FIRST INTERSTATE BANCSYSTEM INC - FORM 8-K - EX-99.1

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8-K - FIRST INTERSTATE BANCSYSTEM INC	a2012331-8k.htm



For Immediate Release
Contact:	Marcy Mutch	NASDAQ: FIBK
	Investor Relations Officer First Interstate BancSystem, Inc. (406) 255-5322 investor.relations@fib.com	www.FIBK.com

First Interstate BancSystem, Inc. Reports First Quarter 2012 Results

Billings, MT - April 23, 2012 - First Interstate BancSystem, Inc. reports first quarter 2012 net income available to common shareholders of $11.4 million, or $0.26 per diluted share, as compared to $12.4 million, or $0.29 per diluted share, for fourth quarter 2011 and $8.7 million, or $0.20 per diluted share, for first quarter 2011.

Significant financial statement items for the first quarter of 2012 include:


•	Non-performing assets to total assets declined to 3.60% as of March 31, 2012, compared to 3.81% as of December 31, 2011 and 3.79% as of March 31, 2011;


•	Provisions for loan losses were $11.3 million for the three months ended March 31, 2012, compared to $13.8 million for the three months ended December 31, 2011 and $15.0 million for the three months ended March 31, 2011;

•

Net interest margin ratio decreased to 3.72% for the three months ended March 31, 2012, as compared to 3.79% for the three months ended December 31, 2011, primarily due to a 9 basis point decrease in the yield on interest earning assets largely due to reductions in average loans outstanding during the period. This decrease was partially offset by a decline of 3 basis points in the cost of interest bearing liabilities during the three months ended March 31, 2012, as compared to the three months ended December 31, 2011;


•	Estimated collection and settlement costs of $3.0 million related to one borrower were recorded as other expense during the three months ended March 31, 2012.

RESULTS SUMMARY

(Unaudited; $ in thousands, except per share data)



	Three Months Ended									Sequential Quarter % Change		Year Over Year % Change
	March 31, 2012			December 31, 2011			March 31, 2011			Sequential Quarter % Change		Year Over Year % Change
Net income available to common shareholders	$	11,361		$	12,402		$	8,662		-8.4	%	31.2	%
Diluted earnings per common share	0.26			0.29			0.20			-10.3	%	30.0	%
Dividends paid per common share	0.1200			0.1125			0.1125			6.7	%	6.7	%
Book value per common share	16.88			16.77			16.10			0.7	%	4.8	%
Tangible book value per common share*	12.47			12.33			11.63			1.1	%	7.2	%
Net tangible book value per common share*	13.87			13.74			13.04			0.9	%	6.4	%
Return on average common equity, annualized	6.32		%	6.84		%	5.11		%
Return on average assets, annualized	0.67		%	0.72		%	0.52		%


*	See Non-GAAP Financial Measures included herein for a discussion regarding tangible and net tangible book value per common share.

“Our first quarter results reflect strong improvement over the prior year period, with earnings per share increasing by 30%,” said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “During the first quarter, we saw a continuation of the mixed trends we have seen over the past few quarters: improving credit quality and healthy deposit flows being offset by weak loan demand and compression in our net interest margin. We are encouraged by the steady decline we are seeing in our level of criticized loans and non-performing assets, which is translating into lower levels of charge-offs and provision for credit loss expense,” Garding further noted.

REVENUE SUMMARY

(Unaudited; $ in thousands)



	Three Months Ended									Sequential Quarter % Change		Year Over Year % Change
	March 31, 2012			December 31, 2011			March 31, 2011			Sequential Quarter % Change		Year Over Year % Change
Interest income	$	69,057		$	72,006		$	73,843		-4.1	%	-6.5	%
Interest expense	8,423			8,971			12,045			-6.1	%	-30.1	%
Net interest income	60,634			63,035			61,798			-3.8	%	-1.9	%
Non-interest income:
Other service charges, commissions and fees	8,424			8,062			7,380			4.5	%	14.1	%
Income from the origination and sale of loans	8,384			8,087			3,445			3.7	%	143.4	%
Service charges on deposit accounts	4,161			4,543			4,110			-8.4	%	1.2	%
Wealth management revenues	3,283			3,177			3,295			3.3	%	-0.4	%
Investment securities gains, net	31			1,488			2			-97.9	%	1,450.0	%
Other income	2,099			1,640			1,927			28.0	%	8.9	%
Total non-interest income	26,382			26,997			20,159			-2.3	%	30.9	%
Total revenues	$	87,016		$	90,032		$	81,957		-3.3	%	6.2	%
Tax equivalent interest margin ratio	3.72		%	3.79		%	3.73		%

Net Interest Income

Net interest margin decreased 7 basis points during first quarter to 3.72%, as compared to 3.79% during fourth quarter 2011, primarily due to lower outstanding loan balances and lower yields earned on the Company's loan and investment portfolios. These decreases were partially offset by further reductions in funding costs, along with a continued shift from higher-costing savings and time deposits to lower-costing demand deposits.

