FIBK-2013.06.30-10Q

 
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, 2013
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, 2013 – Class A common stock
 
18,952,123

 
 
June 30, 2013 – Class B common stock
 
24,883,758

 
 



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 - June 30, 2013 and December 31, 2012
3

 
 
 
 
Consolidated Statements of Income - Three and Six Months Ended June 30, 2013 and 2012
4

 
 
 
 
Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2013 and 2012
5

 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity - Six Months Ended June 30, 2013 and 2012
6

 
 
 
 
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2013 and 2012
7

 
 
 
 
9

 
 
 
Item 2.
31

 
 
 
Item 3.
47

 
 
 
Item 4.
47

 
 
Part II.
 
 
 
 
Item 1.
47

 
 
 
Item 1A .
47

 
 
 
Item  2.
47

 
 
 
Item 3.
48

 
 
 
Item 4.
Mine Safety Disclosures
49

 
 
 
Item 5.
48

 
 
 
Item 6.
49

 
 
50








2

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
June 30, 2013
 
December 31, 2012
Assets
 
 
 
Cash and due from banks
$
128,452

 
$
177,978

Federal funds sold
786

 
730

Interest bearing deposits in banks
238,979

 
622,624

Total cash and cash equivalents
368,217

 
801,332

Investment securities:
 
 
 
Available-for-sale
1,923,216

 
1,995,258

Held-to-maturity (estimated fair values of $219,028 and $218,933 at June 30, 2013 and December 31, 2012, respectively)
215,323

 
208,223

Total investment securities
2,138,539

 
2,203,481

Loans held for investment
4,223,078

 
4,157,470

Mortgage loans held for sale
74,286

 
66,442

Total loans
4,297,364

 
4,223,912

Less allowance for loan losses
98,528

 
100,511

Net loans
4,198,836

 
4,123,401

Premises and equipment, net of accumulated depreciation
181,940

 
187,565

Goodwill
183,673

 
183,673

Company-owned life insurance
77,602

 
76,729

Other real estate owned (“OREO”)
22,782

 
32,571

Accrued interest receivable
29,272

 
28,869

Mortgage servicing rights, net of accumulated amortization and impairment reserve
13,304

 
12,653

Deferred tax asset, net
15,397

 
2,597

Core deposit intangibles, net of accumulated amortization
5,228

 
5,937

Other assets
56,718

 
62,953

Total assets
$
7,291,508

 
$
7,721,761

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
1,393,732

 
$
1,495,309

Interest bearing
4,536,600

 
4,745,102

Total deposits
5,930,332

 
6,240,411

Securities sold under repurchase agreements
421,314

 
505,785

Accounts payable and accrued expenses
44,054

 
48,208

Accrued interest payable
6,236

 
6,502

Long-term debt
37,139

 
37,160

Other borrowed funds
2

 
32

Preferred stock pending redemption
—

 
50,000

Subordinated debentures held by subsidiary trusts
82,477

 
82,477

Total liabilities
6,521,554

 
6,970,575

Stockholders’ equity:
 
 
 
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued and outstanding as of June 30, 2013 and 5,000 shares issued and outstanding as of December 31, 2012
—

 
—

Common stock
279,232

 
271,335

Retained earnings
499,761

 
463,860

Accumulated other comprehensive income (loss), net
(9,039
)
 
15,991

Total stockholders’ equity
769,954

 
751,186

Total liabilities and stockholders’ equity
$
7,291,508

 
$
7,721,761

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,
 
2013
 
2012
 
2013
 
2012
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
54,853

 
$
58,084

 
$
110,346

 
$
115,994

Interest and dividends on investment securities:
 
 
 
 
 
 
 
Taxable
7,671

 
9,458

 
15,717

 
19,163

Exempt from federal taxes
1,215

 
1,240

 
2,441

 
2,444

Interest on deposits in banks
212

 
279

 
510

 
516

Interest on federal funds sold
5

 
6

 
9

 
7

Total interest income
63,956

 
69,067

 
129,023

 
138,124

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
4,038

 
5,779

 
8,393

 
12,041

Interest on securities sold under repurchase agreements
74

 
152

 
174

 
308

Interest on long-term debt
483

 
495

 
963

 
993

Interest on preferred stock pending redemption
—

 
—

 
159

 
—

Interest on subordinated debentures held by subsidiary trusts
601

 
1,467

 
1,297

 
2,974

Total interest expense
5,196

 
7,893

 
10,986

 
16,316

Net interest income
58,760

 
61,174

 
118,037

 
121,808

Provision for loan losses
375

 
12,000

 
875

 
23,250

Net interest income after provision for loan losses
58,385

 
49,174

 
117,162

 
98,558

Non-interest income:
 
