First Interstate BancSystem, Inc. (NASDAQ: FIBK) reports fourth quarter 2016 net income of $24.8 million, or $0.55 per share. This compares to net income of $25.2 million, or $0.56 per share, during third quarter 2016, and $23.4 million, or $0.51 per share, during fourth quarter 2015. Exclusive of non-core items, the Company's fourth quarter 2016 core net income was $25.5 million, or $0.57 per share, as compared to $25.8 million, or $0.58 per share, during third quarter 2016, and $23.5 million, or $0.52 per share, during fourth quarter 2015.

For the year ending December 31, 2016, the Company reports net income of $95.6 million, or $2.13 per share, compared to $86.8 million, or $1.90 per share in 2015. During 2016, the Company recorded non-core acquisition expenses of $2.8 million and recorded non-core recoveries of prior year legal settlement expenses of $4.2 million. Exclusive of these non-core items, the Company's 2016 core net income was $94.6 million, or $2.11 per share, as compared to core net income of $90.3 million, or $1.98 per share, in 2015.

HIGHLIGHTS

  • Core earnings per share growth of 9.6% over the same period in the prior year.
  • Loan growth of 4.4% year-over-year, of which 2.8% was organic.
  • Deposit growth of 4.1% year-over-year, of which 1.1% was organic.
  • Net interest margin ratio of 3.62%, a 4 basis point increase from the prior quarter and a 13 basis point increase from the same period in the prior year.
  • Core efficiency ratio of 61.22% in 2016, as compared to 61.76% in 2015.
  • Entry into a definitive agreement to acquire all of the outstanding stock of Cascade Bancorp, parent company of Bank of the Cascades, an Oregon-based community bank with 50 banking offices across Oregon, Idaho and Washington.
  • Acquisition of the right to use the "First Interstate" name throughout the United States.

“We delivered another quarter of strong earnings growth, as our core earnings per share increased 9.6% over the same period in the prior year,” said Kevin Riley, President and Chief Executive Officer of First Interstate BancSystem, Inc. “Our fourth quarter performance was driven by positive year-over-year trends in most of our key metrics. For the full year, our earnings per share increased more than 12% over 2015," continued Mr. Riley. "Given this strong performance and the healthy outlook for the Company, we recently announced a 9% increase to our quarterly cash dividend. This furthers adds to our long-standing record of consistently increasing our dividend and returning capital to shareholders," concluded Mr. Riley.

DIVIDEND DECLARATION

On January 19, 2017, the Company's board of directors declared a dividend of $0.24 per common share, payable on February 10, 2017 to owners of record as of January 30, 2017. This dividend equates to a 2.6% annual yield based on the $36.32 average closing price of the Company's common stock during fourth quarter 2016, and reflects a 9.1% increase from dividends paid during fourth quarter 2016 of $0.22 per common share.

ANNUAL MEETING DATE SET

On January 19, 2017, the Company's Board of Directors voted that the Annual Meeting of Shareholders will be held on May 24, 2017, at the First Interstate Bank Operations Center, 1800 Sixth Avenue North, Billings, Montana at 4:00 p.m. Mountain Daylight Time. The record date for determination of shareholders entitled to notice of, and to vote at, the Annual Meeting is March 16, 2017.

FIRST INTERSTATE TRADEMARKS

On January 12, 2017, the Company acquired for cash all right, title and interest in and to all First Interstate-related U.S. trademark registrations owned by Wells Fargo & Company (the "Trademarks"); all common law rights and goodwill associated with the Trademarks; and, all First Interstate-related domain names, which will enable the Company to use the Trademarks throughout the U.S.

PENDING ACQUISITION OF CASCADE BANCORP

On November 17, 2016, the Company entered into an agreement and plan of merger (the "Agreement") to acquire all of the outstanding stock of Cascade Bancorp, parent company of Bank of the Cascades, an Oregon-based community Bank with 50 banking offices across Oregon, Idaho and Washington. Under the terms of the Agreement, each outstanding share of Cascade Bancorp will convert into the right to receive 0.14864 shares of the Company's Class A common stock and $1.91 in cash. Based on the closing price of the Company's Class A common stock on December 31, 2016, the merger consideration represents an aggregate purchase price of approximately $638 million. As of September 30, 2016, Cascade had total assets of $3.2 billion, deposits of $2.7 billion and net loans of $2.0 billion. Upon completion of the merger, which is expected to close during third quarter 2017 subject to regulatory and shareholder approvals, the Company will become a regional community bank with over $12 billion in total assets with a geographic footprint that will span Montana, Wyoming, South Dakota, Idaho, Oregon and Washington.

“We took an important step in laying the foundation for the continued profitable growth of our franchise through the agreement to acquire Cascade Bancorp,” said Mr. Riley. “This transaction combines two strong community bank franchises with similar approaches and commitment to superior customer service. From a financial perspective, this transaction will enable us to improve our operational efficiencies, while also providing improved opportunities for future growth by giving us a presence in robust markets in Oregon, Washington and Idaho," continued Mr. Riley. "We are well prepared to effectively manage the significant increase in scale that will result from this acquisition and we are excited about the opportunities we will have to create additional value for the shareholders of the combined company in the years ahead,” stated Mr. Riley.

ACQUISITION OF FLATHEAD BANK OF BIGFORK

The acquisition of Flathead Bank of Bigfork ("Flathead Bank"),was completed on August 12, 2016 for cash consideration of $34 million. As of the date of the acquisition, Flathead Bank had total assets of $254 million, loans of $83 million and deposits of $210 million. In conjunction with the acquisition, the Company recorded goodwill of $8 million and core deposit intangible assets of $2 million.

RESULTS OF OPERATIONS

Fourth Quarter Results:

Net Interest Income: The Company's net interest income, on a fully taxable equivalent or FTE basis, increased $3.0 million, or 4.2%, to $74.7 million during fourth quarter 2016, as compared to $71.7 million during third quarter 2016. The increase in net interest income was primarily due to higher loan yields combined with a 1.0% increase in average outstanding loans and a 4.6% increase in average outstanding investment securities quarter-over-quarter.

Interest accretion attributable to the fair valuation of acquired loans contributed $1.6 million of interest income during fourth quarter 2016, as compared to $1.4 million during third quarter 2016 and $1.3 million during fourth quarter 2015. In addition, the Company recovered previously charged-off interest of $223 thousand during fourth quarter 2016, compared to $2.0 million during third quarter 2016 and $1.0 million during fourth quarter 2015. In addition, the Company's fourth quarter net interest income included an additional $1.8 million of interest income related to non-accrual loans that was attributable to the first three quarters of 2016.

