Edgar Filing: FIRST INTERSTATE BANCSYSTEM INC

FIBK-2012.03.31-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________________________________________

FORM 10-Q

________________________________________________________________________________________________________


ý	Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012


¨	Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

COMMISSION FILE NUMBER 001-34653

________________________________________________________________________________________________________

First Interstate BancSystem, Inc.

(Exact name of registrant as specified in its charter)

________________________________________________________________________________________________________



Montana		81-0331430
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

401 North 31st Street, Billings, MT		59116-0918
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 406/255-5390

______________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	ý

Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock:



	March 31, 2012 – Class A common stock		16,758,066
	March 31, 2012 – Class B common stock		26,432,909

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES Quarterly Report on Form 10-Q Index

		Page
Part I.	Financial Information

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets March 31, 2012 and December 31, 2011	3

	Consolidated Statements of Income Three months ended March 31, 2012 and 2011	4

	Consolidated Statements of Comprehensive Income Three months ended March 31, 2012 and 2011	5

	Consolidated Statements of Changes in Stockholders’ Equity Three months ended March 31, 2012 and 2011	6

	Consolidated Statements of Cash Flows Three months ended March 31, 2012 and 2011	7

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44

Item 4.	Controls and Procedures	44

Part II.	Other Information

Item 1.	Legal Proceedings	44

Item 1A .	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	45

Signatures		47

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)

	March 31, 2012		December 31, 2011
Assets
Cash and due from banks	$	128,341	$	142,502
Federal funds sold	304		309
Interest bearing deposits in banks	494,279		329,636
Total cash and cash equivalents	622,924		472,447
Investment securities:
Available-for-sale	1,955,436		2,016,864
Held-to-maturity (estimated fair values of $166,932 and $161,877 at March 31, 2012 and December 31, 2011, respectively)	158,070		152,781
Total investment securities	2,113,506		2,169,645
Loans held for investment	4,099,936		4,133,028
Mortgage loans held for sale	58,680		53,521
Total loans	4,158,616		4,186,549
Less allowance for loan losses	115,902		112,581
Net loans	4,042,714		4,073,968
Premises and equipment, net of accumulated depreciation	185,230		184,771
Goodwill	183,673		183,673
Company-owned life insurance	75,342		74,880
Other real estate owned (“OREO”)	44,756		37,452
Accrued interest receivable	30,407		31,974
Mortgage servicing rights, net of accumulated amortization and impairment reserve	11,833		11,555
Deferred tax asset, net	9,571		9,628
Core deposit intangibles, net of accumulated amortization	7,002		7,357
Other assets	67,348		68,177
Total assets	$	7,394,306	$	7,325,527
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing	$	1,284,823	$	1,271,709
Interest bearing	4,626,011		4,555,262
Total deposits	5,910,834		5,826,971
Securities sold under repurchase agreements	491,058		516,243
Accounts payable and accrued expenses	43,972		42,248
Accrued interest payable	8,255		8,123
Long-term debt	37,191		37,200
Other borrowed funds	6		7
Subordinated debentures held by subsidiary trusts	123,715		123,715
Total liabilities	6,615,031		6,554,507
Stockholders’ equity:
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; issued and outstanding 5,000 shares as of March 31, 2012 and December 31, 2011	50,000		50,000
Common stock	268,411		266,842
Retained earnings	441,370		435,144
Accumulated other comprehensive income, net	19,494		19,034
Total stockholders’ equity	779,275		771,020
Total liabilities and stockholders’ equity	$	7,394,306	$	7,325,527

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)