 
 
 
 
 
 
Income from the origination and sale of loans
10,043

 
9,420

 
20,718

 
17,804

Other service charges, commissions and fees
8,977

 
8,254

 
17,233

 
16,678

Service charges on deposit accounts
4,323

 
4,455

 
8,391

 
8,616

Wealth management revenues
4,020

 
3,815

 
8,154

 
7,098

Investment securities gains (losses), net
(12
)
 
198

 
(4
)
 
229

Other income
2,228

 
1,520

 
3,906

 
3,619

Total non-interest income
29,579

 
27,662

 
58,398

 
54,044

Non-interest expense:
 
 
 
 
 
 
 
Salaries and wages
23,470

 
21,640

 
46,875

 
43,204

Employee benefits
7,546

 
6,819

 
15,721

 
15,785

Occupancy, net
4,063

 
4,037

 
8,089

 
8,025

Furniture and equipment
3,163

 
3,189

 
6,215

 
6,327

Outsourced technology services
2,195

 
2,179

 
4,352

 
4,445

OREO expense, net of income
(915
)
 
1,806

 
981

 
2,911

FDIC insurance premiums
1,356

 
1,601

 
2,733

 
3,196

Professional fees
1,136

 
1,002

 
2,263

 
1,935

Mortgage servicing rights amortization
719

 
817

 
1,558

 
1,712

Mortgage servicing rights impairment (recovery)
(11
)
 
52

 
(59
)
 
(816
)
Core deposit intangibles amortization
355

 
355

 
709

 
710

Other expenses
11,943

 
13,802

 
22,268

 
27,305

Total non-interest expense
55,020

 
57,299

 
111,705

 
114,739

Income before income tax expense
32,944

 
19,537

 
63,855

 
37,863

Income tax expense
11,439

 
6,527

 
22,306

 
12,639

Net income
21,505

 
13,010

 
41,549

 
25,224

Preferred stock dividends
—

 
853

 
—

 
1,706

Net income available to common shareholders
$
21,505

 
$
12,157

 
$
41,549

 
$
23,518

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.49

 
$
0.28

 
$
0.96

 
$
0.55

Diluted earnings per common share
$
0.49

 
$
0.28

 
$
0.95

 
$
0.55

 
 
 
 
 
 
 
 
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,
 
2013
2012
 
2013
2012
Net income
$
21,505

$
13,010

 
$
41,549

$
25,224

Other comprehensive loss, before tax:
 
 
 
 
 
Investment securities available-for sale:
 
 
 
 
 
Change in net unrealized gains/losses during period
(35,625
)
(1,864
)
 
(41,342
)
(1,107
)
Reclassification adjustment for net losses (gains) included in income
12

(198
)
 
4

(229
)
Defined benefit post-retirement benefits plans:
 
 
 
 
 
Change in net actuarial loss
35

35

 
70

68

Other comprehensive loss, before tax
(35,578
)
(2,027
)
 
(41,268
)
(1,268
)
Deferred tax benefit related to other comprehensive loss
13,999

797

 
16,238

499

Other comprehensive loss, net of tax
(21,579
)
(1,230
)
 
(25,030
)
(769
)
Comprehensive income (loss), net of tax
$
(74
)
$
11,780

 
$
16,519

$
24,455

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 (loss)
 
Total
stockholders’
equity
Balance at December 31, 2012
$
—

 
$
271,335

 
$
463,860

 
$
15,991

 
$
751,186

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
41,549

 
—

 
41,549

Other comprehensive loss, net of tax benefit
—

 
—

 
—

 
(25,030
)
 
(25,030
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
25,677 common shares purchased and retired
—

 
(448
)
 
—

 
—

 
(448
)
26,096 common shares issued
—

 
—

 
—

 
—

 
—

108,873 non-vested common shares issued
—

 
—

 
—

 
—

 
—

10,138 non-vested common shares forfeited
—

 
—

 
—

 
—

 
—

446,404 stock options exercised, net of 150,290 shares tendered in payment of option price and income tax withholding amounts
—

 
5,799

 
—

 
—

 
5,799

Tax benefit of stock-based compensation
—

 
524

 
—

 
—

 
524

Stock-based compensation expense
—

 
2,022

 
—

 
—

 
2,022

Cash dividends declared:
 
