Press Release

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

Company Release - 10/24/2016 5:37 PM ET

BILLINGS, Mont.--(BUSINESS WIRE)-- First Interstate BancSystem, Inc. (NASDAQ: FIBK) reports third quarter 2016 net income of $25.2 million, or $0.56 per share. This compares to net income of $25.6 million, or $0.57 per share, during second quarter 2016, and $20.2 million, or $0.44 per share, during third quarter 2015.

The Company considers acquisition expenses and certain non-recurring litigation recoveries and settlements to be non-core. Exclusive of non-core income and expense, third quarter core net income was $25.8 million, or $0.58 per share, compared to $23.2 million, or $0.52 per share, during second quarter 2016 and $23.6 million, or $0.52 per share, during third quarter 2015.

HIGHLIGHTS

  • Successful completion of the acquisition and systems integration of Flathead Bank of Bigfork.
  • Core pre-tax, pre-provision net income of $41.3 million, a 9.0% increase from second quarter 2016 and a 12.1% increase from the same period in the prior year.
  • Loan growth of 6.8% year-over-year, of which 5.2% was organic.
  • Deposit growth of 4.2% year-over-year, of which 1.2% was organic.
  • Loan to deposit ratio of 75.5% as of September 30, 2016, compared to 73.6% a year ago.
  • Core efficiency ratio of 58.07%, as compared to 60.09% during second quarter 2016 and 61.40% during third quarter 2015.

“We are very pleased with our strong performance this quarter, as our core earnings per share increased 11.5% over the prior year,” said Kevin Riley, President and Chief Executive Officer of First Interstate BancSystem, Inc. “The growth in earnings is coming from solid revenue growth, improved efficiencies, and stable asset quality. We are seeing healthy economic conditions throughout most of our markets, which is resulting in strong consumer loan demand, as well as solid inflows of core deposits,” stated Mr. Riley.

“We also completed the acquisition of Flathead Bank during the third quarter, which contributed to balanced growth across our loan portfolio,” Riley continued. “The integration has gone smoothly. We have completed the system conversion, and we have been able to achieve all of the cost savings we projected for this transaction. We are getting a good response from the new customers that joined us from Flathead as we introduce them to the expanded selection of products and services that are now available with First Interstate Bank,” said Mr. Riley.

DIVIDEND DECLARATION

On October 21, 2016, the Executive Committee of the Company’s board of directors declared a dividend of $0.22 per common share, payable on November 14, 2016 to owners of record as of October 31, 2016. This dividend equates to a 3.0% annual yield based on the $29.83 average closing price of the Company’s common stock during third quarter 2016.

ACQUISITION

On April 6, 2016, the Company’s bank subsidiary, First Interstate Bank, entered into an agreement and plan of merger to acquire all of the outstanding stock of Flathead Bank of Bigfork (“Flathead Bank”), wholly owned by Flathead Holding Company of Bigfork, with branches located in western and northwestern Montana. The acquisition was completed on August 12, 2016 for cash consideration of $34.1 million. As of the date of the acquisition, Flathead Bank had total assets of $228 million, loans of $83 million and deposits of $210 million. In conjunction with the acquisition, the Company recorded provisional goodwill of $8 million and core deposit intangible assets of $2 million.

NET INTEREST INCOME

The Company’s net interest income, on a fully taxable equivalent or FTE basis, increased $3.0 million, or 4.4%, to $71.7 million during third quarter 2016, as compared to $68.7 million during second quarter 2016, primarily due to loan growth, one additional accrual day and the recovery of previously charged-off interest.

Interest accretion attributable to the fair valuation of acquired loans contributed $1.4 million of interest income during third quarter 2016, of which approximately $766 thousand was related to early pay-offs. This compares to interest accretion of $1.7 million of interest income during second quarter 2016, of which approximately $779 thousand was related to early pay-offs, and interest accretion of $1.4 million during third quarter 2015, of which $307 thousand was related to early pay-offs. In addition, recoveries of previously charged-off interest contributed $1.8 million of interest income during third quarter 2016, compared to $133 thousand during second quarter 2016, and $679 thousand during third quarter 2015.

The Company’s net interest margin ratio increased 3 basis points to 3.58% during third quarter 2016, as compared to 3.55% during second quarter 2016. Exclusive of interest accretion related to acquired loans and the impact of recoveries of charged-off interest, the Company’s net interest margin ratio declined 4 basis points to 3.42% during third quarter 2016, as compared to 3.46% during second quarter 2016.

The Company’s net FTE interest income increased $4.3 million, or 6.4%, to $71.7 million during third quarter 2016, as compared to $67.4 million during the same period in 2015, primarily due to organic loan growth, combined with a shift in the mix of interest earning assets from lower-yielding investment securities into higher-yielding loans and increases of $1.1 million in net recoveries of previously charged-off interest. The Company’s net interest margin ratio increased 11 basis points to 3.58% during third quarter 2016, as compared to 3.47% during the same period in 2015, primarily due to loan growth. Exclusive of interest accretion related to acquired loans and the impact of recoveries of charged-off interest, the Company’s net interest margin ratio increased 6 basis points to 3.42% during third quarter 2016, as compared to 3.36% during the same period in 2015.

