0000860413-14-000013.txt : 20140801 0000860413-14-000013.hdr.sgml : 20140801 20140731201846 ACCESSION NUMBER: 0000860413-14-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20140630 FILED AS OF DATE: 20140801 DATE AS OF CHANGE: 20140731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST INTERSTATE BANCSYSTEM INC CENTRAL INDEX KEY: 0000860413 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 810331430 STATE OF INCORPORATION: MT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-34653 FILM NUMBER: 141007751 BUSINESS ADDRESS: STREET 1: P O BOX 30918 STREET 2: 401 NO 31ST STREET CITY: BILLINGS STATE: MT ZIP: 59116-0918 BUSINESS PHONE: 4062555300 FORMER COMPANY: FORMER CONFORMED NAME: FIRST INTERSTATE BANCSYSTEM OF MONTANA INC DATE OF NAME CHANGE: 19930615 10-Q 1 fibk-20140630x10q.htm 10-Q FIBK-2014.06.30-10Q

 
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, 2014
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, 2014 – Class A common stock
 
20,269,171

 
 
June 30, 2014 – Class B common stock
 
23,985,841

 
 




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, 2014 and December 31, 2013
3

 
 
 
 
Consolidated Statements of Income - Three and Six Months Ended June 30, 2014 and 2013
4

 
 
 
 
Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2014 and 2013
5

 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity - Six Months Ended June 30, 2014 and 2013
6

 
 
 
 
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2014 and 2013
7

 
 
 
 
9

 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
32

 
 
 
Item 3.
45

 
 
 
Item 4.
45

 
 
Part II.
 
 
 
 
Item 1.
46

 
 
 
Item 1A .
46

 
 
 
Item  2.
46

 
 
 
Item 3.
46

 
 
 
Item 4.
Mine Safety Disclosures
47

 
 
 
Item 5.
47

 
 
 
Item 6.
47

 
 
49








2


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
June 30,
2014
 
December 31,
2013
Assets
 
 
 
Cash and due from banks
$
168,600

 
$
141,663

Federal funds sold
3,512

 
672

Interest bearing deposits in banks
331,536

 
392,492

Total cash and cash equivalents
503,648

 
534,827

Investment securities:
 
 
 
Available-for-sale
1,506,996

 
1,947,706

Held-to-maturity (estimated fair values of $592,682 and $205,926 at June 30, 2014 and December 31, 2013, respectively)
586,989

 
203,837

Total investment securities
2,093,985

 
2,151,543

Loans held for investment
4,449,699

 
4,303,992

Mortgage loans held for sale
56,663

 
40,861

Total loans
4,506,362

 
4,344,853

Less allowance for loan losses
78,266

 
85,339

Net loans
4,428,096

 
4,259,514

Goodwill
183,673

 
183,673

Premises and equipment, net of accumulated depreciation
180,341

 
179,690

Company-owned life insurance
138,899

 
122,175

Other real estate owned (“OREO”)
16,425

 
15,504

Accrued interest receivable
26,497

 
26,450

Mortgage servicing rights, net of accumulated amortization and impairment reserve
13,443

 
13,546

Deferred tax asset, net

 
12,154

Core deposit intangibles, net of accumulated amortization
3,811

 
4,519

Other assets
62,561

 
61,056

Total assets
$
7,651,379

 
$
7,564,651

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
1,533,484

 
$
1,491,683

Interest bearing
4,645,558

 
4,642,067

Total deposits
6,179,042

 
6,133,750

Securities sold under repurchase agreements
462,985

 
457,437

Accounts payable and accrued expenses
42,693

 
47,523

Accrued interest payable
5,316

 
4,963

Deferred tax liability

3,427

 

Long-term debt
36,893

 
36,917

Other borrowed funds
20

 
3

Subordinated debentures held by subsidiary trusts
82,477

 
82,477

Total liabilities
6,812,853

 
6,763,070

Stockholders’ equity:
 
 
 
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued and outstanding as of June 30, 2014 or December 31, 2013

 

