FIBK-2012.09.30-10Q

 
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 September 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:
 
September 30, 2012 – Class A common stock
 
17,019,375

 
 
September 30, 2012 – Class B common stock
 
26,233,008

 
 



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 - September 30, 2012 and December 31, 2011
3

 
 
 
 
Consolidated Statements of Income - Three and Nine Months Ended September 30, 2012 and 2011
4

 
 
 
 
Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2012 and 2011
5

 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity -Nine Months Ended September 30, 2012 and 2011
6

 
 
 
 
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2012 and 2011
7

 
 
 
 
9

 
 
 
Item 2.
34

 
 
 
Item 3.
50

 
 
 
Item 4.
50

 
 
Part II.
 
 
 
 
Item 1.
51

 
 
 
Item 1A .
51

 
 
 
Item  2.
51

 
 
 
Item 3.
51

 
 
 
Item 4.
Mine Safety Disclosures
51

 
 
 
Item 5.
51

 
 
 
Item 6.
51

 
 
53








2

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
September 30,
2012
 
December 31,
2011
Assets
 
 
 
Cash and due from banks
$
124,275

 
$
142,502

Federal funds sold
1,215

 
309

Interest bearing deposits in banks
485,845

 
329,636

Total cash and cash equivalents
611,335

 
472,447

Investment securities:
 
 
 
Available-for-sale
1,979,154

 
2,016,864

Held-to-maturity (estimated fair values of $199,078 and $161,877 at September 30, 2012 and December 31, 2011, respectively)
187,573

 
152,781

Total investment securities
2,166,727

 
2,169,645

Loans held for investment
4,107,171

 
4,133,028

Mortgage loans held for sale
72,880

 
53,521

Total loans
4,180,051

 
4,186,549

Less allowance for loan losses
99,006

 
112,581

Net loans
4,081,045

 
4,073,968

Premises and equipment, net of accumulated depreciation
188,851

 
184,771

Goodwill
183,673

 
183,673

Company-owned life insurance
76,371

 
74,880

Other real estate owned (“OREO”)
39,971

 
37,452

Accrued interest receivable
33,416

 
31,974

Mortgage servicing rights, net of accumulated amortization and impairment reserve
12,334

 
11,555

Deferred tax asset, net
1,638

 
9,628

Core deposit intangibles, net of accumulated amortization
6,291

 
7,357

Other assets
59,500

 
68,177

Total assets
$
7,461,152

 
$
7,325,527

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
1,443,773

 
$
1,271,709

Interest bearing
4,591,959

 
4,555,262

Total deposits
6,035,732

 
5,826,971

Securities sold under repurchase agreements
460,805

 
516,243

Accounts payable and accrued expenses
40,386

 
42,248

Accrued interest payable
6,706

 
8,123

Long-term debt
37,170

 
37,200

Other borrowed funds
6

 
7

Subordinated debentures held by subsidiary trusts
82,477

 
123,715

Total liabilities
6,663,282

 
6,554,507

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

 
50,000

Common stock
270,553

 
266,842

Retained earnings
458,506

 
435,144

Accumulated other comprehensive income, net
18,811

 
19,034

Total stockholders’ equity
797,870

 
771,020

Total liabilities and stockholders’ equity
$
7,461,152

 
$
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
September 30,
 
Nine Months Ended
September 30,
 
2012
2011
 
2012
2011
Interest income:
 
 
 
 
 
Interest and fees on loans
$
57,418

$
61,372

 
$
173,412

$
185,238

Interest and dividends on investment securities:
 
 
 
 
 
Taxable
9,194

10,721

 
28,357

31,281

Exempt from federal taxes
1,223

1,188

 
3,667

3,553

Interest on deposits in banks
336

200

 
852

794

Interest on federal funds sold
4

2

 
11

11

Total interest income
68,175

73,483

 
206,299

220,877

Interest expense:
 
 
 
 
 
Interest on deposits
5,414

7,905

 
17,455

26,679

Interest on securities sold under repurchase agreements
144

137

 
452

545

Interest on long-term debt
502

498

 
1,495

1,482

Interest on subordinated debentures held by subsidiary trusts
1,110

1,451

 
4,084

4,354

Total interest expense
7,170

9,991

 
23,486

33,060

Net interest income
61,005

63,492

 
182,813

187,817

Provision for loan losses
9,500

14,000

 
32,750

44,400

Net interest income after provision for loan losses
51,505

49,492

 
150,063

143,417

Non-interest income:
 
 
 
 
 