NON-INTEREST INCOME

Total non-interest income decreased $3.4 million, or 9.6%, to $31.9 million during third quarter 2016, as compared to $35.2 million during second quarter 2016, and increased $693 thousand, or 2.2%, as compared to $31.2 million during the same period in 2015. The linked-quarter decrease was mainly attributable to a non-recurring recovery of a prior year litigation expense of $3.8 million, which was partially offset by increases in fee-based revenues.

Total fee-based revenues increased $414 thousand, or 1.4%, to $29.3 million during third quarter 2016, as compared to $28.9 million during second quarter 2016, and increased $657 thousand, or 2.3%, as compared to $28.7 million during third quarter 2015, primarily due to increases in payment services and mortgage banking revenues.

Payment services revenues increased $371 thousand, or 4.3%, to $9.0 million dollars during third quarter 2016, as compared to $8.6 million during second quarter 2016, due to seasonally higher debit and credit card transaction volumes. Payment services revenues increased $445 thousand, or 5.2%, to $9.0 million during third quarter 2016, as compared to $8.6 million during third quarter 2015, due to higher credit card transaction volumes.

Mortgage banking revenues increased $365 thousand, or 4.8%, to $8.0 million during third quarter 2016, as compared to $7.6 million during second quarter 2016, primarily due to increases in loan production volume. Loans originated for new home purchases accounted for approximately 56% of the Company’s mortgage loan production during third quarter 2016, as compared to 67% during second quarter 2016.

Mortgage banking revenues remained stable at $8.0 million during third quarter 2016 and 2015. Effective January 1, 2016, the Company began offsetting the standard cost of originating residential mortgage loans sold to secondary investors against mortgage banking revenues, resulting in a decrease of approximately $3.3 million in mortgage banking revenues and a corresponding decrease in salaries expense during third quarter 2016, as compared to third quarter 2015. Exclusive of this offset, mortgage banking revenues were $11.3 million during third quarter 2016.

NON-INTEREST EXPENSE

Non-interest expense increased $979 thousand, or 1.6%, to $62.1 million during third quarter 2016, as compared to $61.1 million during second quarter 2016. During third quarter 2016, the Company recorded acquisition expenses of $1.2 million, donation expense related to the charitable contribution of land and a building of $310 thousand and other losses aggregating $384 thousand primarily related to the write-off of an equity method investment.

Non-interest expense decreased $4.1 million, or 6.2%, to $62.1 million during third quarter 2016, as compared to $66.2 million during the same period in 2015. During third quarter 2015, the Company recorded acquisition and litigation-related expenses of $5.6 million. Exclusive of acquisition and litigation expenses, non-interest expense increased $284 thousand, or less than 1.0%, during third quarter 2016, as compared to the same period in 2015. During the three and nine months ended September 30, 2016, additional technology expenditures were offset by process efficiencies allowing the Company to hold operating expenses steady while focusing on getting the right people, processes and technology systems in place for future growth.

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 third quarter 2016, as compared to third quarter 2015.

TOTAL ASSETS

Total assets increased $368 million, or 4.3%, to $9.0 billion as of September 30, 2016, from $8.6 billion as of June 30, 2016. Approximately $228 million of the increase was attributable to the Flathead Bank acquisition. The remaining increase was primarily due to the deployment of funds generated primarily through organic deposit growth into interest earning assets.

LOANS

Total loans increased $118 million, or 2.2%, to $5.5 billion as of September 30, 2016, from $5.4 billion as of June 30, 2016. Approximately $83 million of this increase was attributable to the Flathead Bank acquisition. Exclusive of the Flathead Bank acquisition, total loans grew organically $34 million, or less than 1.0%, with the most significant growth occurring in indirect consumer and residential construction loans.

The Company experienced organic growth in indirect consumer loans, which increased $44 million, or 6.4%, to $732 million as of September 30, 2016, from $688 million as of June 30, 2016, due to increases in loan transaction volume within the Company’s existing dealer network and increases in average loan amounts advanced.

Residential construction increased $23 million, or 20.2%, to $137 million as of September 30, 2016, from $114 million as of June 30, 2016, with approximately $6 million of the increase attributable to the Flathead Bank acquisition. Exclusive of the residential construction loans acquired as part of the Flathead Bank acquisition, residential construction loans grew organically $17 million, or 14.5%, due to continued demand for housing in the Company’s market areas.

Increases in indirect consumer and residential construction loans were partially offset by decreases in commercial loans. Commercial loans decreased $11 million, or 1.3%, to $814 million as of September 30, 2016, from $825 million as of June 30, 2016. Exclusive of commercial loans acquired as part of the Flathead bank acquisition, commercial loans decreased $19 million, or 2.4%, from June 30, 2016 to September 30, 2016, primarily due to seasonal pay-downs of existing credit lines.