The Company's reported net interest margin ratio increased 4 basis points to 3.62% during fourth quarter 2016, as compared to 3.58% during third quarter 2016. The fourth quarter reported net interest margin ratio was positively impacted by interest accretion on acquired loans, recoveries of previously charged-off interest and the fourth quarter interest adjustment, which contributed 8 basis points, 1 basis point and 9 basis points to margin, respectively. The third quarter reported net interest margin ratio was positively impacted by interest accretion on acquired loans and recoveries of previously charged-off interest, which contributed 7 basis points and 9 basis points to margin, respectively. Exclusive of the interest accretion related to acquired loans, the impact of recoveries of charged-off interest and the fourth quarter interest adjustment, the Company's core net interest margin ratio increased 2 basis points to 3.44% during fourth quarter 2016, as compared to 3.42% during third quarter 2016.

The Company's net FTE interest income increased $5.2 million, or 7.5%, to $74.7 million during fourth quarter 2016, as compared to $69.5 million during the same period in 2015. This increase was primarily due to loan growth, combined with a shift in the mix of interest earning assets from lower-yielding cash deposits in banks into higher-yielding loans. The Company's net interest margin ratio increased 13 basis points to 3.62% during fourth quarter 2016, as compared to 3.49% during the same period in 2015. Exclusive of interest accretion related to acquired loans and the impact of recoveries of charged-off interest and the interest adjustment, the Company's net interest margin ratio increased 7 basis points to 3.44% during fourth quarter 2016, as compared to 3.37% during the same period in 2015.

Provision for Loan Losses. The Company recorded a provision for loan losses of $1.1 million during fourth quarter 2016, compared to $2.4 million during third quarter 2016, and $3.3 million during fourth quarter 2015. During fourth quarter 2016, the Company had a $1.5 million recovery of principal on a previously charged-off loan that reduced provision expense during fourth quarter.

Non-Interest Income. Total non-interest income decreased $343 thousand, or 1.0%, to $34.8 million during fourth quarter 2016, as compared to $35.2 million during third quarter 2016. Seasonal declines in mortgage banking and payment services revenues were largely offset by increases in wealth management and other service charges, commissions and fee revenues and a $400 thousand non-core recovery of prior year litigation expense.

To improve comparability between periods presented in this earnings release, the Company has included the standard costs of originating residential mortgage loans sold to secondary investors in salaries and wages expense, rather than as an offset to mortgage banking revenues. This reclassification resulted in an increase in mortgage banking revenues for each of the first three quarters of 2016 and an offsetting increase in salaries and wages expense during the same periods. This reclassification had no impact on previously reported net income.

Mortgage banking revenues decreased $2.4 million, or 21.2%, to $8.9 million during fourth quarter 2016, as compared to $11.3 million during third quarter 2016, due to seasonal declines in mortgage loan production. Mortgage loans originated for home purchases accounted for approximately 50% of fourth quarter 2016 loan production, as compared to approximately 56% during third quarter 2016, and 66% during fourth quarter 2015.

Mortgage banking revenues increased $1.6 million, or 22.4%, to $8.9 million during fourth quarter 2016, as compared to $7.3 million during fourth quarter 2015, primarily due to increased demand for refinancing loans during fourth quarter 2016, as compared to fourth quarter 2015.

Other service charges, commissions and fees increased $797 thousand, or 30.3%, to $3.4 million during fourth quarter 2016, as compared to $2.6 million during third quarter 2016, and increased $773 thousand, or 29.1%, as compared to $2.7 million during fourth quarter 2015, primarily due to fees earned on interest rate swap contracts and increases in loan servicing revenues.

Wealth management revenues increased $729 thousand, or 14.6%, to $5.7 million during fourth quarter 2016, as compared to $5.0 million during third quarter 2016, and increased $884 thousand, or 18.3%, as compared to $4.8 million during fourth quarter 2015, primarily due to estate fees and increased broker-dealer fees.

Non-Interest Expense. Non-interest expense increased $4.2 million, or 6.4%, to $69.6 million during fourth quarter 2016, as compared to $65.4 million during third quarter 2016, primarily due to increases in incentive compensation and profit sharing accruals reflective of the Company's improved performance against pre-established performance metrics and seasonally higher donations and advertising expenses. In addition, non-core acquisition and litigation-related expenses increased $427 thousand, or 35.7%, during fourth quarter 2016, as compared to the linked-quarter.

Non-interest expense increased $8.9 million, or 14.6%, as compared to $60.7 million during the same period in 2015. Included in non-interest expense were non-core acquisition expenses of $1.6 million recorded during fourth quarter 2016 and $166 thousand recorded during fourth quarter 2015. The remaining increase was primarily the result of higher incentive compensation and profit sharing accruals and increases in donations and advertising expenses. These increases were partially offset by lower group health insurance expense.

Effective January 1, 2016, the Company began capturing certain software costs separately from equipment costs, resulting in an increase of approximately $3.2 million in other expenses and a corresponding decrease in occupancy and equipment expense during fourth quarter 2016, as compared to fourth quarter 2015.

Year-Over-Year Results

Net Interest Income: Net FTE interest income increased $15.5 million to $284.2 million during 2016, as compared to $268.7 million in 2015, primarily due to growth in average loans combined with increases in yields earned on interest earning assets and a shift in the mix of interest earning assets from lower-yielding cash deposits in banks and investment securities into higher-yielding loans. Also contributing to the increase in net FTE interest income during 2016, as compared to 2015, was a shift in the mix of deposits away from higher costing time deposits into lower costing demand and savings deposits. The Company's net interest margin ratio increased 11 basis points to 3.57% during 2016, as compared to 3.46% in 2015. Exclusive of the accelerated interest accretion related to acquired loans and the impact of recoveries of charged-off interest, the Company's net interest margin ratio was 3.46% during 2016, as compared to 3.35% during 2015.

Provision for Loan Losses. During the year ended December 31, 2016, the Company recorded provisions for loan losses of $10.0 million, as compared to a $6.8 million in 2015. Increases in provisions for loan losses are reflective of loan growth.

Non-Interest Income. Non-interest income increased $15.0 million, or 12.3%, to $136.5 million in 2016, as compared to $121.5 million in 2015, primarily due to increases in total fee based revenues and non-recurring recoveries of prior year litigation expenses of $4.2 million.