The net interest margin ratio remained stable at 3.72% for the three months ended March 31, 2012, as compared to 3.73% during the same period in 2011. Lower yields earned on the Company's loan and investment portfolios and lower outstanding loan balances during the three months ended March 31, 2012, as compared to the same period in 2011, were offset by a 22 basis point reduction in the cost of interest bearing liabilities.

Non-interest Income

Non-interest income decreased during first quarter 2012, as compared to fourth quarter 2011, primarily due to decreases in net gains on the sale of investment securities, which were partially offset by increases in the market values of securities held under deferred compensation plans. During fourth quarter 2011, investment security gains included the recognition of $1.4 million of unamortized discounts on investment securities called by the issuing agencies.

Non-interest income increased during first quarter 2012, as compared to the same period in the prior year, primarily due to increases in income from the origination and sale of residential mortgage loans. Low mortgage interest rates continued to spur refinancing activity in the Company's market areas, which accounted for approximately 71% of the Company's residential real estate loan originations during first quarter 2012, as compared to 68% during fourth quarter 2011 and 56% during first quarter 2011.

NON-INTEREST EXPENSE

(Unaudited; $ in thousands)



	Three Months Ended								Sequential Quarter % Change		Year Over Year % Change
	March 31, 2012			December 31, 2011		March 31, 2011			Sequential Quarter % Change		Year Over Year % Change
Non-interest expense:
Salaries and wages	$	21,564		$	22,002	$	20,203		-2.0	%	6.7	%
Employee benefits	8,966			6,871		7,499			30.5	%	19.6	%
Occupancy, net	3,988			3,815		4,215			4.5	%	-5.4	%
Furniture and equipment	3,138			3,195		3,220			-1.8	%	-2.5	%
Outsourced technology services	2,266			2,245		2,241			0.9	%	1.1	%
Other real estate owned ("OREO") expense, net of income	1,105			2,021		1,711			-45.3	%	-35.4	%
FDIC insurance premiums	1,595			1,607		2,466			-0.7	%	-35.3	%
Mortgage servicing rights amortization	895			940		807			-4.8	%	10.9	%
Mortgage servicing rights impairment (recovery)	(868		)	427		(347		)	-303.3	%	-150.1	%
Core deposit intangibles amortization	355			361		362			-1.7	%	-1.9	%
Other expenses	14,436			12,737		10,581			13.3	%	36.4	%
Total non-interest expense	$	57,440		$	56,221	$	52,958		2.2	%	8.5	%

Employee benefits expense increased during first quarter 2012, as compared to fourth quarter 2011, primarily due to higher payroll tax expense and increases in the market values of securities held under deferred compensation plans. Employee benefits expense increased during first quarter 2012, as compared to first quarter 2011, primarily due to increases in group health insurance costs, higher stock-based compensation expense and increases in the market values of securities held under deferred compensation plans.

In February 2011, the FDIC issued a final rule that, among other things, modified the definition of an institution's deposit insurance assessment base and revised assessment rate schedules. These changes, which became effective April 1, 2011, resulted in a reduction in the Company's FDIC insurance premiums.

Variations in net OREO expense between periods were primarily due to fluctuations in write-downs of the estimated fair value of OREO properties. First quarter 2012 net OREO expense included $453 thousand of net operating expenses, $578 thousand of fair value write-downs and net losses of $74 thousand on the sale of OREO properties. During the fourth and first quarters of 2011, the Company recorded fair value write-downs of $1.5 million and $1.6 million , respectively.

Estimated collection and settlement costs of $3.0 million related to one borrower were recorded as other expense during the three months ended March 31, 2012.