	For the three months ended March 31,
	2012			2011
Interest income:
Interest and fees on loans	$	57,910		$	62,391
Interest and dividends on investment securities:
Taxable	9,705			9,911
Exempt from federal taxes	1,204			1,171
Interest on deposits in banks	237			367
Interest on federal funds sold	1			3
Total interest income	69,057			73,843
Interest expense:
Interest on deposits	6,262			9,871
Interest on securities sold under repurchase agreements	156			237
Interest on long-term debt	498			489
Interest on subordinated debentures held by subsidiary trusts	1,507			1,448
Total interest expense	8,423			12,045
Net interest income	60,634			61,798
Provision for loan losses	11,250			15,000
Net interest income after provision for loan losses	49,384			46,798
Non-interest income:
Other service charges, commissions and fees	8,424			7,380
Income from the origination and sale of loans	8,384			3,445
Service charges on deposit accounts	4,161			4,110
Wealth management revenues	3,283			3,295
Investment securities gains, net	31			2
Other income	2,099			1,927
Total non-interest income	26,382			20,159
Non-interest expense:
Salaries and wages	21,564			20,203
Employee benefits	8,966			7,499
Occupancy, net	3,988			4,215
Furniture and equipment	3,138			3,220
Outsourced technology services	2,266			2,241
FDIC insurance premiums	1,595			2,466
OREO expense, net of income	1,105			1,711
Mortgage servicing rights amortization	895			807
Mortgage servicing rights impairment recovery	(868		)	(347		)
Core deposit intangibles amortization	355			362
Other expenses	14,436			10,581
Total non-interest expense	57,440			52,958
Income before income tax expense	18,326			13,999
Income tax expense	6,112			4,493
Net income	12,214			9,506
Preferred stock dividends	853			844
Net income available to common shareholders	$	11,361		$	8,662
Basic earnings per common share	$	0.26		$	0.20
Diluted earnings per common share	$	0.26		$	0.20

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited)

	For the three months ended March 31,
	2012			2011
Net income	$	12,214		$	9,506
Other comprehensive income, before tax:
Investment securities available-for sale:
Change in net unrealized gain during period	755			417
Reclassification adjustment for gains included in income	(31		)	(2		)
Defined benefit post-retirement benefits plans:
Change in net actuarial loss	33			35
Other comprehensive income, before tax	757			450
Deferred tax expense related to other comprehensive income	297			177
Other comprehensive income, net of tax	460			273
Comprehensive income, net of tax	$	12,674		$	9,779

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands, except share and per share data) (Unaudited)

	Preferred stock		Common stock			Retained earnings			Accumulated other comprehensive income		Total stockholders’ equity
Balance at December 31, 2011	$	50,000	$	266,842		$	435,144		$	19,034	$	771,020
Comprehensive income:
Net income	—		—			12,214			—		12,214
Other comprehensive income, net of tax	—		—			—			460		460
Common stock transactions:
17,904 common shares purchased and retired	—		(256		)	—			—		(256		)
2,358 common shares issued	—		—			—			—		—
122,912 non-vested common shares issued	—		—			—			—		—
1,556 non-vested common shares forfeited	—		—			—			—		—
100,991 stock options exercised, net of 37,397 shares tendered in payment of option price and income tax withholding amounts	—		1,068			—			—		1,068
Tax benefit of stock-based compensation	—		114			—			—		114
Stock-based compensation expense	—		643			—			—		643
Cash dividends declared:
Common ($0.12 per share)	—		—			(5,135		)	—		(5,135		)
Preferred (6.75% per share)	—		—			(853		)	—		(853		)
Balance at March 31, 2012	$	50,000	$	268,411		$	441,370		$	19,494	$	779,275

Balance at December 31, 2010	$	50,000	$	264,174		$	413,253		$	9,375	$	736,802
Comprehensive income:
Net income	—		—			9,506			—		9,506
Other comprehensive income, net of tax	—		—			—			273		273
Common stock transactions:
12,056 common shares purchased and retired	—		(164		)	—			—		(164		)
130,904 non-vested common shares issued	—		—			—			—		—
1,911 non-vested common shares forfeited	—		(7		)	—			—		(7		)
Non-vested liability awards vesting during period	—		195			—			—		195
43,622 stock options exercised, net of 104,050 shares tendered in payment of option price and income tax withholding amounts	—		37			—			—		37
Tax benefit of stock-based compensation	—		257			—			—		257
Stock-based compensation expense	—		440			—			—		440
Cash dividends declared:
Common ($0.1125 per share)	—		—			(4,798		)	—		(4,798		)
Preferred (6.75% per share)	—		—			(844		)	—		(844		)
Balance at March 31, 2011	$	50,000	$	264,932		$	417,117		$	9,648	$	741,697

