Market Overview

First Interstate BancSystem, Inc. Reports Third Quarter Earnings, Including Strong Revenue Growth and Improved Net Interest Margin

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First Interstate BancSystem, Inc. (NASDAQ:FIBK) reports third quarter
2017 net income of $27.3 million, or $0.48 per share. This compares to
net income of $21.9 million, or $0.45 per share, during second quarter
2017, and $25.2 million, or $0.56 per share, during third quarter 2016.

HIGHLIGHTS

  • Successful data system integration of Bank of the Cascades ("BOTC") on
    August 11, 2017.
  • Acquisition related expenses of $13.0 million this quarter, compared
    to $10.1 million in the second quarter 2017. The after-tax impact of
    acquisition related expenses on earnings per share was $0.15 and $0.14
    per share for the respective periods.
  • Net interest margin expansion of 11 basis points over the prior
    quarter.
  • Strong net interest income growth on a fully-taxable equivalent basis
    of $21.5 million, or 26.8%, quarter-over-quarter.
  • Stable non-interest income, with growth of $1.1 million, or 2.9%,
    quarter-over-quarter. Exclusive of the one-time gain on sale related
    to the custodial rights to the Company's health savings accounts
    ("HSA") in the second quarter, non-interest income increased $4.5
    million, or 13.4%, quarter-over-quarter.
  • Asset quality improved in third quarter 2017, with a $6.8 million
    decrease in non-performing assets and a $7.1 million decrease in
    criticized loans as compared to the second quarter 2017.
  • Addition of two highly experienced banking professionals in pivotal
    roles and as members of our team: Jodi Delahunt Hubbell, Chief Banking
    Officer- West and Renee Newman, President- Wealth Management.

"We successfully completed the integration of Bank of the Cascades
during the third quarter and we are starting to see the positive impact
of this acquisition on our financial performance," said Kevin P. Riley,
President and Chief Executive Officer of First Interstate BancSystem,
Inc. "We are seeing positive trends in revenue, net interest margin,
operating efficiencies and credit quality, which produced an improved
level of profitability, excluding our acquisition-related costs. Our
overall level of balance sheet growth was lower than expected in the
third quarter, as stronger production trends in our new Northwest
markets were offset by declining loan balances within our legacy
markets. Despite the lower level of loan growth, we anticipate further
improvement in our profitability going forward as we fully capitalize on
the synergies created from our combination with Bank of the Cascades."

DIVIDEND DECLARATION

On October 16, 2017, the Company's board of directors declared a
dividend of $0.24 per common share, payable on November 13, 2017, to
owners of record as of October 31, 2017. The dividend equates to a 2.63%
annual yield based on the $36.23 average closing pricing of the
Company's common stock during the third quarter 2017.

ACQUISITION

On November 17, 2016, the Company entered into an agreement and plan of
merger to acquire Cascade Bancorp, parent company of BOTC, an
Oregon-based community bank with 46 banking offices across Oregon, Idaho
and Washington. The acquisition was completed on May 30, 2017, and the
Company merged BOTC with its existing bank subsidiary, First Interstate
Bank, on August 11, 2017.

Consideration for the acquisition totaled $541.0 million and consisted
of cash of $155.0 million and the issuance of 11.3 million shares of the
Company's Class A common stock valued at $34.30 per share, the closing
price of the Company's Class A common stock as quoted on the NASDAQ
stock market on the acquisition date. As of the acquisition date,
Cascade Bancorp had total assets with fair values of $3.3 billion, total
loans with fair values of $2.1 billion and deposits with fair values of
$2.7 billion. The Company has recorded the fair values of the assets and
liabilities acquired from BOTC only provisionally, and will finalize the
amounts in the coming months. In conjunction with the acquisition, the
Company recorded provisional goodwill of $232.2 million and core deposit
intangible assets of $48.0 million.

NET INTEREST INCOME

The Company's net interest income, on a fully taxable equivalent basis,
increased $21.5 million, or 26.8%, to $101.9 million during third
quarter 2017, as compared to $80.4 million during second quarter 2017,
and increased $30.2 million, or 42.0%, from $71.7 million during third
quarter 2016. The increase in net interest income from the prior quarter
was attributable to the full quarter impact of BOTC.

Net interest income was positively impacted this quarter by the recovery
of previously charged-off interest of $2.0 million, compared to $2.1
million during second quarter 2017 and $1.8 million during the third
quarter of 2016.

Interest accretion attributable to the fair valuation of acquired loans
contributed $2.7 million to interest income during the third quarter of
2017, of which approximately $1.7 million was related to early payoffs.
This compares to interest accretion of $1.7 million during the second
quarter of 2017, of which approximately $0.3 million was related to
early payoffs.