Common stock
283,697

 
285,535

Retained earnings
560,469

 
532,087

Accumulated other comprehensive loss, net
(5,640
)
 
(16,041
)
Total stockholders’ equity
838,526

 
801,581

Total liabilities and stockholders’ equity
$
7,651,379

 
$
7,564,651

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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
55,565

 
$
54,853

 
$
109,283

 
$
110,346

Interest and dividends on investment securities:
 
 
 
 
 
 
 
Taxable
7,309

 
7,671

 
14,949

 
15,717

Exempt from federal taxes
1,083

 
1,215

 
2,180

 
2,441

Interest on deposits in banks
225

 
212

 
456

 
510

Interest on federal funds sold
3

 
5

 
4

 
9

Total interest income
64,185

 
63,956

 
126,872

 
129,023

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
3,327

 
4,038

 
6,751

 
8,393

Interest on securities sold under repurchase agreements
63

 
74

 
129

 
174

Interest on long-term debt
476

 
483

 
949

 
963

Interest on preferred stock pending redemption

 

 

 
159

Interest on subordinated debentures held by subsidiary trusts
592

 
601

 
1,180

 
1,297

Total interest expense
4,458

 
5,196

 
9,009

 
10,986

Net interest income
59,727

 
58,760

 
117,863

 
118,037

Provision for loan losses
(2,001
)
 
375

 
(7,001
)
 
875

Net interest income after provision for loan losses
61,728

 
58,385

 
124,864

 
117,162

Non-interest income:
 
 
 
 
 
 
 
Other service charges, commissions and fees
9,699

 
8,977

 
18,855

 
17,233

Income from the origination and sale of loans
6,380

 
10,043

 
11,040

 
20,718

Wealth management revenues
4,609

 
4,020

 
9,064

 
8,154

Service charges on deposit accounts
3,929

 
4,323

 
7,804

 
8,391

Investment securities gains, net
17

 
(12
)
 
88

 
(4
)
Other income
1,937

 
2,228

 
3,826

 
3,906

Total non-interest income
26,571

 
29,579

 
50,677

 
58,398

Non-interest expense:
 
 
 
 
 
 
 
Salaries and wages
24,440

 
23,535

 
46,882

 
46,977

Employee benefits
7,164

 
7,546

 
15,477

 
15,721

Occupancy, net
4,253

 
4,063

 
8,492

 
8,089

Furniture and equipment
3,157

 
3,163

 
6,358

 
6,215

Outsourced technology services
2,309

 
2,195

 
4,609

 
4,352

OREO expense, net of income
(134
)
 
(915
)
 
(153
)
 
981

FDIC insurance premiums
1,093

 
1,356

 
2,209

 
2,733

Professional fees
1,278

 
1,136

 
2,648

 
2,263

Mortgage servicing rights amortization
583

 
719

 
1,183

 
1,558

Mortgage servicing rights impairment recovery
(11
)
 
(11
)
 
(56
)
 
(59
)
Core deposit intangibles amortization
354

 
355

 
708

 
709

Other expenses
10,837

 
11,878

 
21,304

 
22,166

Non-core acquisition expenses
597

 

 
597

 

Total non-interest expense
55,920

 
55,020

 
110,258

 
111,705

Income before income tax expense
32,379

 
32,944

 
65,283

 
63,855

Income tax expense
11,302

 
11,439

 
22,813

 
22,306

Net income
$
21,077

 
$
21,505

 
$
42,470

 
$
41,549

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.48

 
$
0.49

 
$
0.96

 
$
0.96

Diluted earnings per common share
$
0.47

 
$
0.49

 
$
0.95

 
$
0.95

 
 
 
 
 
 
 
 
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 June 30,
 
Six Months Ended June 30,
 
2014
2013
 
2014
2013
Net income
$
21,077

$
21,505

 
$
42,470

$
41,549

Other comprehensive income (loss), before tax:
 
 
 
 
 
Investment securities available-for sale:
 
 
 
 
 
Change in net unrealized gains/losses during period
2,816

(35,625
)
 
17,167

(41,342
)
Reclassification adjustment for net (gains) losses included in
 income
(17
)
12