ASSET QUALITY

(Unaudited; $ in thousands)



	Three Months Ended
	March 31, 2012			December 31, 2011			March 31, 2011
Allowance for loan losses - beginning of period	$	112,581		$	120,303		$	120,480
Charge-offs	(9,087		)	(22,435		)	(12,339		)
Recoveries	1,158			962			1,305
Provision	11,250			13,751			15,000
Allowance for loan losses - end of period	$	115,902		$	112,581		$	124,446

	March 31, 2012			December 31, 2011			March 31, 2011
Period end loans	$	4,158,616		$	4,186,549		$	4,263,764
Average loans	4,165,203			4,236,228			4,303,575
Non-performing loans:
Non-accrual loans	180,910			199,983			212,394
Accruing loans past due 90 days or more	5,017			4,111			4,140
Troubled debt restructurings	36,838			37,376			33,344
Total non-performing loans	222,765			241,470			249,878
Other real estate owned	44,756			37,452			31,995
Total non-performing assets	$	267,521		$	278,922		$	281,873

Net charge-offs to average loans, annualized	0.76		%	2.01		%	1.04		%
Provision for loan losses to average loans, annualized	1.08		%	1.29		%	1.41		%
Allowance for loan losses to period end loans	2.79		%	2.69		%	2.92		%
Allowance for loan losses to total non-performing loans	52.03		%	46.62		%	49.80		%
Non-performing loans to period end loans	5.36		%	5.77		%	5.86		%
Non-performing assets to period end loans and other real estate owned	6.36		%	6.60		%	6.56		%
Non-performing assets to total assets	3.60		%	3.81		%	3.79		%

As of March 31, 2012, total non-performing loans included $203 million of real estate loans, of which $87 million were construction loans and $90 million were commercial real estate loans. Non-performing construction loans as of March 31, 2012 were comprised of land acquisition and development loans of $61 million, commercial construction loans of $22 million and residential construction loans of $4 million.

Non-performing loans decreased 7.7% as of March 31, 2012 compared to December 31, 2011. Decreases in non-accrual loans, the largest component of non-performing loans, were primarily due to the movement of loans out of the loan portfolio due to charge-off or foreclosure.

During first quarter 2012, the Company recorded additions to OREO of $14 million. Approximately 68% of OREO additions during first quarter 2012 were attributable to the loans of four real estate borrowers. First quarter 2012 OREO additions were partially offset by write downs of the fair value of OREO properties of $578 thousand and sales of OREO with a net book value of $6 million at a slight loss.

Fluctuations in the provision for loan losses result from management's assessment of the adequacy of the Company's allowance for loan losses. Decreases in the provision for loan losses during first quarter 2012, as compared to the fourth and first quarters of 2011, are reflective of continued improvement and stabilization of credit quality as evidenced by declining levels of non-performing and criticized loans.

CREDIT QUALITY TRENDS

(Unaudited; $ in thousands)



	Provision for Loan Losses		Net Charge-offs		Allowance for Loan Losses		Accruing Loans 30-89 Days Past Due		Non-Performing Loans		Non-Performing Assets
Q1 2009	$	9,600	$	4,693	$	92,223	$	98,980	$	103,653	$	122,300
Q2 2009	11,700		5,528		98,395		88,632		135,484		167,273
Q3 2009	10,500		7,147		101,748		91,956		125,083		156,958
Q4 2009	13,500		12,218		103,030		63,878		124,678		163,078
Q1 2010	11,900		8,581		106,349		62,675		133,042		177,022
Q2 2010	19,500		11,521		114,328		99,334		158,113		200,451
Q3 2010	18,000		12,092		120,236		47,966		202,008		237,304
Q4 2010	17,500		17,256		120,480		57,011		210,684		244,312
Q1 2011	15,000		11,034		124,446		68,021		249,878		281,873
Q2 2011	15,400		15,267		124,579		70,145		263,467		291,790
Q3 2011	14,000		18,276		120,303		62,165		262,578		287,658
Q4 2011	13,751		21,473		112,581		75,603		241,470		278,922
Q1 2012	11,250		7,929		115,902		58,531		222,765		267,521

CRITICIZED LOANS

(Unaudited; $ in thousands)



	Other Assets Especially Mentioned		Substandard		Doubtful		Total
Q1 2009	$	163,402	$	231,861	$	40,356	$	435,619
Q2 2009	230,833		242,751		48,326		521,910
Q3 2009	239,320		271,487		60,725		571,532
Q4 2009	279,294		271,324		69,603		620,221
Q1 2010	312,441		311,866		64,113		688,420
Q2 2010	319,130		337,758		92,249		749,137
Q3 2010	340,075		340,973		116,003		797,051
Q4 2010	305,925		303,653		133,353		742,931
Q1 2011	293,899		299,072		135,862		728,833
Q2 2011	268,450		309,029		149,964		727,443
Q3 2011	261,501		305,145		134,367		701,013
Q4 2011	240,903		269,794		120,165		630,862
Q1 2012	242,071		276,165		93,596		611,832

LOANS

(Unaudited; $ in thousands)



	March 31, 2012		December 31, 2011		March 31, 2011		Sequential Quarter % Change		Year Over Year % Change
Real estate loans:
Commercial	$	1,533,624	$	1,553,155	$	1,553,750	-1.3	%	-1.3	%
Construction:
Land acquisition & development	272,874		278,613		319,573		-2.1	%	-14.6	%
Residential	50,332		61,106		78,572		-17.6	%	-35.9	%
Commercial	65,196		61,054		95,623		6.8	%	-31.8	%
Total construction loans	388,402		400,773		493,768		-3.1	%	-21.3	%
Residential	562,588		571,943		561,420		-1.6	%	0.2	%
Agricultural	171,685		175,302		181,513		-2.1	%	-5.4	%
Total real estate loans	2,656,299		2,701,173		2,790,451		-1.7	%	-4.8	%
Consumer:
Indirect consumer loans	407,389		407,651		411,908		-0.1	%	-1.1	%
Other consumer loans	142,144		147,487		155,100		-3.6	%	-8.4	%
Credit card loans	56,540		60,933		58,075		-7.2	%	-2.6	%
Total consumer loans	606,073		616,071		625,083		-1.6	%	-3.0	%
Commercial	708,397		693,261		703,837		2.2	%	0.6	%
Agricultural	128,599		119,710		121,571		7.4	%	5.8	%
Other loans, including overdrafts	568		2,813		1,830		-79.8	%	-69.0	%
Loans held for investment	4,099,936		4,133,028		4,242,772		-0.8	%	-3.4	%
Mortgage loans held for sale	58,680		53,521		20,992		9.6	%	179.5	%
Total loans	$	4,158,616	$	4,186,549	$	4,263,764	-0.7	%	-2.5	%

Total loans decreased as of March 31, 2012, as compared to December 31, 2011 and March 31, 2011, with all major categories of loans showing decreases with the exception of commercial and agricultural loans. Declines in total loans during first quarter 2012 were primarily due to the continued combined effects of movement of lower quality loans out of the loan portfolio through charge-off or foreclosure and weak loan demand.

DEPOSITS

(Unaudited; $ in thousands)



	March 31, 2012		December 31, 2011		March 31, 2011		Sequential Quarter % Change		Year Over Year % Change
Non-interest bearing demand	$	1,284,823	$	1,271,709	$	1,110,940	1.0	%	15.7	%
Interest bearing:
Demand	1,618,174		1,306,509		1,259,105		23.9	%	28.5	%
Savings	1,480,435		1,691,413		1,742,958		-12.5	%	-15.1	%
Time, $100 and over	671,014		681,047		825,585		-1.5	%	-18.7	%
Time, other	856,388		876,293		992,596		-2.3	%	-13.7	%
Total interest bearing	4,626,011		4,555,262		4,820,244		1.6	%	-4.0	%
Total deposits	$	5,910,834	$	5,826,971	$	5,931,184	1.4	%	-0.3	%

Total deposits increased as of March 31, 2012, as compared to December 31, 2011 and remained flat as compared to March 31, 2011. As a result of a regulatory change allowing businesses to receive interest on checking accounts, the Company discontinued its savings sweep product resulting in a shift of approximately $300 million from savings deposits into demand deposits during first quarter 2012. During first quarter 2012, the Company continued to experience a shift in the mix of deposits away from time deposits to demand deposits. Management attributes this shift to the effects of a prolonged low interest rate environment and corresponding hesitation of customers to invest their funds for extended periods at such low interest rates.