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

	For the three months ended March 31,
	2012			2011
Cash flows from operating activities:
Net income	$	12,214		$	9,506
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	11,250			15,000
Net loss on disposal of property and equipment	42			3
Depreciation and amortization	4,302			4,436
Net premium amortization on investment securities	2,678			2,598
Net gains on investment securities transactions	(31		)	(2		)
Net gains on sales of mortgage loans held for sale	(5,927		)	(2,260		)
Net loss (gain) on sale of OREO	74			(156		)
Write-down of OREO	578			1,552
Net reversal of impairment of mortgage servicing rights	(868		)	(347		)
Net gain on sale of mortgage servicing rights	(19		)	—
Deferred income tax benefit	(282		)	(859		)
Net increase in cash surrender value of company-owned life insurance policies	(462		)	(489		)
Stock-based compensation expense	643			411
Tax benefits from stock-based compensation expense	114			257
Excess tax benefits from stock-based compensation	(94		)	(192		)
Originations of mortgage loans held for sale, net of sales	(272		)	27,123
Changes in operating assets and liabilities:
Decrease in interest receivable	1,567			1,248
Decrease in other assets	907			7,828
Increase (decrease) in accrued interest payable	132			(1,016		)
Increase in accounts payable and accrued expenses	1,744			1,702
Net cash provided by operating activities	28,290			66,343
Cash flows from investing activities:
Purchases of investment securities:
Held-to-maturity	(7,592		)	(1,868		)
Available-for-sale	(222,413		)	(193,791		)
Proceeds from maturities and paydowns of investment securities:
Held-to-maturity	2,193			2,720
Available-for-sale	282,083			136,839
Proceeds from sales of mortgage servicing rights	907			—
Extensions of credit to customers, net of repayments	10,027			64,419
Recoveries of loans charged-off	1,158			1,305
Proceeds from sales of OREO	5,691			3,160
Capital expenditures, net of sales	(3,453		)	(1,639		)
Net cash provided by investing activities	$	68,601		$	11,145
Cash flows from financing activities:

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) (Unaudited)

	For the three months ended March 31,
	2012			2011
Net increase in deposits	$	83,863		$	5,471
Net decrease in repurchase agreements	(25,185		)	(83,199		)
Net increase (decrease) in short-term borrowings	(1		)	531
Repayments of long-term debt	(9		)	(11		)
Proceeds from issuance of common stock	1,068			37
Excess tax benefits from stock-based compensation	94			192
Purchase and retirement of common stock	(256		)	(164		)
Dividends paid to common stockholders	(5,135		)	(4,798		)
Dividends paid to preferred stockholders	(853		)	(844		)
Net cash provided by (used in) financing activities	53,586			(82,785		)
Net increase (decrease) in cash and cash equivalents	150,477			(5,297		)
Cash and cash equivalents at beginning of period	472,447			685,618
Cash and cash equivalents at end of period	$	622,924		$	680,321

Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$	100		$	—
Cash paid during the period for interest expense	$	8,291		$	13,061

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)


(1)	Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements of First Interstate BancSystem, Inc. and subsidiaries (the “Company”) contain all adjustments (all of which are of a normal recurring nature) necessary to present fairly the financial position of the Company at March 31, 2012 and December 31, 2011 and the results of operations and cash flows for each of the three month periods ended March 31, 2012 and 2011, in conformity with U.S. generally accepted accounting principles. The balance sheet information at December 31, 2011 is derived from audited consolidated financial statements. Certain reclassifications, none of which were material, have been made to conform prior year financial statements to the March 31, 2012 presentation. These reclassifications did not change previously reported net income or stockholders’ equity.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.