The Company's net interest margin expanded 11 basis points to 3.71%
during the third quarter of 2017, from 3.60% during the second quarter
of 2017. Exclusive of the impact of the recovery of charged-off interest
and the impact of interest accretion on acquired loans, the Company's
net interest margin ratio was 3.54% this quarter compared to 3.43%
during the second quarter of 2017 and 3.42% during the third quarter of
2016 as additional floating rate loans have risen above rate floors and
deposit costs have remained stable.

PROVISION FOR LOAN LOSSES

The Company recorded a provision for loan losses of $3.4 million during
the third quarter of 2017, compared to $2.4 million during second
quarter 2017, and $2.4 million during third quarter 2016. Fluctuations
in the provision for loan losses reflect management's estimate of
possible loan losses based upon evaluation of the borrowers' ability to
repay, collateral value securing loans, loan loss trends, and estimated
effects of current economic conditions on our loan portfolio.

NON-INTEREST INCOME

Total non-interest income increased $1.1 million, or 2.9%, to $38.3
million during third quarter 2017, as compared to $37.2 million during
second quarter 2017. Total non-interest income increased $3.1 million,
or 8.9%, from $35.2 million during third quarter 2016.

Third quarter increases over the prior quarter were partially
attributable to the full quarter impact of the acquired BOTC
non-interest income revenue streams, partially offset by the second
quarter one-time gain of $3.4 million recognized on the sale of the
custodial rights to all the Company's HSAs held by First Interstate
Bank. In total, the Company sold the custodial rights to HealthEquity
for $6.2 million, of which $3.1 million was attributable to BOTC and
considered a fair market value purchase accounting adjustment.

Payment services revenues increased $2.1 million, or 20.9%, to $12.4
million during third quarter 2017, as compared to $10.2 million during
second quarter 2017, largely due to seasonality experienced in the
summer travel season as well as the addition of BOTC.

Service charges on deposit accounts increased $0.8 million, or 16.7%, to
$5.9 million during third quarter 2017, as compared to $5.1 million
during second quarter 2017. Similarly, mortgage banking revenues
increased $0.6 million, or 8.0%, to $8.3 million during third quarter
2017, as compared to $7.6 million during second quarter 2017. Increases
in both revenue streams are partially attributable to the full quarter
impact of the acquisition. During third quarter 2017, loans originated
for home purchases accounted for approximately 70.4% of production, as
compared to 78.5% of production during the second quarter 2017 and 56.4%
of production during the same period last year.

Other income decreased $2.8 million, or 48.6% to $3.0 million during
third quarter 2017, as compared to $5.8 million during second quarter
2017. Second quarter included a $3.4 million gain related to the sale of
the Company's HSA custodial rights, while third quarter included a $0.3
million purchase price adjustment due to attrition in the HSA portfolio
between the second quarter date of sale and third quarter conversion of
balances. Exclusive of these items, other income increased $0.9 million
during the quarter.

Investment securities losses of $0.4 million this quarter include $0.7
million of gains on the sale of securities offset by $1.1 million paid
to terminate our existing interest rate swap contract. Higher levels of
core deposits available from the BOTC acquisition resulted in the
determination that funding from the interest rate swap contract was not
necessary.

NON-INTEREST EXPENSE

Non-interest expense increased $14.3 million, or 17.7%, to $94.7 million
during third quarter 2017, as compared to $80.4 million during second
quarter 2017, with the increase primarily attributable to the full
quarter impact of the BOTC acquisition.

Included in non-interest expenses for the third and second quarter 2017
are $13.0 million and $10.1 million of expenses, respectively, related
to the acquisition. The after-tax impact of acquisition related expenses
on earnings per share was $0.15 and $0.14 per share for the respective
periods. Exclusive of acquisition related expenses, non-interest expense
was $81.6 million during the third quarter of 2017, compared to $70.3
million during second quarter 2017 and $64.2 million during third
quarter 2016, with the increase primarily attributable to the BOTC
transaction. Acquisition related costs are detailed below for the recent
quarters.

 
Quarter Ended
September 30, 2017   June 30, 2017   March 31, 2017   December 31, 2016   September 30, 2016
Legal and Professional Fees $ 2,498   $ 5,926   $ 571   $ 1,459   $ 689
Employee Expenses 1,755 3,286
Technology Conversion and Contract Terminations 7,090 689 196
Other 1,673     232     134     165     312
Total Acquisition Related Expenses $ 13,016     $ 10,133     $ 705     $ 1,624     $ 1,197
 

Salary and wage expenses increased $6.6 million, or 23.6%, to $34.7
million during third quarter 2017, as compared to $28.0 million during
second quarter 2017, with the increase due primarily to ongoing costs
associated with staffing the expanded footprint following the BOTC
acquisition as well as $1.0 million of severance and hiring costs
unrelated to the acquisition.