CAPITAL

(Unaudited, $ in thousands, except per share data)



	March 31, 2012		December 31, 2011		March 31, 2011		Sequential Quarter % Change		Year Over Year % Change
Preferred stockholders' equity	$	50,000	$	50,000	$	50,000	0.0	%	0.0	%
Common stockholders' equity	709,781		701,986		682,049		1.1	%	4.1	%
Accumulated other comprehensive income, net	19,494		19,034		9,648		2.4	%	102.1	%
Total stockholders' equity	$	779,275	$	771,020	$	741,697	1.1	%	5.1	%
Book value per common share	$	16.88	$	16.77	$	16.10	0.7	%	4.8	%
Tangible book value per common share*	$	12.47	$	12.33	$	11.63	1.1	%	7.2	%
Net tangible book value per common share *	$	13.87	$	13.74	$	13.04	0.9	%	6.4	%
Weighted average common shares outstanding for basic earnings per common share computation	42,873,769		42,783,770		42,689,390		0.2	%	0.4	%
Weighted average common shares outstanding for diluted earnings per common share computation	42,982,543		42,847,772		42,859,981		0.3	%	0.3	%


*	See Non-GAAP Financial Measures included herein for a discussion of tangible and net tangible book value per common share.

CAPITAL RATIOS

(Unaudited)



	March 31, 2012			December 31, 2011		March 31, 2011
Tangible common stockholders' equity to tangible assets*	7.48	%		7.43	%	6.90	%
Net tangible common stockholders' equity to tangible assets*	8.32	%		8.28	%	7.74	%
Tier 1 common capital to total risk weighted assets	11.35	%	**	11.04	%	10.40	%
Leverage ratio	10.01	%	**	9.84	%	9.34	%
Tier 1 risk-based capital	14.90	%	**	14.55	%	13.85	%
Total risk-based capital	16.89	%	**	16.54	%	15.83	%


*	See Non-GAAP Financial Measures included herein for a discussion of tangible and net tangible common stockholders' equity to tangible assets.


**	Preliminary estimate - may be subject to change.

As of March 31, 2012, the Company had capital levels that, in all cases, exceeded the “well capitalized” requirements under all regulatory capital guidelines.

First Quarter 2012 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss first quarter 2012 results at 11:00 a.m. Eastern Time (9:00 a.m. MDT) on Tuesday, April 24, 2012. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-877-317-6789 or by logging on to www.FIBK.com. The call will be recorded and made available for replay after 1:00 p.m. Eastern Time (11:00 a.m. MDT) on April 24, 2012 through May 25, 2012 by dialing 1-877-344-7529 (using conference ID 10012022). The call will also be archived on our website, www.FIBK.com, for one year.

About First Interstate BancSystem, Inc.

First Interstate BancSystem, Inc. is a financial and bank holding company incorporated in 1971 and headquartered in Billings, Montana. The Company operates 71 banking offices in 42 communities in Montana, Wyoming and western South Dakota. Through First Interstate Bank, the Company delivers a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities throughout the Company's market areas.

Cautionary Statement

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are covered by the safe harbor provisions of such sections. These statements include statements about decreased levels of criticized loans, stabilization of the loan portfolio, the Company's level of allowance for loan losses, manageability of credit costs and levels of profitability. Therefore, the Company's actual results, performance or achievements may differ materially from those expressed in or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions.

The following factors, among others, may cause actual results to differ materially from current expectations in the forward-looking statements, including those set forth in this release: credit losses; concentrations of real estate loans; economic and market developments, including inflation; commercial loan risk; adequacy of the allowance for loan losses; impairment of goodwill; changes in interest rates; access to low-cost funding sources; increases in deposit insurance premiums; inability to grow business; adverse economic conditions affecting Montana, Wyoming and western South Dakota; governmental regulation and changes in regulatory, tax and accounting rules and interpretations; sweeping changes in regulation of financial institutions due to passage of the Dodd-Frank Act; changes in or noncompliance with governmental regulations; effects of recent legislative and regulatory efforts to stabilize financial markets; dependence on the Company’s management team; ability to attract and retain qualified employees; failure of technology; reliance on external vendors; disruption of vital infrastructure and other business interruptions; illiquidity in the credit markets; inability to meet liquidity requirements; lack of acquisition candidates; failure to manage growth; competition; inability to manage risks in turbulent and dynamic market conditions; ineffective internal operational controls; environmental remediation and other costs; failure to effectively implement technology-driven products and services; litigation pertaining to fiduciary responsibilities; capital required to support the Company’s bank subsidiary; soundness of other financial institutions; impact of Basel III capital standards and forthcoming new capital rules proposed for U.S. banks; inability of our bank subsidiary to pay dividends; change in dividend policy; lack of public market for our Class A common stock; volatility of Class A common stock; voting control of Class B stockholders; decline in market price of Class A common stock; dilution as a result of future equity issuances; uninsured nature of any investment in Class A common stock; anti-takeover provisions; controlled company status; subordination of common stock to Company debt; uncertainties associated with introducing new products or lines of business; and, downgrade of the U.S. credit rating.