Year-over-year, total loans increased 6.8% to $5.5 billion as of September 30, 2016, from $5.2 billion as of September 30, 2015. Exclusive of acquisitions, the Company experienced organic loan growth of 5.2% year-over-year, with all loan categories except agricultural loans showing increases.

DEPOSITS

Total deposits grew $347 million, or 5.0%, to $7.3 billion as of September 30, 2016, from $7.0 billion as of June 30, 2016. Exclusive of $210 million in deposits acquired in the Flathead Bank acquisition, deposits experienced seasonal organic growth of 2.0% during third quarter 2016, as compared to second quarter 2016. Year-over-year, total deposits increased 4.2% to $7.3 billion as of September 30, 2016, from $7.0 billion as of September 30, 2015, with all categories except time deposits experiencing growth. As of September 30, 2016, the mix of total deposits was 27% non-interest bearing demand, 30% interest bearing demand, 28% savings and 15% time.

CAPITAL

At September 30, 2016, the Company exceeded all "well-capitalized" regulatory capital adequacy requirements. During third quarter 2016, the Company paid common stock dividends of $10 million, or $0.22 per share.

CREDIT QUALITY

Non-performing assets increased $2 million, or 2.7%, to $89 million, as of September 30, 2016, from $87 million as of June 30, 2016. Although the dollar amount of non-performing assets increased, the percentage of non-performing assets to total assets declined to 0.99% as of September 30, 2016, from 1.01% as of June 30, 2016. Non-accrual loans, the largest component of non-performing assets, decreased $3 million, or 3.8%, to $71 million as of September 30, 2016, from $74 million as of June 30, 2016, primarily due to the pay-off of the loans of one agricultural real estate and one commercial real estate borrower aggregating $7 million. These pay-offs were partially offset by placement of the loans of one agricultural real estate borrower on non-accrual status during third quarter 2016.

Accruing loans past due 90 days or more increased $4 million, or 82.6%, to $8 million as of September 30, 2016, from $4 million as of June 30, 2016. Approximately 35% of this increase was related to loans of one borrower in the energy sector.

Accruing loans past due 30-89 days increased $7 million, or 29.5%, to $32 million as of September 30, 2016, from $25 million as of June 30, 2016, primarily due to the past due loans of one commercial real estate and one commercial construction borrower that were brought current subsequent to quarter end.

Criticized loans increased $10 million to $370 million, or 6.7% of total loans, as of September 30, 2016, compared to $360 million, or 6.7% of total loans, as of June 30, 2016. Most of the increase in criticized loans occurred in the special mention category and was related to the downgrade of two credit relationships in one of our Wyoming markets negatively impacted by the energy sector.

The Company’s allowance for loan losses as a percentage of period end loans declined slightly to 1.47% as of September 30, 2016, from 1.48% as of June 30, 2016. Loans acquired in the Flathead Bank acquisition were initially recorded at fair value with no carryover of the related 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 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.

Third Quarter 2016 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss third quarter 2016 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Tuesday, October 25, 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 October 25, 2016 through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on November 25, 2016, by dialing 1-877-344-7529 (using conference ID 10094562). 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 46 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
Sep 30,     Jun 30,     Mar 31,     Dec 31,     Sep 30, 3Q16 vs     3Q16 vs

(In thousands, except per share data)

      2016     2016     2016     2015     2015   2Q16     3Q15
Net interest income $ 70,581 $ 67,633 $ 67,950 $ 68,420 $ 66,330 4.4 % 6.4 %
Net interest income on a fully-taxable equivalent ("FTE") basis 71,739 68,742 69,012 69,492 67,400 4.4 6.4
Provision for loan losses 2,363 2,550 4,000 3,289 1,098 (7.3 ) 115.2
Non-interest income:
Payment services revenues 9,019 8,648 7,991 8,367 8,574 4.3 5.2
Mortgage banking revenues 8,013 7,648 4,686 7,282 7,983 4.8 0.4
Wealth management revenues 4,995 5,166 4,575 4,840 5,233 (3.3 ) (4.5 )
Service charges on deposit accounts 4,692 4,626 4,463 4,655 4,379 1.4 7.1
Other service charges, commissions and fees 2,628     2,845     2,608       2,652     2,521   (7.6 )     4.2  
Total fee-based revenues 29,347 28,933 24,323 27,796 28,690 1.4 2.3
Investment securities gains (losses) 225 108 (21 ) 62 23 NM NM
Other income** 2,299 2,457 2,293 2,798 2,465 (6.4 ) (6.7 )
Non-core litigation recovery     3,750                 NM       NM  
Total non-interest income 31,871 35,248 26,595 30,656 31,178 (9.6 ) 2.2
Non-interest expense:
Salaries and wages 23,618 24,946 23,227 24,549 25,460 (5.3 ) (7.2 )
Employee benefits** 8,610 8,066 9,609 7,337 8,008 6.7 7.5
Occupancy and equipment 6,811 6,744 6,920 8,624 8,262 1.0 (17.6 )
Core deposit intangible amortization 875 827 827 837 842 5.8 3.9
Other expenses 20,994     20,411     19,670       19,060     18,780   2.9       11.8  
Subtotal 60,908 60,994 60,253 60,407 61,352 (0.1 ) (0.7 )
Other real estate owned (income) expense 8 140 (39 ) 129 (720 ) (94.3 ) (101.1 )
Non-core acquisition and litigation expenses 1,197               166     5,566   NM       (78.5 )
Total non-interest expense 62,113     61,134     60,214       60,702     66,198   1.6       (6.2 )
Income before taxes 37,976 39,197 30,331 35,085 30,212 (3.1 ) 25.7
Income taxes 12,783     13,643     10,207       11,654     10,050   (6.3 )     27.2  
Net income $ 25,193     $ 25,554     $ 20,124       $ 23,431     $ 20,162   (1.4 )%     25.0 %
 
