10-Q 1 fibk-20130331x10q.htm 10-Q FIBK-2013.03.31-10Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________________________________ 
FORM 10-Q
________________________________________________________________________________________________________ 
ý
Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 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:
 
March 31, 2013 – Class A common stock
 
18,424,252

 
 
March 31, 2013 – Class B common stock
 
25,190,690

 
 




FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
Index
 
 
Page
Part I.
Financial Information
 
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
Consolidated Balance Sheets - March 31, 2013 and December 31, 2012
3

 
 
 
 
Consolidated Statements of Income - Three Months Ended March 31, 2013 and 2012
4

 
 
 
 
Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2013 and 2012
5

 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity - Three Months Ended March 31, 2013 and 2012
6

 
 
 
 
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2013 and 2012
7

 
 
 
 
9

 
 
 
Item 2.
29

 
 
 
Item 3.
41

 
 
 
Item 4.
41

 
 
Part II.
 
 
 
 
Item 1.
42

 
 
 
Item 1A .
42

 
 
 
Item  2.
42

 
 
 
Item 3.
42

 
 
 
Item 4.
Mine Safety Disclosures
42

 
 
 
Item 5.
42

 
 
 
Item 6.
43

 
 
44








2


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
March 31,
2013
 
December 31,
2012
Assets
 
 
 
Cash and due from banks
$
116,399

 
$
177,978

Federal funds sold
4,856

 
730

Interest bearing deposits in banks
377,288

 
622,624

Total cash and cash equivalents
498,543

 
801,332

Investment securities:
 
 
 
Available-for-sale
2,011,169

 
1,995,258

Held-to-maturity (estimated fair values of $220,115 and $218,933 at March 31, 2013 and December 31, 2012, respectively)
210,426

 
208,223

Total investment securities
2,221,595

 
2,203,481

Loans held for investment
4,169,116

 
4,157,470

Mortgage loans held for sale
55,443

 
66,442

Total loans
4,224,559

 
4,223,912

Less allowance for loan losses
97,904

 
100,511

Net loans
4,126,655

 
4,123,401

Premises and equipment, net of accumulated depreciation
185,237

 
187,565

Goodwill
183,673

 
183,673

Company-owned life insurance
77,158

 
76,729

Other real estate owned (“OREO”)
32,470

 
32,571

Accrued interest receivable
29,375

 
28,869

Mortgage servicing rights, net of accumulated amortization and impairment reserve
13,006

 
12,653

Deferred tax asset, net
2,965

 
2,597

Core deposit intangibles, net of accumulated amortization
5,582

 
5,937

Other assets
63,058

 
62,953

Total assets
$
7,439,317

 
$
7,721,761

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
1,406,892

 
$
1,495,309

Interest bearing
4,621,453

 
4,745,102

Total deposits
6,028,345

 
6,240,411

Securities sold under repurchase agreements
467,205

 
505,785

Accounts payable and accrued expenses
46,326

 
48,208

Accrued interest payable
6,433

 
6,502

Long-term debt
37,150

 
37,160

Other borrowed funds
8

 
32

Preferred stock pending redemption

 
50,000

Subordinated debentures held by subsidiary trusts
82,477

 
82,477

Total liabilities
6,667,944

 
6,970,575

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

 

Common stock
274,929

 
271,335

Retained earnings
483,904

 
463,860

Accumulated other comprehensive income, net
12,540

 
15,991

Total stockholders’ equity
771,373

 
751,186

Total liabilities and stockholders’ equity
$
7,439,317

 
$
7,721,761

See accompanying notes to unaudited consolidated financial statements.

3


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2013
2012
Interest income:
 
 
Interest and fees on loans
$
55,493

$
57,910

Interest and dividends on investment securities:
 
 
Taxable
8,046

9,705

Exempt from federal taxes
1,226

1,204

Interest on deposits in banks
298

237

Interest on federal funds sold
4

1

Total interest income
65,067

69,057

Interest expense:
 
 
Interest on deposits
4,355

6,262

Interest on securities sold under repurchase agreements
100

156

Interest on long-term debt
480

498

Interest on preferred stock pending redemption
159


Interest on subordinated debentures held by subsidiary trusts
696

1,507

Total interest expense
5,790

8,423

Net interest income
59,277

60,634

Provision for loan losses
500

11,250

Net interest income after provision for loan losses
58,777

49,384

Non-interest income:
 
