FIBK-2013.09.30-10Q

 
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, 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:
 
September 30, 2013 – Class A common stock
 
19,391,018

 
 
September 30, 2013 – Class B common stock
 
24,698,944

 
 



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, 2013 and December 31, 2012
3

 
 
 
 
Consolidated Statements of Income - Three and Nine Months Ended September 30, 2013 and 2012
4

 
 
 
 
Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2013 and 2012
5

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

 
 
 
 
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2013 and 2012
7

 
 
 
 
9

 
 
 
Item 2.
32

 
 
 
Item 3.
50

 
 
 
Item 4.
50

 
 
Part II.
 
 
 
 
Item 1.
50

 
 
 
Item 1A .
50

 
 
 
Item  2.
50

 
 
 
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,
2013
 
December 31,
2012
Assets
 
 
 
Cash and due from banks
$
150,085

 
$
177,978

Federal funds sold
811

 
730

Interest bearing deposits in banks
391,447

 
622,624

Total cash and cash equivalents
542,343

 
801,332

Investment securities:
 
 
 
Available-for-sale
1,939,806

 
1,995,258

Held-to-maturity (estimated fair values of $208,482 and $218,933 at September 30, 2013 and December 31, 2012, respectively)
205,277

 
208,223

Total investment securities
2,145,083

 
2,203,481

Loans held for investment
4,279,959

 
4,157,470

Mortgage loans held for sale
52,133

 
66,442

Total loans
4,332,092

 
4,223,912

Less allowance for loan losses
92,990

 
100,511

Net loans
4,239,102

 
4,123,401

Premises and equipment, net of accumulated depreciation
179,785

 
187,565

Goodwill
183,673

 
183,673

Company-owned life insurance
76,701

 
76,729

Other real estate owned (“OREO”)
18,537

 
32,571

Accrued interest receivable
30,384

 
28,869

Mortgage servicing rights, net of accumulated amortization and impairment reserve
13,518

 
12,653

Deferred tax asset, net
11,857

 
2,597

Core deposit intangibles, net of accumulated amortization
4,873

 
5,937

Other assets
54,244

 
62,953

Total assets
$
7,500,100

 
$
7,721,761

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
1,503,969

 
$
1,495,309

Interest bearing
4,604,656

 
4,745,102

Total deposits
6,108,625

 
6,240,411

Securities sold under repurchase agreements
428,110

 
505,785

Accounts payable and accrued expenses
45,523

 
48,208

Accrued interest payable
5,367

 
6,502

Long-term debt
37,128

 
37,160

Other borrowed funds
10

 
32

Preferred stock pending redemption
—

 
50,000

Subordinated debentures held by subsidiary trusts
82,477

 
82,477

Total liabilities
6,707,240

 
6,970,575

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

 
—

Common stock
283,352

 
271,335

Retained earnings
517,456

 
463,860

Accumulated other comprehensive income (loss), net
(7,948
)
 
15,991

Total stockholders’ equity
792,860

 
751,186

Total liabilities and stockholders’ equity
$
7,500,100

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
54,901

 
$
57,418

 
$
165,247

 
$
173,412

Interest and dividends on investment securities:
 
 
 
 
 
 
 
Taxable
7,660

 
9,194

 
23,377

 
28,357

Exempt from federal taxes
1,153

 
1,223

 
3,594

 
3,667

Interest on deposits in banks
207

 
336

 
717

 
852

Interest on federal funds sold
8

 
4

 
17

 
11

Total interest income
63,929

 
68,175

 
192,952

 
206,299

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
3,821

 
5,414

 
12,214

 
17,455

Interest on securities sold under repurchase agreements
58

 
144

 
232

 
452

Interest on long-term debt
487

 
502

 
1,450

 
1,495

Interest on preferred stock pending redemption
—

 
—

 
159

 
—

Interest on subordinated debentures held by subsidiary trusts
607

 
1,110

 
1,904

 
4,084

Total interest expense
4,973

 
7,170

 
15,959

 
23,486

Net interest income
58,956

 
61,005

 
176,993

 
182,813

Provision for loan losses
(3,000
)
 
9,500

 
(2,125
)
 