Weighted-average basic shares outstanding 44,415 44,269 44,719 45,066 45,150 0.3 % (1.6 )%
Weighted-average diluted shares outstanding 44,806 44,645 45,114 45,549 45,579 0.4 (1.7 )
Earnings per share - basic $ 0.57 $ 0.58 $ 0.45 $ 0.52 $ 0.45 (1.7 ) 26.7
Earnings per share - diluted 0.56 0.57 0.45 0.51 0.44 (1.8 ) 27.3
 
Core net income*** $ 25,798 $ 23,154 $ 20,137 $ 23,496 $ 23,610 11.4 % 9.3 %
Core pre-tax, pre-provision net income*** 41,311 37,889 34,352 38,478 36,853 9.0 12.1
Core earnings per share - diluted*** 0.58 0.52 0.45 0.52 0.52 11.5 11.5
 
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
Sep 30, Jun 30, Mar 31,     Dec 31,     Sep 30, 3Q16 vs     3Q16 vs

(In thousands, except per share data)

      2016     2016     2016     2015     2015 2Q16     3Q15
Assets:
Cash and cash equivalents $ 701,367 $ 476,051 $ 655,528 $ 780,457 $ 708,295 47.3 % (1.0 )%
Investment securities 2,072,273 2,061,828 2,144,740 2,057,505 2,067,636 0.5 0.2
Loans held for investment 5,462,936 5,340,189 5,191,469 5,193,321 5,120,794 2.3 6.7
Mortgage loans held for sale 67,979     73,053     52,989     52,875     55,686 (6.9 )     22.1  
Total loans 5,530,915 5,413,242 5,244,458 5,246,196 5,176,480 2.2 6.8
Less allowance for loan losses 81,235     80,340     79,924     76,817     74,256 1.1       9.4  
Net loans 5,449,680     5,332,902     5,164,534     5,169,379     5,102,224 2.2       6.8  
Premises and equipment 191,064 187,538 188,714 190,812 190,386 1.9 0.4
Goodwill and intangible assets (excluding mortgage servicing rights) 223,368 213,420 214,248 215,119 215,843 4.7 3.5
Company owned life insurance 197,070 189,524 188,396 187,253 185,990 4.0 6.0
Other real estate owned 9,447 7,908 9,257 6,254 8,031 19.5 17.6
Mortgage servicing rights 17,322 16,038 15,574 15,621 15,336 8.0 12.9
Other assets 112,256     120,167     109,689     105,796     110,789 (6.6 )     1.3  
Total assets $ 8,973,847     $ 8,605,376     $ 8,690,680     $ 8,728,196     $ 8,604,530 4.3 %     4.3 %
 
Liabilities and stockholders' equity:
Deposits $ 7,328,581 $ 6,981,448 $ 7,107,463 $ 7,088,937 $ 7,035,794 5.0 % 4.2 %
Securities sold under repurchase agreements 476,768 466,399 465,523 510,635 437,533 2.2 9.0
Long-term debt 27,949 27,928 27,907 27,885 43,089 0.1 (35.1 )
Subordinated debentures held by subsidiary trusts 82,477 82,477 82,477 82,477 82,477
Other liabilities 75,568     81,999     65,296     67,769     67,062 (7.8 )     12.7  
Total liabilities 7,991,343     7,640,251     7,748,666     7,777,703     7,665,955 4.6       4.2  
Stockholders' equity:
Common stock 293,960 290,366 288,782 311,720 309,167 1.2 (4.9 )
Retained earnings 679,722 664,337 648,631 638,367 623,967 2.3 8.9
Accumulated other comprehensive income (loss) 8,822     10,422     4,601     406     5,441 (15.4 )     62.1  
Total stockholders' equity 982,504     965,125     942,014     950,493     938,575 1.8       4.7  
Total liabilities and stockholders' equity $ 8,973,847     $ 8,605,376     $ 8,690,680     $ 8,728,196     $ 8,604,530 4.3 %     4.3 %
 