 
Income from the origination and sale of loans
10,675

8,384

Other service charges, commissions and fees
8,256

8,424

Wealth management revenues
4,134

3,283

Service charges on deposit accounts
4,068

4,161

Investment securities gains, net
8

31

Other income
1,678

2,099

Total non-interest income
28,819

26,382

Non-interest expense:
 
 
Salaries and wages
23,405

21,564

Employee benefits
8,175

8,966

Occupancy, net
4,026

3,988

Furniture and equipment
3,052

3,138

Outsourced technology services
2,157

2,266

OREO expense, net of income
1,896

1,105

FDIC insurance premiums
1,377

1,595

Professional fees
1,127

933

Mortgage servicing rights amortization
839

895

Mortgage servicing rights impairment recovery
(48
)
(868
)
Core deposit intangibles amortization
354

355

Other expenses
10,325

13,503

Total non-interest expense
56,685

57,440

Income before income tax expense
30,911

18,326

Income tax expense
10,867

6,112

Net income
20,044

12,214

Preferred stock dividends

853

Net income available to common shareholders
$
20,044

$
11,361

 
 
 
Basic earnings per common share
$
0.46

$
0.26

Diluted earnings per common share
$
0.46

$
0.26

 
 
 
See accompanying notes to unaudited consolidated financial statements.

4


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

 
Three Months Ended March 31,
 
2013
2012
Net income
$
20,044

$
12,214

Other comprehensive income (loss), before tax:
 
 
Investment securities available-for sale:
 
 
Change in net unrealized gains (losses) during period
(5,717
)
755

Reclassification adjustment for net gains included in income
(8
)
(31
)
Defined benefit post-retirement benefits plans:
 
 
Change in net actuarial loss
35

33

Other comprehensive income (loss), before tax
(5,690
)
757

Deferred tax benefit (expense) related to other comprehensive income
2,239

(297
)
Other comprehensive income (loss), net of tax
(3,451
)
460

Comprehensive income, net of tax
$
16,593

$
12,674

See accompanying notes to unaudited consolidated financial statements.


5


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, 2012
$

 
$
271,335

 
$
463,860

 
$
15,991

 
$
751,186

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income

 

 
20,044

 

 
20,044

Other comprehensive income, net of tax

 

 

 
(3,451
)
 
(3,451
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
25,677 common shares purchased and retired

 
(448
)
 

 

 
(448
)
108,873 non-vested common shares issued

 

 

 

 

1,815 non-vested common shares forfeited

 

 

 

 

243,238 stock options exercised, net of 87,933 shares tendered in payment of option price and income tax withholding amounts

 
3,145

 

 

 
3,145

Tax benefit of stock-based compensation

 
202

 

 

 
202

Stock-based compensation expense

 
695

 

 

 
695

Balance at March 31, 2013
$

 
$
274,929

 
$
483,904

 
$
12,540

 
$
771,373

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2011
$
50,000

 
$
266,842

 
$
435,144

 
$
19,034

 
$
771,020

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income

 

 
12,214

 

 
12,214

Other comprehensive income, net of tax

 

 

 
460

 
460

Common stock transactions:
 
 
 
 
 
 
 
 
 
17,904 common shares purchased and retired

 
(256
)
 

 

 
(256
)
2,358 common shares issued

 

 

 

 

122,912 non-vested common shares issued

 

 

 

 

1,556 non-vested common shares forfeited

 

 

 

 

100,991 stock options exercised, net of 37,397 shares tendered in payment of option price and income tax withholding amounts

 
1,068

 

 

 
1,068

Tax benefit of stock-based compensation

 
114

 

 

 
114

Stock-based compensation expense

 
643

 

 

 
643

Cash dividends declared:
 
 
 
 
 
 
 
 
 
Common ($0.12 per share)

 

 
(5,135
)
 

 
(5,135
)
Preferred (6.75% per share)

 

 
(853
)
 

 
(853
)
Balance at March 31, 2012
$
50,000

 
$
268,411

 
$
441,370

 
$
19,494

 
$
779,275

See accompanying notes to unaudited consolidated financial statements.