Fee-based revenues increased $11.9 million, or 10.8%, to $122.0 million in 2016, as compared to $110.1 million in 2015. All categories of fee-based revenues increased in 2016, as compared to 2015, with the most significant increase occurring in mortgage banking revenues.

Mortgage banking revenues increased $7.2 million, or 24.2%, to $37.2 million in 2016, as compared to $30.0 million in 2015. Mortgage loan production was relatively flat in 2016, as compared to 2015, with most of the increase a result of gains on sales margins. Loans originated from home purchases accounted for approximately 58% of 2016 loan production, as compared to approximately 66% in 2015.

Non-Interest Expense. Non-interest expense increased $12.4 million, or 5.0%, to $261.0 million in 2016, as compared to $248.6 million in 2015, primarily due increases in salaries and wages, employee benefits, technology and OREO expenses. These increases were partially offset by decreases in non-core acquisition and litigation expense of $3.0 million.

Salaries and wages expense increased $7.2 million, or 7.1%, to $108.7 million in 2016, as compared to $101.5 million in 2015, primarily due to higher incentive compensation accruals, inflationary wage increases and higher separation pay.

Employee benefits expense increased $3.9 million, or 12.4%, to $35.2 million in 2016, as compared to $31.3 million in 2015, primarily due to higher profit sharing accruals, increases in stock based compensation and additional benefits costs resulting from the Flathead Bank acquisition.

Higher incentive compensation and profit sharing accruals during 2016 as compared to 2015 were the result of the Company's improved performance against pre-determined performance metrics. During 2016 the Company achieved pre-set performance metrics established by its Board of Directors that resulted in incentive compensation funding at 100% of targeted amounts. During 2015, the Company’s performance against the established performance metrics resulted in incentive compensation funding at approximately 70% of targeted amounts. In addition, the Company's 2016 performance supported profit sharing funding at 2.34% of the Company's 2016 net income, as compared to 1.50% of net income in 2015.

During 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.

Occupancy and equipment expenses decreased $6.1 million, or 18.3%, to $27.3 million in 2016, as compared to $33.4 million in 2015. Approximately $6.0 million of this decrease was due to the capture of certain software costs separately from equipment costs in 2016, resulting in a decrease in occupancy and equipment expense and an offsetting increase in other expenses in 2016, as compared to 2015.

Other expenses increased $8.9 million to $83.6 million in 2016, as compared to $74.7 million in 2015. Approximately $6.0 million of this increase was due to the capture of certain software costs in other expense, as discussed above. The remaining increase, due primarily to the additional operating expenses resulting from the Flathead Bank acquisition, was partially offset by one-time expenses of $806 thousand recorded in 2015 and a reduction of $1.2 million in fraud losses in 2016, as compared to 2015.

BALANCE SHEET

Total Assets. Total assets increased $90 million, or 1.0%, to $9.1 billion as of December 31, 2016, from $9.0 billion as of September 30, 2016, due to the deployment of funds generated primarily through organic growth in deposits and securities sold under repurchase agreements, into investment securities and interest bearing deposits in banks.

Loans. Total loans decreased $52 million, or less than 1.0%, to $5.5 billion as of December 31, 2016, from $5.5 billion as of September 30, 2016, with the most significant decreases occurring in commercial, agricultural and residential real estate loans. Year-over-year, total loans increased $232 million, or 4.4%, to $5.5 billion as of December 31, 2016, from $5.2 billion as of December 31, 2015, with approximately $83 million of this growth due to the acquisition of Flathead Bank in August 2016.

Commercial loans decreased $16 million, or 2.0%, to $798 million as of December 31, 2016, from $814 million as of September 30, 2016, primarily due to seasonal pay-downs of existing credit lines and the movement of loans out of the portfolio through pay-off, charge-off or foreclosure. Agricultural loans decreased $20 million, or 13.1%, to $133 million as of December 31, 2016, from $153 million as of September 30, 2016, due to seasonal reductions in operating lines that typically occur during the fourth quarter of the year. Residential real estate loans decreased $20 million, or 1.9%, to $1.0 billion as of December 31, 2016, from $1.0 billion as of September 30, 2016, primarily due to the pay-off or paydown of longer-term fixed rate loans. During fourth quarter 2016, substantially all of the Company's mortgage loan production was sold to secondary market investors.

The Company experienced organic growth in indirect consumer loans, which increased $21 million, or 2.8%, to $752 million as of December 31, 2016, from $732 million as of September 30, 2016, due to increases in loan transaction volumes within the Company's existing dealer network.

Deposits. Total deposits increased $48 million, or less than 1.0%, to $7.4 billion as of December 31, 2016, as compared to $7.3 billion as of September 30, 2016, and $287 million, or 4.1%, from $7.1 billion as of December 31, 2015. Approximately $210 million of the year-over-year deposit growth was attributable to the acquisition of Flathead Bank in August 2016. As of December 31, 2016, the mix of total deposits was 26% non-interest bearing demand, 31% interest bearing demand, 29% savings and 14% time.

Capital. At December 31, 2016, the Company exceeded all "well-capitalized" regulatory capital adequacy requirements. During fourth quarter 2016, the Company paid common stock dividends of $10 million, or $0.22 per share.

CREDIT QUALITY

Asset quality remained stable during fourth quarter 2016 with non-performing assets ending the year at $87 million, or 0.96% of total assets, an improvement from $89 million, or 0.99% of total assets as of September 30, 2016. Criticized loans remained stable at $372 million as of December 31, 2016, as compared to $370 million as of September 30, 2016. Net loan charge-offs increased to $6.1 million during fourth quarter 2016, as compared to $1.5 million during third quarter 2016, primarily due to the loans of three borrowers charged-off during the fourth quarter. These loans had adequate specific reserves assigned in late 2015 and early 2016; and therefore, did not impact the Company's fourth quarter 2016 provision for loan losses.

Accruing loans past 90 days or more decreased $4.3 million, or 53.4%, to $3.8 million as of December 31, 2016, from $8.1 million as of September 30, 2016, due to the placement of past due loans on non-accrual status.

The Company's allowance for loan losses as a percentage of period end loans decreased slightly to 1.39% as of December 31, 2016, compared to 1.47% as of September 30, 2016, and 1.46% as of December 31, 2015. This decline was primarily the result of the charge-off of loans that had been specifically reserved for in prior periods. 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.