Common shares outstanding at period end 44,880 44,746 44,707 45,428 45,345 0.3 % (1.0 )%
Book value at period end $ 21.89 $ 21.57 $ 21.07 $ 20.92 $ 20.70 1.5 5.7
Tangible book value at period end*** 16.91 16.80 16.28 16.19 15.94 0.7 6.1

 

***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
      Sep 30,     Jun 30,     Mar 31,     Dec 31,     Sep 30, 3Q16 vs     3Q16 vs

(In thousands)

      2016     2016     2016     2015     2015 2Q16     3Q15
 
Loans:
Real Estate:
Commercial real estate $ 1,843,120 $ 1,816,813 $ 1,764,492 $ 1,793,258 $ 1,750,797 1.4 % 5.3 %
Construction:
Land acquisition and development 212,680 218,650 219,450 224,066 212,990 (2.7 ) (0.1 )
Residential 137,014 113,944 113,317 111,763 112,495 20.2 21.8
Commercial 128,154     117,643     102,382     94,890     93,775 8.9       36.7  
Total construction 477,848 450,237 435,149 430,719 419,260 6.1 14.0
Residential real estate 1,047,150 1,030,593 1,021,443 1,032,851 1,020,445 1.6 2.6
Agricultural real estate 172,949     166,872     153,054     156,234     163,116 3.6       6.0  
Total real estate 3,541,067 3,464,515 3,374,138 3,413,062 3,353,618 2.2 5.6
Consumer
Indirect 731,901 687,768 651,057 622,529 616,142 6.4 18.8
Other 153,624 153,185 150,774 153,717 150,170 0.3 2.3
Credit card 66,860     66,221     63,624     68,107     65,649 1.0       1.8  
Total consumer 952,385 907,174 865,455 844,353 831,961 5.0 14.5
Commercial 814,392 824,962 825,043 792,416 778,648 (1.3 ) 4.6
Agricultural 152,800 139,892 126,290 142,151 154,855 9.2 (1.3 )
Other 2,292     3,646     543     1,339     1,712 (37.1 )     33.9  
Loans held for investment 5,462,936 5,340,189 5,191,469 5,193,321 5,120,794 2.3 6.7
Loans held for sale 67,979     73,053     52,989     52,875     55,686 (6.9 )     22.1  
Total loans $ 5,530,915     $ 5,413,242     $ 5,244,458     $ 5,246,196     $ 5,176,480 2.2 %     6.8 %
 
 
Deposits:
Non-interest bearing $ 1,965,872 $ 1,783,609 $ 1,860,472 $ 1,823,716 $ 1,832,535 10.2 % 7.3 %
Interest bearing:
Demand 2,174,443 2,107,950 2,142,326 2,178,373 2,134,203 3.2 1.9
Savings 2,095,678 2,003,343 2,001,329 1,955,256 1,918,724 4.6 9.2
Time, $100 and over 485,253 479,077 478,527 487,372 496,539 1.3 (2.3 )
Time, other 607,335     607,469     624,809     644,220     653,793       (7.1 )
Total interest bearing 5,362,709     5,197,839     5,246,991     5,265,221     5,203,259 3.2       3.1  
Total deposits $ 7,328,581     $ 6,981,448     $ 7,107,463     $ 7,088,937     $ 7,035,794 5.0 %     4.2 %
 
Total core deposits(1) $ 6,843,328 $ 6,502,371 $ 6,628,936 $ 6,601,565 $ 6,539,255 5.2 % 4.6 %

 

(1) Core deposits are defined as total deposits less time deposits, $100 and over
 
 
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Credit Quality

(Unaudited)

 
                  % Change
Sep 30, Jun 30, Mar 31,     Dec 31,     Sep 30, 3Q16 vs     3Q16 vs

(In thousands)

      2016     2016     2016     2015     2015 2Q16     3Q15
 
Allowance for Loan Losses:
Allowance for loan losses $ 81,235 $ 80,340 $ 79,924 $ 76,817 $ 74,256 1.1 % 9.4 %
As a percentage of period-end loans 1.47 % 1.48 % 1.52 % 1.46 % 1.43 %
 
Net charge-offs during quarter $ 1,468 $ 2,134 $ 893 $ 728 $ 3,394 (31.2 )% (56.7 )%
Annualized as a percentage of average loans 0.11 % 0.16 % 0.07 % 0.06 % 0.26 %
 