 
 
 
 
 
 
 
 
Common ($0.13 per share)
—

 
—

 
(5,648
)
 
—

 
(5,648
)
Balance at June 30, 2013
$
—

 
$
279,232

 
$
499,761

 
$
(9,039
)
 
$
769,954

 
 
 
 
 
 
 
 
 
 
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 loss, net of tax benefit
—

 
—

 
—

 
(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

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,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
41,549

 
$
25,224

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
875

 
23,250

Net gain on disposal of property and equipment
(16
)
 
(501
)
Depreciation and amortization
8,298

 
8,568

Net premium amortization on investment securities
7,902

 
5,188

Net loss (gain) on investment securities transactions
4

 
(229
)
Net gain on sale of mortgage loans held for sale
(14,984
)
 
(12,423
)
Net loss (gain) on sale of OREO
(2,671
)
 
6

Write-down of OREO and other assets pending disposal
3,180

 
1,217

Net reversal of impairment of mortgage servicing rights
(59
)
 
(816
)
Net gain on sale of mortgage servicing rights
—

 
(19
)
Deferred income tax expense
3,456

 
5,030

Net increase in cash surrender value of company-owned life insurance policies
(873
)
 
(969
)
Stock-based compensation expense
2,022

 
1,724

Tax benefits from stock-based compensation expense
524

 
126

Excess tax benefits from stock-based compensation
(468
)
 
(108
)
Originations of mortgage loans held for sale, net of sales
4,991

 
(12,265
)
Changes in operating assets and liabilities:
 
 
 
Decrease (increase) in interest receivable
(403
)
 
1,038

Decrease in other assets
7,004

 
1,754

Increase (decrease) in accrued interest payable
(266
)
 
92

Decrease in accounts payable and accrued expenses
(4,112
)
 
(8,659
)
Net cash provided by operating activities
55,953

 
37,228

Cash flows from investing activities:
 
 
 
Purchases of investment securities:
 
 
 
Held-to-maturity
(13,755
)
 
(19,104
)
Available-for-sale
(430,395
)
 
(439,614
)
Proceeds from maturities and pay-downs of investment securities:
 
 
 
Held-to-maturity
5,807

 
4,739

Available-for-sale
453,678

 
536,527

Capital distribution by unconsolidated subsidiary trust
—

 
1,238

Proceeds from sales of mortgage servicing rights
470

 
907

Extensions of credit to customers, net of repayments
(84,078
)
 
(29,736
)
Recoveries of loans charged-off
7,057

 
2,795

Proceeds from sales of OREO
18,464

 
15,674

Capital expenditures, net of sales
(1,886
)
 
(8,467
)
Net cash provided by (used in) investing activities
$
(44,638
)
 
$
64,959

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2013
 
2012
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
$
(310,079
)
 
$
74,408

Net decrease in repurchase agreements
(84,471
)
 
(60,250
)
Net decrease in other borrowed funds
(30
)
 
—

Repayment of junior subordinated debentures held by subsidiary trusts
—

 
(41,238
)
Repayments of long-term debt
(21
)
 
(19
)
Redemption of preferred stock
(50,000
)
 


Proceeds from issuance of common stock
5,799

 
1,263

Excess tax benefits from stock-based compensation
468

 
108

Purchase and retirement of common stock
(448
)
 
(257
)
Dividends paid to common stockholders
(5,648
)
 
(10,290
)
Dividends paid to preferred stockholders
—

 
(1,706
)
Net cash used in financing activities
(444,430
)
 
(37,981
)
Net increase (decrease) in cash and cash equivalents
(433,115
)
 
64,206

Cash and cash equivalents at beginning of period
801,332

 
472,447

Cash and cash equivalents at end of period
$
368,217

 
$
536,653

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
20,838

 
$
12,740

Cash paid during the period for interest expense
11,252

 
16,224

See accompanying notes to unaudited consolidated financial statements.