32,750

Net interest income after provision for loan losses
61,956

 
51,505

 
179,118

 
150,063

Non-interest income:
 
 
 
 
 
 
 
Income from the origination and sale of loans
7,934

 
11,665

 
28,652

 
29,469

Other service charges, commissions and fees
9,286

 
8,774

 
26,519

 
25,452

Service charges on deposit accounts
4,360

 
4,395

 
12,751

 
13,011

Wealth management revenues
4,581

 
3,557

 
12,735

 
10,655

Investment securities gains, net
30

 
66

 
26

 
295

Other income
1,416

 
1,725

 
5,322

 
5,344

Total non-interest income
27,607

 
30,182

 
86,005

 
84,226

Non-interest expense:
 
 
 
 
 
 
 
Salaries and wages
22,806

 
23,341

 
69,681

 
66,545

Employee benefits
7,328

 
7,447

 
23,049

 
23,232

Occupancy, net
4,292

 
3,793

 
12,381

 
11,818

Furniture and equipment
3,147

 
3,231

 
9,362

 
9,558

Outsourced technology services
2,295

 
2,182

 
6,647

 
6,627

OREO expense, net of income
18

 
2,612

 
999

 
5,523

FDIC insurance premiums
1,205

 
1,622

 
3,938

 
4,818

Professional fees
1,135

 
1,050

 
3,398

 
2,985

Mortgage servicing rights amortization
629

 
879

 
2,187

 
2,591

Mortgage servicing rights impairment (recovery)
(62
)
 
55

 
(121
)
 
(761
)
Core deposit intangibles amortization
355

 
355

 
1,064

 
1,066

Other expenses
9,431

 
10,497

 
31,699

 
37,801

Total non-interest expense
52,579

 
57,064

 
164,284

 
171,803

Income before income tax expense
36,984

 
24,623

 
100,839

 
62,486

Income tax expense
13,172

 
8,468

 
35,478

 
21,107

Net income
23,812

 
16,155

 
65,361

 
41,379

Preferred stock dividends
—

 
863

 
—

 
2,569

Net income available to common shareholders
$
23,812

 
$
15,292

 
$
65,361

 
$
38,810

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.54

 
$
0.36

 
$
1.50

 
$
0.90

Diluted earnings per common share
$
0.54

 
$
0.35

 
$
1.49

 
$
0.90

 
 
 
 
 
 
 
 
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,
 
2013
2012
 
2013
2012
Net income
$
23,812

$
16,155

 
$
65,361

$
41,379

Other comprehensive income (loss), before tax:
 
 
 
 
 
Investment securities available-for sale:
 
 
 
 
 
Change in net unrealized gains/losses during period
1,794

931

 
(39,547
)
(175
)
Reclassification adjustment for net gains included in income
(30
)
(66
)
 
(26
)
(295
)
Defined benefit post-retirement benefits plans:
 
 
 
 
 
Change in net actuarial loss
33

35

 
102

102

Other comprehensive income (loss), before tax
1,797

900

 
(39,471
)
(368
)
Deferred tax benefit (expense) related to other comprehensive income/loss
(707
)
(354
)
 
15,532

145

Other comprehensive income (loss), net of tax
1,090

546

 
(23,939
)
(223
)
Comprehensive income, net of tax
$
24,902

$
16,701

 
$
41,422

$
41,156

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
—

 
—

 
65,361

 
—

 
65,361

Other comprehensive loss, net of tax benefit
—

 
—

 
—

 
(23,939
)
 
(23,939
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
25,677 common shares purchased and retired
—

 
(448
)
 
—

 
—

 
(448
)
26,096 common shares issued
—

 
543

 
—

 
—

 
543

120,873 non-vested common shares issued
—

 
—

 
—

 
—

 
—

10,517 non-vested common shares forfeited
—

 
—

 
—

 
—

 
—

688,864 stock options exercised, net of 336,442 shares tendered in payment of option price and income tax withholding amounts
—

 
8,137

 
—

 
—

 
8,137

Tax benefit of stock-based compensation
—

 
1,578

 
—

 
—

 
1,578

Stock-based compensation expense
—

 
2,207

 
—

 
—

 
2,207

Cash dividends declared:
 