 
Non-Performing Assets:
Non-accrual loans $ 71,469 $ 74,311 $ 63,837 $ 66,385 $ 66,359 (3.8 )% 7.7 %
Accruing loans past due 90 days or more 8,131       4,454       4,362       5,602       3,357   82.6       142.2  
Total non-performing loans 79,600 78,765 68,199 71,987 69,716 1.1 14.2
Other real estate owned 9,447       7,908       9,257       6,254       8,031   19.5       17.6  
Total non-performing assets $ 89,047       $ 86,673       $ 77,456       $ 78,241       $ 77,747   2.7 %     14.5 %
 
Non-performing assets as a percentage of:
Total loans and OREO 1.61 % 1.60 % 1.47 % 1.49 % 1.50 %
Total assets 0.99 1.01 0.89 0.90 0.90
 
Accruing Loans 30-89 Days Past Due $ 32,439 $ 25,048 $ 25,001 $ 42,869 $ 38,793 29.5 % (16.4 )%
Accruing TDRs 17,163 16,408 12,070 15,419 16,702 4.6 2.8
 
 
Criticized Loans:
Special Mention $ 152,868 $ 142,560 $ 144,993 $ 127,270 $ 155,157 7.2 % (1.5 )%
Substandard 175,555 176,021 167,826 162,785 163,846 (0.3 ) 7.1
Doubtful 41,540       41,344       34,578       30,350       24,547   0.5       69.2  
Total $ 369,963       $ 359,925       $ 347,397       $ 320,405       $ 343,550   2.8 %     7.7 %
 
 
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Selected Ratios

(Unaudited)

 
      Sep 30,   Jun 30,     Mar 31,     Dec 31,     Sep 30,
2016     2016     2016     2015     2015
 
Annualized Financial Ratios (GAAP)
Return on average assets 1.15 % 1.20 % 0.94 % 1.07 % 0.94 %
Return on average common equity 10.30 10.83 8.60 9.83 8.60
Yield on average earning assets 3.80 3.78 3.77 3.73 3.70
Cost of average interest bearing liabilities 0.30 0.30 0.31 0.32 0.31
Interest rate spread 3.50 3.48 3.46 3.41 3.39
Net interest margin ratio 3.58 3.55 3.54 3.49 3.47
Efficiency ratio** 60.63 59.42 63.69 61.27 67.89
Loan to deposit ratio 75.47 77.54 73.79 74.01 73.57
 
 
Annualized Financial Ratios - Operating*** (Non-GAAP)
Core return on average assets 1.17 % 1.09 % 0.94 % 1.07 % 1.10 %
Core return on average common equity 10.55 9.81 8.60 9.86 10.07
Return on average tangible common equity 13.22 13.98 11.13 12.73 11.20
Core efficiency ratio 58.07 60.09 62.14 59.52 61.40
Tangible common stockholders' equity to tangible assets 8.68 8.96 8.59 8.64 8.62
 
 
Consolidated Capital Ratios:
Total risk-based capital 14.87 % * 15.03 % 15.04 % 15.36 % 15.28 %
Tier 1 risk-based capital 13.56 * 13.72 13.72 13.99 13.83
Tier 1 common capital to total risk-weighted assets 12.32 * 12.45 12.43 12.69 12.52
Leverage Ratio 10.22 * 10.35 10.07 10.12 10.13
 

 

*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
September 30, 2016     June 30, 2016     September 30, 2015
Average         Average Average         Average Average         Average

(In thousands)

      Balance     Interest     Rate Balance     Interest     Rate Balance     Interest     Rate
Interest earning assets:
Loans (1) (2) $ 5,469,294 $ 66,291 4.82 % $ 5,324,812 $ 63,248 4.78 % $ 5,141,484 $ 62,577 4.83 %
Investment securities (2) 2,038,498 9,191 1.79 2,095,347 9,335 1.79 2,097,835 8,927 1.69
Interest bearing deposits in banks 458,415 607 0.53 359,807 482 0.54 471,682 342 0.29
Federal funds sold 2,183     4       0.73   1,888     3       0.64   2,876     4       0.55  
Total interest earnings assets 7,968,390 76,093 3.80 7,781,854 73,068 3.78 7,713,877 71,850 3.70
Non-earning assets 777,083             756,723             781,559            
Total assets $ 8,745,473             $ 8,538,577             $ 8,495,436            
Interest bearing liabilities:
Demand deposits $ 2,141,892 $ 514 0.10 % $ 2,133,509 $ 514 0.10 % $ 2,086,112 $ 528 0.10 %
Savings deposits 2,055,083 647 0.13 1,983,262 652 0.13 1,924,612 645 0.13
Time deposits 1,088,261 1,938 0.71 1,097,448 1,942 0.71 1,150,223 2,068 0.71
Repurchase agreements 466,079 100 0.09 470,264 92 0.08 433,007 55 0.05
Other borrowed funds 8 12 6
Long-term debt 27,917 457 6.51 27,896 451 6.50 43,200 544 5.00
Subordinated debentures held by subsidiary trusts 82,477     698       3.37   82,477     675       3.29   82,477     610       2.93  
Total interest bearing liabilities 5,861,717 4,354 0.30 5,794,868 4,326 0.30 5,719,637 4,450 0.31
Non-interest bearing deposits 1,843,800 1,738,008 1,787,419
Other non-interest bearing liabilities 66,822 56,864 58,623
Stockholders’ equity 973,134             948,837             929,757            
Total liabilities and stockholders’ equity $ 8,745,473             $ 8,538,577             $ 8,495,436            
Net FTE interest income $ 71,739 68,742 $ 67,400
Less FTE adjustments (2)       (1,158 )             (1,109 )             (1,070 )      
Net interest income from consolidated statements of income       $ 70,581               $ 67,633               $ 66,330        
Interest rate spread 3.50 % 3.48 % 3.39 %
Net FTE interest margin (3) 3.58 % 3.55 % 3.47 %
Cost of funds, including non-interest bearing demand deposits (4) 0.22 % 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)