Core deposit intangible amortization expense increased $0.8 million,
from $1.1 million during second quarter 2017, to $1.9 million during
third quarter 2017 and increased $1.0 million from $0.9 million during
third quarter 2016. The increase in amortization expense is directly
attributable to the higher level of core deposit intangibles recorded as
a result of the acquisition.

Other expenses increased $2.1 million, or 8.8%, to $25.5 million during
third quarter 2017, as compared to $23.4 million during second quarter
2017, primarily due to normal fluctuations in operating expenses and the
full-quarter impact of the acquisition of BOTC.

BALANCE SHEET

Total loans remained stable at $7.6 billion as of September 30, 2017
compared to June 30, 2017, and increased $2.1 billion over the December
31, 2016 balance of $5.5 billion due primarily to the BOTC acquisition.

As compared to the prior quarter, total real estate loans were stable at
$5.1 billion as of September 30, 2017. Within the portfolio, residential
real estate loans decreased $23.8 million, or 1.6%, to $1.5 billion as
of September 30, 2017, while construction loans increased $22.0 million,
or 3.2%, to $703.2 million as of September 30, 2017.

Indirect consumer loans increased $9.8 million, or 1.3%, to $788.8
million as of September 30, 2017, from $779.0 million as of June 30,
2017, with the increase entirely attributable to growth in the legacy
footprint.

Commercial loans remained stable at $1.2 billion as of September 30,
2017, decreasing $24.7 million, or 2.0%, from June 30, 2017 levels,
while agriculture loans increased $3.6 million, or 2.4%, to $152.7
million as of September 30, 2017.

Goodwill and intangible assets, excluding mortgage servicing rights,
decreased $2.3 million, from $526.3 million as of June 30, 2017, to
$524.0 million as of September 30, 2017. The decrease is attributable to
intangible amortization during the quarter as well as adjusting
provisional amounts related to goodwill and core deposit intangibles
acquired in the BOTC acquisition.

Total deposits decreased $0.1 billion to $9.9 billion as of
September 30, 2017, from $10.0 billion as of June 30, 2017, with a
$154.1 million decrease in interest bearing accounts driven by the
transfer of the $55.2 million HSA portfolio partially offset by a $67.5
million increase in non-interest bearing deposits. As of September 30,
2017, the mix of total deposits was 29.9% non-interest bearing demand,
27.1% interest bearing demand, 31.1% savings and 11.9% time, consistent
with the prior quarter and a slight shift from December 31, 2016 as BOTC
deposit balances were more heavily weighted to non-interest bearing
demand deposits.

CREDIT QUALITY

As of September 30, 2017, non-performing assets decreased by 7.0% to
$90.5 million, compared to $97.3 million as of June 30, 2017.
Non-accrual loans decreased approximately $2.2 million, to $74.5 million
as of September 30, 2017, as compared to $76.7 million during second
quarter 2017. Accruing loans past due 90 days or more decreased $3.7
million, or 39.5%, from June 30, 2017 primarily due to improvements in
residential and agricultural real estate loans, partially offset by an
increase in commercial real estate loans. Other real estate owned
decreased $0.9 million primarily as a result of a third quarter net
dispositions.

Criticized loans decreased $7.1 million, or 1.6%, to $422.6 million as
of September 30, 2017, from $429.7 million as of June 30, 2017, and
increased $50.3 million from $372.2 million as of December 31, 2016. The
increase over December 31, 2016 was primarily a result of the BOTC
acquisition.

Net loan charge-offs increased $1.7 million to $4.6 million during third
quarter 2017, as compared to $2.9 million during second quarter 2017,
and increased $3.1 million from $1.5 million from third quarter 2016.
Third quarter net charge-offs were comprised of several loans for which
specific reserves had been established in prior quarters. The Company's
allowance for loan losses as a percentage of period end loans remained
relatively stable at 0.99% as of September 30, 2017 as compared to 1.00%
as of June 30, 2017, and decreased from 1.39% as of December 31, 2016
primarily as a result of higher acquired loan balances from BOTC, which
were recorded at fair value in purchase accounting, with no
corresponding allowance for loan losses. The provisional purchase
accounting mark on the loans acquired in the BOTC transaction was $31.7
million.

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 the following non-GAAP financial measures that
management uses to evaluate capital adequacy: (i) tangible book value
per common share; (ii) tangible common stockholders' equity to tangible
assets; (iii) tangible assets, (iv) tangible common stockholders'
equity, and (v) return on average tangible common equity. 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.

