FIRST INTERSTATE BANCSYSTEM INC - 10-Q Quarterly Report

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

FORM 10-Q

x Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2003

OR

o 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 000-49733

First Interstate BancSystem, Inc.
(Exact name of registrant as specified in its charter)


Montana		81-0331430

(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)


PO Box 30918, 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 X No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X

The Registrant had 7,852,360 shares of common stock outstanding on June 30, 2003.

TABLE OF CONTENTS


Part I. Financial Information
	Item 1 — Financial Statements (unaudited)
		Consolidated Balance Sheets June 30, 2003 and December 31, 2002
		Consolidated Statements of Income Three and six months ended June 30, 2003 and 2002
		Consolidated Statements of Stockholders’ Equity and Comprehensive Income Six months ended June 30, 2003 and 2002
		Consolidated Statements of Cash Flows Six months ended June 30, 2003 and 2002
		Notes to Unaudited Consolidated Financial Statements
	Item 2 — Management’s Discussion and Analysis of Financial Condition And Results of Operations
	Item 3 — Quantitative and Qualitative Disclosures about Market Risk
	Item 4 — Disclosure Controls and Procedures
Part II. Other Information
	Item 1 — Legal Proceedings
	Item 2 — Changes in Securities and Use of Proceeds
	Item 3 — Defaults Upon Senior Securities
	Item 4 — Submission of Matters to a Vote of Security Holders
	Item 5 — Other Information
	Item 6 — Exhibits and Reports on Form 8-K
SIGNATURES
EX-4.7 Junior Subordinated Indenture
EX-4.8 Certificate of Trust
EX-4.10 Amended and Restated Declaration of Trust
EX-4.13 Guarantee Agreement
EX-31.1 CEO Certification Pursuant to Section 302
EX-31.2 CFO Certification Pursuant to Section 302
EX-99.1 Certification Pursuant to Section 906

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, 2003 and December 31, 2002		3
		Consolidated Statements of Income Three and six months ended June 30, 2003 and 2002		4
		Consolidated Statements of Stockholders’ Equity and Comprehensive Income Six months ended June 30, 2003 and 2002		5
		Consolidated Statements of Cash Flows Six months ended June 30, 2003 and 2002		6
		Notes to Unaudited Consolidated Financial Statements		8
	Item 2 —	Management’s Discussion and Analysis of Financial Condition And Results of Operations		14
	Item 3 —	Quantitative and Qualitative Disclosures about Market Risk		18
	Item 4 —	Disclosure Controls and Procedures		18
Part II.	Other Information
	Item 1 —	Legal Proceedings		19
	Item 2 —	Changes in Securities and Use of Proceeds		19
	Item 3 —	Defaults Upon Senior Securities		19
	Item 4 —	Submission of Matters to a Vote of Security Holders		19
	Item 5 —	Other Information		19
	Item 6 —	Exhibits and Reports on Form 8-K		19
Signatures				20

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
(Unaudited)


				June 30,		December 31,
				2003		2002

Assets
Cash and due from banks				$	228,278	$	234,187
Federal funds sold					6,765		50,890
Interest bearing deposits in banks					741		25,815
Investment securities:
	Trading				1,380		799
	Available-for-sale				722,139		716,267
	Held-to-maturity				88,633		83,025

		Total investment securities			812,152		800,091
Loans					2,464,953		2,236,550
Less allowance for loan losses					38,287		36,309

	Net loans				2,426,666		2,200,241
Premises and equipment, net					105,080		92,907
Accrued interest receivable					20,869		20,702
Goodwill					37,626		33,031
Core deposit intangible, net of accumulated amortization					4,047		4,396
Mortgage servicing rights, net of accumulated amortization and impairment reserve					9,058		8,406
Other real estate owned, net					1,109		458
Deferred tax asset, net					3,931		3,044
Other assets					83,964		84,800

			Total assets	$	3,740,286	$	3,558,968

Liabilities and Stockholders’ Equity
Deposits:
	Non-interest bearing			$	644,390	$	571,932
	Interest bearing				2,395,092		2,339,915

		Total deposits			3,039,482		2,911,847
Securities sold under repurchase agreements					304,818		300,234
Accrued interest payable					12,814		14,588
Accounts payable and accrued expenses					24,075		16,830
Other borrowed funds					7,998		7,970
Long-term debt					52,411		23,645
Trust preferred securities					40,000		40,000

		Total liabilities			3,481,598		3,315,114
Stockholders’ equity:
	Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued or outstanding as of June 30, 2003 or December 31, 2002				—		—
	Common stock without par value; authorized 20,000,000 shares; issued and outstanding 7,852,360 shares as of June 30, 2003 and 7,799,748 shares as of December 31, 2002				30,423		3,085
	Retained earnings				225,627		236,724
	Accumulated other comprehensive income, net				2,638		4,045

		Total stockholders’ equity			258,688		243,854

			Total liabilities and stockholders’ equity	$	3,740,286	$	3,358,968

See accompanying notes to unaudited consolidated financial statements.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)


				For the three months					For the six months
				ended June 30,					ended June 30,

				2003			2002		2003			2002

Interest income:
	Interest and fees on loans			$	40,259		$	41,469	$	78,889		$	82,361
	Interest and dividends on investment securities:
		Taxable			6,833			8,295		13,753			16,590
		Exempt from Federal taxes			992			957		1,959			1,907
	Interest on deposits in banks				2			49		18			111
	Interest on Federal funds sold				90			278		241			437

			Total interest income		48,176			51,048		94,860			101,406

Interest expense:
	Interest on deposits				10,555			14,108		22,335			28,612
	Interest on Federal funds purchased				41			1		41			3
	Interest on securities sold under repurchase agreements				551			893		1,225			1,774
	Interest on other borrowed funds				11			18		31			47
	Interest on long-term debt				653			535		1,166			1,097
	Interest on trust preferred securities				698			882		1,605			1,764

			Total interest expense		12,509			16,437		26,403			33,297

			Net interest income		35,667			34,611		68,457			68,109
	Provision for loan losses				2,570			1,985		5,000			4,607

			Net interest income after provision for loan losses		33,097			32,626		63,457			63,502
Non-interest income:
	Income from fiduciary activities				1,301			1,103		2,489			2,253
	Service charges on deposit accounts				4,286			3,941		8,150			7,641
	Technology services				2,801			2,710		5,605			5,321
	Other service charges, commissions and fees				8,495			4,757		15,834			9,564
	Investment securities gains, net				33			188		1,508			189
	Other real estate income (expense)				(38	)		216		(54	)		205
	Other income				1,566			1,026		2,704			1,929

			Total non-interest income		18,444			13,941		36,236			27,102

Non-interest expense:
	Salaries, wages and employee benefits				16,815			17,176		34,093			34,225
	Occupancy, net				2,802			2,679		5,516			5,225
	Furniture and equipment				3,394			3,437		6,440			6,572
	FDIC insurance				114			114		239			229
	Core deposit intangibles amortization				305			321		610			641
	Other expenses				12,054			9,268		23,158			16,222

			Total non-interest expense		35,484			32,995		70,056			63,114

Income before income taxes					16,057			13,572		29,637			27,490
Income tax expense					5,822			4,905		10,565			9,951

			Net income	$	10,235		$	8,667	$	19,072		$	17,539

Basic earnings per common share				$	1.30		$	1.11	$	2.42		$	2.24

Diluted earnings per common share				$	1.30		$	1.11	$	2.42		$	2.24

Dividends per common share				$	0.32		$	0.34	$	0.66		$	0.64

See accompanying notes to unaudited consolidated financial statements.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
(Dollars in thousands, except share and per share data)
(Unaudited)


										Accumulated
										other			Total
				Common			Retained			comprehensive			stockholders'
				stock			earnings			income			equity

Balance at December 31, 2002				$	3,085		$	236,724		$	4,045		$	243,854
Comprehensive income:
	Net income				—			19,072			—			19,072
	Unrealized losses on available-for-sale investment securities, net of income tax benefit of $312				—			—			(487	)		(487	)
	Less reclassification adjustment for gains included in net income, net of income tax expense of $588				—			—			(920	)		(920	)

		Other comprehensive income												(1,407	)

			Total comprehensive income											17,665

Common stock transactions:
	36,572 shares retired				(1,672	)		—			—			(1,672	)
	89,184 shares issued				4,010			—			—			4,010
Recapitalization of common stock from retained earnings					25,000			(25,000	)		—			—
Cash dividends declared:
	Common ($0.66 per share)				—			(5,169	)		—			(5,169	)

Balance at June 30, 2003				$	30,423		$	225,627		$	2,638		$	258,688

Balance at December 31, 2001				$	5,184		$	212,314		$	4,571		$	222,069
Comprehensive income:
	Net income				—			17,539			—			17,539
	Unrealized gains on available-for-sale investment securities, net of income tax expense of $572				—			—			894			894
	Less reclassification adjustment for gains included in net income, net of income tax expense of $74				—

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x		Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934


o		Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934