 
      Nine Months Ended
September 30, 2016     September 30, 2015
Average         Average Average         Average

(In thousands)

      Balance     Interest     Rate Balance     Interest     Rate
Interest earning assets:

Loans (1)(2)

$ 5,339,479 $ 192,910 4.83 % $ 5,010,251 $ 183,305 4.89 %
Investment securities (2) 2,080,454 27,950 1.79 2,236,581 28,209 1.69
Interest bearing deposits in banks 441,748 1,734 0.52 462,262 1,002 0.29
Federal funds sold 1,789     9       0.67   2,412     11       0.61  
Total interest earnings assets 7,863,470 222,603 3.78 7,711,506 212,527 3.68
Non-earning assets 762,979             759,169            
Total assets $ 8,626,449             $ 8,470,675            
Interest bearing liabilities:
Demand deposits $ 2,140,981 $ 1,587 0.10 % $ 2,087,241 $ 1,558 0.10 %
Savings deposits 2,008,032 1,949 0.13 1,894,132 1,897 0.13
Time deposits 1,101,205 5,899 0.72 1,181,931 6,334 0.72
Repurchase agreements 471,165 282 0.08 453,610 162 0.05
Other borrowed funds 8 5
Long-term debt 28,313 1,357 6.40 41,469 1,596 5.15
Subordinated debentures held by subsidiary trusts 82,477     2,036       3.30   82,477     1,800       2.92  
Total interest bearing liabilities 5,832,181 13,110 0.30 5,740,865 13,347 0.31
Non-interest bearing deposits 1,779,344 1,750,152
Other non-interest bearing liabilities 60,301 60,149
Stockholders’ equity 954,623             919,509            
Total liabilities and stockholders’ equity $ 8,626,449             $ 8,470,675            
Net FTE interest income $ 209,493 $ 199,180
Less FTE adjustments (2)       (3,329 )             (3,237 )      
Net interest income from consolidated statements of income       $ 206,164               $ 195,943        
Interest rate spread 3.48 % 3.37 %
Net FTE interest margin (3) 3.56 % 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
Sep 30,     Jun 30,     Mar 31,     Dec 31,     Sep 30,

(In thousands, except per share data)

          2016     2016     2016     2015     2015
 
Net income (GAAP) (A) $ 25,193 $ 25,554 $ 20,124 $ 23,431 $ 20,162
Adj: investment securities (gains) losses, net (225 ) (108 ) 21 (62 ) (23 )
Plus: acquisition & nonrecurring litigation expenses 1,197 166 5,566
Less: nonrecurring litigation recovery (3,750 )
Adj: income tax (benefit) expense (367 )     1,458       (8 )     (39 )     (2,095 )
Total core net income (Non-GAAP) (B) $ 25,798       $ 23,154       $ 20,137       $ 23,496       $ 23,610  
 
Net income (GAAP) $ 25,193 $ 25,554 $ 20,124 $ 23,431 $ 20,162
Add back: income tax expense 12,783 13,643 10,207 11,654 10,050
Add back: provision for loan losses 2,363 2,550 4,000 3,289 1,098
Adj: investment securities (gains) losses, net (225 ) (108 ) 21 (62 ) (23 )
Add back: acquisition & nonrecurring litigation expenses 1,197 166 5,566
Subtract: nonrecurring litigation recovery       (3,750 )                  
Core pre-tax, pre-provision net income (Non-GAAP) $ 41,311       $ 37,889       $ 34,352       $ 38,478       $ 36,853  
 
Weighted-average diluted shares outstanding (C) 44,806 44,645 45,114 45,549 45,579
Earnings per share - diluted (GAAP) (A)/(C) $ 0.56 $ 0.57 $ 0.45 $ 0.51 $ 0.44
Core earnings per share - diluted (Non-GAAP) (B)/(C) 0.58 0.52 0.45 0.52 0.52
 