Fourth Quarter 2016 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss fourth quarter 2016 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Friday, January 27, 2017. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-877-507-0356 or by logging on to www.FIBK.com. The call will be recorded and made available for replay after 1:00 p.m. Eastern Time (11:00 a.m. Mountain Time) on January 27, 2017 through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on February 27, 2017, by dialing 1-877-344-7529 (using conference ID 10099486). 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
(In thousands, except per share data)  

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

 

Mar 31,
2016

 

Dec 31,
2015

4Q16 vs
3Q16

 

4Q16 vs
4Q15

Net interest income $ 73,601   $ 70,581   $ 67,633   $ 67,950   $ 68,420 4.3 %   7.6 %
Net interest income on a fully-taxable equivalent ("FTE") basis 74,724 71,739 68,742 69,012 69,492 4.2 7.5
Provision for loan losses 1,078 2,363 2,550 4,000 3,289 (54.4 ) (67.2 )
Non-interest income:
Payment services revenues 8,716 9,019 8,648 7,991 8,367 (3.4 ) 4.2
Mortgage banking revenues 8,911 11,303 10,281 6,727 7,282 (21.2 ) 22.4
Wealth management revenues 5,724 4,995 5,166 4,575 4,840 14.6 18.3
Service charges on deposit accounts 4,645 4,692 4,626 4,463 4,655 (1.0 ) (0.2 )
Other service charges, commissions and fees 3,425     2,628     2,845     2,608     2,652   30.3     29.1  
Total fee-based revenues 31,421 32,637 31,566 26,364 27,796 (3.7 ) 13.0
Investment securities gains (losses) 18 225 108 (21 ) 62 (92.0 ) (71.0 )
Other income** 2,979 2,299 2,457 2,293 2,798 29.6 6.5
Non-core litigation recovery 400     —     3,750     —     —   NM   NM
Total non-interest income 34,818 35,161 37,881 28,636 30,656 (1.0 ) 13.6
Non-interest expense:
Salaries and wages 28,929 26,908 27,579 25,268 24,549 7.5 17.8
Employee benefits** 8,908 8,610 8,066 9,609 7,337 3.5 21.4
Occupancy and equipment 6,823 6,811 6,744 6,920 8,624 0.2 (20.9 )
Core deposit intangible amortization 898 875 827 827 837 2.6 7.3
Other expenses 22,557     20,994     20,411     19,670     19,060   7.4     18.3  
Subtotal 68,115 64,198 63,627 62,294 60,407 6.1 12.8
Other real estate owned (income) expense (153 ) 8 140 (39 ) 129 (2,012.5 ) (218.6 )
Non-core acquisition and litigation expenses 1,624     1,197     —     —     166   35.7     878.3  
Total non-interest expense 69,586     65,403     63,767     62,255     60,702   6.4     14.6  
Income before taxes 37,755 37,976 39,197 30,331 35,085 (0.6 ) 7.6
Income taxes 12,990     12,783     13,643     10,207     11,654   1.6     11.5  
Net income $ 24,765     $ 25,193     $ 25,554     $ 20,124     $ 23,431   (1.7 )%   5.7 %
 
Weighted-average basic shares outstanding 44,530 44,415 44,269 44,719 45,066 0.3 % (1.2 )%
Weighted-average diluted shares outstanding 44,953 44,806 44,645 45,114 45,549 0.3 (1.3 )
Earnings per share - basic $ 0.56 $ 0.57 $ 0.58 $ 0.45 $ 0.52 (1.8 ) 7.7
Earnings per share - diluted 0.55 0.56 0.57 0.45 0.51 (1.8 ) 7.8
 
Core net income*** $ 25,516 $ 25,798 $ 23,154 $ 20,137 $ 23,496 (1.1 )% 8.6 %
Core pre-tax, pre-provision net income*** 40,039 41,311 37,889 34,352 38,478 (3.1 ) 4.1
Core earnings per share - diluted*** 0.57 0.58 0.52 0.45 0.52 (1.7 ) 9.6
 
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 Statements of Income

(Unaudited)

 
Year Ended December 31,  
(In thousands, except per share data)   2016   2015 2016 vs 2015
Net interest income $ 279,765   $ 264,363 5.8 %
Net interest income on a fully-taxable equivalent ("FTE") basis 284,217 268,671 5.8 %
Provision for loan losses 9,991 6,822 46.5 %
Non-interest income:
Payment services revenues 34,374 32,750 5.0 %
Mortgage banking revenues 37,222 29,973 24.2 %
Wealth management revenues 20,460 19,907 2.8 %
Service charges on deposit accounts 18,426 17,031 8.2 %
Other service charges, commissions and fees 11,506     10,404   10.6 %
Total fee-based revenues 121,988 110,065 10.8 %
Investment securities gains (losses) 330 137 140.9 %
Other income** 10,028 11,313 (11.4 )%
Non-core litigation recovery 4,150     —   NM
Total non-interest income 136,496 121,515 12.3 %
Non-interest expense:
Salaries and wages 108,684 101,451 7.1 %
Employee benefits** 35,193 31,324 12.4 %
Occupancy and equipment 27,298 33,403 (18.3 )%
Core deposit intangible amortization 3,427 3,388 1.2 %
Other expenses 83,632     74,713   11.9 %

Subtotal

258,234 244,279 5.7 %
Other real estate owned (income) expense (44 ) (1,475 ) (97.0 )%
Non-core acquisition and litigation expenses 2,821     5,795   (51.3 )%
Total non-interest expense 261,011     248,599   5.0 %
Income before taxes 145,259 130,457 11.3 %
Income taxes 49,623     43,662   13.7 %
Net income $ 95,636     $ 86,795   10.2 %
 
Weighted-average basic shares outstanding 44,512 45,184 (1.5 )%
Weighted-average diluted shares outstanding 44,910 45,646 (1.6 )%
Earnings per share - basic $ 2.15 $ 1.92 12.0 %
Earnings per share - diluted 2.13 1.90 12.1 %
 
Core net income*** $ 94,604 $ 90,314 4.8 %
Core pre-tax, pre-provision net income*** 153,591 142,937 7.5 %
Core earnings per share - diluted*** 2.11 1.98 6.6 %
 
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 per share data)  

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

 

Mar 31,
2016

 

Dec 31,
2015

4Q16 vs
3Q16

 