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, adverse economic conditions
affecting Montana, Wyoming, South Dakota, Oregon, Washington and Idaho,
lending risk, changes in interest rates, credit losses, adequacy of the
allowance for loan losses, declining oil and gas prices, declining
demand for coal, additional regulatory requirements now that our assets
exceed $10 billion, failure to integrate or profitably operate acquired
organizations, access to low-cost funding sources, impairment of
goodwill, changes in accounting standards, 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, stringent capital requirements, future FDIC
insurance premium increases, CFPB restrictions on our ability to
originate and sell mortgage loans, 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, 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, implementation
of new lines of business or net product or services offerings,
successful completion of the merger and integration of Cascade Bancorp,
uninsured nature of any investment in Class A and Class B common stock,
volatility of Class A and Class B common stock, decline in market price
of Class A common stock, litigation pertaining to fiduciary
responsibilities, change in dividend policy, uninsured nature of any
investment in Class A and Class B 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 2017 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss
third quarter 2017 results at 11 a.m. Eastern Time (9 a.m. Mountain
Time) on Tuesday, October 31, 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 p.m.
Eastern Time (11 a.m. Mountain Time) on October 31, 2017 through 9 a.m.
Eastern Time (7 a.m. Mountain Time) on November 30, 2017, by dialing
1-877-344-7529 (using conference ID 10112999). 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 banking offices, including detached drive-up
facilities, in communities across Montana, Wyoming, South Dakota,
Washington, Oregon and Idaho. 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)   Sep 30, 2017  

June 30, 2017

  Mar 31, 2017   Dec 31, 2016   Sep 30, 2016 3Q17 vs 2Q17     3Q17 vs 3Q16  
Net interest income $ 100,791   $ 79,323   $ 68,893   $ 73,601   $ 70,581 27.1 %   42.8 %
Net interest income on a fully-taxable equivalent ("FTE") basis 101,903 80,378 69,950 74,724 71,739 26.8 42.0
Provision for loan losses 3,443 2,355 1,730 1,078 2,363 46.2 45.7
Non-interest income:
Payment services revenues 12,366 10,225 8,445 8,716 9,019 20.9 37.1
Mortgage banking revenues 8,251 7,643 6,548 8,911 11,303 8.0 (27.0 )
Wealth management revenues 5,544 5,084 5,013 5,724 4,995 9.0 11.0
Service charges on deposit accounts 5,904 5,060 4,350 4,645 4,692 16.7 25.8
Other service charges, commissions and fees 3,584     3,358     2,676     3,425     2,628   6.7     36.4  
Total fee-based revenues 35,649 31,370 27,032 31,421 32,637 13.6 9.2
Investment securities gains (losses) (357 ) 5 2 18 225 (7,240.0 ) (258.7 )
Other income 2,982 5,805 2,073 2,979 2,299 (48.6 ) 29.7
Litigation recovery             400       NM     NM  
Total non-interest income 38,274 37,180 29,107 34,818 35,161 2.9 8.9
Non-interest expense:
Salaries and wages 34,662 28,037 25,741 28,929 26,908 23.6 28.8
Employee benefits 10,185 9,811 9,616 8,908 8,610 3.8 18.3
Occupancy and equipment 9,210 7,919 7,062 6,823 6,811 16.3 35.2
Core deposit intangible amortization 1,885 1,062 630 898 875 77.5 115.4
Other expenses 25,456 23,403 19,987 22,557 20,994 8.8 21.3
Other real estate owned (income) expense 242 34 (48 ) (153 ) 8 611.8 2,925.0
Acquisition related expenses 13,016     10,133     705     1,624     1,197   28.5     987.4  
Total non-interest expense 94,656     80,399     63,693     69,586     65,403   17.7     44.7  
Income before taxes 40,966 33,749 32,577 37,755 37,976 21.4 7.9
Income taxes 13,707     11,881     9,451     12,990     12,783   15.4     7.2  
Net income $ 27,259     $ 21,868     $ 23,126     $ 24,765     $ 25,193   24.7 %   8.2 %
 
Weighted-average basic shares outstanding 56,094 47,613 44,680 44,530 44,415 17.8 % 26.3 %
Weighted-average diluted shares outstanding 56,531 48,074 45,239 44,953 44,806 17.6 26.2
Earnings per share - basic $ 0.49 $ 0.46 $ 0.52 $ 0.56 $ 0.57 6.5 (14.0 )
Earnings per share - diluted 0.48 0.45 0.51 0.55 0.56 6.7 (14.3 )
 
 
NM - not meaningful
 
         
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
 
% Change
(In thousands, except per share data)  

Sep 30, 2017

 