Total non-interest income (GAAP) (D) $ 31,871 $ 35,248 $ 26,595 $ 30,656 $ 31,178
Adj: investment securities (gains) losses, net (225 ) (108 ) 21 (62 ) (23 )
Adj: nonrecurring litigation recovery       (3,750 )                  
Total core non-interest income (Non-GAAP) 31,646 31,390 26,616 30,594 31,155
Net interest income (GAAP) (E) 70,581       67,633       67,950       68,420       66,330  
Total core revenue (Non-GAAP) 102,227 99,023 94,566 99,014 97,485
Add: FTE adjustments 1,158       1,109       1,062       1,072       1,070  
Total core revenue for core efficiency ratio (Non-GAAP) (F) $ 103,385       $ 100,132       $ 95,628       $ 100,086       $ 98,555  
 
Total non-interest expense (GAAP) (G) $ 62,113 $ 61,134 $ 60,214 $ 60,702 $ 66,198
Less: acquisition & nonrecurring litigation expenses (1,197 )                 (166 )     (5,566 )
Core non-interest expense (Non-GAAP) 60,916 61,134 60,214 60,536 60,632
Less: amortization of core deposit intangible (875 ) (827 ) (827 ) (837 ) (842 )
Adj: OREO (expense) income (8 )     (140 )     39       (129 )     720  
Non-interest expense for core efficiency ratio (Non-GAAP) (H) $ 60,033       $ 60,167       $ 59,426       $ 59,570       $ 60,510  
 
Efficiency ratio (GAAP) (G)/[(D)+(E)] 60.63 % 59.42 % 63.69 % 61.27 % 67.89 %
Core efficiency ratio (Non-GAAP) (H)/(F) 58.07 60.09 62.14 59.52 61.40
 
 
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Non-GAAP Financial Measures - Continued

(Unaudited)

 
       

As Of or For the Quarter Ended

Sep 30,     Jun 30,     Mar 31,     Dec 31,     Sep 30,

(In thousands, except per share data)

          2016     2016     2016     2015     2015
 
Annualized net income (I) $ 100,224 $ 102,778 $ 80,938 $ 92,960 $ 79,991
Annualized core net income (J) 102,631 93,125 80,991 93,218 93,670
Total quarterly average assets (K) 8,745,473 8,538,577 8,593,975 8,673,135 8,495,436
 
Return on average assets (GAAP) (I)/(K) 1.15 % 1.20 % 0.94 % 1.07 % 0.94 %
Core return on average assets (Non-GAAP) (J)/(K) 1.17 1.09 0.94 1.07 1.10
 
Total quarterly average stockholders' equity (GAAP) (L) $ 973,134 $ 948,837 $ 941,680 $ 945,462 $ 929,757
Less: average goodwill and other intangible assets (excluding mortgage servicing rights) (215,130 )     (213,911 )     (214,797 )     (215,496 )     (215,829 )
Average tangible common stockholders' equity (Non-GAAP) (M) $ 758,004       $ 734,926       $ 726,883       $ 729,966       $ 713,928  
 
Total stockholders' equity, period-end (GAAP) (N) $ 982,504 $ 965,125 $ 942,014 $ 950,493 $ 938,575
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (223,368 )     (213,420 )     (214,248 )     (215,119 )     (215,843 )
Total tangible common stockholders' equity (Non-GAAP) (O) $ 759,136       $ 751,705       $ 727,766       $ 735,374       $ 722,732  
 
Return on average common equity (GAAP) (I)/(L) 10.30 % 10.83 % 8.60 % 9.83 % 8.60 %
Core return on average common equity (Non-GAAP) (J)/(L) 10.55 9.81 8.60 9.86 10.07
Return on average tangible common equity (Non-GAAP) (I)/(M) 13.22 13.98 11.13 12.73 11.20
 
Total assets (GAAP) (P) $ 8,973,847 $ 8,605,376 $ 8,690,680 8,728,196 8,604,530
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (223,368 )     (213,420 )     (214,248 )     (215,119 )     (215,843 )
Tangible assets (Non-GAAP) (Q) $ 8,750,479       $ 8,391,956       $ 8,476,432       $ 8,513,077       $ 8,388,687  
 
Total common shares outstanding, period end (R) 44,880 44,746 44,707 45,428 45,345
 
Book value per share, period end (GAAP) (N)/(R) $ 21.89 $ 21.57 $ 21.07 $ 20.92 $ 20.70
Tangible book value per share, period-end (Non-GAAP) (O)/(R) 16.91 16.80 16.28 16.19 15.94
Average common stockholders' equity to average assets (GAAP) (L)/(K) 11.13 % 11.11 % 10.96 % 10.90 % 10.94 %
Tangible common stockholders' equity to tangible assets (Non-GAAP) (O)/(Q) 8.68 8.96 8.59 8.64 8.62

First Interstate BancSystem, Inc.
Marcy Mutch, 406-255-5312
Chief Financial Officer
investor.relations@fib.com
www.FIBK.com

Source: First Interstate BancSystem, Inc.