7

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, 2013 and December 31, 2012, and the results of operations for each of the three and six month periods ended June 30, 2013 and 2012 and cash flows for the six months ended June 30, 2013 and 2012, in conformity with U.S. generally accepted accounting principles. The balance sheet information at December 31, 2012 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, 2013 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, 2012. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

(2)
Investment Securities

The amortized cost and approximate fair values of investment securities are summarized as follows:
June 30, 2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
Obligations of U.S. government agencies
$
744,215

$
1,158

$
(11,559
)
$
733,814

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
1,190,975

15,783

(17,819
)
1,188,939

Private mortgage-backed securities
457

9

(3
)
463

Total
$
1,935,647

$
16,950

$
(29,381
)
$
1,923,216

June 30, 2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to Maturity:
 
 
 
 
State, county and municipal securities
$
197,193

$
5,730

$
(1,990
)
$
200,933

Corporate securities
18,130

64

(99
)
18,095

Total
$
215,323

$
5,794

$
(2,089
)
$
219,028


December 31, 2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
Obligations of U.S. government agencies
$
751,501

$
3,518

$
(163
)
$
754,856

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
1,214,377

27,000

(1,526
)
1,239,851

Private mortgage-backed securities
539

13

(1
)
551

Total
$
1,966,417

$
30,531

$
(1,690
)
$
1,995,258


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)


December 31, 2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to Maturity:
 
 
 
 
State, county and municipal securities
$
192,875

$
10,835

$
(176
)
$
203,534

Corporate securities
14,975

64

(13
)
15,026

Other securities
373

—

—

373

Total
$
208,223

$
10,899

$
(189
)
$
218,933


Gross realized gains and losses from the disposition of investment securities are summarized in the following table:
    
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Gross realized gains
$
4

 
$
201

 
$
12

 
$
232

Gross realized losses
16

 
3

 
16

 
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 June 30, 2013 and December 31, 2012
 
Less than 12 Months
 
12 Months or More
 
Total
June 30, 2013
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Available-for-Sale:
 
 
 
 
 
 
 
 
Obligations of U.S. government agencies
$
442,307

$
(11,559
)
 
$
—

$
—

 
$
442,307

$
(11,559
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
742,630

(17,819
)
 
—

—

 
742,630

(17,819
)
Private mortgage-backed securities
—

—

 
112

(3
)
 
112

(3
)
Total
$
1,184,937

$
(29,378
)
 
$
112

$
(3
)
 
$
1,185,049

$
(29,381
)
 
Less than 12 Months
 
12 Months or More
 
Total
June 30, 2013
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Held-to-Maturity:
 
 
 
 
 
 
 
 
State, county and municipal securities
$
52,225

$
(1,963
)
 
$
504

$
(27
)
 
$
52,729

$
(1,990
)
Corporate securities
12,399

(99
)
 
—

—

 
12,399

(99
)
Total
$
64,624

$
(2,062
)
 
$
504

$
(27
)
 
$
65,128

$
(2,089
)


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)



 
Less than 12 Months
 
12 Months or More
 
Total
December 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
$
93,982

$
(163
)
 
$
—

$
—

 
$
93,982

$
(163
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
250,198

(1,526
)
 
—

—

 
250,198

(1,526
)
Private mortgage-backed securities
—

—

 
137

(1
)
 
137

(1
)
Total
$
344,180

$
(1,689
)
 
$
137

$
(1
)
 
$
344,317

$
(1,690
)
 
Less than 12 Months
 
12 Months or More
 
Total
December 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
$
19,389

$
(168
)
 
$
557

$
(8
)
 
$
19,946

$
(176
)
Corporate securities
9,312

(13
)
 
—

—

 
9,312

(13
)
Total
$
28,701

$
(181
)
 
$
557

$
(8
)
 
$
29,258

$
(189
)
    
The investment portfolio is evaluated quarterly for other-than-temporary declines in the market value of each individual investment security. The Company had 212 and 69 individual investment securities that were in an unrealized loss position as of June 30, 2013 and December 31, 2012, respectively. Unrealized losses as of June 30, 2013 and December 31, 2012 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 six months ended June 30, 2013 and 2012.

Maturities of investment securities at June 30, 2013 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, 2013
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Within one year
$
328,967

$
328,602

 
$
4,898

$
4,935

After one year but within five years
944,490

940,392

 
57,519

58,058

After five years but within ten years
602,366

594,500

 
88,943

90,890

After ten years
59,824

59,722

 
63,963

65,145

Total
$
1,935,647

$
1,923,216

 
$
215,323

$
219,028


As of June 30, 2013, the Company had investment securities callable within one year with amortized costs and estimated fair values of $403,826 and $395,608, respectively, including callable structured notes with amortized costs and estimated fair values of $117,486 and $115,366, 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.