 
 
 
 
 
 
 
 
Common ($0.27 per share)
—

 
—

 
(11,765
)
 
—

 
(11,765
)
Balance at September 30, 2013
$
—

 
$
283,352

 
$
517,456

 
$
(7,948
)
 
$
792,860

 
 
 
 
 
 
 
 
 
 
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 loss, net of tax benefit
—

 
—

 
—

 
(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

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,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
65,361

 
$
41,379

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
(2,125
)
 
32,750

Net gain on disposal of property and equipment
(224
)
 
(490
)
Depreciation and amortization
12,293

 
12,770

Net premium amortization on investment securities
11,426

 
7,913

Net gain on investment securities transactions
(26
)
 
(295
)
Net gain on sale of mortgage loans held for sale
(20,376
)
 
(20,648
)
Net gain on sale of OREO
(3,195
)
 
(768
)
Write-down of OREO and other assets pending disposal
3,180

 
3,457

Net reversal of impairment of mortgage servicing rights
(121
)
 
(761
)
Net gain on sale of mortgage servicing rights
—

 
(19
)
Deferred income tax expense
6,302

 
8,013

Net decrease (increase) in cash surrender value of company-owned life insurance
28

 
(1,491
)
Stock-based compensation expense
2,207

 
2,351

Tax benefits from stock-based compensation expense
1,578

 
296

Excess tax benefits from stock-based compensation expense
(1,488
)
 
(187
)
Originations of mortgage loans held for sale, net of sales
31,754

 
(2,055
)
Changes in operating assets and liabilities:
 
 
 
Increase in interest receivable
(1,515
)
 
(1,442
)
Decrease in other assets
9,434

 
7,381

Decrease in accrued interest payable
(1,135
)
 
(1,417
)
Decrease in accounts payable and accrued expenses
(2,622
)
 
(1,800
)
Net cash provided by operating activities
110,736

 
84,937

Cash flows from investing activities:
 
 
 
Purchases of investment securities:
 
 
 
Held-to-maturity
(13,915
)
 
(44,283
)
Available-for-sale
(564,448
)
 
(787,697
)
Proceeds from maturities and pay-downs of investment securities:
 
 
 
Held-to-maturity
15,818

 
9,069

Available-for-sale
569,606

 
817,903

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
(147,826
)
 
(61,721
)
Recoveries of loans charged-off
9,434

 
4,320

Proceeds from sales of OREO
25,185

 
31,800

Capital contribution to unconsolidated equity method investment
—

 
(900
)
Capital expenditures, net of sales
(2,489
)
 
(11,973
)
Net cash used in investing activities
$
(108,165
)
 
$
(41,337
)
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2013
 
2012
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
$
(131,786
)
 
$
208,761

Net decrease in repurchase agreements
(77,675
)
 
(55,438
)
Net decrease in other borrowed funds
(22
)
 
(1
)
Repayment of junior subordinated debentures held by subsidiary trusts
—

 
(41,238
)
Repayments of long-term debt
(32
)
 
(30
)
Redemption of preferred stock
(50,000
)
 
—

Proceeds from issuance of common stock
8,680

 
1,326

Excess tax benefits from stock-based compensation expense
1,488

 
187

Purchase and retirement of common stock
(448
)
 
(262
)
Dividends paid to common stockholders
(11,765
)
 
(15,448
)
Dividends paid to preferred stockholders
—

 
(2,569
)
Net cash provided by (used in) financing activities
(261,560
)
 
95,288

Net increase (decrease) in cash and cash equivalents
(258,989
)
 
138,888

Cash and cash equivalents at beginning of period
801,332

 
472,447

Cash and cash equivalents at end of period
$
542,343

 
$
611,335

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
30,529

 
$
12,740

Cash paid during the period for interest expense
17,094

 
24,903

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 September 30, 2013 and December 31, 2012, and the results of operations for each of the three and nine month periods ended September 30, 2013 and 2012 and cash flows for the nine months ended September 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 September 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 nine months ended September 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:
September 30, 2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
Obligations of U.S. government agencies
$
792,761

