shares - diluted
(H)
45,606,686

 
45,840,191

 
46,037,344

 
45,460,288

 
44,575,963

 
 
 
 
 
 
 
 
 
 
 
Core earnings per share, diluted
(A/H)
$
0.49

 
$
0.46

 
$
0.53

 
$
0.49

 
$
0.48

Tangible book value per share, period-end
(D/G)
15.58

 
15.36

 
15.07

 
14.61

 
14.71

 
 
 
 
 
 
 
 
 
 
 
Annualized net income
(I)
$
89,132

 
$
85,086

 
$
90,361

 
$
75,995

 
$
84,540

Annualized core net income
(J)
89,000

 
85,248

 
96,249

 
88,481

 
85,988

 
 
 
 
 
 
 
 
 
 
 
Core return on average assets
(J/F)
1.06
%
 
1.00
%
 
1.12
%
 
1.09
%
 
1.14
%
Core return on average common equity
(J/B)
9.66

 
9.40

 
10.75

 
9.96

 
10.36

Return on average tangible common equity
(I/C)
12.65

 
12.35

 
13.34

 
11.17

 
13.16

Tangible common stockholders' equity to tangible assets
(D/E)
8.68

 
8.39

 
8.22

 
8.07

 
8.72

        

11

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