A more detailed discussion of each of the foregoing risks is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, filed February 28, 2012. These factors and the other risk factors described in the Company's periodic and current reports filed with the Securities and Exchange Commission from time to time, however, are not necessarily all of the important factors that could cause the Company's actual results, performance or achievements to differ materially from those expressed in or implied by any of the Company's forward-looking statements. Other unknown or unpredictable factors also could harm the Company's results. Investors and others are encouraged to read the more detailed discussion of the Company's risks contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

All forward-looking statements attributable to the Company or persons acting on the Company's behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made and the Company does not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements.

CONSOLIDATED BALANCE SHEETS

(Unaudited, $ in thousands)



	March 31, 2012		December 31, 2011		March 31, 2011
Assets
Cash and due from banks	$	128,341	$	142,502	$	120,814
Federal funds sold	304		309		3,108
Interest bearing deposits in banks	494,279		329,636		556,399
Total cash and cash equivalents	622,924		472,447		680,321
Investment securities:
Available-for-sale	1,955,436		2,016,864		1,841,281
Held-to-maturity (estimated fair values of $166,932, $161,877 and $147,401 at March 31, 2012, December 31, 2011 and March 31, 2011, respectively)	158,070		152,781		146,097
Total investment securities	2,113,506		2,169,645		1,987,378
Loans held for investment	4,099,936		4,133,028		4,242,772
Mortgage loans held for sale	58,680		53,521		20,992
Total loans	4,158,616		4,186,549		4,263,764
Less allowance for loan losses	115,902		112,581		124,446
Net loans	4,042,714		4,073,968		4,139,318
Premises and equipment, net of accumulated depreciation	185,230		184,771		185,702
Goodwill	183,673		183,673		183,673
Company-owned life insurance	75,342		74,880		73,545
Other real estate owned ("OREO"), net of write-downs	44,756		37,452		31,995
Accrued interest receivable	30,407		31,974		32,380
Mortgage servicing rights, net of accumulated amortization and impairment reserve	11,833		11,555		13,284
Deferred tax asset, net	9,571		9,628		19,112
Core deposit intangibles, net of accumulated amortization	7,002		7,357		8,441
Other assets	67,348		68,177		73,977
Total assets	$	7,394,306	$	7,325,527	$	7,429,126
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing	$	1,284,823	$	1,271,709	$	1,110,940
Interest bearing	4,626,011		4,555,262		4,820,244
Total deposits	5,910,834		5,826,971		5,931,184
Securities sold under repurchase agreements	491,058		516,243		536,955
Accounts payable and accrued expenses	43,972		42,248		40,400
Accrued interest payable	8,255		8,123		12,162
Long-term debt	37,191		37,200		37,491
Other borrowed funds	6		7		5,522
Subordinated debentures held by subsidiary trusts	123,715		123,715		123,715
Total liabilities	6,615,031		6,554,507		6,687,429
Stockholders’ equity:
Preferred stock	50,000		50,000		50,000
Common stock	268,411		266,842		264,932
Retained earnings	441,370		435,144		417,117
Accumulated other comprehensive income, net	19,494		19,034		9,648
Total stockholders’ equity	779,275		771,020		741,697
Total liabilities and stockholders’ equity	$	7,394,306	$	7,325,527	$	7,429,126

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, $ in thousands, except per share data)



	Three Months Ended
	March 31, 2012			December 31, 2011		March 31, 2011
Interest income:
Interest and fees on loans	$	57,910		$	60,529	$	62,391
Interest and dividends on investment securities:
Taxable	9,705			10,023		9,911
Exempt from federal taxes	1,204			1,196		1,171
Interest on deposits in banks	237			256		367
Interest on federal funds sold	1			2		3
Total interest income	69,057			72,006		73,843
Interest expense:
Interest on deposits	6,262			6,854		9,871
Interest on securities sold under repurchase agreements	156			150		237
Interest on long-term debt	498			493		489
Interest on subordinated debentures held by subsidiary trusts	1,507			1,474		1,448
Total interest expense	8,423			8,971		12,045
Net interest income	60,634			63,035		61,798
Provision for loan losses	11,250			13,751		15,000
Net interest income after provision for loan losses	49,384			49,284		46,798
Non-interest income:
Other service charges, commissions and fees	8,424			8,062		7,380
Income from the origination and sale of loans	8,384			8,087		3,445
Service charges on deposit accounts	4,161			4,543		4,110
Wealth management revenues	3,283			3,177		3,295
Investment securities gains, net	31			1,488		2
Other income	2,099			1,640		1,927
Total non-interest income	26,382			26,997		20,159
Non-interest expense:
Salaries and wages	21,564			22,002		20,203
Employee benefits	8,966			6,871		7,499
Occupancy, net	3,988			3,815		4,215
Furniture and equipment	3,138			3,195		3,220
Outsourced technology services	2,266			2,245		2,241
FDIC insurance premiums	1,595			1,607		2,466
OREO expense, net of income	1,105			2,021		1,711
Mortgage servicing rights amortization	895			940		807
Mortgage servicing rights impairment (recovery)	(868		)	427		(347		)
Core deposit intangibles amortization	355			361		362
Other expenses	14,436			12,737		10,581
Total non-interest expense	57,440			56,221		52,958
Income before income tax expense	18,326			20,060		13,999
Income tax expense	6,112			6,795		4,493
Net income	12,214			13,265		9,506
Preferred stock dividends	853			863		844
Net income available to common shareholders	$	11,361		$	12,402	$	8,662

Basic earnings per common share	$	0.26		$	0.29	$	0.20
Diluted earnings per common share	$	0.26		$	0.29	$	0.20

AVERAGE BALANCE SHEETS

(Unaudited, $ in thousands)



	Three Months Ended
	March 31, 2012							December 31, 2011							March 31, 2011
	Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate
Interest earning assets:
Loans (1) (2)	$	4,165,203	$	58,374		5.64	%	$	4,236,228	$	60,928		5.71	%	$	4,303,575	$	62,836		5.92	%
Investment securities (2)	2,143,438		11,604			2.18		2,071,372		11,910			2.28		1,948,422		11,758			2.45
Interest bearing deposits in banks	374,899		237			0.25		401,654		256			0.25		587,804		367			0.25
Federal funds sold	609		1			0.66		973		2			0.82		2,242		3			0.54
Total interest earnings assets	6,684,149		70,216			4.23		6,710,227		73,096			4.32		6,842,043		74,964			4.44
Non-earning assets	619,137							618,712							622,539
Total assets	$	7,303,286						$	7,328,939						$	7,464,582
Interest bearing liabilities:
Demand deposits	$	1,582,805	$	646		0.16	%	$	1,300,105	$	601		0.18	%	$	1,249,283	$	834		0.27	%
Savings deposits	1,449,239		1,015			0.28		1,689,109		1,217			0.29		1,744,747		2,000			0.46
Time deposits	1,540,789		4,601			1.20		1,598,361		5,036			1.25		1,874,515		7,037			1.52
Repurchase agreements	513,407		156			0.12		487,734		150			0.12		569,881		237			0.17
Other borrowed funds	35		—			—		5,589		—			—		5,695		—			—
Long-term debt	37,194		498			5.39		37,315		493			5.24		37,496		489			5.29
Subordinated debentures held by subsidiary trusts	123,715		1,507			4.90		123,715		1,474			4.73		123,715		1,448			4.75
Total interest bearing liabilities	5,247,184		8,423			0.65		5,241,928		8,971			0.68		5,605,332		12,045			0.87
Non-interest bearing deposits	1,232,874							1,269,423							1,070,744
Other non-interest bearing liabilities	50,071							47,956							51,013
Stockholders’ equity	773,157							769,632							737,493
Total liabilities and stockholders’ equity	$	7,303,286						$	7,328,939						$	7,464,582
Net FTE interest income			$	61,793						$	64,125						$	62,919
Less FTE adjustments (2)			(1,159		)					(1,090		)					(1,121		)
Net interest income from consolidated statements of income			$	60,634						$	63,035						$	61,798
Interest rate spread						3.58	%						3.64	%						3.57	%
Net FTE interest margin (3)						3.72	%						3.79	%						3.73	%
Cost of funds, including non-interest bearing demand deposits (4)						0.52	%						0.55	%						0.73	%


(1)	Average loan balances include non-accrual loans. Interest income on loans includes amortization of deferred loan fees net of deferred loan costs, which is not material.


(2)	Interest income and average rates for tax exempt loans and securities are presented on a FTE basis.