$
1,576

$
(9,862
)
$
784,475

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
1,157,281

14,836

(17,223
)
1,154,894

Private mortgage-backed securities
431

9

(3
)
437

Total
$
1,950,473

$
16,421

$
(27,088
)
$
1,939,806

September 30, 2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to-Maturity:
 
 
 
 
State, county and municipal securities
$
187,202

$
5,011

$
(1,861
)
$
190,352

Corporate securities
18,075

74

(19
)
18,130

Total
$
205,277

$
5,085

$
(1,880
)
$
208,482

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 September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Gross realized gains
$
30

 
$
66

 
$
42

 
$
298

Gross realized losses
—

 
—

 
(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 September 30, 2013 and December 31, 2012
 
Less than 12 Months
 
12 Months or More
 
Total
September 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
$
472,232

$
(9,862
)
 
$
—

$
—

 
$
472,232

$
(9,862
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
712,122

(17,223
)
 
—

—

 
712,122

(17,223
)
Private mortgage-backed securities
—

—

 
110

(3
)
 
110

(3
)
Total
$
1,184,354

$
(27,085
)
 
$
110

$
(3
)
 
$
1,184,464

$
(27,088
)
 
Less than 12 Months
 
12 Months or More
 
Total
September 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
$
51,606

$
(1,833
)
 
$
468

$
(28
)
 
$
52,074

$
(1,861
)
Corporate securities
7,312

(19
)
 
—

—

 
7,312

(19
)
Total
$
58,918

$
(1,852
)
 
$
468

$
(28
)
 
$
59,386

$
(1,880
)

 
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
)

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
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 211 and 69 individual investment securities that were in an unrealized loss position as of September 30, 2013 and December 31, 2012, respectively. Unrealized losses as of September 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 nine months ended September 30, 2013 and 2012.

Maturities of investment securities at September 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
September 30, 2013
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Within one year
$
349,037

$
348,410

 
$
4,236

$
4,269

After one year but within five years
1,177,551

1,174,066

 
57,128

57,800

After five years but within ten years
377,332

370,872

 
85,444

87,378

After ten years
46,553

46,458

 
58,469

59,035

Total
$
1,950,473

$
1,939,806

 
$
205,277

$
208,482


As of September 30, 2013, the Company had investment securities callable within one year with amortized costs and estimated fair values of $380,305 and $374,729, respectively, including callable structured notes with amortized costs and estimated fair values of $123,286 and $122,087, 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:
 
September 30,
2013
 
December 31,
2012
Real estate loans:
 
 
 
Commercial
$
1,441,297

 
$
1,497,272

Construction:
 
 
 
Land acquisition & development
210,153

 
220,196

Residential
68,362

 
49,274

Commercial
62,769

 
65,059

Total construction loans
341,284

 
334,529

Residential
841,707

 
708,339

Agricultural
176,594

 
177,244

Total real estate loans
2,800,882

 
2,717,384

Consumer:
 
 
 
Indirect consumer
476,531

 
438,245

Other consumer
135,638

 
137,743

Credit card
60,015

 
60,806

Total consumer loans
672,184

 
636,794

Commercial
681,416

 
688,753

Agricultural
123,565

 
113,627

Other, including overdrafts
1,912

 
912

Loans held for investment
4,279,959

 
4,157,470

Mortgage loans held for sale
52,133

 
66,442

Total loans
$
4,332,092

 
$
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 September 30, 2013
Past Due
Past Due
Past Due
Past Due
Loans
Loans
Loans
Real estate
 
 
 
 
 
 
 
Commercial
$
4,333

$
4,124

$
313

$
8,770

$
1,386,656

$
45,871

$
1,441,297

Construction:
 
 
 
 
 
 

 

Land acquisition & development
6,652

925

—

7,577

185,841

16,735

210,153

Residential
41

—

—

41

66,831

1,490

68,362

Commercial
2,207

—

—

2,207

60,294

268

62,769

Total construction loans
8,900

925

—

9,825

312,966

18,493

341,284

Residential
2,970

996

875

4,841

830,616

6,250

841,707

Agricultural
272

4,949

48

5,269

161,544

9,781

176,594

Total real estate loans
16,475

10,994

1,236

28,705

2,691,782

80,395

2,800,882

Consumer:
 
