FIBK-2012.06.30-10Q

 
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 June 30, 2012
OR
 
¨
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:
 
June 30, 2012 – Class A common stock
 
16,890,002

 
 
June 30, 2012 – Class B common stock
 
26,338,748

 
 



FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
Index
 
 
Page
Part I.
Financial Information
 
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
3

 
 
 
 
4

 
 
 
 
5

 
 
 
 
6

 
 
 
 
7

 
 
 
 
9

 
 
 
Item 2.
33

 
 
 
Item 3.
49

 
 
 
Item 4.
49

 
 
Part II.
 
 
 
 
Item 1.
50

 
 
 
Item 1A .
50

 
 
 
Item  2.
50

 
 
 
Item 3.
50

 
 
 
Item 4.
Mine Safety Disclosures
50

 
 
 
Item 5.
50

 
 
 
Item 6.
50

 
 
52








2

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
June 30,
2012
 
December 31,
2011
Assets
 
 
 
Cash and due from banks
$
146,577

 
$
142,502

Federal funds sold
2,854

 
309

Interest bearing deposits in banks
387,222

 
329,636

Total cash and cash equivalents
536,653

 
472,447

Investment securities:
 
 
 
Available-for-sale
1,913,983

 
2,016,864

Held-to-maturity (estimated fair values of $177,532 and $161,877 at June 30, 2012 and December 31, 2011, respectively)
166,926

 
152,781

Total investment securities
2,080,909

 
2,169,645

Loans held for investment
4,093,815

 
4,133,028

Mortgage loans held for sale
76,148

 
53,521

Total loans
4,169,963

 
4,186,549

Less allowance for loan losses
102,794

 
112,581

Net loans
4,067,169

 
4,073,968

Premises and equipment, net of accumulated depreciation
187,367

 
184,771

Goodwill
183,673

 
183,673

Company-owned life insurance
75,849

 
74,880

Other real estate owned (“OREO”)
53,817

 
37,452

Accrued interest receivable
30,936

 
31,974

Mortgage servicing rights, net of accumulated amortization and impairment reserve
11,985

 
11,555

Deferred tax asset, net
5,017

 
9,628

Core deposit intangibles, net of accumulated amortization
6,647

 
7,357

Other assets
65,154

 
68,177

Total assets
$
7,305,176

 
$
7,325,527

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
1,337,777

 
$
1,271,709

Interest bearing
4,563,602

 
4,555,262

Total deposits
5,901,379

 
5,826,971

Securities sold under repurchase agreements
455,993

 
516,243

Accounts payable and accrued expenses
33,589

 
42,248

Accrued interest payable
8,215

 
8,123

Long-term debt
37,181

 
37,200

Other borrowed funds
7

 
7

Subordinated debentures held by subsidiary trusts
82,477

 
123,715

Total liabilities
6,518,841

 
6,554,507

Stockholders’ equity:
 
 
 
Nonvoting noncumulative preferred stock without par value;
   authorized 100,000 shares; issued and outstanding 5,000 shares as of June 30, 2012 and December 31, 2011
50,000

 
50,000

Common stock
269,698

 
266,842

Retained earnings
448,372

 
435,144

Accumulated other comprehensive income, net
18,265

 
19,034

Total stockholders’ equity
786,335

 
771,020

Total liabilities and stockholders’ equity
$
7,305,176

 
$
7,325,527

See accompanying notes to unaudited consolidated financial statements.

3

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
2011
 
2012
2011
Interest income:
 
 
 
 
 
Interest and fees on loans
$
58,084

$
61,475

 
$
115,994

$
123,866

Interest and dividends on investment securities:
 
 
 
 
 
Taxable
9,458

10,649

 
19,163

20,560

Exempt from federal taxes
1,240

1,194

 
2,444

2,365

Interest on deposits in banks
279

227

 
516

594

Interest on federal funds sold
6

6

 
7

9

Total interest income
69,067

73,551

 
138,124

147,394

Interest expense:
 
 
 
 
 
Interest on deposits
5,779

8,903

 
12,041

18,774

Interest on securities sold under repurchase agreements
152

171

 
308

408

Interest on long-term debt
495

495

 
993

984

Interest on subordinated debentures held by subsidiary trusts
1,467

1,455

 
2,974

2,903

Total interest expense
7,893

11,024

 
16,316

23,069

Net interest income
61,174

62,527

 
121,808

124,325

Provision for loan losses
12,000

15,400

 
23,250

30,400

Net interest income after provision for loan losses
49,174

47,127

 
98,558

93,925

Non-interest income:
 
 
 
 
 
Income from the origination and sale of loans
9,420

4,109

 
17,804

7,554

Other service charges, commissions and fees
8,254

7,768

 
16,678

15,148

Service charges on deposit accounts
4,455

4,385

 
8,616

8,495

Wealth management revenues
3,815

3,689

 
7,098

6,999

Investment securities gains, net
198

16

 
229

18

Other income
1,520

1,624

 
3,619

3,536

Total non-interest income
27,662

21,591

 
54,044

41,750

Non-interest expense:
 
 
 
 
 
Salaries and wages
21,640

20,554

 
43,204

40,757

Employee benefits
6,819

7,335

 
15,785

14,834

Occupancy, net
4,037

4,013

 
8,025

8,228

Furniture and equipment
3,189

3,129

 
6,327

6,349

Outsourced technology services
2,179

2,212

 
4,445

4,453

OREO expense, net of income
1,806

2,042

 
2,911

3,753

FDIC insurance premiums
1,601

1,629

 
3,196

4,095

Professional fees
1,002

726

 
1,935

1,505

Mortgage servicing rights amortization
817

671

 
1,712

1,478

Mortgage servicing rights impairment (recovery)
52

27

 
(816
)
(320
)
Core deposit intangibles amortization
355

361

 
710

723

Other expenses
13,802

11,493

 
27,305

21,295

Total non-interest expense
57,299

54,192

 
114,739

107,150

Income before income tax expense
19,537

14,526

 
37,863

28,525

Income tax expense
6,527

4,672

 
12,639

9,165

Net income
13,010

9,854

 
25,224

19,360

Preferred stock dividends
853

853

 
1,706

1,697

Net income available to common shareholders
$
12,157

$
9,001

 
$
23,518

$
17,663

 
 
 
 
 
 
Basic earnings per common share
$
0.28

$
0.21

 
$
0.55

$
0.41

Diluted earnings per common share
$
0.28

$
0.21

 
$
0.55

$
0.41

 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.

4

Table of Contents

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

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
2011
 
2012
2011
Net income
$
13,010

$
9,854

 
$
25,224

$
19,360

Other comprehensive income, before tax:
 
 
 
 
 
Investment securities available-for sale:
 
 
 
 
 
Change in net unrealized gains (losses) during period
(1,864
)
21,000

 
(1,107
)
21,419

Reclassification adjustment for net gains included in income
(198
)
(16
)
 
(229
)
(18
)
Defined benefit post-retirement benefits plans:
 
 
 
 
 
Change in net actuarial loss
35

35

 
68

69

Other comprehensive income, before tax
(2,027
)
21,019

 
(1,268
)
21,470

Deferred tax benefit (expense) related to other comprehensive
    income
797

(8,271
)
 
499

(8,448
)
Other comprehensive income (loss), net of tax
(1,230
)
12,748

 
(769
)
13,022

Comprehensive income, net of tax
$
11,780

$
22,602

 
$
24,455

$
32,382

See accompanying notes to unaudited consolidated financial statements.


5

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
—

 
—

 
25,224

 
—

 
25,224

Other comprehensive income, net of tax
—

 
—

 
—

 
(769
)
 
(769
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
17,981 common shares purchased and retired
—

 
(257
)
 
—

 
—

 
(257
)
23,973 common shares issued
—

 
—

 
—

 
—

 
—

122,912 non-vested common shares issued
—

 
—

 
—

 
—

 
—

3,193 non-vested common shares forfeited
—

 
—

 
—

 
—

 
—

118,865 stock options exercised, net of 39,667 shares tendered in payment of option price and income tax withholding amounts
—

 
1,263

 
—

 
—

 
1,263

Tax benefit of stock-based compensation
—

 
126

 
—

 
—

 
126

Stock-based compensation expense
—

 
1,724

 
—

 
—

 
1,724

Cash dividends declared:
 
 
 
 
 
 
 
 
 
Common ($0.24 per share)
—

 
—

 
(10,290
)
 
—

 
(10,290
)
Preferred (6.75% per share)
—

 
—

 
(1,706
)
 
—

 
(1,706
)
Balance at June 30, 2012
$
50,000

 
$
269,698

 
$
448,372

 
$
18,265

 
$
786,335

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2010
$
50,000

 
$
264,174

 
$
413,253

 
$
9,375

 
$
736,802

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
19,360

 
—

 
19,360

Other comprehensive income, net of tax
—

 
—

 
—

 
13,022

 
13,022

Common stock transactions:
 
 
 
 
 
 
 
 
 
14,112 common shares purchased and retired
—

 
(193
)
 
—

 
—

 
(193
)
14,692 common shares issued
—

 
195

 
—

 
—

 
195

130,904 non-vested common shares issued
—

 
—

 
—

 
—

 
—

17,544 non-vested common shares forfeited
—

 
(89
)
 
—

 
—

 
(89
)
Non-vested liability awards vesting during period
—

 
195

 
—

 
—

 
195

50,287 stock options exercised, net of 106,185 shares tendered in payment of option price and income tax withholding amounts
—

 
102

 
—

 
—

 
102

Tax benefit of stock-based compensation
—

 
224

 
—

 
—

 
224

Stock-based compensation expense
—

 
1,031

 
—

 
—

 
1,031

Cash dividends declared:
 
 
 
 
 
 
 
 
 
Common ($0.225 per share)
—

 
—

 
(9,607
)
 
—

 
(9,607
)
Preferred (6.75% per share)
—

 
—

 
(1,697
)
 
—

 
(1,697
)
Balance at June 30, 2011
$
50,000

 
$
265,639

 
$
421,309

 
$
22,397

 
$
759,345

See accompanying notes to unaudited consolidated financial statements.

6

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income
$
25,224

 
$
19,360

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
23,250

 
30,400

Net (gain) loss on disposal of property and equipment
(501
)
 
3

Depreciation and amortization
8,568

 
8,677

Net premium amortization on investment securities
5,188

 
4,932

Net gains on investment securities transactions
(229
)
 
(18
)
Net gains on sales of mortgage loans held for sale
(12,423
)
 
(4,984
)
Net (gain) loss on sale of OREO
6

 
(420
)
Write-down of OREO and other assets pending disposal
1,217

 
3,515

Net reversal of impairment of mortgage servicing rights
(816
)
 
(320
)
Net gain on sale of mortgage servicing rights
(19
)
 
—

Deferred income tax (benefit) expense
5,030

 
(538
)
Net increase in cash surrender value of company-owned life insurance policies
(969
)
 
(1,024
)
Stock-based compensation expense
1,724

 
1,116

Tax benefits from stock-based compensation expense
126

 
224

Excess tax benefits from stock-based compensation
(108
)
 
(157
)
Originations of mortgage loans held for sale, net of sales
(12,265
)
 
21,709

Changes in operating assets and liabilities:
 
 
 
Decrease in interest receivable
1,038

 
40

Decrease in other assets
1,754

 
11,881

Increase (decrease) in accrued interest payable
92

 
(1,466
)
Decrease in accounts payable and accrued expenses
(8,659
)
 
(3,275
)
Net cash provided by operating activities
37,228

 
89,655

Cash flows from investing activities:
 
 
 
Purchases of investment securities:
 
 
 
Held-to-maturity
(19,104
)
 
(7,434
)
Available-for-sale
(439,614
)
 
(406,564
)
Proceeds from maturities and pay-downs of investment securities:
 
 
 
Held-to-maturity
4,739

 
5,405

Available-for-sale
536,527

 
335,877

Capital distribution by unconsolidated subsidiary trust
1,238

 
—

Proceeds from sales of mortgage servicing rights
907

 
—

Extensions of credit to customers, net of repayments
(29,736
)
 
34,535

Recoveries of loans charged-off
2,795

 
2,140

Proceeds from sales of OREO
15,674

 
7,963

Capital expenditures, net of sales
(8,467
)
 
(4,730
)
Net cash provided by (used in) investing activities
$
64,959

 
$
(32,808
)

7

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2012
 
2011
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
$
74,408

 
$
(131,048
)
Net decrease in repurchase agreements
(60,250
)
 
(185,115
)
Net increase in short-term borrowings
—

 
449

Repayment of junior subordinated debentures held by subsidiary trusts
(41,238
)
 
—

Repayments of long-term debt
(19
)
 
(22
)
Proceeds from issuance of common stock
1,263

 
102

Excess tax benefits from stock-based compensation
108

 
157

Purchase and retirement of common stock
(257
)
 
(193
)
Dividends paid to common stockholders
(10,290
)
 
(9,607
)
Dividends paid to preferred stockholders
(1,706
)
 
(1,697
)
Net cash used in financing activities
(37,981
)
 
(326,974
)
Net increase (decrease) in cash and cash equivalents
64,206

 
(270,127
)
Cash and cash equivalents at beginning of period
472,447

 
685,618

Cash and cash equivalents at end of period
$
536,653

 
$
415,491

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
12,740

 
$
8,730

Cash paid during the period for interest expense
$
16,224

 
$
24,535

See accompanying notes to unaudited consolidated financial statements.


8

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 June 30, 2012 and December 31, 2011, the results of operations for each of the three and six month periods ended June 30, 2012 and 2011 and cash flows for the six months ended June 30, 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 June 30, 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 and six months ended June 30, 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:
June 30, 2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
Obligations of U.S. government agencies
$
1,024,769

$
4,259

$
(71
)
$
1,028,957

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
856,395

28,087

(106
)
884,376

Private mortgage-backed securities
645

8

(3
)
650

Total
$
1,881,809

$
32,354

$
(180
)
$
1,913,983

June 30, 2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to Maturity:
 
 
 
 
State, county and municipal securities
$
166,790

$
10,703

$
(97
)
$
177,396

Other securities
136

—

—

136

Total
$
166,926

$
10,703

$
(97
)
$
177,532

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


9

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 $201 and gross losses of $3 were realized on the disposition of investment securities during the three months ended June 30, 2012. Gross gains of $232 and gross losses of $3were realized on the disposition of investment securities during the six months ended June 30, 2012. Gross gains of $16 and $18 were realized on the disposition of investment securities during the three and six months ended June 30, 2012 and 2011, respectively. No gross losses were realized on the disposition of available-for-sale investment securities during the three and six months ended June 30, 2011.

The following tables show 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 June 30, 2012 and December 31, 2011
 
Less than 12 Months
 
12 Months or More
 
Total
June 30, 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
$
64,982

$
(71
)
 
$
—

$
—

 
$
64,982

$
(71
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
42,902

(106
)
 
—

—

 
42,902

(106
)
Private mortgage-backed securities
226

(1
)
 
160

(2
)
 
386

(3
)
Total
$
108,110

$
(178
)
 
$
160

$
(2
)
 
$
108,270

$
(180
)
 
Less than 12 Months
 
12 Months or More
 
Total
June 30, 2012
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Held-to-Maturity:
 
 
 
 
 
 
 
 
State, county and municipal securities
$
7,451

$
(80
)
 
$
721

$
(17
)
 
$
8,172

$
(97
)

 
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 29 and 24 individual investment securities that were in an unrealized loss position as of June 30, 2012 and December 31, 2011, respectively. Unrealized losses as of June 30, 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 or six months ended June 30, 2012 and 2011.

10

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 June 30, 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
June 30, 2012
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Within one year
$
407,085

$
415,903

 
$
5,827

$
5,676

After one year but within five years
1,194,260

1,210,099

 
25,859

26,720

After five years but within ten years
186,190

190,628

 
72,298

76,837

After ten years
94,274

97,353

 
62,806

68,163

Total
1,881,809

1,913,983

 
166,790

177,396

Investments with no stated maturity
—

—

 
136

136

Total
$
1,881,809

$
1,913,983

 
$
166,926

$
177,532


As of June 30, 2012, the Company had investment securities callable within one year with amortized costs and estimated fair values of $626,027 and $627,832, respectively, including callable structured notes with amortized costs and estimated fair values of $145,265 and $145,698, 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:
 
June 30,
2012
 
December 31,
2011
Real estate loans:
 
 
 
Commercial
$
1,517,400

 
$
1,553,155

Construction:
 
 
 
Land acquisition & development
240,550

 
278,613

Residential
51,193

 
61,106

Commercial
59,911

 
61,054

Total construction loans
351,654

 
400,773

Residential
572,018

 
571,943

Agricultural
171,087

 
175,302

Total real estate loans
2,612,159

 
2,701,173

Consumer:
 
 
 
Indirect consumer
418,604

 
407,651

Other consumer
144,442

 
147,487

Credit card
58,166

 
60,933

Total consumer loans
621,212

 
616,071

Commercial
720,010

 
693,261

Agricultural
138,115

 
119,710

Other, including overdrafts
2,319

 
2,813

Loans held for investment
4,093,815

 
4,133,028

Mortgage loans held for sale
76,148

 
53,521

Total loans
$
4,169,963

 
$
4,186,549

    

11

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 June 30, 2012
Past Due
Past Due
Past Due
Past Due
Loans
Loans
Loans
Real estate
 
 
 
 
 
 
 
Commercial
$
9,570

$
4,391

$
1,295

$
15,256

$
1,450,257

$
51,887

$
1,517,400

Construction:
 
 
 
 
 
 

 

Land acquisition & development
4,064

1,876

49

5,989

198,950

35,611

240,550

Residential
411

—

—

411

47,609

3,173

51,193

Commercial
—

—

—

—

48,889

11,022

59,911

Total construction loans
4,475

1,876

49

6,400

295,448

49,806

351,654

Residential
5,234

1,264

1,231

7,729

552,998

11,291

572,018

Agricultural
14,072

865

—

14,937

151,399

4,751

171,087

Total real estate loans
33,351

8,396

2,575

44,322

2,450,102

117,735

2,612,159

Consumer:
 
 
 
 


 
 

Indirect consumer
2,035

200

20

2,255

415,878

471

418,604

Other consumer
1,078

102

135

1,315

142,423

704

144,442

Credit card
428

241

686

1,355

56,786

25

58,166

Total consumer loans
3,541

543

841

4,925

615,087

1,200

621,212

Commercial
7,062

1,382

3,835

12,279

697,231

10,500

720,010

Agricultural
654

144

380

1,178

136,449

488

138,115

Other, including overdrafts
—

—

—

—

2,319

—

2,319

Loans held for investment
44,608

10,465

7,631

62,704

3,901,188

129,923

4,093,815

Mortgage loans originated for sale
—

—

—

—

76,148

—

76,148

Total loans
$
44,608

$
10,465

$
7,631

$
62,704

$
3,977,336

$
129,923

$
4,169,963




12

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 $584 and $769 for the three months ended June 30, 2012 and 2011, respectively, and approximated $1,272 and $1,487 for the six months ended June 30, 2012 and 2011, respectively.
        

13

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 June 30, 2012
Unpaid
Total
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Real estate:
 
 
 
 
 
Commercial
$
88,616

$
60,518

$
19,509

$
80,027

$
5,388

Construction:
 
 
 
 
 
Land acquisition & development
50,837

21,910

16,667

38,577

6,776

Residential
3,505

1,541

1,632

3,173

276

Commercial
13,743

1,558

9,463

11,021

572

Total construction loans
68,085

25,009

27,762

52,771

7,624

Residential
12,176

4,332

7,661

11,993

2,111

Agricultural
5,733

3,302

1,933

5,235

76

Total real estate loans
174,610

93,161

56,865

150,026

15,199

Commercial
12,526

7,748

4,226

11,974

2,339

Agricultural
552

95

405

500

405

Total
$
187,688

$
101,004

$
61,496

$
162,500

$
17,943

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





14

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 tables present the average recorded investment in and income recognized on impaired loans for the periods indicated:
 
Three Months Ended June 30,
 
2012
 
2011
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
87,135

 
$
320

 
90,625

 
$
110

Construction:
 
 
 
 
 
 
 
Land acquisition & development
51,949

 
30

 
54,500

 
42

Residential
3,637

 
—

 
18,841

 
18

Commercial
20,807

 
—

 
18,306

 
—

Total construction loans
76,393

 
30

 
91,647

 
60

Residential
14,726

 
12

 
23,085

 
97

Agricultural
6,816

 
—

 
6,086

 
40

Total real estate loans
185,070

 
362

 
211,443

 
307

Commercial
14,355

 
22

 
29,626

 
23

Agricultural
1,378

 
11

 
1,003

 
—

Total
$
200,803

 
$
395

 
242,072

 
$
330

 
Six Months Ended June 30,
 
2012
 
2011
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
85,701

 
$
671

 
$
81,429

 
$
202

Construction:
 
 
 
 
 
 
 
Land acquisition & development
56,924

 
46

 
49,444

 
87

Residential
8,810

 
—

 
17,697

 
37

Commercial
22,536

 
—

 
18,811

 
—

Total construction loans
88,270

 
46

 
85,952

 
124

Residential
16,251

 
21

 
19,415

 
97

Agricultural
10,039

 
32

 
5,094

 
42

Total real estate loans
200,261

 
770

 
191,890

 
465

Commercial
16,195

 
44

 
31,505

 
65

Agricultural
1,246

 
15

 
945

 
—

Total
$
217,702

 
$
829

 
$
224,340

 
$
530


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 principal. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. If interest on impaired loans had been accrued, interest income on impaired loans would have been approximately $580 and $762 for the three months ended June 30, 2012 and 2011, respectively, and approximately $1,263 and $1,454 for the six months ended June 30, 2012 and 2011, respectively.
    

15

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)


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.
    
The Company had loans renegotiated in troubled debt restructurings of $90,663 as of June 30, 2012, of which $54,704 were included in non-accrual loans and $35,959 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 tables present information on the Company's troubled debt restructurings that occurred during the three and six months ended June 30, 2012:
 
 
 
 
Type of Concession
 
Three Months Ended June 30, 2012
 
Number of Notes
 
Interest only period
Extension of terms or maturity
Interest rate adjustment
Other (1)
Principal Balance at Restructure Date
Real estate:
 
 
 
 
 
 
 
 
Commercial
 
3
 
$
—

$
—

$
2,787

$
149

$
2,936

Construction:
 
 
 
 
 
 
 
 
Land acquisition & development
 
1
 
—

229

—

—

229

Total construction loans
 
1
 
—

229

—

—

229

Total real estate loans
 
4
 
—

229

2,787

149

3,165

Consumer:
 
 
 
 
 
 
 
 
Other
 
1
 
—

69

—

—

69

Total consumer loans
 
1
 
—

69

—

—

69

Total loans restructured during period
 
5
 
$
—

$
298

$
2,787

$
149

$
3,234

    

16

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)


 
 
Number of Notes
 
Type of Concession
Principal Balance at Restructure Date
Six Months Ended June 30, 2012
 
 
Interest only period
Extension of terms or maturity
Interest rate adjustment
Other (1)
Real estate:
 
 
 
 
 
 
 
 
Commercial
 
12
 
$
—

$
—

$
3,876

$
8,612

$
12,488

Construction:
 
 
 
 
 
 
 
 
Land acquisition & development
 
3
 
—

229

—

623

852

Commercial
 
1
 
—

—

—

3,155

3,155

Total construction loans