 
(88
)
4

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

35

 
70

70

Other comprehensive income (loss), before tax
2,834

(35,578
)
 
17,149

(41,268
)
Deferred tax benefit (expense) related to other comprehensive
 income/loss
(1,115
)
13,999

 
(6,748
)
16,238

Other comprehensive income (loss), net of tax
1,719

(21,579
)
 
10,401

(25,030
)
Comprehensive income (loss), net of tax
$
22,796

$
(74
)
 
$
52,871

$
16,519

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)
 
Common
stock
 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss)
 
Total
stockholders’
equity
Balance at December 31, 2013
$
285,535

 
$
532,087

 
$
(16,041
)
 
$
801,581

Net income

 
42,470

 

 
42,470

Other comprehensive income, net of tax expense

 

 
10,401

 
10,401

Common stock transactions:
 
 
 
 
 
 
 
349,930 common shares purchased and retired
(8,764
)
 

 

 
(8,764
)
24,581 common shares issued

 

 

 

147,876 non-vested common shares issued

 

 

 

8,647 non-vested common shares forfeited

 

 

 

286,069 stock options exercised, net of 160,377 shares tendered in payment of option price and income tax withholding amounts
3,547

 

 

 
3,547

Tax benefit of stock-based compensation
1,225

 

 

 
1,225

Stock-based compensation expense
2,154

 

 

 
2,154

Common cash dividend declared ($0.32 per share)

 
(14,088
)
 

 
(14,088
)
Balance at June 30, 2014
$
283,697

 
$
560,469

 
$
(5,640
)
 
$
838,526

 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
271,335

 
$
463,860

 
$
15,991

 
$
751,186

Net income

 
41,549

 

 
41,549

Other comprehensive loss, net of tax benefit

 

 
(25,030
)
 
(25,030
)
Common stock transactions:
 
 
 
 
 
 
 
25,667 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

See accompanying notes to unaudited consolidated financial statements.

6


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
42,470

 
$
41,549

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
(7,001
)
 
875

Net gain on disposal of property and equipment
(79
)
 
(16
)
Depreciation and amortization
7,786

 
8,298

Net premium amortization on investment securities
7,088

 
7,902

Net (gain) loss on investment securities transactions
(88
)
 
4

Net gain on sale of mortgage loans held for sale
(7,601
)
 
(14,984
)
Net gain on sale of OREO
(766
)
 
(2,671
)
Write-downs of OREO and other assets pending disposal
10

 
3,180

Net reversal of impairment of mortgage servicing rights
(56
)
 
(59
)
Deferred income tax expense
3,760

 
3,456

Net increase in cash surrender value of company-owned life insurance
(1,724
)
 
(873
)
Stock-based compensation expense
2,154

 
2,022

Tax benefits from stock-based compensation expense
1,225

 
524

Excess tax benefits from stock-based compensation expense
(1,211
)
 
(468
)
Originations of mortgage loans held for sale
(412,050
)
 
(734,657
)
Proceeds from sales of mortgage loans held for sale
402,825

 
739,648

Changes in operating assets and liabilities:
 
 
 
Increase in interest receivable
(47
)
 
(403
)
Decrease (increase) in other assets
(1,929
)
 
7,004

Increase (decrease) in accrued interest payable
353

 
(266
)
Decrease in accounts payable and accrued expenses
(4,788
)
 
(4,112
)
Net cash provided by operating activities
30,331

 
55,953

Cash flows from investing activities:
 
 
 
Purchases of investment securities:
 
 
 
Held-to-maturity
(4,141
)
 
(13,755
)
Available-for-sale
(175,823
)
 
(430,395
)
Proceeds from maturities, pay-downs and sales of investment securities:
 
 
 
Held-to-maturity
9,347

 
5,807

Available-for-sale
243,355

 
453,678

Purchases of company-owned life insurance
(15,000
)
 

Proceeds from sales of mortgage servicing rights
266

 
470

Extensions of credit to customers, net of repayments
(155,523
)
 
(84,078
)
Recoveries of loans charged-off
5,345

 
7,057

Proceeds from sales of OREO
4,234

 
18,464

Capital expenditures, net of sales
(6,309
)
 
(1,886
)
Net cash used in investing activities
$
(94,249
)
 
$
(44,638
)

7


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
$
45,292

 
$
(310,079
)
Net increase (decrease) in repurchase agreements
5,548

 
(84,471
)
Net increase (decrease) in other borrowed funds
17

 
(30
)
Repayments of long-term debt
(24
)
 
(21
)
Redemption of preferred stock

 
(50,000
)
Proceeds from issuance of common stock
3,547

 
5,799

Excess tax benefits from stock-based compensation expense
1,211

 
468

Purchase and retirement of common stock
(8,764
)
 
(448
)
Dividends paid to common stockholders
(14,088
)
 
(5,648
)
Net cash provided by (used in) financing activities
32,739

 
(444,430
)
Net decrease in cash and cash equivalents
(31,179
)
 
(433,115
)
Cash and cash equivalents at beginning of period
534,827

 
801,332

Cash and cash equivalents at end of period
$
503,648

 
$
368,217

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
16,190

 
$
20,838

Cash paid during the period for interest expense
8,656

 
11,252

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 June 30, 2014 and December 31, 2013, and the results of operations for each of the three and six month periods ended and cash flows for each of the six month periods ended June 30, 2014 and 2013 in conformity with U.S. generally accepted accounting principles. The balance sheet information at December 31, 2013 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, 2014 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, 2013. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

(2)
Investment Securities

The amortized cost and approximate fair values of investment securities are summarized as follows:
June 30, 2014
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
Obligations of U.S. government agencies
$
722,034

$
1,707

$
(5,174
)
$
718,567

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
778,641

12,806

(3,383
)
788,064

Private mortgage-backed securities
361

6

(2
)
365

Total
$
1,501,036

$
14,519

$
(8,559
)
$
1,506,996

June 30, 2014
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to-Maturity:
 
 
 
 
State, county and municipal securities
$
179,131

$
6,159

$
(600
)
$
184,690

Corporate securities
17,908

116


18,024

U.S agency residential mortgage-backed securities &
    collateralized mortgage obligations
389,950

18


389,968

Total
$
586,989

$
6,293

$
(600
)
$
592,682

December 31, 2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
Obligations of U.S. government agencies
$
774,055

$
1,432

$
(12,249
)
$
763,238

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
1,197,295

11,905

(25,147
)
1,184,053

Private mortgage-backed securities
407

9

(1
)
415

Total
$
1,971,757

$
13,346

$
(37,397
)
$
1,947,706


9


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


December 31, 2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to-Maturity:
 
 
 
 
State, county and municipal securities
$
185,818

$
4,043

$
(2,049
)
$
187,812

Corporate securities
18,019

103

(8
)
18,114

Total
$
203,837

$
4,146

$
(2,057
)
$
205,926


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,
 
2014
 
2013
 
2014
 
2013
Gross realized gains
$
18

 
$
4

 
$
243

 
$
12

Gross realized losses
1

 
16

 
155

 
16

 
On June 27, 2014, the Company transferred available-for-sale U.S. agency residential mortgage-backed securities and collateralized mortgage obligations with amortized costs and fair values of $396,640 and $388,808, respectively, into the held-to-maturity category. Unrealized net losses of $7,832 included in accumulated other comprehensive income at the time of the transfer are being amortized to yield over the remaining expected lives of the transferred securities of 4.3 years.

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, 2014 and December 31, 2013.
 
Less than 12 Months
 
12 Months or More
 
Total
June 30, 2014
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Available-for-Sale:
 
 
 
 
 
 
 
 
Obligations of U.S. government agencies
$
61,265

$
(185
)
 
$
353,997

$
(4,989
)
 
$
415,262

$
(5,174
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
47,884

(146
)
 
203,157

(3,237
)
 
251,041

(3,383
)
Private mortgage-backed securities


 
95

(2
)
 
95

(2
)
Total
$
109,149

$
(331
)
 
$
557,249

$
(8,228
)
 
$
666,398

$
(8,559
)
 
Less than 12 Months
 
12 Months or More
 
Total
June 30, 2014
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Held-to-Maturity:
 
 
 
 
 
 
 
 
State, county and municipal securities
$
267

$
(1
)
 
$
28,986

$
(599
)
 
$
29,253

$
(600
)
Total
$
267

$
(1
)
 
$
28,986

$
(599
)
 
$
29,253

$
(600
)


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, 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
$
458,385

$
(10,355
)
 
$
59,362

$
(1,894
)
 
$
517,747

$
(12,249
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
634,199

(17,273
)
 
166,930

(7,874
)
 
801,129

(25,147
)
Private mortgage-backed securities


 
104

(1
)
 
104

(1
)
Total
$
1,092,584

$
(27,628
)
 
$
226,396

$
(9,769
)
 
$
1,318,980

$
(37,397
)
 
Less than 12 Months
 
12 Months or More
 
Total
December 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
$
37,550

$
(1,319
)
 
$
14,296

$
(730
)
 
$
51,846

$
(2,049
)
Corporate securities
7,294

(8
)
 


 
7,294

(8
)
Total
$
44,844

$
(1,327
)
 
$
14,296

$
(730
)
 
$
59,140

$
(2,057
)
    
The investment portfolio is evaluated quarterly for other-than-temporary declines in the market value of each individual investment security. The Company had 106 and 229 individual investment securities that were in an unrealized loss position as of June 30, 2014 and December 31, 2013, respectively. Unrealized losses as of June 30, 2014 and December 31, 2013 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 and six months ended June 30, 2014 and 2013.

Maturities of investment securities at June 30, 2014 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, 2014
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Within one year
$
235,880

$
238,377

 
$
75,137

$
75,805

After one year but within five years
1,046,202

1,050,653

 
262,721

265,277

After five years but within ten years
203,374

202,197

 
174,980

176,267

After ten years
15,580

15,769

 
74,151

75,333

Total
$
1,501,036

$
1,506,996

 
$
586,989

$
592,682


As of June 30, 2014, the Company had investment securities callable within one year with amortized costs and estimated fair values of $208,708 and $208,188, respectively, including callable structured notes with amortized costs and estimated fair values of $94,473 and $94,487, 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:
 
June 30,
2014
 
December 31,
2013
Real estate loans:
 
 
 
Commercial
$
1,464,947

 
$
1,449,174

Construction:
 
 
 
Land acquisition & development
192,289

 
205,911

Residential
82,121

 
76,488

Commercial
86,599

 
69,236

Total construction loans
361,009

 
351,635

Residential
894,502

 
867,912

Agricultural
162,428

 
173,534

Total real estate loans
2,882,886

 
2,842,255

Consumer:
 
 
 
Indirect consumer
512,063

 
476,012

Other consumer
133,604

 
133,039

Credit card
61,368

 
62,536

Total consumer loans
707,035

 
671,587

Commercial
727,482

 
676,544

Agricultural
130,280

 
111,872

Other, including overdrafts
2,016

 
1,734

Loans held for investment
4,449,699

 
4,303,992

Mortgage loans held for sale
56,663

 
40,861

Total loans
$
4,506,362

 
$
4,344,853

    

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 dates indicated:
 
 
 
 
Total Loans
 
 
 
 
30 - 59
60 - 89
> 90
30 or More
 
 
 
 
Days
Days
Days
Days
Current
Non-accrual
Total
As of June 30, 2014
Past Due
Past Due
Past Due
Past Due
Loans
Loans
Loans
Real estate
 
 
 
 
 
 
 
Commercial
$
5,343

$
2,540

$
40

$
7,923

$
1,418,602

$
38,422

$
1,464,947

Construction:
 
 
 
 
 
 

 

Land acquisition & development
782

123


905

180,094

11,290

192,289

Residential
90

1,226


1,316

80,152

653

82,121

Commercial




84,019

2,580

86,599

Total construction loans
872

1,349


2,221

344,265

14,523

361,009

Residential
3,493

823

665

4,981

884,261

5,260

894,502

Agricultural
29

72


101

155,228

7,099

162,428

Total real estate loans
9,737

4,784

705

15,226

2,802,356

65,304

2,882,886

Consumer:
 
 
 
 
 
 
 

Indirect consumer
2,467

404

15

2,886

508,777

400

512,063

Other consumer
780

210

16

1,006

131,864

734

133,604

Credit card
281

239

335

855

60,496

17

61,368

Total consumer loans
3,528

853

366

4,747

701,137

1,151

707,035

Commercial
3,223

718

325

4,266

710,886

12,330

727,482

Agricultural
1,390

17

125

1,532

128,367

381

130,280

Other, including overdrafts


1

1

2,015


2,016

Loans held for investment
17,878

6,372

1,522

25,772

4,344,761

79,166

4,449,699

Mortgage loans originated for sale




56,663


56,663

Total loans
$
17,878

$
6,372

$
1,522

$
25,772

$
4,401,424

$
79,166

$
4,506,362




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, 2013
Past Due
Past Due
Past Due
Past Due
Loans
Loans
Loans
Real estate
 
 
 
 
 
 
 
Commercial
$
5,924

$
2,472

$
22

$
8,418

$
1,391,823

$
48,933

$
1,449,174

Construction:
 
 
 
 
 
 

 

Land acquisition & development
1,062

468

38

1,568

188,074

16,269

205,911

Residential
933

250


1,183

73,933

1,372

76,488

Commercial
584



584

68,427

225

69,236

Total construction loans
2,579

718

38

3,335

330,434

17,866

351,635

Residential
3,630

206

1,162

4,998

856,800

6,114

867,912

Agricultural
328

646


974

163,986

8,574

173,534

Total real estate loans
12,461

4,042

1,222

17,725

2,743,043

81,487

2,842,255

Consumer:
 
 
 
 
 
 
 

Indirect consumer
3,303

430

9

3,742

471,906

364

476,012

Other consumer
925

130

1

1,056

131,508

475

133,039

Credit card
364

187

515

1,066

61,451

19

62,536

Total consumer loans
4,592

747

525

5,864

664,865

858

671,587

Commercial
2,791

1,186

563

4,540

660,035

11,969

676,544

Agricultural
453

672


1,125

110,622

125

111,872

Other, including overdrafts




1,734


1,734

Loans held for investment
20,297

6,647

2,310

29,254

4,180,299

94,439

4,303,992

Mortgage loans originated for sale




40,861


40,861

Total loans
$
20,297

$
6,647

$
2,310

$
29,254

$
4,221,160

$
94,439

$
4,344,853


If interest on non-accrual loans had been accrued, such income would have been approximately $1,061 and $1,299 for the three months ended June 30, 2014 and 2013, respectively, and approximately $2,182 and $2,651 for the six months ended June 30, 2014 and 2013, 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 June 30, 2014
Unpaid
Total
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Real estate:
 
 
 
 
 
Commercial
$
52,690

$
24,961

$
25,622

$
50,583

$
3,566

Construction:
 
 
 
 
 
Land acquisition & development
15,601

8,098

3,869

11,967

647

Residential
1,096

653


653


Commercial
2,749

269

2,446

2,715

908

Total construction loans
19,446

9,020

6,315

15,335

1,555

Residential
7,222

4,885

375

5,260

301

Agricultural
9,191

6,656

2,439

9,095

133

Total real estate loans
88,549

45,522

34,751

80,273

5,555

Commercial
14,752

10,709

2,679

13,388

1,176

Agricultural
792

419

322

741

221

Total
$
104,093

$
56,650

$
37,752

$
94,402

$
6,952

As of December 31, 2013
Unpaid
Total
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Real estate:
 
 
 
 
 
Commercial
$
64,780

$
29,216

$
33,937

$
63,153

$
5,210

Construction:
 
 
 
 
 
Land acquisition & development
23,906

9,901

7,226

17,127

1,434

Residential
1,816

1,095

277

1,372

26

Commercial
397

279

84

363

85

Total construction loans
26,119

11,275

7,587

18,862

1,545

Residential
9,448

5,081

967

6,048

249

Agricultural
8,895

6,429

2,370

8,799

335

Total real estate loans
109,242

52,001

44,861

96,862

7,339

Commercial
15,448

10,684

2,901

13,585

1,504

Agricultural
177

39

86

125

86

Total
$
124,867

$
62,724

$
47,848

$
110,572

$
8,929





15


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,
 
2014
 
2013
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
57,588

 
$
241

 
$
67,605

 
$
272

Construction:
 
 
 
 
 
 
 
Land acquisition & development
13,563

 
11

 
19,007

 
15

Residential
785

 

 
1,569

 

Commercial
1,471

 
2

 
6,346

 

Total construction loans
15,819

 
13

 
26,922

 
15

Residential
5,852

 
1

 
8,311

 
5

Agricultural
9,747

 
25

 
8,255

 
4

Total real estate loans
89,006

 
280

 
111,093

 
296

Commercial
14,162

 
14

 
16,087

 
18

Agricultural
742

 
6

 
373

 
4

Total
$
103,910

 
$
300

 
$
127,553

 
$
318

 
Six Months Ended June 30,
 
2014
 
2013
 
 Average Recorded Investment
 
 Income Recognized
 
 Average Recorded Investment
 
 Income Recognized
 
 
Real estate:
 
 
 
 
 
 
 
Commercial
$
60,870

 
$
457

 
$
67,192

 
$
610

Construction:
 
 
 
 
 
 
 
Land acquisition & development
14,554

 
22

 
20,123

 
456

Residential
1,051

 

 
2,040

 

Commercial
918

 
4

 
7,118

 

Total construction loans
16,523

 
26

 
29,281

 
456

Residential
5,969

 
3

 
9,429

 
9

Agricultural
9,830

 
29

 
6,611

 
8

Total real estate loans
93,192

 
515

 
112,513

 
1,083

Commercial
14,231

 
28

 
14,484

 
36

Agricultural
538

 
12

 
502

 
8

Total
$
107,961

 
$
555

 
$
127,499

 
$
1,127


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 $1,301 and $1,577 for the three months ended June 30, 2014 and 2013, respectively and approximately $2,412 and $2,912 for the six months ended June 30, 2014 and 2013, 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.
    

16


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 $57,835 as of June 30, 2014, of which $34,304 were included in non-accrual loans and $23,531 were on accrual status. The Company had loans renegotiated in troubled debt restructurings of $59,792 as of December 31, 2013, of which $38,011 were included in non-accrual loans and $21,781 were on accrual status.

The following tables present information on the Company's troubled debt restructurings that occurred during the three months ended June 30, 2014:    
 
 
Number of Notes
 
Type of Concession
Principal Balance at Restructure Date
Three Months Ended June 30, 2014
 
 
Interest only period
Extension of terms or maturity
Interest rate adjustment
Other (1)
Commercial real estate
 
4
 
$
458

$
226

$

$
679

$
1,363

Commercial
 
2
 
72




72

Total loans restructured during period
 
6
 
$
530

$
226

$

$
679

$
1,435

(1) Other includes concessions that reduce or defer payments for a specified period of time and/or do not fit into other
         designated categories.
 
 
Number of Notes
 
Type of Concession
Principal Balance at Restructure Date
Six Months Ended June 30, 2014
 
 
Interest only period
Extension of terms or maturity
Interest rate adjustment
Other (1)
Commercial real estate
 
8
 
$

$
226

$

$
921

$
1,147

Commercial
 
4
 
299

2,931


30

3,260

Total loans restructured during period
 
12

$
299

$
3,157

$

$
951

$
4,407

(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 or six months ended June 30, 2014 or 2013.
    

17


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 trouble 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 June 30, 2014
 
Six Months Ended June 30, 2014
 
Number of Notes
 
Balance
 
Number of Notes
 
Balance
Commercial
2
 
72
 
2
 
72
Total
2
 
72
 
2
 
72

At June 30, 2014, 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 age