 
 
 
 
 
 

Indirect consumer
2,343

244

—

2,587

473,611

333

476,531

Other consumer
798

117

3

918

134,179

541

135,638

Credit card
364

262

469

1,095

58,900

20

60,015

Total consumer loans
3,505

623

472

4,600

666,690

894

672,184

Commercial
6,102

1,159

534

7,795

661,010

12,611

681,416

Agricultural
520

36

—

556

122,894

115

123,565

Other, including overdrafts


—

—

—

1,912

—

1,912

Loans held for investment
26,602

12,812

2,242

41,656

4,144,288

94,015

4,279,959

Mortgage loans originated for sale
—

—

—

—

52,133

—

52,133

Total loans
$
26,602

$
12,812

$
2,242

$
41,656

$
4,196,421

$
94,015

$
4,332,092




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 $1,216 and $1,821 for the three months ended September 30, 2013 and 2012, respectively and approximately $3,877 and $6,844 for the nine months ended September 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 September 30, 2013
Unpaid
Total
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Real estate:
 
 
 
 
 
Commercial
$
62,453

$
33,566

$
26,993

$
60,559

$
4,897

Construction:
 
 
 
 
 
Land acquisition & development
22,985

11,211

7,327

18,538

2,652

Residential
2,191

1,490

—

1,490

—

Commercial
442

360

48

408

48

Total construction loans
25,618

13,061

7,375

20,436

2,700

Residential
9,682

4,869

1,840

6,709

657

Agricultural
10,108

6,724

3,289

10,013

962

Total real estate loans
107,861

58,220

39,497

97,717

9,216

Commercial
15,645

8,493

5,250

13,743

4,126

Agricultural
167

27

89

116

19

Total
$
123,673

$
66,740

$
44,836

$
111,576

$
13,361

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 September 30,
 
2013
 
2012
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
62,208

 
$
239

 
$
81,313

 
$
366

Construction:
 
 
 
 
 
 
 
Land acquisition & development
17,614

 
19

 
36,206

 
30

Residential
1,513

 
—

 
3,151

 
—

Commercial
1,174

 
2

 
10,817

 
—

Total construction loans
20,301

 
21

 
50,174

 
30

Residential
7,770

 
6

 
12,416

 
1

Agricultural
9,995

 
—

 
5,173

 
9

Total real estate loans
100,274

 
266

 
149,076

 
406

Commercial
16,245

 
16

 
15,992

 
21

Agricultural
240

 
4

 
748

 
4

Total
$
116,759

 
$
286

 
$
165,816

 
$
431


 
Nine Months Ended September 30,
 
2013
 
2012
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
65,726

 
$
849

 
$
82,689

 
$
1,037

Construction:
 
 
 
 
 
 
 
Land acquisition & development
19,923

 
475

 
49,528

 
76

Residential
1,949

 
—

 
8,591

 
—

Commercial
5,161

 
2

 
18,601

 
—

Total construction loans
27,033

 
477

 
76,720

 
76

Residential
8,882

 
15

 
14,667

 
22

Agricultural
7,751

 
8

 
7,090

 
41

Total real estate loans
109,392

 
1,349

 
181,166

 
1,176

Commercial
15,065

 
52

 
16,129

 
65

Agricultural
335

 
12

 
1,039

 
19

Total
$
124,792

 
$
1,413

 
$
198,334

 
$
1,260


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 $1,481 and $2,276 for the three months ended September 30, 2013 and 2012, respectively, and approximately $4,832 and $8,249 for the nine months ended September 30, 2013 and 2012, 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 $63,548 as of September 30, 2013, of which $41,609 were included in non-accrual loans and $21,939 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 nine months ended September 30, 2013:    
 
 
Number of Notes
 
Type of Concession
Principal Balance at Restructure Date
Three Months Ended September 30, 2013
 
 
Interest only period
Extension of terms or maturity
Interest rate adjustment
Other (1)
Real estate:
 
 
 
 
 
 
 
 
Commercial
 
3
 
$
136
<