Jun 30, 2017

  Mar 31, 2017   Dec 31, 2016   Sep 30, 2016 3Q17 vs 2Q17   3Q17 vs 3Q16
Assets:      
Cash and cash equivalents $ 882,834 $ 919,775 $ 807,952 $ 782,023 $ 701,367 (4.0 )% 25.9 %
Investment securities 2,617,682 2,609,636 2,148,559 2,124,468 2,072,273 0.3 26.3
Loans held for investment 7,502,387 7,525,590 5,376,542 5,416,750 5,462,936 (0.3 ) 37.3
Mortgage loans held for sale 49,729     30,383     23,237     61,794     67,979   63.7     (26.8 )
Total loans 7,552,116 7,555,973 5,399,779 5,478,544 5,530,915 (0.1 ) 36.5
Less allowance for loan losses 74,572     75,701     76,231     76,214     81,235   (1.5 )   (8.2 )
Net loans 7,477,544     7,480,272     5,323,548     5,402,330     5,449,680       37.2  
Premises and equipment 242,940 243,152 195,472 194,457 191,064 (0.1 ) 27.2
Goodwill and intangible assets (excluding mortgage servicing rights) 524,015 526,289 249,851 222,468 223,368 (0.4 ) 134.6
Company owned life insurance 258,929 257,538 199,262 198,116 197,070 0.5 31.4
Other real estate owned 10,344 11,286 9,428 10,019 9,447 (8.3 ) 9.5
Mortgage servicing rights 24,372 23,715 19,454 18,457 17,322 2.8 40.7
Other assets 167,813     164,679     107,708     111,557     112,256   1.9     49.5  
Total assets $ 12,206,473     $ 12,236,342     $ 9,061,234     $ 9,063,895     $ 8,973,847   (0.2 )%   36.0 %
 
Liabilities and stockholders' equity:
Deposits $ 9,933,468 $ 10,020,000 $ 7,300,179 $ 7,376,110 $ 7,328,581 (0.9 )% 35.5 %
Securities sold under repurchase agreements 635,288 579,772 587,570 537,556 476,768 9.6 33.2
Long-term debt 8,039 43,036 27,994 27,970 27,949 (81.3 ) (71.2 )
Subordinated debentures held by subsidiary trusts 82,477 82,477 82,477 82,477 82,477
Other liabilities 127,791     105,679     61,418     57,189     75,568   20.9     69.1  
Total liabilities 10,787,063     10,830,964     8,059,638     8,081,302     7,991,343   (0.4 )   35.0  
Stockholders' equity:
Common stock 686,508 685,289 297,173 296,071 293,960 0.2 133.5
Retained earnings 731,879 718,093 707,016 694,650 679,722 1.9 7.7
Accumulated other comprehensive income (loss) 1,023     1,996     (2,593 )   (8,128 )   8,822   (48.7 )   (88.4 )
Total stockholders' equity 1,419,410     1,405,378     1,001,596     982,593     982,504   1.0     44.5  
Total liabilities and stockholders' equity $ 12,206,473     $ 12,236,342     $ 9,061,234     $ 9,063,895     $ 8,973,847   (0.2 )%   36.0 %
 
Common shares outstanding at period end 56,456 56,445 45,144 44,926 44,880 % 25.8 %
Book value at period end $ 25.14 $ 24.90 $ 22.19 $ 21.87 $ 21.89 1.0 14.8
Tangible book value at period end** 15.86 15.57 16.65 16.91 16.91 1.9 (6.2 )
 
 
**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)   Sep 30, 2017  

Jun 30, 2017

  Mar 31, 2017   Dec 31, 2016 Sep 30, 2016 3Q17 vs 2Q17   3Q17 vs 3Q16
   
Loans:
Real Estate:
Commercial real estate* $ 2,758,551 $ 2,759,672 $ 1,819,654 $ 1,834,445 $ 1,843,120 % 49.7 %
Construction:
Land acquisition and development 352,168 339,884 200,412 208,512 212,680 3.6 65.6
Residential 234,051 219,756 143,852 147,896 137,014 6.5 70.8
Commercial 117,017     121,605     121,154     125,589   128,154   (3.8 )   (8.7 )
Total construction 703,236 681,245 465,418 481,997 477,848 3.2 47.2
Residential real estate* 1,499,027 1,522,868 1,004,045 1,027,393 1,047,150 (1.6 ) 43.2
Agricultural real estate 160,297     163,175     167,749     170,248   172,949   (1.8 )   (7.3 )
Total real estate 5,121,111 5,126,960 3,456,866 3,514,083 3,541,067 (0.1 ) 44.6
Consumer
Indirect 788,785 779,026 762,477 752,409 731,901 1.3 7.8
Other 177,590 175,737 145,443 148,087 153,624 1.1 15.6
Credit card 72,209     75,631     65,241     69,770   66,860   (4.5 )   8.0  
Total consumer 1,038,584 1,030,394 973,161 970,266 952,385 0.8 9.1
Commercial 1,186,207 1,210,869 817,841 797,942 814,392 (2.0 ) 45.7
Agricultural 152,681 149,129 125,492 132,858 152,800 2.4 (0.1 )
Other 3,804     8,238     3,182     1,601   2,292   (53.8 )   66.0  
Loans held for investment 7,502,387 7,525,590 5,376,542 5,416,750 5,462,936 (0.3 ) 37.3
Loans held for sale 49,729     30,383     23,237     61,794   67,979   63.7     (26.8 )
Total loans $ 7,552,116     $ 7,555,973     $ 5,399,779     $ 5,478,544   $ 5,530,915   (0.1 )%   36.5 %
 
*Certain reclassifications, none of which were material, have been
made to conform certain June 30, 2017 amounts to the September 30,
2017 presentation. These reclassifications did not change previously
reported total loans.
 
Deposits:
Non-interest bearing $ 2,965,332 $ 2,897,813 $ 1,840,647 $ 1,906,257 $ 1,965,872 2.3 % 50.8 %
Interest bearing:
Demand 2,693,266 2,853,362 2,266,017 2,276,494 2,174,443 (5.6 ) 23.9
Savings 3,092,697 3,066,036 2,192,679 2,141,761 2,095,678 0.9 47.6
Time, $100 and over 452,853 469,556 425,870 461,368 485,253 (3.6 ) (6.7 )
Time, other 729,320     733,233     574,966     590,230   607,335   (0.5 )   20.1  
Total interest bearing 6,968,136     7,122,187     5,459,532     5,469,853   5,362,709   (2.2 )   29.9  
Total deposits $ 9,933,468     $ 10,020,000     $ 7,300,179     $ 7,376,110   $ 7,328,581   (0.9 )%   35.5 %
 
Total core deposits(1) $ 9,480,615 $ 9,550,444 $ 6,874,309 $ 6,914,742 $ 6,843,328 (0.7 )% 38.5 %
 
(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)     Sep 30, 2017  

Jun 30, 2017

  Mar 31, 2017   Dec 31, 2016   Sep 30, 2016 3Q17 vs 2Q17   3Q17 vs 3Q16
     
Allowance for Loan Losses:
Allowance for loan losses

$

74,572

$   75,701 $   76,231 $   76,214 $   81,235 (1.5 )% (8.2 )%
As a percentage of period-end loans 0.99 % 1.00 % 1.41 % 1.39 % 1.47 %
 
Net charge-offs during quarter $ 4,572 $ 2,885 $ 1,713 $ 6,099 $ 1,468 58.5 % 211.4 %
Annualized as a percentage of average loans 0.24 % 0.19 % 0.13 % 0.45 % 0.11 %
 
 
Non-Performing Assets:
Non-accrual loans $ 74,480 $ 76,687 $ 74,580 $ 72,793 $ 71,469 (2.9 )% 4.2 %
Accruing loans past due 90 days or more   5,665     9,362     4,527     3,789     8,131   (39.5 )   (30.3 )
Total non-performing loans 80,145 86,049 79,107 76,582 79,600 (6.9 ) 0.7
Other real estate owned   10,344   11,286   9,428   10,019   9,447   (8.3 ) 9.5  
Total non-performing assets $ 90,489     $   97,335     $   88,535     $   86,601     $   89,047   (7.0 )%   1.6 %
 
Non-performing assets as a percentage of:
Total loans and OREO 1.20 % 1.29 % 1.64 % 1.58 % 1.61 %
Total assets 0.74 0.80 0.98 0.96 0.99
 
Accruing Loans 30-89 Days Past Due $ 53,516 $ 44,554 $ 33,996 $ 35,407 $ 32,439 20.1 % 65.0 %
Accruing TDRs 10,862 14,956 16,379 22,343 17,163 (27.4 ) (36.7 )
 
 
Criticized Loans:
Special Mention $ 147,121 $ 163,076 $ 144,806 $ 163,581 $ 152,868 (9.8 )% (3.8 )%
Substandard 239,326 222,411 200,347 172,325 175,555 7.6 36.3
Doubtful   36,142     44,189     38,409     36,336     41,540   (18.2 )   (13.0 )
Total $ 422,589     $   429,676     $   383,562     $   372,242     $   369,963   (1.6 )%   14.2 %
 
       
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Selected Ratios - Annualized
(Unaudited)
 