6


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
20,044

 
$
12,214

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
500

 
11,250

Net (gain) loss on disposal of property and equipment
(20
)
 
42

Depreciation and amortization
4,203

 
4,302

Net premium amortization on investment securities
4,082

 
2,678

Net gains on investment securities transactions
(8
)
 
(31
)
Net gains on sales of mortgage loans held for sale
(7,898
)
 
(5,927
)
Net gain on sale of OREO
(820
)
 
74

OREO valuation adjustments
2,305

 
578

Net reversal of impairment of mortgage servicing rights
(48
)
 
(868
)
Net gain on sale of mortgage servicing rights

 
(19
)
Deferred income tax expense (benefit)
1,853

 
(282
)
Net increase in cash surrender value of company-owned life insurance policies
(429
)
 
(462
)
Stock-based compensation expense
695

 
643

Tax benefits from stock-based compensation expense
202

 
114

Excess tax benefits from stock-based compensation
(165
)
 
(94
)
Originations of mortgage loans held for sale, net of sales
17,753

 
(272
)
Changes in operating assets and liabilities:
 
 
 
Decrease (increase) in interest receivable
(506
)
 
1,567

Decrease (increase) in other assets
(64
)
 
907

Increase (decrease) in accrued interest payable
(69
)
 
132

Increase (decrease) in accounts payable and accrued expenses
(1,861
)
 
1,744

Net cash provided by operating activities
39,749

 
28,290

Cash flows from investing activities:
 
 
 
Purchases of investment securities:
 
 
 
Held-to-maturity
(6,347
)
 
(7,592
)
Available-for-sale
(227,040
)
 
(222,413
)
Proceeds from maturities and pay-downs of investment securities:
 
 
 
Held-to-maturity
3,512

 
2,193

Available-for-sale
201,621

 
282,083

Proceeds from sales of mortgage servicing rights
311

 
907

Extensions of credit to customers, net of repayments
(22,997
)
 
10,027

Recoveries of loans charged-off
2,913

 
1,158

Proceeds from sales of OREO
3,957

 
5,691

Capital expenditures, net of sales
(650
)
 
(3,453
)
Net cash provided by (used in) investing activities
$
(44,720
)
 
$
68,601


7


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2013
 
2012
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
$
(212,066
)
 
$
83,863

Net decrease in repurchase agreements
(38,580
)
 
(25,185
)
Net decrease in short-term borrowings
(24
)
 
(1
)
Repayments of long-term debt
(10
)
 
(9
)
Redemption of preferred stock
(50,000
)
 

Proceeds from issuance of common stock
3,145

 
1,068

Excess tax benefits from stock-based compensation
165

 
94

Purchase and retirement of common stock
(448
)
 
(256
)
Dividends paid to common stockholders

 
(5,135
)
Dividends paid to preferred stockholders

 
(853
)
Net cash provided by (used in) financing activities
(297,818
)
 
53,586

Net increase (decrease) in cash and cash equivalents
(302,789
)
 
150,477

Cash and cash equivalents at beginning of period
801,332

 
472,447

Cash and cash equivalents at end of period
$
498,543

 
$
622,924

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
3,376

 
$
100

Cash paid during the period for interest expense
$
5,859

 
$
8,291

See accompanying notes to unaudited consolidated financial statements.


8


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


(1)
Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements of First Interstate BancSystem, Inc. and subsidiaries (the “Company”) contain all adjustments (all of which are of a normal recurring nature) necessary to present fairly the financial position of the Company at March 31, 2013 and December 31, 2012, and the results of operations and cash flows for each of the three month periods ended March 31, 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 March 31, 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 months ended March 31, 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:
March 31, 2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
Obligations of U.S. government agencies
$
777,044

$
3,220

$
(342
)
$
779,922

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
1,210,425

23,814

(3,501
)
1,230,738

Private mortgage-backed securities
495

15

(1
)
509

Total
$
1,987,964

$
27,049

$
(3,844
)
$
2,011,169

March 31, 2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to Maturity:
 
 
 
 
State, county and municipal securities
$
192,241

$
9,881

$
(282
)
$
201,840

Corporate securities
18,185

96

(6
)
18,275

Total
$
210,426

$
9,977

$
(288
)
$
220,115


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


9


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 March 31,
 
2013
2012
Gross realized gains
$
8

$
31

Gross realized losses


 
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 March 31, 2013 and December 31, 2012
 
Less than 12 Months
 
12 Months or More
 
Total
March 31, 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
$
182,957

$
(342
)
 
$

$

 
$
182,957

$
(342
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
365,181

(3,501
)
 


 
365,181

(3,501
)
Private mortgage-backed securities


 
125

(1
)
 