4Q16 vs
4Q15

Assets:      
Cash and cash equivalents $ 782,023 $ 701,367 $ 476,051 $ 655,528 $ 780,457 11.5 % 0.2 %
Investment securities 2,124,468 2,072,273 2,061,828 2,144,740 2,057,505 2.5 3.3
Loans held for investment 5,416,750 5,462,936 5,340,189 5,191,469 5,193,321 (0.8 ) 4.3
Mortgage loans held for sale 61,794     67,979     73,053     52,989     52,875   (9.1 )   16.9  
Total loans 5,478,544 5,530,915 5,413,242 5,244,458 5,246,196 (0.9 ) 4.4
Less allowance for loan losses 76,214     81,235     80,340     79,924     76,817   (6.2 )   (0.8 )
Net loans 5,402,330     5,449,680     5,332,902     5,164,534     5,169,379   (0.9 )   4.5  
Premises and equipment 194,457 191,064 187,538 188,714 190,812 1.8 1.9
Goodwill and intangible assets (excluding mortgage servicing rights) 222,468 223,368 213,420 214,248 215,119 (0.4 ) 3.4
Company owned life insurance 198,116 197,070 189,524 188,396 187,253 0.5 5.8
Other real estate owned 10,019 9,447 7,908 9,257 6,254 6.1 60.2
Mortgage servicing rights 18,457 17,322 16,038 15,574 15,621 6.6 18.2
Other assets 111,557   112,256   120,167   109,689   105,796   (0.6 ) 5.4  
Total assets $ 9,063,895     $ 8,973,847     $ 8,605,376     $ 8,690,680     $ 8,728,196   1.0 %   3.8 %
 
Liabilities and stockholders' equity:
Deposits $ 7,376,110 $ 7,328,581 $ 6,981,448 $ 7,107,463 $ 7,088,937 0.6 % 4.1 %
Securities sold under repurchase agreements 537,556 476,768 466,399 465,523 510,635 12.8 5.3
Long-term debt 27,970 27,949 27,928 27,907 27,885 0.1 0.3
Subordinated debentures held by subsidiary trusts 82,477 82,477 82,477 82,477 82,477 — —
Other liabilities 57,189     75,568     81,999     65,296     67,769   (24.3 )   (15.6 )
Total liabilities 8,081,302     7,991,343     7,640,251     7,748,666     7,777,703   1.1     3.9  
Stockholders' equity:
Common stock 296,071 293,960 290,366 288,782 311,720 0.7 (5.0 )
Retained earnings 694,650 679,722 664,337 648,631 638,367 2.2 8.8
Accumulated other comprehensive income (loss) (8,128 )   8,822     10,422     4,601     406   (192.1 )   (2,102.0 )
Total stockholders' equity 982,593   982,504   965,125   942,014   950,493   —   3.4  
Total liabilities and stockholders' equity $ 9,063,895     $ 8,973,847     $ 8,605,376     $ 8,690,680     $ 8,728,196   1.0 %   3.8 %
 
Common shares outstanding at period end 44,926 44,880 44,746 44,707 45,428 0.1 % (1.1 )%
Book value at period end $ 21.87 $ 21.89 $ 21.57 $ 21.07 $ 20.92 (0.1 ) 4.5
Tangible book value at period end*** 16.91 16.91 16.80 16.28 16.19 — 4.4
 
***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)  

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

 

Mar 31,
2016

 

Dec 31,
2015

4Q16 vs
3Q16

 

4Q16 vs
4Q15

     
Loans:
Real Estate:
Commercial real estate $ 1,834,445 $ 1,843,120 $ 1,816,813 $ 1,764,492 $ 1,793,258 (0.5 )% 2.3 %
Construction:
Land acquisition and development 208,512 212,680 218,650 219,450 224,066 (2.0 ) (6.9 )
Residential 147,896 137,014 113,944 113,317 111,763 7.9 32.3
Commercial 125,589     128,154     117,643     102,382     94,890   (2.0 )   32.4  
Total construction 481,997 477,848 450,237 435,149 430,719 0.9 11.9
Residential real estate 1,027,393 1,047,150 1,030,593 1,021,443 1,032,851 (1.9 ) (0.5 )
Agricultural real estate 170,248     172,949     166,872     153,054     156,234   (1.6 )   9.0  
Total real estate 3,514,083 3,541,067 3,464,515 3,374,138 3,413,062 (0.8 ) 3.0
Consumer
Indirect 752,409 731,901 687,768 651,057 622,529 2.8 20.9
Other 148,087 153,624 153,185 150,774 153,717 (3.6 ) (3.7 )
Credit card 69,770     66,860     66,221     63,624     68,107   4.4     2.4  
Total consumer 970,266 952,385 907,174 865,455 844,353 1.9 14.9
Commercial 797,942 814,392 824,962 825,043 792,416 (2.0 ) 0.7
Agricultural 132,858 152,800 139,892 126,290 142,151 (13.1 ) (6.5 )
Other 1,601     2,292     3,646     543     1,339   (30.1 )   19.6  
Loans held for investment 5,416,750 5,462,936 5,340,189 5,191,469 5,193,321 (0.8 ) 4.3
Loans held for sale 61,794     67,979     73,053     52,989     52,875   (9.1 )   16.9  
Total loans $ 5,478,544     $ 5,530,915     $ 5,413,242     $ 5,244,458     $ 5,246,196   (0.9 )%   4.4 %
 
 
Deposits:
Non-interest bearing $ 1,906,257 $ 1,965,872 $ 1,783,609 $ 1,860,472 $ 1,823,716 (3.0 )% 4.5 %
Interest bearing:
Demand 2,276,494 2,174,443 2,107,950 2,142,326 2,178,373 4.7 4.5
Savings 2,141,761 2,095,678 2,003,343 2,001,329 1,955,256 2.2 9.5
Time, $100 and over 461,368 485,253 479,077 478,527 487,372 (4.9 ) (5.3 )
Time, other 590,230     607,335     607,469     624,809     644,220   (2.8 )   (8.4 )
Total interest bearing 5,469,853     5,362,709     5,197,839     5,246,991     5,265,221   2.0     3.9  
Total deposits $ 7,376,110     $ 7,328,581     $ 6,981,448     $ 7,107,463     $ 7,088,937   0.6 %   4.1 %
 
Total core deposits(1) $ 6,914,742 $ 6,843,328 $ 6,502,371 $ 6,628,936 $ 6,601,565 1.0 % 4.7 %
 
(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)  

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

 

Mar 31,
2016

 

Dec 31,
2015

4Q16 vs
3Q16

 

4Q16 vs
4Q15

     
Allowance for Loan Losses:
Allowance for loan losses $ 76,214 $ 81,235 $ 80,340 $ 79,924 $ 76,817 (6.2 )% (0.8 )%
As a percentage of period-end loans 1.39 % 1.47 % 1.48 % 1.52 % 1.46 %
 