Sep 30, 2017    

Jun 30, 2017

    Mar 31, 2017     Dec 31, 2016     Sep 30, 2016
       
Annualized Financial Ratios (GAAP)
Return on average assets 0.88 % 0.88 % 1.05 % 1.09 % 1.15 %
Return on average common equity 7.67 7.68 9.48 9.95 10.30
Yield on average earning assets 4.00 3.89 3.77 3.84 3.80
Cost of average interest bearing liabilities 0.40 0.40 0.37 0.30 0.30
Interest rate spread 3.60 3.49 3.40 3.54 3.50
Net interest margin ratio 3.71 3.60 3.49 3.62 3.58
Efficiency ratio 68.07 69.01 64.99 64.18 61.85
Loan to deposit ratio 76.03 75.41 73.97 74.27 75.47
 
 
Annualized Financial Ratios - Operating** (Non-GAAP)
Return on average tangible common equity 12.23 10.97 12.54 12.84 13.22
Tangible common stockholders' equity to tangible assets 7.66 7.51 8.53 8.59 8.68
 
 
Consolidated Capital Ratios:
Total risk-based capital to total risk-weighted assets 12.76 % * 12.56 % 14.94 % 15.13 % 14.87 %
Tier 1 risk-based capital to total risk-weighted assets 11.90 * 11.69 13.75 13.89 13.56
Tier 1 common capital to total risk-weighted assets 11.02 * 10.77 12.50 12.65 12.32
Leverage Ratio 8.71 * 10.65 10.09 10.11 10.22
 
*Preliminary estimate - may be subject to change.
**Non-GAAP financial measures - see Non-GAAP Financial Measures
included herein for a reconciliation of return on average common
equity (GAAP) to return on average tangible common equity, 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, 2017     June 30, 2017     September 30, 2016
(In thousands)   Average

Balance

  Interest   Average

Rate

Average
Balance
  Interest   Average
Rate
Average
Balance
  Interest   Average
Rate
Interest earning assets:            
Loans (1) (2) $ 7,579,350 $ 94,716 4.96 % $ 6,128,867 $ 74,502 4.88 % $ 5,469,294 $ 66,291 4.82 %
Investment securities (2) 2,601,781 12,844 1.96 2,285,759 11,086 1.95 2,038,498 9,191 1.79
Interest bearing deposits in banks 709,815 2,314 1.29 547,769 1,333 0.98 458,415 607 0.53
Federal funds sold 783     3     1.52   1,232     3     0.98   2,183     4     0.73  
Total interest earnings assets 10,891,729 109,877 4.00 % 8,963,627 86,924 3.89 % 7,968,390 76,093 3.80 %
Non-earning assets 1,359,476           1,012,197           777,083          
Total assets $ 12,251,205           $ 9,975,824           $ 8,745,473          
Interest bearing liabilities:
Demand deposits $ 2,785,911 $ 1,637 0.23 % $ 2,434,668 $ 1,318 0.22 % $ 2,141,892 $ 514 0.10 %
Savings deposits 3,209,712 2,286 0.28 2,463,514 1,872 0.30 2,055,083 647 0.13
Time deposits 1,194,265 2,274 0.76 1,061,495 1,821 0.69 1,088,261 1,938 0.71
Repurchase agreements 597,629 350 0.23 565,696 272 0.19 466,079 100 0.09
Other borrowed funds 20,015 350 6.94 31 8
Long-term debt 19,854 258 5.16 28,148 481 6.85 27,917 457 6.51
Subordinated debentures held by subsidiary trusts 82,477     819     3.94   82,477     782     3.80   82,477     698     3.37  
Total interest bearing liabilities 7,909,863 7,974 0.40 % 6,636,029 6,546 0.40 % 5,861,717 4,354 0.30 %
Non-interest bearing deposits 2,826,522 2,131,080 1,843,800
Other non-interest bearing liabilities 105,009 67,288 66,822
Stockholders' equity 1,409,811           1,141,427           973,134          
Total liabilities and stockholders' equity $ 12,251,205           $ 9,975,824           $ 8,745,473          
Net FTE interest income $ 101,903 80,378 $ 71,739
Less FTE adjustments (2)     (1,112 )         (1,055 )         (1,158 )    
Net interest income from consolidated statements of income     $ 100,791           $ 79,323           $ 70,581      
Interest rate spread 3.60 % 3.49 % 3.50 %
Net FTE interest margin (3) 3.71 % 3.60 % 3.58 %
Cost of funds, including non-interest bearing demand deposits (4) 0.29 % 0.30 % 0.22 %

(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, 2017   September 30, 2016
(In thousands)