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)


(3)
Loans

The following table presents loans by class as of the dates indicated:
 
June 30, 2013
 
December 31, 2012
Real estate loans:
 
 
 
Commercial
$
1,447,145

 
$
1,497,272

Construction:
 
 
 
Land acquisition & development
210,761

 
220,196

Residential
60,883

 
49,274

Commercial
65,567

 
65,059

Total construction loans
337,211

 
334,529

Residential
804,200

 
708,339

Agricultural
176,799

 
177,244

Total real estate loans
2,765,355

 
2,717,384

Consumer:
 
 
 
Indirect consumer
457,151

 
438,245

Other consumer
136,459

 
137,743

Credit card
59,334

 
60,806

Total consumer loans
652,944

 
636,794

Commercial
680,751

 
688,753

Agricultural
121,530

 
113,627

Other, including overdrafts
2,498

 
912

Loans held for investment
4,223,078

 
4,157,470

Mortgage loans held for sale
74,286

 
66,442

Total loans
$
4,297,364

 
$
4,223,912

    

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 dates indicated:
 
 
 
 
Total Loans
 
 
 
 
30 - 59
60 - 89
> 90
30 or More
 
 
 
 
Days
Days
Days
Days
Current
Non-accrual
Total
As of June 30, 2013
Past Due
Past Due
Past Due
Past Due
Loans
Loans
Loans
Real estate
 
 
 
 
 
 
 
Commercial
$
11,794

$
1,766

$
—

$
13,560

$
1,387,523

$
46,062

$
1,447,145

Construction:
 
 
 
 
 
 

 

Land acquisition & development
4,265

974

61

5,300

189,173

16,288

210,761

Residential
1,112

—

—

1,112

58,245

1,526

60,883

Commercial
—

—

—

—

59,375

6,192

65,567

Total construction loans
5,377

974

61

6,412

306,793

24,006

337,211

Residential
2,139

1,033

701

3,873

792,782

7,545

804,200

Agricultural
350

—

83

433

166,677

9,689

176,799

Total real estate loans
19,660

3,773

845

24,278

2,653,775

87,302

2,765,355

Consumer:
 
 
 
 
 
 
 

Indirect consumer
2,006

416

38

2,460

454,395

296

457,151

Other consumer
867

63

14

944

134,975

540

136,459

Credit card
301

275

487

1,063

58,250

21

59,334

Total consumer loans
3,174

754

539

4,467

647,620

857

652,944

Commercial
8,235

1,523

361

10,119

655,189

15,443

680,751

Agricultural
1,264

1,025

—

2,289

119,114

127

121,530

Other, including overdrafts


—

—

—

2,498

—

2,498

Loans held for investment
32,333

7,075

1,745

41,153

4,078,196

103,729

4,223,078

Mortgage loans originated for sale
—

—

—

—

74,286

—

74,286

Total loans
$
32,333

$
7,075

$
1,745

$
41,153

$
4,152,482

$
103,729

$
4,297,364




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, 2012
Past Due
Past Due
Past Due
Past Due
Loans
Loans
Loans
Real estate
 
 
 
 
 
 
 
Commercial
$
5,449

$
3,163

$
2

$
8,614

$
1,438,142

$
50,516

$
1,497,272

Construction:
 
 
 
 
 
 

 

Land acquisition & development
3,371

2,121

318

5,810

195,077

19,309

220,196

Residential
283

—

—

283

46,816

2,175

49,274

Commercial
—

—

—

—

56,933

8,126

65,059

Total construction loans
3,654

2,121

318

6,093

298,826

29,610

334,529

Residential
3,896

969

1,085

5,950

691,963

10,426

708,339

Agricultural
1,187

—

218

1,405

171,009

4,830

177,244

Total real estate loans
14,186

6,253

1,623

22,062

2,599,940

95,382

2,717,384

Consumer:
 
 
 
 
 
 
 

Indirect consumer
3,218

512

32

3,762

434,200

283

438,245

Other consumer
1,044

104

31

1,179

135,574

990

137,743

Credit card
409

278

392

1,079

59,704

23

60,806

Total consumer loans
4,671

894

455

6,020

629,478

1,296

636,794

Commercial
5,463

1,064

216

6,743

671,414

10,596

688,753

Agricultural
1,710

361

—

2,071

111,031

525

113,627

Other, including overdrafts
—

—

—

—

912

—

912

Loans held for investment
26,030

8,572

2,294

36,896

4,012,775

107,799

4,157,470

Mortgage loans originated for sale
—

—

—

—

66,442

—

66,442

Total loans
$
26,030

$
8,572

$
2,294

$
36,896

$
4,079,217

$
107,799

$
4,223,912


If interest on non-accrual loans had been accrued, such income would have been approximately $318 and $584 for the three months ended June 30, 2013 and 2012, respectively and approximately $655 and $1,272 for the six months ended June 30, 2013 and 2012, 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, 2013
Unpaid
Total
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Real estate:
 