Net charge-offs during quarter $ 6,099 $ 1,468 $ 2,134 $ 893 $ 728 315.5 % 737.8 %
Annualized as a percentage of average loans 0.44 % 0.11 % 0.16 % 0.07 % 0.06 %
 
 
Non-Performing Assets:
Non-accrual loans $ 72,793 $ 71,469 $ 74,311 $ 63,837 $ 66,385 1.9 % 9.7 %
Accruing loans past due 90 days or more 3,789     8,131     4,454     4,362     5,602   (53.4 )   (32.4 )
Total non-performing loans 76,582 79,600 78,765 68,199 71,987 (3.8 ) 6.4
Other real estate owned 10,019     9,447     7,908     9,257     6,254   6.1     60.2  
Total non-performing assets $ 86,601     $ 89,047     $ 86,673     $ 77,456     $ 78,241   (2.7 )%   10.7 %
 
Non-performing assets as a percentage of:
Total loans and OREO 1.58 % 1.61 % 1.60 % 1.47 % 1.49 %
Total assets 0.96 0.99 1.01 0.89 0.90
 
Accruing Loans 30-89 Days Past Due $ 35,407 $ 32,439 $ 25,048 $ 25,001 $ 42,869 9.1 % (17.4 )%
Accruing TDRs 22,343 17,163 16,408 12,070 15,419 30.2 44.9
 
 
Criticized Loans:
Special Mention $ 163,581 $ 152,868 $ 142,560 $ 144,993 $ 127,270 7.0 % 28.5 %
Substandard 172,325 175,555 176,021 167,826 162,785 (1.8 ) 5.9
Doubtful 36,336     41,540     41,344     34,578     30,350   (12.5 )   19.7  
Total $ 372,242     $ 369,963     $ 359,925     $ 347,397     $ 320,405   0.6 %   16.2 %
 
       
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Selected Ratios - Annualized

(Unaudited)

 

Dec 31,
2016

   

Sep 30,
2016

   

Jun 30,
2016

   

Mar 31,
2016

   

Dec 31,
2015

       
Annualized Financial Ratios (GAAP)
Return on average assets 1.09 % 1.15 % 1.20 % 0.94 % 1.07 %
Return on average common equity 9.95 10.30 10.83 8.60 9.83
Yield on average earning assets 3.84 3.80 3.78 3.77 3.73
Cost of average interest bearing liabilities 0.30 0.30 0.30 0.31 0.32
Interest rate spread 3.54 3.50 3.48 3.46 3.41
Net interest margin ratio 3.62 3.58 3.55 3.54 3.49
Efficiency ratio** 64.18 61.85 60.43 64.46 61.27
Loan to deposit ratio 74.27 75.47 77.54 73.79 74.01
 
 
Annualized Financial Ratios - Operating*** (Non-GAAP)
Core return on average assets 1.13 % 1.17 % 1.09 % 0.94 % 1.07 %
Core return on average common equity 10.25 10.55 9.81 8.60 9.86
Core efficiency ratio 61.60 59.36 61.11 62.93 59.52
Return on average tangible common equity 12.84 13.22 13.98 11.13 12.73
Tangible common stockholders' equity to tangible assets 8.59 8.68 8.96 8.59 8.64
 
 
Consolidated Capital Ratios:
Total risk-based capital to total risk-weighted assets 15.13 %

*

 

14.87 % 15.03 % 15.04 % 15.36 %
Tier 1 risk-based capital to total risk-weighted assets 13.89

*

 

13.56 13.72 13.72 13.99
Tier 1 common capital to total risk-weighted assets 12.65

*

 

12.32 12.45 12.43 12.69
Leverage Ratio 10.11

*

 

10.22 10.35 10.07 10.12
 
*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
Selected Ratios

(Unaudited)

 
For the Year Ended
Dec 31, 2016   Dec 31, 2015
 
Financial Ratios (GAAP)
Return on average assets 1.10 % 1.02 %
Return on average common equity 9.93 9.37
Yield on average earning assets 3.80 3.70
Cost of average interest bearing liabilities 0.30 0.31
Interest rate spread 3.50 3.39
Net interest margin ratio 3.57 3.46
Efficiency ratio** 62.70 64.42
 
 
Financial Ratios - Operating*** (Non-GAAP)
Core return on average assets 1.08 % 1.06 %
Core return on average common equity 9.82 9.75
Core efficiency ratio 61.22 61.76
Return on average tangible common equity 12.81 12.23
 
 

*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
December 31, 2016     September 30, 2016     December 31, 2015
(In thousands)  

Average

Balance

  Interest  

Average

Rate

Average
Balance

  Interest  

Average

Rate

Average
Balance

  Interest  

Average

Rate

Interest earning assets:            
Loans (1) (2) $ 5,493,911 $ 68,771 4.98 % $ 5,469,294 $ 66,291 4.82 % $ 5,194,970 $ 64,711 4.94 %
Investment securities (2) 2,132,551 9,647 1.80 2,038,498 9,191 1.79 2,059,585 8,958 1.73
Interest bearing deposits in banks 589,584 855 0.58 458,415 607 0.53 644,967 535 0.33
Federal funds sold 938     2     0.85   2,183     4     0.73   1,090     1     0.36  
Total interest earnings assets 8,216,984 79,275 3.84 % 7,968,390 76,093 3.80 % 7,900,612 74,205 3.73 %
Non-earning assets 799,117           777,083           772,523          
Total assets $ 9,016,101           $ 8,745,473           $ 8,673,135          
Interest bearing liabilities:
Demand deposits $ 2,226,871 $ 595 0.11 % $ 2,141,892 $ 514 0.10 % $ 2,145,748 $ 546 0.10 %
Savings deposits 2,124,672 728 0.14 2,055,083 647 0.13 1,949,512 645 0.13
Time deposits 1,073,297 1,904 0.71 1,088,261 1,938 0.71 1,142,342 2,127 0.74
Repurchase agreements 510,345 147 0.11 466,079 100 0.09 464,104 69 0.06
Other borrowed funds 9 — — 8 — — 5 — —
Long-term debt 27,938 458 6.52 27,917 457 6.51 37,707 704 7.41
Subordinated debentures held by subsidiary trusts 82,477     719     3.47   82,477     698     3.37   82,477     622     2.99  
Total interest bearing liabilities 6,045,609 4,551 0.30 % 5,861,717 4,354 0.30 % 5,821,895 4,713 0.32 %
Non-interest bearing deposits 1,911,601 1,843,800 1,847,528
Other non-interest bearing liabilities 68,835 66,822 58,250
Stockholders’ equity 990,056           973,134           945,462          
Total liabilities and stockholders’ equity $ 9,016,101           $ 8,745,473           $ 8,673,135          
Net FTE interest income $ 74,724 71,739 $ 69,492
Less FTE adjustments (2)     (1,123 )         (1,158 )         (1,072 )    
Net interest income from consolidated statements of income     $ 73,601           $ 70,581           $ 68,420      
Interest rate spread 3.54 % 3.50 % 3.41 %
Net FTE interest margin (3) 3.62 % 3.58 % 3.49 %
Cost of funds, including non-interest bearing demand deposits (4) 0.23 % 0.22 % 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)

