First Interstate BancSystem, Inc. Reports Third Quarter 2012 Results

First Interstate BancSystem, Inc. Reports Third Quarter 2012 Results

BILLINGS, Mont.--(BUSINESS WIRE)-- First Interstate BancSystem, Inc. (NAS: FIBK) reports third quarter 2012 net income available to common shareholders of $15.3 million, or $0.35 per diluted share, as compared to $12.2 million, or $0.28 per diluted share, for second quarter 2012, and $11.1 million, or $0.26 per diluted share, for third quarter 2011.

Significant financial statement items for the third quarter of 2012 include:

  • Income from the origination and sale of residential mortgage loans of $11.7 million during the three months ended September 30, 2012, represented a 23.8% increase over the prior quarter and a 111.6% increase over the same quarter of the prior year;

  • Net interest margin ratio declined 11 basis points during third quarter 2012, as compared to second quarter 2012, and 21 basis points as compared to third quarter 2011, due to lower yields earned on loan and investment portfolios;

  • Non-performing assets continued to decrease, declining to $202.7 million, or 2.72% of total assets, as of September 30, 2012, from $226.2 million, or 3.10% of total assets, as of June 30, 2012, and $287.7 million, or 3.94% of total assets, as of September 30, 2011;

  • Provisions for loan losses were $9.5 million for the three months ended September 30, 2012, compared to $12.0 million for the three months ended June 30, 2012, and $14.0 million for the three months ended September 30, 2011; and

  • Net charge-offs were $13.3 million during the three months ended September 30, 2012, compared to $25.1 million during the three months ended June 30, 2012, and $18.3 million during the three months ended September 30, 2011.

RESULTS SUMMARY

(Unaudited; $ in thousands, except per share data)

As Of or For the Three Months Ended

Sequential Quarter

% Change

Year Over Year

% Change

September 30,
2012

June 30,
2012

September 30,
2011

Net income available to common shareholders

$

15,292

$

12,157

$

11,059

25.8

%

38.3

%

Diluted earnings per common share

0.35

0.28

0.26

25.0

%

34.6

%

Dividends paid per common share

0.1200

0.1200

0.1125

0.0

%

6.7

%

Book value per common share

17.29

17.03

16.70

1.5

%

3.5

%

Tangible book value per common share*

12.90

12.63

12.25

2.1

%

5.3

%

Net tangible book value per common share*

14.30

14.03

13.66

1.9

%

4.7

%

Return on average common equity, annualized

8.22

%

6.69

%

6.17

%

Return on average tangible common equity, annualized*

11.07

%

9.04

%

8.44

%

Return on average assets, annualized

0.86

%

0.71

%

0.65

%

As Of or For the Nine Months Ended

September 30,
2012

September 30,
2011

Net income available to common shareholders

$

38,810

28,722

35.1

%

Diluted earnings per common share

0.90

0.67

34.3

%

Dividends paid per common share

0.3600

0.3375

6.7

%

Return on average common equity, annualized

7.09

%

5.51

%

Return on average tangible common equity, annualized*

9.58

%

7.61

%

Return on average assets, annualized

0.75

%

0.57

%

* See Non-GAAP Financial Measures included herein for a discussion regarding tangible and net tangible book

value per common share.


"We are very pleased with our third quarter performance, which represents a significant increase in both revenue and earnings compared to the same period last year," said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. "Our strong results were largely driven by our positioning as a leading mortgage lender throughout our footprint, which has enabled us to capitalize on the increasing demand for residential mortgage loans. We also made considerable progress in resolving problem assets during the third quarter, which helped improve our overall asset quality, reduce our credit costs, and enhance our level of profitability," Garding further noted.

REVENUE SUMMARY

(Unaudited; $ in thousands)

For the Three Months Ended

Sequential Quarter

% Change

Year Over Year

% Change

September 30,
2012

June 30,
2012

September 30,
2011

Interest income

$

68,175

$

69,067

$

73,483

-1.3

%

-7.2

%

Interest expense

7,170

7,893

9,991

-9.2

%

-28.2

%

Net interest income

61,005

61,174

63,492

-0.3

%

-3.9

%

Non-interest income:

Income from the origination and sale of loans

11,665

9,420

5,512

23.8

%

111.6

%

Other service charges, commissions and fees

8,774

8,254

8,479

6.3

%

3.5

%

Service charges on deposit accounts

4,395

4,455

4,609

-1.3

%

-4.6%

Wealth management revenues

3,557

3,815

3,202

-6.8

%

11.1

%

Investment securities gains, net

66

198

38

-66.7

%

73.7

%

Other income

1,725

1,520

1,285

13.5

%

34.2

%

Total non-interest income

30,182

27,662

23,125

9.1

%

30.5

%

Total revenues

$

91,187

$

88,836

$

86,617

2.6

%

5.3

%

Tax equivalent interest margin ratio

3.63

%

3.74

%

3.84

%

For the Nine Months Ended

Year Over Year

% Change

September 30,
2012

September 30,
2011

Interest income

$

206,299

$

220,877

-6.6

%

Interest expense

23,486

33,060

-29.0

%

Net interest income

182,813

187,817

-2.7

%

Non-interest income:

Income from the origination and sale of loans

29,469

13,066

125.5

%

Other service charges, commissions and fees

25,452

23,627

7.7

%

Service charges on deposit accounts

13,011

13,104

-0.7

%

Wealth management revenues

10,655

9,980

6.8

%

Investment securities gains, net

295

56

426.8

%

Other income

5,344

5,042

6.0

%

Total non-interest income

84,226

64,875

29.8

%

Total revenues

$

267,039

$

252,692

5.7

%

Tax equivalent interest margin ratio

3.70

%

3.80

%

Net Interest Income

The Company's net interest margin ratio decreased to 3.63% during third quarter 2012, as compared to 3.74% during second quarter 2012. The second quarter 2012 net interest margin ratio included $766 thousand of recoveries of charged-off interest. Exclusive of these interest recoveries, the Company's net interest margin ratio was 3.70% during second quarter 2012. The decline in the net interest margin ratio, as compared to second quarter 2012, was primarily due to lower yields earned on the Company's loan and investment portfolios. The impact of lower asset yields was partially offset by increases in average outstanding loans and a 6 basis point reduction in the cost of interest-bearing liabilities due to a continuing favorable shift in the mix of deposits from higher costing time deposits into primarily non-interest bearing demand deposits.

Decreases in net interest margin ratio during the three and nine months ended September 30, 2012, as compared to the same periods in 2011, were due to lower outstanding loan balances and lower yields earned on the Company's loan and investment portfolios, which were partially offset by reductions in the cost of interest bearing liabilities combined with a shift from higher-costing savings and time deposits to lower-costing demand deposits.

Non-interest Income

Non-interest income increased during the three and nine months ended September 30, 2012, as compared to the same periods in 2011 and the three months ended June 30, 2012, primarily due to increases in income from the origination and sale of residential mortgage loans. The dollar amount of the Company's residential loan originations increased 93% during the first nine months of 2012, as compared to the same period in 2011. While refinancing activity represented 62% of the Company's residential loan origination dollars during third quarter 2012, new loans for home purchases were 2% higher than in the prior quarter and 35% higher than in third quarter 2011.

NON-INTEREST EXPENSE

(Unaudited; $ in thousands)

For the Three Months Ended

Sequential Quarter

% Change

Year Over Year

% Change

September 30,
2012

June 30,
2012

September 30,
2011

Non-interest expense:

Salaries and wages

$

23,341

$

21,640

$

20,801

7.9

%

12.2

%

Employee benefits

7,447

6,819

6,087

9.2

%

22.3

%

Occupancy, net

3,793

4,037

4,180

-6.0

%

-9.3

%

Furniture and equipment

3,231

3,189

3,018

1.3

%

7.1

%

Outsourced technology services

2,182

2,179

2,235

0.1

%

-2.4

%

Other real estate owned ("OREO") expense, net of income

2,612