 
 
 
 
Commercial
$
65,957

$
32,854

$
31,688

$
64,542

$
5,498

Construction:
 
 
 
 
 
Land acquisition & development
21,554

10,526

6,755

17,281

2,549

Residential
2,227

1,526

—

1,526

—

Commercial
8,374

5,944

248

6,192

63

Total construction loans
32,155

17,996

7,003

24,999

2,612

Residential
10,554

2,448

5,331

7,779

1,253

Agricultural
10,017

7,363

2,558

9,921

904

Total real estate loans
118,683

60,661

46,580

107,241

10,267

Commercial
17,776

6,792

9,918

16,710

5,205

Agricultural
191

117

22

139

22

Total
$
136,650

$
67,570

$
56,520

$
124,090

$
15,494

As of December 31, 2012
Unpaid
Total
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Real estate:
 
 
 
 
 
Commercial
$
84,300

$
39,049

$
34,774

$
73,823

$
4,112

Construction:
 
 
 
 
 
Land acquisition & development
28,558

15,891

7,173

23,064

1,457

Residential
3,018

1,976

710

2,686

251

Commercial
10,447

7,785

340

8,125

69

Total construction loans
42,023

25,652

8,223

33,875

1,777

Residential
13,271

6,152

4,495

10,647

1,677

Agricultural
5,559

1,834

3,227

5,061

784

Total real estate loans
145,153

72,687

50,719

123,406

8,350

Commercial
12,770

9,036

3,206

12,242

1,919

Agricultural
589

509

28

537

28

Total
$
158,512

$
82,232

$
53,953

$
136,185

$
10,297





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,
 
2013
 
2012
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
67,605

 
$
272

 
$
87,135

 
$
320

Construction:
 
 
 
 
 
 
 
Land acquisition & development
19,007

 
15

 
51,949

 
30

Residential
1,569

 
—

 
3,637

 
—

Commercial
6,346

 
—

 
20,807

 
—

Total construction loans
26,922

 
15

 
76,393

 
30

Residential
8,311

 
5

 
14,726

 
12

Agricultural
8,255

 
4

 
6,816

 
—

Total real estate loans
111,093

 
296

 
185,070

 
362

Commercial
16,087

 
18

 
14,355

 
22

Agricultural
373

 
4

 
1,378

 
11

Total
$
127,553

 
$
318

 
$
200,803

 
$
395


 
Six Months Ended June 30,
 
2013
 
2012
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
67,192

 
$
610

 
$
85,701

 
$
671

Construction:
 
 
 
 
 
 
 
Land acquisition & development
20,123

 
456

 
56,924

 
46

Residential
2,040

 
—

 
8,810

 
—

Commercial
7,118

 
—

 
22,536

 
—

Total construction loans
29,281

 
456

 
88,270

 
46

Residential
9,429

 
9

 
16,251

 
21

Agricultural
6,611

 
8

 
10,039

 
32

Total real estate loans
112,513

 
1,083

 
200,261

 
770

Commercial
14,484

 
36

 
16,195

 
44

Agricultural
502

 
8

 
1,246

 
15

Total
$
127,499

 
$
1,127

 
$
217,702

 
$
829


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 $406 and $580 for the three months ended June 30, 2013 and 2012, respectively, and approximately $818 and $1,263 for the six months ended June 30, 2013 and 2012, 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.

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)


    
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 $67,939 as of June 30, 2013, of which $44,533 were included in non-accrual loans and $23,406 were on accrual status. The Company had loans renegotiated in troubled debt restructurings of $76,597 as of December 31, 2012, of which $44,665 were included in non-accrual loans and $31,932 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, 2013:    
 
 
Number of Notes
 
Type of Concession
Principal Balance at Restructure Date
Three Months Ended June 30, 2013
 
 
Interest only period
Extension of terms or maturity
Interest rate adjustment
Other (1)
Real estate:
 
 
 
 
 
 
 
 
Construction:
 
 
 
 
 
 
 
 
Land acquisition & development
 
1

 
$
—