 
Twelve Months Ended
December 31, 2016     December 31, 2015
(In thousands)  

Average

Balance

  Interest  

Average

Rate

   

Average
Balance

  Interest  

Average
Rate

Interest earning assets:        
Loans (1) (2) $ 5,378,298 $ 261,681 4.87 % $ 5,056,810 $ 248,015 4.90 %
Investment securities (2) 2,093,549 37,597 1.80 2,191,968 37,167 1.70
Interest bearing deposits in banks 478,909 2,589 0.54 508,314 1,537 0.30
Federal funds sold 1,575     11     0.70   2,079     12     0.58  
Total interest earnings assets 7,952,331 301,878 3.80 % 7,759,171 286,731 3.70 %
Non-earning assets 772,064           762,535          
Total assets $ 8,724,395           $ 8,521,706          
Interest bearing liabilities:
Demand deposits $ 2,162,571 $ 2,182 0.10 % $ 2,101,988 $ 2,105 0.10 %
Savings deposits 2,037,351 2,677 0.13 1,908,091 2,541 0.13
Time deposits 1,094,190 7,803 0.71 1,171,952 8,461 0.72
Repurchase agreements 481,014 429 0.09 456,255 231 0.05
Other borrowed funds 8 — — 6 — —
Long-term debt 28,219 1,815 6.43 40,521 2,300 5.68
Subordinated debentures held by subsidiary trusts 82,477     2,755     3.34   82,477     2,422     2.94  
Total interest bearing liabilities 5,885,830 17,661 0.30 % 5,761,290 18,060 0.31 %
Non-interest bearing deposits 1,812,589 1,774,696
Other non-interest bearing liabilities 62,446 59,670
Stockholders’ equity 963,530           926,050          
Total liabilities and stockholders’ equity $ 8,724,395           $ 8,521,706          
Net FTE interest income $ 284,217 $ 268,671
Less FTE adjustments (2)     (4,452 )         (4,308 )    
Net interest income from consolidated statements of income     $ 279,765           $ 264,363      
Interest rate spread 3.50 % 3.39 %
Net FTE interest margin (3) 3.57 % 3.46 %
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 per share data)    

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

 

Mar 31,
2016

 

Dec 31,
2015

       
Net income (GAAP) (A) $ 24,765 $ 25,193 $ 25,554 $ 20,124 $ 23,431
Adj: investment securities (gains) losses, net (18 ) (225 ) (108 ) 21 (62 )
Plus: acquisition & nonrecurring litigation expenses 1,624 1,197 — — 166
Less: nonrecurring litigation recovery (400 ) — (3,750 ) — —
Adj: income tax (benefit) expense (455 )   (367 )   1,458     (8 )   (39 )
Total core net income (Non-GAAP) (B) $ 25,516     $ 25,798     $ 23,154     $ 20,137     $ 23,496  
 
Net income (GAAP) $ 24,765 $ 25,193 $ 25,554 $ 20,124 $ 23,431
Add back: income tax expense 12,990 12,783 13,643 10,207 11,654
Add back: provision for loan losses 1,078 2,363 2,550 4,000 3,289
Adj: investment securities (gains) losses, net (18 ) (225 ) (108 ) 21 (62 )
Add back: acquisition & nonrecurring litigation expenses 1,624 1,197 — — 166
Subtract: nonrecurring litigation recovery (400 )   —     (3,750 )   —     —  
Core pre-tax, pre-provision net income (Non-GAAP) $ 40,039     $ 41,311     $ 37,889     $ 34,352     $ 38,478  
 
Weighted-average diluted shares outstanding (C) 44,953 44,806 44,645 45,114 45,549
Earnings per share - diluted (GAAP)

(A)/(C)

 

$ 0.55 $ 0.56 $ 0.57 $ 0.45 $ 0.51
Core earnings per share - diluted (Non-GAAP)

(B)/(C)

 

0.57 0.58 0.52 0.45 0.52
 
Total non-interest income (GAAP) (D) $ 34,818 $ 35,161 $ 37,881 $ 28,636 $ 30,656
Adj: investment securities (gains) losses, net (18 ) (225 ) (108 ) 21 (62 )
Adj: nonrecurring litigation recovery (400 )   —     (3,750 )   —     —  
Total core non-interest income (Non-GAAP) 34,400 34,936 34,023 28,657 30,594
Net interest income (GAAP) (E) 73,601     70,581     67,633     67,950     68,420  
Total core revenue (Non-GAAP) 108,001 105,517 101,656 96,607 99,014
Add: FTE adjustments 1,123     1,158     1,109     1,062     1,072  
Total core revenue for core efficiency ratio (Non-GAAP) (F) $ 109,124     $ 106,675     $ 102,765     $ 97,669     $ 100,086  
 
Total non-interest expense (GAAP) (G) $ 69,586 $ 65,403 $ 63,767 $ 62,255 $ 60,702
Less: acquisition & nonrecurring litigation expenses (1,624 )   (1,197 )   —     —     (166 )
Core non-interest expense (Non-GAAP) 67,962 64,206 63,767 62,255 60,536
Less: amortization of core deposit intangible (898 ) (875 ) (827 ) (827 ) (837 )
Adj: OREO (expense) income 153     (8 )   (140 )   39     (129 )
Non-interest expense for core efficiency ratio (Non-GAAP) (H) $ 67,217     $ 63,323     $ 62,800     $ 61,467     $ 59,570  
 
Efficiency ratio (GAAP) (G)/[(D)+(E)] 64.18 % 61.85 % 60.43 % 64.46 % 61.27 %
Core efficiency ratio (Non-GAAP)

(H)/(F)

 

61.60 59.36 61.11 62.93 59.52
 
   
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Non-GAAP Financial Measures - Continued

(Unaudited)

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

Dec 31,
2016

 

Sep 30,
2016

 

Jun 30,
2016

 

Mar 31,
2016

 