(3)	Net FTE interest margin during the period equals the difference between annualized interest income on interest earning assets and the annualized interest expense on interest bearing liabilities, divided by average interest earning assets for the period.


(4)	Calculated by dividing total annualized interest on interest bearing liabilities by the sum of total interest bearing liabilities plus non-interest bearing deposits.

Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principals in the United States of America, or GAAP, this release contains the following non-GAAP financial measures that management uses to evaluate capital adequacy: (i) tangible book value per common share; (ii) net tangible book value per common share; (iii) tangible common stockholders' equity to tangible assets; (iv) net tangible common stockholders' equity to tangible assets; and (v) tangible assets.

For purposes of computing tangible book value per common share, tangible book value equals common stockholders' equity less goodwill and other intangible assets (except mortgage servicing rights). Tangible book value per common share is calculated as tangible common stockholders' equity divided by shares of common stock outstanding.

For purposes of computing net tangible book value per common share, net tangible book value equals common stockholders' equity less goodwill (adjusted for associated deferred tax liability) and other intangible assets (except mortgage servicing rights). Net tangible book value per common share is calculated as net tangible common stockholders' equity divided by shares of common stock outstanding. The Company's goodwill as of March 31, 2012 was $184 million, of which approximately $159 million is deductible for income tax purposes over an original period of 15 years. The calculation of net tangible book value takes into account the full amount of tax benefit of approximately $60 million associated with deductible goodwill assuming the Company will continue to have income sufficient to allow it to recognize this benefit in future periods.

For purposes of computing tangible common stockholders' equity to tangible assets, tangible assets equals total assets less goodwill and other intangible assets (except mortgage servicing rights). Tangible common stockholders' equity to tangible assets is calculated as tangible common stockholders' equity divided by tangible assets.

For purposes of computing net tangible common stockholders' equity to tangible assets, net tangible common stockholders' equity equals common stockholders' equity less goodwill (adjusted for associated deferred tax liability) and other intangible assets (except mortgage servicing rights). Net tangible common stockholders' equity to tangible assets is calculated as net tangible common stockholders' equity divided by tangible assets.

Management believes that these non-GAAP financial measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of unrealized losses on securities and other components of accumulated other comprehensive income (loss) in stockholders' equity. Management also believes that such financial measures, which are intended to complement the capital ratios defined by banking regulators, are useful to investors in evaluating the Company's performance due to the importance that analysts place on these ratios and also allow investors to compare certain aspects of our capitalization to other companies. These non-GAAP financial measures, however, may not be comparable to similarly titled measures reported by other companies because other companies may not calculate these non-GAAP measures in the same manner. As a result, the usefulness of these measures to investors may be limited, and they should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP.

The following table reconciles the above described non-GAAP financial measures to their most directly comparable GAAP financial measures as of the dates indicated.

NON-GAAP FINANCIAL MEASURES

(Unaudited; $ in thousands except share and per share data)



	March 31, 2012			December 31, 2011			March 31, 2011
Total stockholders’ equity (GAAP)	779,275			771,020			741,697
Less goodwill and other intangible assets (excluding mortgage servicing rights)	190,708			191,065			192,155
Less preferred stock	50,000			50,000			50,000
Tangible common stockholders’ equity (Non-GAAP)	$	538,567		$	529,955		$	499,542
Add deferred tax liability for deductible goodwill	60,499			60,499			60,499
Net tangible common stockholders’ equity (Non-GAAP)	$	599,066		$	590,454		$	560,041
Total assets (GAAP)	7,394,306			7,325,527			7,429,126
Less goodwill and other intangible assets (excluding mortgage servicing rights)	190,708			191,065			192,155
Tangible assets (Non-GAAP)	7,203,598			7,134,462			7,236,971
Common shares outstanding	43,190,975			42,984,174			42,961,253
Book value per common share	$	16.88		$	16.77		$	16.10
Tangible book value per common share	$	12.47		$	12.33		$	11.63
Net tangible book value per common share	$	13.87		$	13.74		$	13.04
Tangible common stockholders’ equity to tangible assets (Non-GAAP)	7.48		%	7.43		%	6.90		%
Net tangible common stockholders’ equity to tangible assets (Non-GAAP)	8.32		%	8.28		%	7.74		%

First Interstate BancSystem, Inc.

P.O. Box 30918 Billings, Montana 59116 (406) 255-5390

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FIRST INTERSTATE BANCSYSTEM INC Reports