(2)	Investment Securities

The amortized cost and approximate fair values of investment securities are summarized as follows:



March 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-Sale
Obligations of U.S. government agencies	$	1,085,140	$	3,993	$	(687	)	$	1,088,446
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	835,494		30,820		(34		)	866,280
Private mortgage-backed securities	704		11		(5		)	710
Total	$	1,921,338	$	34,824	$	(726	)	$	1,955,436



March 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Held-to Maturity
State, county and municipal securities	$	157,921	$	9,020	$	(158	)	$	166,783
Other securities	149		—		—			149
Total	$	158,070	$	9,020	$	(158	)	$	166,932



December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-Sale
Obligations of U.S. government agencies	$	1,134,427	$	4,353	$	(662	)	$	1,138,118
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	848,444		29,567		(14		)	877,997
Private mortgage-backed securities	758		7		(16		)	749
Total	$	1,983,629	$	33,927	$	(692	)	$	2,016,864



December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Held-to Maturity
State, county and municipal securities	$	152,619	$	9,113	$	(17	)	$	161,715
Other securities	162		—		—			162
Total	$	152,781	$	9,113	$	(17	)	$	161,877

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

Gross gains of $31 and $2 were realized on the disposition of available-for-sale securities during the three months ended March 31, 2012 and 2011, respectively. No gross losses were realized on the disposition of available-for-sale investment securities during the three months ended March 31, 2012 or 2011.

The following table shows the gross unrealized losses and fair values of investment securities, aggregated by investment category, and the length of time individual investment securities have been in a continuous unrealized loss position, as of March 31, 2012 and December 31, 2011.



	Less than 12 Months					12 Months or More					Total
March 31, 2012	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available-for-Sale
Obligations of U.S. government agencies	$	177,078	$	(687	)	$	—	$	—		$	177,078	$	(687	)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	3,617		(34		)	—		—			3,617		(34		)
Private mortgage-backed securities	—		—			167		(5		)	167		(5		)
Total	$	180,695	$	(721	)	$	167	$	(5	)	$	180,862	$	(726	)



	Less than 12 Months					12 Months or More					Total
March 31, 2012	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Held-to-Maturity
State, county and municipal securities	$	5,501	$	(134	)	$	733	$	(24	)	$	6,234	$	(158	)



	Less than 12 Months					12 Months or More					Total
December 31, 2011	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available-for-Sale
Obligations of U.S. government agencies	$	287,404	$	(662	)	$	—	$	—		$	287,404	$	(662	)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	45,694		(14		)	—		—			45,694		(14		)
Private mortgage-backed securities	246		(10		)	177		(6		)	423		(16		)
Total	$	333,344	$	(686	)	$	177	$	(6	)	$	333,521	$	(692	)



	Less than 12 Months				12 Months or More					Total
December 31, 2011	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Held-to-Maturity
State, county and municipal securities	$	—	$	—	$	773	$	(17	)	$	773	$	(17	)

The investment portfolio is evaluated quarterly for other-than-temporary declines in the market value of each individual investment security. The Company had 27 and 24 individual investment securities that were in an unrealized loss position as of March 31, 2012 and December 31, 2011, respectively. Unrealized losses as of March 31, 2012 and December 31, 2011 related primarily to fluctuations in the current interest rates. The Company does not have the intent to sell any of the available-for-sale securities in the above table and it is more likely than not that the Company will not have to sell any such securities before a recovery in cost. No impairment losses were recorded during the three months ended March 31, 2012 or 2011.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

Maturities of investment securities at March 31, 2012 are shown below. Maturities of mortgage-backed securities have been adjusted to reflect shorter maturities based upon estimated prepayments of principal. All other investment securities maturities are shown at contractual maturity dates.



	Available-for-Sale				Held-to-Maturity
March 31, 2012	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Within one year	$	385,624	$	395,736	$	7,023	$	6,799
After one year but within five years	1,312,315		1,328,373		22,288		23,096
After five years but within ten years	146,006		151,084		66,498		70,529
After ten years	77,393		80,243		62,112		66,359
Total	1,921,338		1,955,436		157,921		166,783
Investments with no stated maturity	—		—		149		149
Total	$	1,921,338	$	1,955,436	$	158,070	$	166,932

As of March 31, 2012, the Company had investment securities callable within one year with amortized costs and estimated fair values of $634,320 and $635,629, respectively, including callable structured notes with amortized costs and estimated fair values of $195,257 and $195,899, respectively. These investment securities are primarily classified as available-for-sale and included in the after one year but within five years category in the table above.


(3)	Loans

The following table presents loans by class as of the dates indicated:



	March 31, 2012		December 31, 2011
Real estate loans:
Commercial	$	1,533,624	$	1,553,155
Construction:
Land acquisition & development	272,874		278,613
Residential	50,332		61,106
Commercial	65,196		61,054
Total construction loans	388,402		400,773
Residential	562,588		571,943
Agricultural	171,685		175,302
Total real estate loans	2,656,299		2,701,173
Consumer:
Indirect consumer	407,389		407,651
Other consumer	142,144		147,487
Credit card	56,540		60,933
Total consumer loans	606,073		616,071
Commercial	708,397		693,261
Agricultural	128,599		119,710
Other, including overdrafts	568		2,813
Loans held for investment	4,099,936		4,133,028
Mortgage loans held for sale	58,680		53,521
Total loans	$	4,158,616	$	4,186,549

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following tables present the contractual aging of the Company’s recorded investment in past due loans by class as of the period indicated:



							Total Loans
	30 - 59		60 - 89		> 90		30 or More
	Days		Days		Days		Days		Current		Non-accrual		Total
As of March 31, 2012	Past Due		Past Due		Past Due		Past Due		Loans		Loans		Loans
Real estate
Commercial	$	18,492	$	2,956	$	1,044	$	22,492	$	1,450,034	$	61,098	$	1,533,624
Construction:
Land acquisition & development	3,445		290		402		4,137		210,261		58,476		272,874
Residential	—		1,185		137		1,322		45,047		3,963		50,332
Commercial	1,556		150		—		1,706		41,198		22,292		65,196
Total construction loans	5,001		1,625		539		7,165		296,506		84,731		388,402
Residential	2,995		1,079		1,919		5,993		541,219		15,376		562,588
Agricultural	6,007		435		—		6,442		160,573		4,670		171,685
Total real estate loans	32,495		6,095		3,502		42,092		2,448,332		165,875		2,656,299
Consumer:
Indirect consumer	2,024		128		—		2,152		404,831		406		407,389
Other consumer	722		157		128		1,007		140,243		894		142,144
Credit card	507		194		660		1,361		55,154		25		56,540
Total consumer loans	3,253		479		788		4,520		600,228		1,325		606,073
Commercial	13,709		1,460		629		15,798		680,391		12,208		708,397
Agricultural	1,026		13		366		1,405		125,692		1,502		128,599
Other, including overdrafts	—		—		—		—		568		—		568
Loans held for investment	50,483		8,047		5,285		63,815		3,855,211		180,910		4,099,936
Mortgage loans originated for sale	—		—		—		—		58,680		—		58,680
Total loans	$	50,483	$	8,047	$	5,285	$	63,815	$	3,913,891	$	180,910	$	4,158,616

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)



							Total Loans
	30 - 59		60 - 89		> 90		30 or More
	Days		Days		Days		Days		Current		Non-accrual		Total
As of December 31, 2011	Past Due		Past Due		Past Due		Past Due		Loans		Loans		Loans
Real estate
Commercial	$	22,124	$	7,871	$	630	$	30,625	$	1,455,139	$	67,391	$	1,553,155
Construction:
Land acquisition & development	5,251		2,448		867		8,566		208,134		61,913		278,613
Residential	415		—		—		415		56,219		4,472		61,106
Commercial	1,698		—		—		1,698		34,820		24,536		61,054
Total construction loans	7,364		2,448		867		10,679		299,173		90,921		400,773
Residential	4,669		973		1,798		7,440		546,278		18,225		571,943
Agricultural	4,103		1,831		—		5,934		166,119		3,249		175,302
Total real estate loans	38,260		13,123		3,295		54,678		2,466,709		179,786		2,701,173
Consumer:
Indirect consumer	3,078		370		45		3,493		403,695		463		407,651
Other consumer	1,479		436		60		1,975		144,625		887		147,487
Credit card	604		375		585		1,564		59,343		26		60,933
Total consumer loans	5,161		1,181		690		7,032		607,663		1,376		616,071
Commercial	13,721		3,464		405		17,590		657,609		18,062		693,261
Agricultural	476		215		110		801		118,150		759		119,710
Other, including overdrafts	—		2		—		2		2,811		—		2,813
Loans held for investment	57,618		17,985		4,500		80,103		3,852,942		199,983		4,133,028
Mortgage loans originated for sale	—		—		—		—		53,521		—		53,521
Total loans	$	57,618	$	17,985	$	4,500	$	80,103	$	3,906,463	$	199,983	$	4,186,549

If interest on non-accrual loans had been accrued, such income would have approximated $2,702 and $2,838 for the three months ended March 31, 2012 and 2011, respectively.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

The Company considers impaired loans to include all loans risk rated doubtful, loans placed on non-accrual status and loans renegotiated in troubled debt restructurings with the exception of consumer loans. The following tables present information on the Company’s recorded investment in impaired loans as of dates indicated:



	As of March 31, 2012
	Unpaid Total Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate:
Commercial	$	99,746	$	64,702	$	23,742	$	88,444	$	7,083
Construction:
Land acquisition & development	72,504		23,982		36,379		60,361		12,632
Residential	5,212		2,203		1,760		3,963		276
Commercial	24,403		11,218		11,074		22,292		3,978
Total construction loans	102,119		37,403		49,213		86,616		16,886
Residential	17,272		8,318		7,627		15,945		2,451
Agricultural	7,526		7,028		—		7,028		—
Total real estate loans	226,663		117,451		80,582		198,033		26,420
Commercial	20,200		5,737		7,822		13,559		4,122
Agricultural	1,566		1,028		486		1,514		491
Total	$	248,429	$	124,216	$	88,890	$	213,106	$	31,033



	As of December 31, 2011
	Unpaid Total Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate:
Commercial	$	97,745	$	62,769	$	23,218	$	85,987	$	6,741
Construction:
Land acquisition & development	73,258		22,300		39,131		61,431		12,084
Residential	13,721		10,427		2,044		12,471		312
Commercial	26,647		3,510		21,026		24,536		5,042
Total construction loans	113,626		36,237		62,201		98,438		17,438
Residential	18,305		2,678		15,626		18,304		3,844
Agricultural	8,018		7,470		—		7,470		—
Total real estate loans	237,694		109,154		101,045		210,199		28,023
Commercial	26,348		7,354		12,284		19,638		4,664
Agricultural	759		496		263		759		151
Total	$	264,801	$	117,004	$	113,592	$	230,596	$	32,838

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

The following table presents the average recorded investment in and income recognized on impaired loans for the periods indicated:



	Three months ended March 31, 2012				Three months ended March 31, 2011
	Average				Average
	Recorded		Income		Recorded	Income
	Investment		Recognized		Investment	Recognized
Real estate:
Commercial	$	88,657	$	351	74,768	$	92
Construction:
Land acquisition & development	62,227		16		45,552	45
Residential	9,208		—		18,121	19
Commercial	24,265		—		19,321	—
Total construction loans	95,700		16		82,994	64
Residential	18,072		9		21,070	—
Agricultural	7,268		32		3,677	2
Total real estate loans	209,697		408		182,509	158
Commercial	17,885		22		34,397	42
Agricultural	1,234		4		920	—
Total	$	228,816	$	434	217,826	$	200

The amount of interest income recognized by the Company within the period that the loans were impaired was primarily related to loans modified in a troubled debt restructuring that remained on accrual status. Interest payments received on non-accrual impaired loans are applied to principle. Interest income is subsequently recognized only to the extent cash payments are received in excess of principle due. If interest on impaired loans had been accrued, interest income on impaired loans would have been approximately $2,683 and $2,810 for the three months ended March 31, 2012 and 2011, respectively.

Collateralized impaired loans are generally recorded at the fair value of the underlying collateral using discounted cash flows, independent appraisals and management estimates based upon current market conditions. For loans measured under the present value of cash flows method, the change in present value attributable to the passage of time, if applicable, is recognized in the provision for loan losses and thus no interest income is recognized.

Modifications of performing loans are made in the ordinary course of business and are completed on a case-by-case basis as negotiated with the borrower. Loan modifications typically include interest rate concessions, interest only periods of less than twelve months, short-term payment deferrals and extension of amortization periods to provide payment relief. A loan modification is considered a troubled debt restructuring if the borrower is experiencing financial difficulties and the Company, for economic or legal reasons, grants a concession to the borrower that it would not otherwise consider. Certain troubled debt restructurings are on non-accrual status at the time of restructuring and are typically returned to accrual status after considering the borrower's sustained repayment performance in accordance with the restructuring agreement for a period of at least six months and management is reasonably assured of future performance. If the troubled debt restructuring meets these performance criteria and the interest rate granted at the modification is equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk, then the loan will return to performing status and the accrual of interest will resume.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

The Company had loans renegotiated in troubled debt restructurings of $88,949 as of March 31, 2012, of which $52,111 were included in non-accrual loans and $36,838 were on accrual status. The Company had loans renegotiated in troubled debt restructurings of $94,827 as of December 31, 2011, of which $57,451 were included in non-accrual loans and $37,376 were on accrual status.

The following table presents information on the Company's troubled debt restructurings that occurred during the three months ended March 31, 2012:



	Number of Notes	Type of Concession								Principle Balance at Restructure Date
	Number of Notes	Interest only period		Extension of terms or maturity		Interest rate adjustment		Other (1)		Principle Balance at Restructure Date
Real estate:
Commercial	9	$	—	$	—	$	1,089	$	8,463	$	9,552
Construction:
Land acquisition & development	2	—		—		—		623		623
Commercial	1	—		—		—		3,155		3,155
Total construction loans	3	—		—		—		3,778		3,778
Residential	2	568		25		—		—		593
Total real estate loans	14	568		25		1,089		12,241		13,923
Commercial	5	13		98		—		80		191
Total	19	$	581	$	123	$	1,089	$	12,321	$	14,114


(1)	Other includes concessions that reduce or defer payments for a specified period of time and/or extend amortization schedules.

For troubled debt restructurings that were on non-accrual status or otherwise deemed impaired before the modification, a specific reserve may already be recorded. In periods subsequent to modification, the Company continues to evaluate all troubled debt restructurings for possible impairment and recognizes impairment through the allowance. Additionally these loans continue to work their way through the credit cycle through charge-off, pay-off or foreclosure. Financial effects of modifications of troubled debt restructurings may include principle loan forgiveness or other charge-offs directly related to the restructuring. The Company had no charge-offs directly related to modifying troubled debt restructurings during the three months ended March 31, 2012.

The following table presents information on the Company's troubled debt restructurings during the previous 12 months for which there was a payment default during the three month period ended March 31, 2012. The Company considers a payment default to occur on troubled debt restructurings when the loan is 90 days or more past due or was placed on non-accrual status after the modification. Four of the five troubled debt restructurings with payment defaults in the following table are on non-accrual status.



	As of March 31, 2012
	Number of Notes	Balance
Real estate:
Land acquisition & development	1	505
Total construction loans	1	505
Agriculture	2	1,624
Total real estate loans	3	2,129
Agricultural	2	328
Total	5	$	2,457

At March 31, 2012, there were no material commitments to lend additional funds to borrowers whose existing loans have been renegotiated or are classified as non-accrual.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

As part of the on-going and continuous monitoring of the credit quality of the Company’s loan portfolio, management tracks internally assigned risk classifications of loans. The Company adheres to a Uniform Classification System developed jointly by the various bank regulatory agencies to internally risk rate loans. The Uniform Classification System defines three broad categories of criticized assets, which the Company uses as credit quality indicators:

Other Assets Especially Mentioned — includes loans that exhibit weaknesses in financial condition, loan structure or documentation, which if not promptly corrected, may lead to the development of abnormal risk elements.

Substandard — includes loans that are inadequately protected by the current sound worth and paying capacity of the borrower. Although the primary source of repayment for a Substandard is not currently sufficient; collateral or other sources of repayment are sufficient to satisfy the debt. Continuance of a Substandard loan is not warranted unless positive steps are taken to improve the worthiness of the credit.

Doubtful — includes loans that exhibit pronounced weaknesses to a point where collection or liquidation in full, on the basis of currently existing facts, conditions and values, is highly questionable and improbable. Doubtful loans are required to be placed on non-accrual status and are assigned specific loss exposure.

The following tables present the Company’s recorded investment in criticized loans by class and credit quality indicator based on the most recent analysis performed as of the dates indicated:



	Other Assets Especially Mentioned		Substandard		Doubtful		Total Criticized Loans
As of March 31, 2012
Real estate:
Commercial	$	117,979	$	149,852	$	25,252	$	293,083
Construction:
Land acquisition & development	34,909		34,806		35,878		105,593
Residential	1,536		5,428		1,760		8,724
Commercial	55		11,061		11,234		22,350
Total construction loans	36,500		51,295		48,872		136,667
Residential	8,963		18,587		7,141		34,691
Agricultural	22,993		16,128		395		39,516
Total real estate loans	186,435		235,862		81,660		503,957
Consumer:
Indirect consumer	1,033		1,755		202		2,990
Other consumer	825		1,461		585		2,871
Credit card	—		558		2,757		3,315
Total consumer loans	1,858		3,774		3,544		9,176
Commercial	45,730		33,714		7,906		87,350
Agricultural	8,048		2,815		486		11,349
Total	$	242,071	$	276,165	$	93,596	$	611,832

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)



	Other Assets Especially Mentioned		Substandard		Doubtful		Total Criticized Loans
As of December 31, 2011
Real estate:
Commercial	$	129,046	$	153,320	$	25,087	$	307,453
Construction:
Land acquisition & development	37,294		31,873		38,761		107,928
Residential	9,448		5,528		2,044		17,020
Commercial	—		2,620		21,916		24,536
Total construction loans	46,742		40,021		62,721		149,484
Residential	8,149		15,706		15,140		38,995
Agricultural	16,037		18,498		395		34,930
Total real estate loans	199,974		227,545		103,343		530,862
Consumer:
Indirect consumer	1,141		1,729		247		3,117
Other consumer	745		1,361		674		2,780
Credit card	—		486		2,789		3,275
Total consumer loans	1,886		3,576		3,710		9,172
Commercial	34,698		33,478		12,849		81,025
Agricultural	4,345		5,195		263		9,803
Total	$	240,903	$	269,794	$	120,165	$	630,862

The Company maintains a credit review function, which is independent of the credit approval process, to assess assigned internal risk classifications and monitor compliance with internal lending policies and procedures. Written action plans with firm target dates for resolution of identified problems are maintained and reviewed on a quarterly basis for all categories of criticized loans.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)


(4)	Allowance For Loan Losses

The following tables present a summary of changes in the allowance for loan losses by portfolio segment for the periods indicated.



Three months ended March 31, 2012	Real Estate			Consumer			Commercial			Agriculture			Other		Total
Allowance for loan losses:
Beginning balance	$	87,396		$	8,594		$	15,325		$	1,266		$	—	$	112,581
Provision charged to operating expense	6,382			(591		)	5,441			18			—		11,250
Less loans charged-off	(5,156		)	(1,312		)	(2,512		)	(107		)	—		(9,087		)
Add back recoveries of loans previously charged-off	506			521			126			5			—		1,158
Ending balance	$	89,128		$	7,212		$	18,380		$	1,182		$	—	$	115,902

Loan individually evaluated for impairment	$	26,673		$	—		$	4,126		$	491		$	—	$	31,290
Loans collectively evaluated for impairment	62,455			7,212			14,254			691			—		84,612
Ending balance	$	89,128		$	7,212		$	18,380		$	1,182		$	—	$	115,902

Total loans: