8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (date of earliest event reported): October 29, 2002

FIRST INTERSTATE BANCSYSTEM, INC.

(Exact name of registrant as specified in its charter)

Montana	33-64304	81-0331430
(State or other jurisdiction of	(Commission	(IRS Employer
incorporation or organization)	File No.)	Identification No.)

401 North 31st Street, Billings, MT

(Address of principal executive offices)

(406) 255-5390

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

TABLE OF CONTENTS

EX-99 Third Quarter 2002 Shareholders' Letter

Item 1.	Not Applicable.
Item 2.	Not Applicable.
Item 3.	Not Applicable.
Item 4.	Not Applicable.
Item 5.	Other Events and Regulation FD Disclosure.
	On October 29, 2002, First Interstate BancSystem, Inc. issued its third quarter 2002 performance report and shareholders’ letter (“Shareholders’ Letter”) to holders of common stock of the Company as of that date.
	Certain statements contained in the Shareholders’ Letter constitute “forward-looking statements” that involve risk and uncertainties. The Company wishes to caution readers that the following factors, among others may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include general economic and business conditions in those areas in which the Company operates, credit quality, demographic changes, competition, fluctuations in interest rates, changes in business strategy or development plans and changes in governmental regulations. These and other risk factors are set forth from time to time in the Company’s reports filed with the Securities and Exchange Commission.
	The Shareholders’ Letter is attached as Exhibit 99 to the Current Report on Form 8-K.
Item 6.	Not Applicable.
Item 7.	Financial Statements and Exhibits.
	(a) Not Applicable.
	(b) Not Applicable.
	(c) Exhibit 99 — Third Quarter 2002 Shareholders’ Letter
Item 8.	Not Applicable.
Item 9.	Not Applicable.

SIGNATURE

     Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: October 29, 2002
	FIRST INTERSTATE BANCSYSTEM, INC.
	By:	/s/ THOMAS W. SCOTT
		Thomas W. Scott
		Chief Executive Officer

EX-99 3 c72638exv99.htm EX-99 THIRD QUARTER 2002 SHAREHOLDERS' LETTER

EXHIBIT 99

Connecting with Our Shareholders

[LOGO] First Interstate BancSystem
               Third Quarter 2002

To our shareholders, The company surpassed a new record high of $3.5 billion in assets during the third quarter! Our focus on growth and earnings continues to reap rewards. First Interstate BancSystem’s third quarter net earnings of $8,357,000, or $1.07 per diluted share, compare to $8,852,000 or $1.12 per diluted share for the same period in 2001. Net income for the third quarter 2001, as adjusted for the add back of goodwill amortization not included in 2002 earnings was $9,319,000 or $1.18 per diluted share. The return on average common equity (ROAE) was 14.10% in third quarter 2002, compared to 17.47% in third quarter 2001. The decline in ROAE was due to earnings retention as well as the decline in net income. Based on third quarter net income, a dividend of $.32 per share was paid on October 15, 2002. Third quarter 2002 earnings were impacted by several significant factors. First, with historical low residential mortgage rates, refinancing activity has increased to an all-time high. Therefore, we recorded an impairment of our mortgage servicing rights of $2,937,000 to reflect the likelihood of prepayment acceleration of our existing mortgage servicing portfolio. In addition, the decline in mortgage rates resulted in acceleration in the amortization of our remaining mortgage servicing rights. In third quarter 2002 amortization was $768,000 compared to $285,000 in the third quarter 2001. Partially offsetting this impairment was a gain of $2,102,000 resulting from the sale of investment securities. Second, we recorded a one-time gain on the sale of our Greybull branch of $1,203,000. Third, a charge of $847,000 was recorded to reflect the lower value of assets being held for sale. These factors were largely responsible for driving our efficiency ratio up to 70.99% for the quarter, as compared to 63.70% last year. Excluding these three factors, our efficiency ratio would have been 67.08%. Net interest income of $34,688,000 in the most recent quarter was $1,933,000 more than the comparable quarter last year due to strong balance sheet growth. Average loans were up 7% and average deposits were up 11% from third quarter 2001. However, third quarter net interest margin has declined to 4.63%, down 12 basis points from 2001. The decline was even more pronounced when compared to second quarter 2002 net interest margin of 4.87%. The decline in the margin was due principally to earning assets repricing more rapidly than interest bearing liabilities. This past quarter we announced our intent to purchase Silver Run Bancorporation. Silver Run is the parent company of United States National Bank of Red Lodge, which has deposits of approximately $39,000,000 and total assets of $49,000,000. The acquisition is expected to close in January 2003. We also anticipate opening another branch in Jackson and a loan production office in Butte in first quarter 2003.	Financial Highlights
	Three Months ended September 30
	in thousands except per share data		2002		2001	% Change
	(unaudited)
	OPERATING RESULTS
	Net income	$	8,357	$	8,852		-5.6	%
	Net income as adjusted		8,357		9,319		-10.3	%
	Diluted earnings per share		1.07		1.12		-4.5	%
	Diluted earnings per share as adjusted		1.07		1.18		-9.3	%
	Dividends per share		0.33		0.31		6.5	%
	PERIOD END BALANCES
	Assets		3,500,953		3,208,981		9.1	%
	Loans		2,226,715		2,083,777		6.9	%
	Investment Securities		716,019		687,929		4.1	%
	Deposits		2,894,158		2,600,569		11.3	%
	Common Stockholders’ Equity		238,366		219,525		8.6	%
	Common Shares Outstanding		7,811		7,839		-0.4	%
	QUARTERLY AVERAGES
	Assets		3,425,602		3,130,454		9.4	%
	Loans		2,236,252		2,090,764		7.0	%
	Investment Securities		674,119		583,799		15.5	%
	Deposits		2,825,102		2,548,931		10.8	%
	Common Stockholders’ Equity		235,161		211,654		11.1	%
	Common Shares Outstanding		7,799		7,838		-0.5	%
	In the third quarter 2002 the Company invested $50,000,000 in BOLI (bank owned life insurance). This investment will result in improved earnings to assure continued competitive employee benefits for years to come. The significant level of employee and director ownership has been vital to our Company’s long-term success. In September, another successful stock offering to employees and directors was completed, totaling $3,821,400. This represents approximately a $1,000,000 increase over last year’s offering! We are very pleased with the Company’s performance in spite of these volatile economic times. We continue to be led by our community banking strategy as well as our Company values. Our focus on these principles has provided us with continued growth and earnings. We thank all the employees and directors for your efforts that have led to our continued success.
	/s/ Lyle R. Knight				/s/ Terrill R. Moore
	Lyle R. Knight				Terrill R. Moore
	President				Chief Financial Officer
	Chief Operating Officer

Third Quarter 2002 Connecting with Our Customers

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data)														CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (In thousands)
		Three Months Ended September 30						Nine Months Ended September 30								09/30/2002		09/30/2001
		2002			2001			2002			2001
														ASSETS
Total interest income		$	51,269		$	55,846		$	152,683		$	165,720		Cash and due from banks		$	235,660	$	167,386
Total interest expense			16,581			23,091			49,878			74,525		Federal funds sold			92,845		28,545
														Interest bearing deposits			15,547		68,337
Net interest income			34,688			32,755			102,805			91,195		Investment securities			716,019		687,929
Provision for loan losses			2,132			2,286			6,739			4,817		Loans			2,226,715		2,083,777
Net interest income after														Less: allowance for loan losses			35,827		34,414
	provision for loan losses		32,556			30,469			96,066			86,378
Noninterest income			17,707			13,399			44,801			37,204		Net loans			2,190,888		2,049,363
Noninterest expense			37,197			29,941			100,311			86,886		Premises & equipment, net			92,573		91,804
														Accrued interest receivable			23,335		28,632
Income before taxes			13,066			13,927			40,556			36,696		Goodwill and core deposit intangibles			37,748		39,751
Income taxes			4,709			5,075			14,660			13,242		Other real estate owned, net			1,196		1,851
														Other assets			95,142		45,383
NET INCOME		$	8,357		$	8,852		$	25,896		$	23,454
														TOTAL ASSETS		$	3,500,953	$	3,208,981
Goodwill adjustment (1)			—			467			—			1,429
NET INCOME AS ADJUSTED		$	8,357		$	9,319		$	25,896		$	24,883		LIABILITIES AND STOCKHOLDERS’ EQUITY
														Deposits		$	2,894,158	$	2,600,569
COMMON SHARE DATA:														Fed funds purchased			0		3,500
Diluted EPS			1.07			1.12			3.31			2.95		Securities sold under repurchase agreements			270,076		263,439
Diluted EPS, as adjusted			1.07			1.18			3.31			3.13		Other liabilities			25,588		31,281
Dividends			0.33			0.31			0.97			0.84		Other borrowed funds			8,136		11,727
Book value									30.52			28.00		Long - term debt			24,629		38,940
Tangible book value									25.68			22.93		Trust preferred securities			40,000		40,000
Appraised value									*			42.00
														TOTAL LIABILITIES			3,262,587		2,989,456
* Currently not available, $45.00 as of June 30, 2002														Common stockholders’ equity			238,366		219,525
														TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,500,953	$	3,208,981
SELECTED RATIOS (UNAUDITED)		Three Months Ended September 30						Nine Months Ended September 30
			2002			2001			2002			2001			DILUTED EPS(1)
PERFORMANCE (1)															1Q2001		0.87
Return on avg common equity			14.10	%		17.47	%		15.09	%		16.20	%		2Q2001		1.09
Return on avg common equity excl. market adj of securities			14.40	%		17.79	%		15.39	%		16.42	%		3Q2001 4Q2001		1.18 1.04
Return on avg assets			0.97	%		1.18	%		1.04	%		1.10	%
Net interest margin, FTE			4.63	%		4.75	%		4.76	%		4.64	%		1Q2002		1.13
Efficiency ratio			70.99	%		63.70	%		67.96	%		66.38	%		2Q2002		1.11
															3Q2002		1.07
CREDIT QUALITY (PERIOD END)
Annualized net charge offs to average loans									.30	%		.21	%
Allowance for loan losses to loans									1.58	%		1.64	%
Allowance for loan losses to non-accruing loans									150.16	%		149.70	%
CAPITAL ADEQUACY & LIQUIDITY
Leverage capital ratio									6.90	%		6.77	%
Avg loans to avg deposits									80.47	%		82.86	%
(1) adjusted for the add back of goodwill amortization net of income tax benefits

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EX-99

First Interstate Bancsystem, Inc.