125

(1
)
Total
$
548,138

$
(3,843
)
 
$
125

$
(1
)
 
$
548,263

$
(3,844
)
 
Less than 12 Months
 
12 Months or More
 
Total
March 31, 2013
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Held-to-Maturity:
 
 
 
 
 
 
 
 
State, county and municipal securities
$
24,188

$
(276
)
 
$
525

$
(6
)
 
$
24,713

$
(282
)
Corporate securities
3,239

(6
)
 


 
3,239

(6
)
Total
$
27,427

$
(282
)
 
$
525

$
(6
)
 
$
27,952

$
(288
)

 
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
)

10


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

Maturities of investment securities at March 31, 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
March 31, 2013
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Within one year
$
400,147

$
405,641

 
$
3,877

$
3,925

After one year but within five years
1,127,952

1,141,233

 
52,321

53,266

After five years but within ten years
375,101

378,108

 
86,803

90,886

After ten years
84,764

86,187

 
67,425

72,038

Total
$
1,987,964

$
2,011,169

 
$
210,426

$
220,115


As of March 31, 2013, the Company had investment securities callable within one year with amortized costs and estimated fair values of $438,562 and $438,990, respectively, including callable structured notes with amortized costs and estimated fair values of $130,375 and $130,572, 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


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:
 
March 31,
2013
 
December 31,
2012
Real estate loans:
 
 
 
Commercial
$
1,469,302

 
$
1,497,272

Construction:
 
 
 
Land acquisition & development
215,505

 
220,196

Residential
50,153

 
49,274

Commercial
65,228

 
65,059

Total construction loans
330,886

 
334,529

Residential
758,480

 
708,339

Agricultural
172,522

 
177,244

Total real estate loans
2,731,190

 
2,717,384

Consumer:
 
 
 
Indirect consumer
444,257

 
438,245

Other consumer
135,474

 
137,743

Credit card
56,633

 
60,806

Total consumer loans
636,364

 
636,794

Commercial
688,844

 
688,753

Agricultural
111,411

 
113,627

Other, including overdrafts
1,307

 
912

Loans held for investment
4,169,116

 
4,157,470

Mortgage loans held for sale
55,443

 
66,442

Total loans
$
4,224,559

 
$
4,223,912

    

12


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



Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following tables present the contractual aging of the Company’s recorded investment in past due loans by class as of the period indicated:
 
 
 
 
Total Loans
 
 
 
 
30 - 59
60 - 89
> 90
30 or More
 
 
 
 
Days
Days
Days
Days
Current
Non-accrual
Total
As of March 31, 2013
Past Due
Past Due
Past Due
Past Due
Loans
Loans
Loans
Real estate
 
 
 
 
 
 
 
Commercial
$
12,846

$
865

$

$
13,711

$
1,410,640

$
44,951

$
1,469,302

Construction:
 
 
 
 
 
 

 

Land acquisition & development
6,294

62


6,356

192,376

16,773

215,505

Residential
92



92

48,726

1,335

50,153

Commercial
2,173



2,173

56,572

6,483

65,228

Total construction loans
8,559

62


8,621

297,674

24,591

330,886

Residential
4,269

502

1,044

5,815

744,108

8,557

758,480

Agricultural
1,464

349

2

1,815

166,116

4,591

172,522

Total real estate loans
27,138

1,778

1,046

29,962

2,618,538

82,690

2,731,190

Consumer:
 
 
 
 
 
 
 

Indirect consumer
2,166

326

3

2,495

441,477

285

444,257

Other consumer
642

157

1

800

133,786

888

135,474

Credit card
308

222

467

997

55,614

22

56,633

Total consumer loans
3,116

705

471

4,292

630,877

1,195

636,364

Commercial
4,097

3,966

329

8,392

665,884

14,568

688,844

Agricultural
813

311

95

1,219

110,051

141

111,411

Other, including overdrafts





1,307


1,307

Loans held for investment
35,164

6,760

1,941

43,865

4,026,657

98,594

4,169,116

Mortgage loans originated for sale




55,443


55,443

Total loans
$
35,164

$
6,760

$
1,941

$
43,865

$
4,082,100

$
98,594

$
4,224,559




13


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 approximated $1,352 and $2,702 for the three months ended March 31, 2013 and 2012, respectively.
        