Dec 31,
2015

       
Annualized net income (I) $ 98,522 $ 100,224 $ 102,778 $ 80,938 $ 92,960
Annualized core net income (J) 101,505 102,631 93,125 80,991 93,218
Total quarterly average assets (K) 9,016,101 8,745,473 8,538,577 8,593,975 8,673,135
 
Return on average assets (GAAP)

(I)/(K)

1.09 % 1.15 % 1.20 % 0.94 % 1.07 %
Core return on average assets (Non-GAAP)

(J)/(K)

1.13 1.17 1.09 0.94 1.07
 
Total quarterly average stockholders' equity (GAAP) (L) $ 990,056 $ 973,134 $ 948,837 $ 941,680 $ 945,462
Less: average goodwill and other intangible assets (excluding mortgage servicing rights) (223,013 )   (215,130 )   (213,911 )   (214,797 )   (215,496 )
Average tangible common stockholders' equity (Non-GAAP)

(M)

 

$ 767,043     $ 758,004     $ 734,926     $ 726,883     $ 729,966  
 
Total stockholders' equity, period-end (GAAP) (N) $ 982,364 $ 982,504 $ 965,125 $ 942,014 $ 950,493
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (222,468 )   (223,368 )   (213,420 )   (214,248 )   (215,119 )
Total tangible common stockholders' equity (Non-GAAP) (O) $ 759,896     $ 759,136     $ 751,705     $ 727,766     $ 735,374  
 
Return on average common equity (GAAP)

(I)/(L)

9.95 % 10.30 % 10.83 % 8.60 % 9.83 %
Core return on average common equity (Non-GAAP)

(J)/(L)

10.25 10.55 9.81 8.60 9.86
Return on average tangible common equity (Non-GAAP)

(I)/(M)

12.84 13.22 13.98 11.13 12.73
 
Total assets (GAAP)

(P)

 

$ 9,063,895 $ 8,973,847 $ 8,605,376 8,690,680 8,728,196
Less: goodwill and other intangible assets (excluding mortgage servicing rights) (222,468 )   (223,368 )   (213,420 )   (214,248 )   (215,119 )
Tangible assets (Non-GAAP) (Q) $ 8,841,427     $ 8,750,479     $ 8,391,956     $ 8,476,432     $ 8,513,077  
 
Total common shares outstanding, period end (R) 44,926 44,880 44,746 44,707 45,428
 
Book value per share, period end (GAAP) (N)/(R) $ 21.87 $ 21.89 $ 21.57 $ 21.07 $ 20.92
Tangible book value per share, period-end (Non-GAAP) (O)/(R) 16.91 16.91 16.80 16.28 16.19
Average common stockholders' equity to average assets (GAAP)

(L)/(K)

10.98 % 11.13 % 11.11 % 10.96 % 10.90 %
Tangible common stockholders' equity to tangible assets (Non-GAAP) (O)/(Q) 8.59 8.68 8.96 8.59 8.64
 
   
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Non-GAAP Financial Measures - Continued

(Unaudited)

 
As Of or For the Year Ended
(In thousands, except per share data)       Dec 31, 2016   Dec 31, 2015
 
Net income (GAAP) (A) $ 95,636 $ 86,795
Adj: investment securities (gains) losses, net (330 ) (137 )
Plus: acquisition & nonrecurring litigation expenses 2,821 5,795
Less: nonrecurring litigation recovery (4,150 ) —
Adj: income tax (benefit) expense 627     (2,139 )
Total core net income (Non-GAAP) (B) $ 94,604     $ 90,314  
 
Net income (GAAP) $ 95,636 $ 86,795
Add back: income tax expense 49,623 43,662
Add back: provision for loan losses 9,991 6,822
Adj: investment securities (gains) losses, net (330 ) (137 )
Add back: acquisition & nonrecurring litigation expenses 2,821 5,795
Subtract: nonrecurring litigation recovery (4,150 )   —  
Core pre-tax, pre-provision net income (Non-GAAP) $ 153,591     $ 142,937  
 
Weighted-average diluted shares outstanding (C) 44,910 45,646
Earnings per share - diluted (GAAP)

(A)/(C)

$ 2.13 $ 1.90
Core earnings per share - diluted (Non-GAAP)

(B)/(C)

2.11 1.98
 
Total non-interest income (GAAP) (D) $ 136,496 $ 121,515
Adj: investment securities (gains) losses, net (330 ) (137 )
Adj: nonrecurring litigation recovery (4,150 )   —  
Total core non-interest income (Non-GAAP) 132,016 121,378
Net interest income (GAAP) (E) 279,765     264,363  
Total core revenue (Non-GAAP) 411,781 385,741
Add: FTE adjustments 4,452     4,308  
Total core revenue for core efficiency ratio (Non-GAAP) (F) $ 416,233     $ 390,049  
 
Total non-interest expense (GAAP) (G) $ 261,011 $ 248,599
Less: acquisition & nonrecurring litigation expenses (2,821 )   (5,795 )
Core non-interest expense (Non-GAAP) 258,190 242,804
Less: amortization of core deposit intangible (3,427 ) (3,388 )
Adj: OREO (expense) income 44     1,475  
Non-interest expense for core efficiency ratio (Non-GAAP) (H) $ 254,807     $ 240,891  
 
Efficiency ratio (GAAP) (G)/[(D)+(E)] 62.70 % 64.42 %
Core efficiency ratio (Non-GAAP)

(H)/(F)

61.22 61.76
 
   
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Non-GAAP Financial Measures - Continued

(Unaudited)

 
As Of or For the Year Ended
(In thousands, except per share data)       Dec 31, 2016   Dec 31, 2015
 
Net income (I) $ 95,636 $ 86,795
Core net income (J) 94,604 90,314
Average assets (K) 8,724,395 8,521,706
 
Return on average assets (GAAP)

(I)/(K)

1.10 % 1.02 %
Core return on average assets (Non-GAAP)

(J)/(K)

1.08 1.06
 
Average stockholders' equity (GAAP) (L) $ 963,530 $ 926,050
Less: average goodwill and other intangible assets (excluding mortgage servicing rights) (216,726 )   (216,494 )
Average tangible common stockholders' equity (Non-GAAP)

(M)

$ 746,804     $ 709,556  
 
Return on average common equity (GAAP)

(I)/(L)

9.93 % 9.37 %
Core return on average common equity (Non-GAAP)

(J)/(L)

9.82 9.75
Return on average tangible common equity (Non-GAAP)

(I)/(M)

12.81 12.23