Average
Balance

Interest

Average
Rate

Average
Balance
Interest Average
Rate
Interest earning assets:
Loans (1) (2) $ 6,384,064 $ 233,547 4.89 % $ 5,339,479 $ 192,910 4.83 %
Investment securities (2) 2,333,622 33,902 1.94 2,080,454 27,950 1.79
Interest bearing deposits in banks 620,514 4,859 1.05 441,748 1,734 0.52
Federal funds sold 898   8   1.19   1,789   9   0.67  
Total interest earnings assets 9,339,098 272,316 3.90 % 7,863,470 222,603 3.78 %
Non-earning assets 1,060,039       762,979      
Total assets $ 10,399,137       $ 8,626,449      
Interest bearing liabilities:
Demand deposits $ 2,485,994 $ 3,954 0.21 % $ 2,140,981 $ 1,587 0.10 %
Savings deposits 2,617,304 5,455 0.28 2,008,032 1,949 0.13
Time deposits 1,094,488 5,917 0.72 1,101,205 5,899 0.72
Repurchase agreements 574,461 870 0.20 471,165 282 0.08
Other borrowed funds 20,018 1,039 6.94 8
Long-term debt 12,031 503 5.59 28,313 1,357 6.40
Subordinated debentures held by subsidiary trusts 82,477   2,346   3.80   82,477   2,036   3.30  
Total interest bearing liabilities 6,886,773 20,084 0.39 % 5,832,181 13,110 0.30 %
Non-interest bearing deposits 2,257,082 1,779,344
Other non-interest bearing liabilities 73,647 60,301
Stockholders' equity 1,181,635       954,623      
Total liabilities and stockholders' equity $ 10,399,137       $ 8,626,449      
Net FTE interest income $ 252,232 209,493
Less FTE adjustments (2)   (3,225 )     (3,329 )  
Net interest income from consolidated statements of income   $ 249,007       $ 206,164    
Interest rate spread 3.51 % 3.48 %
Net FTE interest margin (3) 3.61 % 3.56 %
Cost of funds, including non-interest bearing demand deposits (4) 0.29 % 0.23 %

(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)  

Sep 30, 2017

 

 

Jun 30, 2017

  Mar 31, 2017   Dec 31, 2016   Sep 30, 2016
Annualized net income (A) $ 108,147   $ 87,712   $ 93,789   $ 98,522   $ 100,224
Total quarterly average assets (B) 12,251,205 9,975,824 8,933,927 9,016,101 8,745,473
 
Return on average assets (GAAP) (A)/(B) 0.88 % 0.88 % 1.05 % 1.09 % 1.15 %
 
Total quarterly average stockholders' equity (GAAP) (C) $ 1,409,811 $ 1,141,427 $ 989,044 $ 990,056 $ 973,134
Less: average goodwill and other intangible assets (excluding
mortgage servicing rights)
(525,343 )   (341,603 )   (240,902 )   (223,013 )   (215,130 )
Average tangible common stockholders' equity (Non-GAAP) (D) $ 884,468     $ 799,824     $ 748,142     $ 767,043     $ 758,004  
 
Total stockholders' equity, period-end (GAAP) (E) $ 1,419,410 $ 1,405,378 $ 1,001,596 $ 982,364 $ 982,504
Less: goodwill and other intangible assets (excluding mortgage
servicing rights)
(524,015 )   (526,289 )   (249,851 )   (222,468 )   (223,368 )
Total tangible common stockholders' equity (Non-GAAP) (F) $ 895,395     $ 879,089     $ 751,745     $ 759,896     $ 759,136  
 
Return on average common equity (GAAP) (A)/(C) 7.67 % 7.68 % 9.48 % 9.95 % 10.30 %
Return on average tangible common equity (Non-GAAP) (A)/(D) 12.23 10.97 12.54 12.84 13.22
 
Total assets (GAAP) (G) $ 12,206,473 $ 12,236,351 $ 9,061,234 9,063,895 8,973,847
Less: goodwill and other intangible assets (excluding mortgage
servicing rights)
(524,015 )   (526,289 )   (249,851 )   (222,468 )   (223,368 )
Tangible assets (Non-GAAP) (H) $ 11,682,458     $ 11,710,062     $ 8,811,383     $ 8,841,427     $ 8,750,479  
 
Total common shares outstanding, period end (I) 56,456 56,445 45,144 44,926 44,880
 
Book value per share, period end (GAAP) (E)/(I) $ 25.14 $ 24.90 $ 22.19 $ 21.87 $ 21.89
Tangible book value per share, period-end (Non-GAAP) (F)/(I) 15.86 15.57 16.65 16.91 16.91
Average common stockholders' equity to average assets (GAAP) (C)/(B) 11.51 % 11.44 % 11.07 % 10.98 % 11.13 %
Tangible common stockholders' equity to tangible assets (Non-GAAP) (F)/(H) 7.66 7.51 8.53 8.59 8.68

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