14


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


The Company considers impaired loans to include all loans risk rated doubtful, loans placed on non-accrual status and loans renegotiated in troubled debt restructurings with the exception of consumer loans. The following tables present information on the Company’s recorded investment in impaired loans as of dates indicated:
As of March 31, 2013
Unpaid
Total
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Real estate:
 
 
 
 
 
Commercial
$
82,456

$
34,042

$
38,695

$
72,737

$
4,429

Construction:
 
 
 
 
 
Land acquisition & development
25,929

13,976

6,560

20,536

1,703

Residential
1,925

1,335


1,335


Commercial
9,422

6,227

256

6,483

68

Total construction loans
37,276

21,538

6,816

28,354

1,771

Residential
11,649

6,181

2,595

8,776

1,132

Agricultural
5,415

1,724

3,098

4,822

1,035

Total real estate loans
136,796

63,485

51,204

114,689

8,367

Commercial
16,521

7,969

7,863

15,832

3,725

Agricultural
205

127

25

152

25

Total
$
153,522

$
71,581

$
59,092

$
130,673

$
12,117

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





15


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


The following table presents the average recorded investment in and income recognized on impaired loans for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
73,936

 
$
338

 
$
88,657

 
$
188

Construction:
 
 
 
 
 
 
 
Land acquisition & development
22,641

 
441

 
62,227

 
3

Residential
2,259

 

 
9,208

 
18

Commercial
7,898

 

 
24,265

 

Total construction loans
32,798

 
441

 
95,700

 
21

Residential
10,519

 
4

 
18,072

 
160

Agricultural
4,948

 
4

 
7,268

 
56

Total real estate loans
122,201

 
787

 
209,697

 
425

Commercial
12,746

 
18

 
17,885

 
31

Agricultural
632

 
4

 
1,234

 

Total
$
135,579

 
$
809

 
$
228,816

 
$
456


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 $1,335 and $2,683 for the three months ended March 31, 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.
    
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 $75,229 as of March 31, 2013, of which $39,442 were included in non-accrual loans and $35,787 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.


16


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


The following table presents information on the Company's troubled debt restructurings that occurred during the three months ended March 31, 2013:    
 
 
Number of Notes
 
Type of Concession
Principal Balance at Restructure Date
Three Months Ended March 31, 2013
 
 
Interest only period
Extension of terms or maturity
Interest rate adjustment
Other (1)
Real estate:
 
 
 
 
 
 
 
 
Commercial
 
11

 
$
120

$
389

$
5,345

$
183

$
6,037

Total real estate loans
 
11

 
120

389

5,345

183

6,037

Commercial
 
4

 
50

178

265

87

580

Total loans restructured during period
 
15

 
$
170

$
567

$
5,610

$
270

$
6,617

(1) Other includes concessions that reduce or defer payments for a specified period of time and/or do not fit into other designated categories.

For troubled debt restructurings that were on non-accrual status or otherwise deemed impaired before the modification, a specific reserve may already be recorded. In periods subsequent to modification, the Company continues to evaluate all troubled debt restructurings for possible impairment and recognizes impairment through the allowance. Additionally these loans continue to work their way through the credit cycle through charge-off, pay-off or foreclosure. Financial effects of modifications of troubled debt restructurings may include principal loan forgiveness or other charge-offs directly related to the restructuring. The Company had no charge-offs directly related to modifying troubled debt restructurings during the three months ended March 31, 2013 or 2012.
    
The following table presents information on the Company's troubled debt restructurings during the previous 12 months for which there was a payment default during the periods indicated. The Company considers a payment default to occur on troubled debt restructurings when the loan is 90 days or more past due or was placed on non-accrual status after the modification.
 
Three Months Ended March 31,
 
Number of Notes
Balance
Residential real estate
1

$
278

Commercial
1

372

Total
2

$
650

        
At March 31, 2013, there were no material commitments to lend additional funds to borrowers whose existing loans have been renegotiated or are classified as non-accrual.
    
As part of the on-going and continuous monitoring of the credit quality of the Company’s loan portfolio, management tracks internally assigned risk classifications of loans. The Company adheres to a Uniform Classification System developed jointly by the various bank regulatory agencies to internally risk rate loans. The Uniform Classification System defines three broad categories of criticized assets, which the Company uses as credit quality indicators:
    
Other Assets Especially Mentioned — includes loans that exhibit weaknesses in financial condition, loan structure or documentation, which if not promptly corrected, may lead to the development of abnormal risk elements.
    