Income from the origination and sale of loans
11,665

5,512

 
29,469

13,066

Other service charges, commissions and fees
8,774

8,479

 
25,452

23,627

Service charges on deposit accounts
4,395

4,609

 
13,011

13,104

Wealth management revenues
3,557

3,202

 
10,655

9,980

Investment securities gains, net
66

38

 
295

56

Other income
1,725

1,285

 
5,344

5,042

Total non-interest income
30,182

23,125

 
84,226

64,875

Non-interest expense:
 
 
 
 
 
Salaries and wages
23,341

20,801

 
66,545

61,557

Employee benefits
7,447

6,087

 
23,232

20,922

Occupancy, net
3,793

4,180

 
11,818

12,408

Furniture and equipment
3,231

3,018

 
9,558

9,367

Outsourced technology services
2,182

2,235

 
6,627

6,688

OREO expense, net of income
2,612

2,878

 
5,523

6,631

FDIC insurance premiums
1,622

1,631

 
4,818

5,726

Professional fees
1,050

995

 
2,985

2,500

Mortgage servicing rights amortization
879

807

 
2,591

2,285

Mortgage servicing rights impairment (recovery)
55

1,168

 
(761
)
848

Core deposit intangibles amortization
355

362

 
1,066

1,085

Other expenses
10,497

10,879

 
37,801

32,174

Total non-interest expense
57,064

55,041

 
171,803

162,191

Income before income tax expense
24,623

17,576

 
62,486

46,101

Income tax expense
8,468

5,655

 
21,107

14,820

Net income
16,155

11,921

 
41,379

31,281

Preferred stock dividends
863

862

 
2,569

2,559

Net income available to common shareholders
$
15,292

$
11,059

 
$
38,810

$
28,722

 
 
 
 
 
 
Basic earnings per common share
$
0.36

$
0.26

 
$
0.90

$
0.67

Diluted earnings per common share
$
0.35

$
0.26

 
$
0.90

$
0.67

 
 
 
 
 
 
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
September 30,
 
Nine Months Ended
September 30,
 
2012
2011
 
2012
2011
Net income
$
16,155

$
11,921

 
$
41,379

$
31,281

Other comprehensive income (loss), before tax:
 
 
 
 
 
Investment securities available-for sale:
 
 
 
 
 
Change in net unrealized gains (losses) during period
931

2,781

 
(175
)
24,200

Reclassification adjustment for net gains included in income
(66
)
(38
)
 
(295
)
(56
)
Defined benefit post-retirement benefits plans:
 
 
 
 
 
Change in net actuarial loss
35

35

 
102

104

Other comprehensive income (loss), before tax
900

2,778

 
(368
)
24,248

Deferred tax benefit (expense) related to other comprehensive
    income
(354
)
(1,093
)
 
145

(9,541
)
Other comprehensive income (loss), net of tax
546

1,685

 
(223
)
14,707

Comprehensive income, net of tax
$
16,701

$
13,606

 
$
41,156

$
45,988

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
—

 
—

 
41,379

 
—

 
41,379

Other comprehensive income, net of tax
—

 
—

 
—

 
(223
)
 
(223
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
18,333 common shares purchased and retired
—

 
(262
)
 
—

 
—

 
(262
)
23,973 common shares issued
—

 
—

 
—

 
—

 
—

122,912 non-vested common shares issued
—

 
—

 
—

 
—

 
—

4,689 non-vested common shares forfeited
—

 
—

 
—

 
—

 
—

144,346 stock options exercised, net of 102,213 shares tendered in payment of option price and income tax withholding amounts
—

 
1,326

 
—

 
—

 
1,326

Tax benefit of stock-based compensation
—

 
296

 
—

 
—

 
296

Stock-based compensation expense
—

 
2,351

 
—

 
—

 
2,351

Cash dividends declared:
 
 
 
 
 
 
 
 
 
Common ($0.36 per share)
—

 
—

 
(15,448
)
 
—

 
(15,448
)
Preferred (6.75% per share)
—

 
—

 
(2,569
)
 
—

 
(2,569
)
Balance at September 30, 2012
$
50,000

 
$
270,553

 
$
458,506

 
$
18,811

 
$
797,870

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2010
$
50,000

 
$
264,174

 
$
413,253

 
$
9,375

 
$
736,802

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
31,281

 
—

 
31,281

Other comprehensive income, net of tax
—

 
—

 
—

 
14,707

 
14,707

Common stock transactions:
 
 
 
 
 
 
 
 
 
14,464 common shares purchased and retired
—

 
(197
)
 
—

 
—

 
(197
)
15,440 common shares issued
—

 
—

 
—

 
—

 
—

130,904 non-vested common shares issued
—

 
—

 
—

 
—

 
—

20,039 non-vested common shares forfeited
—

 
(101
)
 
—

 
—

 
(101
)
Non-vested liability awards vesting during period
—

 
195

 
—

 
—

 
195

67,197 stock options exercised, net of 114,211 shares tendered in payment of option price and income tax withholding amounts
—

 
272

 
—

 
—

 
272

Tax benefit of stock-based compensation
—

 
204

 
—

 
—

 
204

Stock-based compensation expense
—

 
1,770

 
—

 
—

 
1,770

Cash dividends declared:
 
 
 
 
 
 
 
 
 
Common ($0.3375 per share)
—

 
—

 
(14,419
)
 
—

 
(14,419
)
Preferred (6.75% per share)
—

 
—

 
(2,559
)
 
—

 
(2,559
)
Balance at September 30, 2011
$
50,000

 
$
266,317

 
$
427,556

 
$
24,082

 
$
767,955

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)
 
Nine Months Ended September 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income
$
41,379

 
$
31,281

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
32,750

 
44,400

Net (gain) loss on disposal of property and equipment
(490
)
 
28

Depreciation and amortization
12,770

 
12,997

Net premium amortization on investment securities
7,913

 
7,373

Net gains on investment securities transactions
(295
)
 
(56
)
Net gains on sales of mortgage loans held for sale
(20,648
)
 
(8,730
)
Net gain on sale of OREO
(768
)
 
(533
)
OREO valuation adjustments
3,457

 
5,972

Net impairment (reversal of impairment) of mortgage servicing rights
(761
)
 
848

Net gain on sale of mortgage servicing rights
(19
)
 
—

Deferred income tax expense
8,013

 
400

Net increase in cash surrender value of company-owned life insurance policies
(1,491
)
 
(1,306
)
Stock-based compensation expense
2,351

 
1,648

Tax benefits from stock-based compensation expense
296

 
204

Excess tax benefits from stock-based compensation
(187
)
 
(129
)
Originations of mortgage loans held for sale, net of sales
(2,055
)
 
799

Changes in operating assets and liabilities:
 
 
 
Increase in interest receivable
(1,442
)
 
(1,366
)
Decrease in other assets
7,381

 
11,373

Decrease in accrued interest payable
(1,417
)
 
(4,392
)
Decrease in accounts payable and accrued expenses
(1,800
)
 
(1,404
)
Net cash provided by operating activities
84,937

 
99,407

Cash flows from investing activities:
 
 
 
Purchases of investment securities:
 
 
 
Held-to-maturity
(44,283
)
 
(11,626
)
Available-for-sale
(787,697
)
 
(704,619
)
Proceeds from maturities and pay-downs of investment securities:
 
 
 
Held-to-maturity
9,069

 
8,940

Available-for-sale
817,903

 
611,918

Capital distribution by unconsolidated subsidiary trust
1,238

 
—

Proceeds from sales of mortgage servicing rights
907

 
596

Extensions of credit to customers, net of repayments
(61,721
)
 
40,278

Recoveries of loans charged-off
4,320

 
4,269

Proceeds from sales of OREO
31,800

 
12,247

Capital contribution to unconsolidated equity method investment
(900
)
 
—

Capital expenditures, net of sales
(11,973
)
 
(7,099
)
Net cash used in investing activities
$
(41,337
)
 
$
(45,096
)

7

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2012
 
2011
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
$
208,761

 
$
(74,394
)
Net decrease in repurchase agreements
(55,438
)
 
(144,632
)
Net increase (decrease) in short-term borrowings
(1
)
 
131

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

Repayments of long-term debt
(30
)
 
(33
)
Proceeds from issuance of common stock
1,326

 
272

Excess tax benefits from stock-based compensation
187

 
129

Purchase and retirement of common stock
(262
)
 
(197
)
Dividends paid to common stockholders
(15,448
)
 
(14,419
)
Dividends paid to preferred stockholders
(2,569
)
 
(2,559
)
Net cash provided by (used in) financing activities
95,288

 
(235,702
)
Net increase (decrease) in cash and cash equivalents
138,888

 
(181,391
)
Cash and cash equivalents at beginning of period
472,447

 
685,618

Cash and cash equivalents at end of period
$
611,335

 
$
504,227

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

 
$
12,420

Cash paid during the period for interest expense
$
24,903

 
$
37,452

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 September 30, 2012 and December 31, 2011, the results of operations for each of the three and nine month periods ended September 30, 2012 and 2011 and cash flows for the nine months ended September 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 September 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 nine months ended September 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:
September 30, 2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
Obligations of U.S. government agencies
$
914,676

$
4,648

$
(39
)
$
919,285

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
1,030,703

29,824

(1,266
)
1,059,261

Private mortgage-backed securities
598

11

(1
)
608

Total
$
1,945,977

$
34,483

$
(1,306
)
$
1,979,154

September 30, 2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to Maturity:
 
 
 
 
State, county and municipal securities
$
181,792

$
11,489

$
(47
)
$
193,234

Corporate securities
5,658

63

—

5,721

Other securities
123

—

—

123

Total
$
187,573

$
11,552

$
(47
)
$
199,078


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)



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


Gross realized gains and losses from the disposition of investment securities are summarized in the following table:
    
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
2011
 
2012
2011
Gross realized gains
$
66

$
38

 
$
298

$
56

Gross realized losses
—

—

 
(3
)
—

 
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 September 30, 2012 and December 31, 2011
 
Less than 12 Months
 
12 Months or More
 
Total
September 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
$
31,855

$
(39
)
 
$
—

$
—

 
$
31,855

$
(39
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
124,136

(1,266
)
 
—

—

 
124,136

(1,266
)
Private mortgage-backed securities
—

—

 
154

(1
)
 
154

(1
)
Total
$
155,991

$
(1,305
)
 
$
154

$
(1
)
 
$
156,145

$
(1,306
)
 
Less than 12 Months
 
12 Months or More
 
Total
September 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
$
4,961

$
(39
)
 
$
696

$
(8
)
 
$
5,657

$
(47
)


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)


 
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 30 and 24 individual investment securities that were in an unrealized loss position as of September 30, 2012 and December 31, 2011, respectively. Unrealized losses as of September 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 not likely that the Company will have to sell any such securities before a recovery in cost. No impairment losses were recorded during the three or nine months ended September 30, 2012 and 2011.

Maturities of investment securities at September 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
September 30, 2012
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Within one year
$
432,052

$
440,039

 
$
5,891

$
5,822

After one year but within five years
1,131,727

1,147,641

 
33,837

34,853

After five years but within ten years
227,503

232,493

 
79,891

84,811

After ten years
154,695

158,981

 
67,831

73,469

Total
1,945,977

1,979,154

 
187,450

198,955

Investments with no stated maturity
—

—

 
123

123

Total
$
1,945,977

$
1,979,154

 
$
187,573

$
199,078


As of September 30, 2012, the Company had investment securities callable within one year with amortized costs and estimated fair values of $490,246 and $491,469, respectively, including callable structured notes with amortized costs and estimated fair values of $120,273 and $120,519, 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.


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)


(3)
Loans

The following table presents loans by class as of the dates indicated:
 
September 30,
2012
 
December 31,
2011
Real estate loans:
 
 
 
Commercial
$
1,513,784

 
$
1,553,155

Construction:
 
 
 
Land acquisition & development
233,082

 
278,613

Residential
50,895

 
61,106

Commercial
56,097

 
61,054

Total construction loans
340,074

 
400,773

Residential
639,235

 
571,943

Agricultural
175,395

 
175,302

Total real estate loans
2,668,488

 
2,701,173

Consumer:
 
 
 
Indirect consumer
431,449

 
407,651

Other consumer
139,984

 
147,487

Credit card
58,324

 
60,933

Total consumer loans
629,757

 
616,071

Commercial
672,100

 
693,261

Agricultural
135,467

 
119,710

Other, including overdrafts
1,359

 
2,813

Loans held for investment
4,107,171

 
4,133,028

Mortgage loans held for sale
72,880

 
53,521

Total loans
$
4,180,051

 
$
4,186,549

    

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)



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 September 30, 2012
Past Due
Past Due
Past Due
Past Due
Loans
Loans
Loans
Real estate
 
 
 
 
 
 
 
Commercial
$
15,120

$
3,061

$
643

$
18,824

$
1,443,893

$
51,067

$
1,513,784

Construction:
 
 
 
 
 
 

 

Land acquisition & development
3,518

326

—

3,844

199,991

29,247

233,082

Residential
1,049

—

—

1,049

47,077

2,769

50,895

Commercial
1,875

—

—

1,875

43,703

10,519

56,097

Total construction loans
6,442

326

—

6,768

290,771

42,535

340,074

Residential
3,674

1,064

2,382

7,120

621,601

10,514

639,235

Agricultural
6,419

22

217

6,658

163,943

4,794

175,395

Total real estate loans
31,655

4,473

3,242

39,370

2,520,208

108,910

2,668,488

Consumer:
 
 
 
 


 
 

Indirect consumer
2,792

385

47

3,224

427,774

451

431,449

Other consumer
822

129

24

975

137,904

1,105

139,984

Credit card
368

280

528

1,176

57,125

23

58,324

Total consumer loans
3,982

794

599

5,375

622,803

1,579

629,757

Commercial
5,185

1,808

823

7,816

652,420

11,864

672,100

Agricultural
234

146

—

380

134,509

578

135,467

Other, including overdrafts






—

1,359

—

1,359

Loans held for investment
41,056

7,221

4,664

52,941

3,931,299

122,931

4,107,171

Mortgage loans originated for sale
—

—

—

—

72,880

—

72,880

Total loans
$
41,056

$
7,221

$
4,664

$
52,941

$
4,004,179

$
122,931

$
4,180,051




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)


 
 
 
 
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 $456 and $819 for the three months ended September 30, 2012 and 2011, respectively, and approximated $1,701 and $2,283 for the nine months ended September 30, 2012 and 2011, respectively.
        

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 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 September 30, 2012
Unpaid
Total
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Real estate:
 
 
 
 
 
Commercial
$
88,185

$
61,509

$
17,143

$
78,652

$
4,453

Construction:
 
 
 
 
 
Land acquisition & development
43,595

19,660

12,558

32,218

4,137

Residential
3,333

1,257

1,744

3,001

276

Commercial
13,071

1,379

9,140

10,519

588

Total construction loans
59,999

22,296

23,442

45,738

5,001

Residential
12,044

5,570

5,070

10,640

1,736

Agricultural
5,929

3,293

2,137

5,430

158

Total real estate loans
166,157

92,668

47,792

140,460

11,348

Commercial
13,824

8,338

5,070

13,408

2,924

Agricultural
642

178

412

590

412

Total
$
180,623

$
101,184

$
53,274

$
154,458

$
14,684

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





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)


The following tables present the average recorded investment in and income recognized on impaired loans for the periods indicated:
 
Three Months Ended September 30,
 
2012
 
2011
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
81,313

 
$
366

 
86,347

 
$
188

Construction:
 
 
 
 
 
 
 
Land acquisition & development
36,206

 
30

 
66,470

 
3

Residential
3,151

 
—

 
17,627

 
18

Commercial
10,817

 
—

 
23,441

 
—

Total construction loans
50,174

 
30

 
107,538

 
21

Residential
12,416

 
1

 
22,972

 
160

Agricultural
5,173

 
9

 
7,694

 
56

Total real estate loans
149,076

 
406

 
224,551

 
425

Commercial
15,992

 
21

 
33,634

 
31

Agricultural
748

 
4

 
885

 
—

Total
$
165,816

 
$
431

 
259,070

 
$
456

 
Nine Months Ended September 30,
 
2012
 
2011
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
82,689

 
$
1,037

 
$
83,479

 
$
390

Construction:
 
 
 
 
 
 
 
Land acquisition & development
49,528

 
76

 
54,494

 
90

Residential
8,591

 
—

 
17,248

 
55

Commercial
18,601

 
—

 
20,371

 
—

Total construction loans
76,720

 
76

 
92,113

 
145

Residential
14,667

 
22

 
19,101

 
257

Agricultural
7,090

 
41

 
6,392

 
98

Total real estate loans
181,166

 
1,176

 
201,085

 
890

Commercial
16,129

 
65

 
32,634

 
96

Agricultural
1,039

 
19

 
925

 
—

Total
$
198,334

 
$
1,260

 
$
234,644

 
$
986


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 $452 and $812 for the three months ended September 30, 2012 and 2011, respectively, and approximately $1,688 and $2,263 for the nine months ended September 30, 2012 and 2011, respectively.
    

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)


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 $90,410 as of September 30, 2012, of which $54,982 were included in non-accrual loans and $35,428 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 nine months ended September 30, 2012:
 
 
 
 
Type of Concession
 
Three Months Ended September 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
 
2

 
$
—

$
432

$
628

$
—

$
1,060

Construction:
 
 
 
 
 
 
 
 
Residential
 
1

 
—

—

233

—

233

Total construction loans
 
1

 
—

—

233

—

233

Agricultural
 
1

 
—

154

—

—

154

Total real estate loans
 
4

 
—

586

861

—

1,447

Commercial
 
1

 
—

—

—

35

35

Total loans restructured during period
 
5

 
$
—

$
586

$
861

$
35

$
1,482

    

17

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
Nine Months Ended September 30, 2012
 
 
Interest only period
Extension of terms or maturity
Interest rate adjustment
Other (1)
Real estate:
 
 
 
 
 
 
 
 
Commercial
 
14
 
$
—

$
432