Substandard — includes loans that are inadequately protected by the current sound worth and paying capacity of the borrower. Although the primary source of repayment for a Substandard is not currently sufficient; collateral or other sources of repayment are sufficient to satisfy the debt. Continuance of a Substandard loan is not warranted unless positive steps are taken to improve the worthiness of the credit.
    
Doubtful — includes loans that exhibit pronounced weaknesses to a point where collection or liquidation in full, on the basis of currently existing facts, conditions and values, is highly questionable and improbable. Doubtful loans are required to be placed on non-accrual status and are assigned specific loss exposure.

17


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 Company’s recorded investment in criticized loans by class and credit quality indicator based on the most recent analysis performed as of the dates indicated:
As of March 31, 2013
Other Assets
Especially
Mentioned
Substandard
Doubtful
Total
Criticized
Loans
Real estate:
 
 
 
 
Commercial
$
89,207

$
127,083

$
16,110

$
232,400

Construction:
 
 
 
 
Land acquisition & development
29,171

22,977

4,231

56,379

Residential
2,132

1,728

801

4,661

Commercial
3,000

695

5,788

9,483

Total construction loans
34,303

25,400

10,820

70,523

Residential
9,890

11,185

2,981

24,056

Agricultural
19,062

6,705

3,097

28,864

Total real estate loans
152,462

170,373

33,008

355,843

Consumer:
 
 
 
 
Indirect consumer
704

1,660

79

2,443

Other consumer
587

1,120

436

2,143

Credit card

447

2,281

2,728

Total consumer loans
1,291

3,227

2,796

7,314

Commercial
41,399

22,072

7,996

71,467

Agricultural
2,493

1,423

25

3,941

Total
$
197,645

$
197,095

$
43,825

$
438,565

As of December 31, 2012
Other Assets
Especially
Mentioned
Substandard
Doubtful
Total
Criticized
Loans
Real estate:
 
 
 
 
Commercial
$
101,936

$
135,282

$
15,173

$
252,391

Construction:
 
 
 
 
Land acquisition & development
28,137

25,884

4,739

58,760

Residential
2,531

2,427

1,143

6,101

Commercial
3,000

795

7,383

11,178

Total construction loans
33,668

29,106

13,265

76,039

Residential
9,542

11,680

4,511

25,733

Agricultural
18,490

6,737

3,228

28,455

Total real estate loans
163,636

182,805

36,177

382,618

Consumer:
 
 
 
 
Indirect consumer
793

1,764

114

2,671

Other consumer
684

1,395

628

2,707

Credit card

415

2,085

2,500

Total consumer loans
1,477

3,574

2,827

7,878

Commercial
42,223

27,184

3,428

72,835

Agricultural
2,596

1,625

28

4,249

Total
$
209,932

$
215,188

$
42,460

$
467,580



18


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


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

(4)
Allowance For Loan Losses
    
The following tables present a summary of changes in the allowance for loan losses by portfolio segment for the periods indicated. 
Three Months Ended March 31, 2013
Real Estate
Consumer
Commercial
Agriculture
Other
Total
Allowance for loan losses:
 
 
 
 
 
 
Beginning balance
$
75,782

$
7,140

$
17,073

$
504

$
12

$
100,511

Provision charged to operating expense
(1,035
)
537

1,015

(23
)
6

500

Less loans charged-off
(4,143
)
(1,062
)
(811
)
(4
)

(6,020
)
Add back recoveries of loans previously
   charged-off
1,062

473

1,375

3


2,913

Ending balance
$
71,666

$
7,088

$
18,652

$
480

$
18

$
97,904

 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
8,367

$

$
3,725

$
25

$

$
12,117

Loans collectively evaluated for impairment
63,299

7,088

14,927

455

18

85,787

Allowance for loan losses
$
71,666

$
7,088

$
18,652

$
480

$
18

$
97,904

 
 
 
 
 
 
 
Total loans:
 
 
 
 
 
 
Individually evaluated for impairment
$
114,690

$

$
15,832

$
152

$

$
130,674

Collectively evaluated for impairment
2,671,943

636,364

673,012

111,259

1,307

4,093,885

Total loans
$
2,786,633

$
636,364

$
688,844

$
111,411

$
1,307

$
4,224,559

Three Months Ended March 31, 2012
Real Estate
Consumer
Commercial
Agriculture
Other
Total
Allowance for loan losses: