þ | Annual 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 |
Montana
(State or other jurisdiction of incorporation or organization) |
81-0331430
(IRS Employer Identification No.) |
401 North 31st Street
Billings, Montana (Address of principal executive offices) |
59116
(Zip Code) |
Class A common stock
(Title of each class) |
NASDAQ Stock Market
(Name of each exchange on which registered) |
o Large accelerated filer | þ Accelerated filer |
o
Non-accelerated filer
(Do not check if a smaller reporting company) |
o Smaller reporting company |
Class A common stock
|
15,610,989 | |||
Class B common sock
|
27,188,660 |
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| Core Capital (tier 1). Tier 1 capital includes common equity, noncumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less both goodwill (adjusted for associated deferred tax liability) and, with certain limited exceptions, all other intangible assets. Bank holding companies, however, may include up to a limit of 25% of cumulative preferred stock in their tier 1 capital. | ||
| Supplementary Capital (tier 2). Tier 2 capital includes, among other things, cumulative and limited-life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt and the allowance for loan and lease losses, subject to certain limitations. |
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| change the assessment base for federal deposit insurance from the amount of insured deposits to total consolidated assets less tangible capital, eliminate the ceiling on the size of the DIF, and increase the floor of the size of the DIF; | ||
| repeal the federal prohibitions on the payment of interest on demand deposits, thereby generally permitting the payment of interest on all deposit accounts; | ||
| centralize responsibility for promulgating regulations under and enforcing federal consumer financial protection laws in a new bureau of consumer financial protection that will have direct supervision and examination authority over banks with more than $10 billion in assets; | ||
| require the FDIC to seek to make its capital requirements for banks countercyclical; | ||
| impose comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself; | ||
| implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders; | ||
| establish new rules and restrictions regarding the origination of mortgages; and | ||
| permit the Federal Reserve to prescribe regulations regarding interchange transaction fees, and limit them to an amount reasonable and proportional to the cost incurred by the issuer for the transaction in question. |
| the appointment of a conservator or receiver for us; | ||
| the issuance of a cease and desist order that can be judicially enforced; | ||
| the termination of our deposit insurance; | ||
| the imposition of civil monetary fines and penalties; | ||
| the issuance of directives to increase capital; | ||
| the issuance of formal and informal agreements; | ||
| the issuance of removal and prohibition orders against officers, directors and other institution-affiliated parties; and |
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| the enforcement of such actions through injunctions or restraining orders |
| direct and indirect assistance to distressed financial institutions and the provision of assistance by the banking authorities in arranging acquisitions of weakened banks and broker-dealers; | ||
| legislation that provided economic stimulus funding and liquidity to the financial markets, including the Troubled Asset Relief Program Capital Purchase Program; | ||
| programs by the Federal Reserve to provide liquidity to the commercial paper markets, stimulus to increase commercial and consumer based lending, and successive rounds of quantitative easing; | ||
| proposed guidance by the Federal Reserve on incentive compensation policies at banking organizations; | ||
| proposals and recent judicial decisions limiting a lenders ability to foreclose on mortgages or make such foreclosures less economically viable, including by allowing Chapter 13 bankruptcy plans to cram down the value of certain mortgages on a consumers principal residence to its market value and/or reset interest rates and monthly payments to permit defaulting debtors to remain in their home; | ||
| acceleration of the effective date of various provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009, which restrict certain credit and charge card practices, require expanded disclosures to consumers and provide consumers with the right to opt out of interest rate increases (with limited exceptions); | ||
| adoption of new rules by the Federal Reserve under Regulation E, effective July 1, 2010 for new accounts and August 15, 2010 for existing accounts, generally prohibiting financial institutions from charging overdraft fees for ATM and one-time debit card transactions that overdraw consumer deposit accounts, unless the consumer opts in to having such overdrafts authorized and paid; and | ||
| enactment of the Dodd-Frank Act. |
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| the ability to develop, maintain and build upon long-term customer relationships based on quality service, high ethical standards and safe, sound assets; | ||
| the ability to expand our market position; | ||
| the scope, relevance and pricing of products and services offered to meet customer needs and demands; | ||
| the rate at which we introduce new products and services relative to our competitors; | ||
| customer satisfaction with our level of service; and | ||
| industry and general economic trends. |
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| prevailing market conditions; | ||
| our historical performance and capital structure; | ||
| estimates of our business potential and earnings prospects; | ||
| an overall assessment of our management; and | ||
| the consideration of these factors in relation to market valuation of companies in related businesses. |
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| a majority of the board of directors consist of independent directors; | ||
| the compensation of officers be determined, or recommended to the board of directors for determination, by a majority of the independent directors or a compensation committee comprised solely of independent directors; and | ||
| director nominees be selected, or recommended for the board of directors selection, by a majority of the independent directors or a nominating committee comprised solely of independent directors with a written charter or board resolution addressing the nomination process. |
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| 100,000,000 shares are designated as Class A common stock; | ||
| 100,000,000 shares are designated as Class B common stock; and | ||
| 100,000 shares are designated as preferred stock. |
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| when the aggregate number of shares of our Class B common stock is less than 20% of the aggregate number of shares of our Class A common stock and Class B common stock then outstanding; or |
| upon any transfer, whether or not for value, except for transfers to the holders spouse, certain of the holders relatives, the trustees of certain trusts established for their benefit, corporations and partnerships wholly-owned by the holders and their relatives, the holders estate and other holders of Class B common stock. |
Valuation Based on | Appraised | |||||||
Financial Data as of | Valuation Effective Date | Minority Value | ||||||
|
||||||||
March 31, 2009
|
May 15, 2009 | $ | 15.250 | |||||
June 30, 2009
|
August 17, 2009 | 15.000 | ||||||
September 30, 2009
|
November 16, 2009 | 15.375 | ||||||
December 31, 2009
|
February 5, 2010 | 15.000 |
Quarter Ended | High | Low | ||||||
|
||||||||
March 31, 2010
|
$ | 16.97 | $ | 15.40 | ||||
June 30, 2010
|
16.80 | 15.05 | ||||||
September 30, 2010
|
15.83 | 11.07 | ||||||
December 31, 2010
|
15.39 | 12.00 |
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Amount | Total Cash | |||||||
Dividend Payment | Per Share | Dividends | ||||||
|
||||||||
First quarter 2009
|
$ | 0.1625 | $ | 5,127,714 | ||||
Second quarter 2009
|
$ | 0.1125 | 3,522,836 | |||||
Third quarter 2009
|
$ | 0.1125 | 3,513,986 | |||||
Fourth quarter 2009
|
$ | 0.1125 | 3,528,996 | |||||
First quarter 2010
|
$ | 0.1125 | 3,519,163 | |||||
Second quarter 2010
|
$ | 0.1125 | 4,792,655 | |||||
Third quarter 2010
|
$ | 0.1125 | 4,796,025 | |||||
Fourth quarter 2010
|
$ | 0.1125 | 4,796,835 | |||||
First quarter 2011
|
$ | 0.1125 | 4,797,595 |
Total Number | Maximum Number | |||||||||||||||||||
of Shares Purchased | of Shares That | |||||||||||||||||||
Total Number | as Part of Publicly | May Yet Be | ||||||||||||||||||
of Shares | Average Price | Announced | Purchased Under the | |||||||||||||||||
Period | Purchased | Paid Per Share | Plans or Programs | Plans or Programs | ||||||||||||||||
|
||||||||||||||||||||
October 2010
|
| $ | | Not Applicable | Not Applicable | |||||||||||||||
November 2010
|
| | Not Applicable | Not Applicable | ||||||||||||||||
December 2010
|
| | Not Applicable | Not Applicable | ||||||||||||||||
|
||||||||||||||||||||
Total
|
| | Not Applicable | Not Applicable | ||||||||||||||||
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Period Ending | ||||||||||||||||||||||||
Index | 03/23/10 | 04/30/10 | 06/30/10 | 08/31/10 | 10/31/10 | 12/31/10 | ||||||||||||||||||
First INterstate BancSystem, Inc.
|
100.00 | 112.50 | 110.02 | 79.87 | 91.40 | 108.27 | ||||||||||||||||||
NASDAQ Composite
|
100.00 | 101.96 | 87.56 | 87.92 | 104.44 | 110.78 | ||||||||||||||||||
NASDAQ Bank
|
100.00 | 104.85 | 89.04 | 82.31 | 87.79 | 98.86 |
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(Dollars in thousands except per share data)
As of or for the year ended December 31,
2010
2009
2008
2007
2006
$
4,247,429
$
4,424,974
$
4,685,497
$
3,506,625
$
3,262,911
1,933,403
1,446,280
1,072,276
1,128,657
1,124,598
7,500,970
7,137,653
6,628,347
5,216,797
4,974,134
5,925,713
5,824,056
5,174,259
3,999,401
3,708,511
620,154
474,141
525,501
604,762
731,548
37,502
73,353
84,148
5,145
21,601
123,715
123,715
123,715
103,095
41,238
50,000
50,000
50,000
686,802
524,434
489,062
444,443
410,375
$
314,546
$
328,034
$
355,919
$
325,557
$
293,423
63,107
84,898
120,542
125,954
105,960
251,439
243,136
235,377
199,603
187,463
66,900
45,300
33,356
7,750
7,761
184,539
197,836
202,021
191,853
179,702
90,911
100,690
128,597
92,367
102,181
221,004
217,710
222,541
178,786
164,775
54,446
80,816
108,077
105,434
117,108
17,090
26,953
37,429
36,793
41,499
37,356
53,863
70,648
68,641
75,609
3,422
3,422
3,347
$
33,934
$
50,441
$
67,301
$
68,641
$
75,609
$
0.85
$
1.61
$
2.14
$
2.11
$
2.33
0.85
1.59
2.10
2.06
2.28
0.45
0.50
0.65
0.74
0.57
16.05
16.73
15.50
13.88
12.60
11.55
10.53
9.27
12.70
11.44
39,907,640
31,335,668
31,484,136
32,507,216
32,450,440
40,127,365
31,678,500
32,112,672
33,289,920
33,215,960
Table of Contents
(Dollars in thousands except per share data)
As of or for the year ended December 31,
2010
2009
2008
2007
2006
0.52
%
0.79
%
1.12
%
1.37
%
1.60
%
5.22
9.98
14.73
16.14
20.38
9.67
8.16
7.98
8.52
7.85
4.85
5.44
6.37
7.21
6.94
1.15
1.63
2.50
3.43
3.05
3.70
3.81
3.87
3.78
3.89
3.89
4.05
4.25
4.46
4.47
64.55
63.32
61.14
61.23
56.89
52.94
31.06
30.37
35.07
24.46
73.71
77.75
92.24
88.99
89.26
4.82
%
2.75
%
1.90
%
0.98
%
0.53
%
5.55
3.57
2.03
1.00
0.55
3.26
2.28
1.46
0.68
0.36
2.76
2.28
1.83
1.47
1.43
57.19
82.64
96.03
150.66
269.72
1.01
0.63
0.28
0.08
0.09
6.76
%
4.76
%
4.55
%
7.85
%
7.55
%
7.59
%
5.63
%
5.49
%
7.95
%
7.65
%
10.12
6.43
5.35
9.95
9.68
9.27
7.30
7.13
9.92
8.61
13.53
9.74
8.57
12.39
10.71
15.50
11.68
10.49
13.64
11.93
(1)
For purposes of computing book value per share, book value equals common stockholders
equity.
(2)
Tangible book value per share is a non-GAAP financial measure that management uses to
evaluate our capital adequacy. For purposes of computing tangible book value per share,
tangible book value equals common stockholders equity less goodwill, core deposit
intangibles and other intangible assets (except mortgage servicing rights). Tangible book
value per share is calculated as tangible common stockholders equity divided by common
shares outstanding, and its most directly comparable GAAP financial measure is book value
per share. See below our reconciliation of non-GAAP financial measures to their most
directly comparable GAAP financial measures under the caption Non-GAAP Financial
Measures in this Part II, Item 6.
(3)
Net interest margin ratio is presented on a fully taxable equivalent, or FTE, basis.
(4)
Efficiency ratio represents non-interest expense, excluding loan loss provision,
divided by the aggregate of net interest income and non-interest income.
(5)
Common stock dividend payout ratio represents dividends per common share divided by
basic earnings per common share.
(6)
Non-performing loans include nonaccrual loans, loans past due 90 days or more and
still accruing interest and restructured loans.
(7)
Non-performing assets include nonaccrual loans, loans past due 90 days or more and
still accruing interest and restructured loans and OREO.
(8)
Tangible common equity to tangible assets is a non-GAAP financial measure that
management uses to evaluate our capital adequacy. For purposes of computing tangible
common equity to tangible assets, tangible common equity is calculated as common
stockholders equity less goodwill and other intangible assets (except mortgage servicing
assets), and tangible assets is calculated as total assets less goodwill and other
intangible assets (except mortgage servicing rights). See below our reconciliation of
non-GAAP financial measures to their most directly comparable GAAP financial measures
under the caption Non-GAAP Financial Measures in this Part II, Item 6.
(9)
Net tangible common equity to tangible assets is a non-GAAP financial measure that
management uses to evaluate our capital adequacy. For purposes of computing net tangible
common equity to tangible assets, net tangible common equity is calculated as common
stockholders equity less goodwill (adjusted for associated deferred tax liability) and
other intangible assets (except mortgage servicing assets), and tangible assets is
calculated as total assets less goodwill and other intangible assets (except mortgage
servicing rights). See below our reconciliation of non-GAAP financial measures to their
most directly comparable GAAP financial measures under the caption Non-GAAP Financial
Measures in this Part II, Item 6.
(10)
For purposes of computing tier 1 common capital to total risk-weighted assets, tier 1
common capital excludes preferred stock and trust preferred securities.
Table of Contents
(Dollars in thousands except per share data)
As of December 31,
2010
2009
2008
2007
2006
$
50,000
$
50,000
$
50,000
$
$
686,802
524,434
489,062
444,443
410,375
736,802
574,434
539,062
444,443
410,375
192,518
194,273
196,667
37,637
37,812
50,000
50,000
50,000
$
494,284
$
330,161
$
292,395
$
406,806
$
372,563
60,499
60,499
60,499
4,907
4,907
$
554,783
$
390,660
$
352,894
$
411,713
$
377,470
42,800,694
31,349,588
31,550,076
32,024,164
32,579,152
$
16.05
$
16.73
$
15.50
$
13.88
$
12.60
11.55
10.53
9.27
12.70
11.44
$
7,500,970
$
7,137,653
$
6,628,347
$
5,216,797
$
4,974,134
192,518
194,273
196,667
37,637
37,812
$
7,308,452
$
6,943,380
$
6,431,680
$
5,179,160
$
4,936,322
6.76
%
4.76
%
4.55
%
7.85
%
7.55
%
7.59
%
5.63
%
5.49
%
7.95
%
7.65
%
Table of Contents
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 Companys 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 Companys 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; and
subordination of common stock to Company debt.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
(Dollars in thousands)
Year Ended December 31,
2010
2009
2008
Average
Average
Average
Average
Average
Average
Balance
Interest
Rate
Balance
Interest
Rate
Balance
Interest
Rate
$
4,482,219
$
268,279
5.99
%
$
4,660,189
$
281,799
6.05
%
$
4,527,987
$
306,976
6.78
%
1,529,628
41,824
2.73
1,016,632
41,887
4.12
923,912
43,336
4.69
6,238
22
0.35
105,423
253
0.24
55,205
1,080
1.96
376
1,556
50
3.21
5,020
214
4.26
133,207
7,802
5.86
134,373
8,398
6.25
147,812
9,382
6.35
429,657
1,093
0.25
199,316
520
0.26
5,946
191
3.21
6,581,325
319,020
4.85
6,117,489
332,907
5.44
5,665,882
361,179
6.37
665,012
687,110
667,206
$
7,246,337
$
6,804,599
$
6,333,088
$
1,135,208
$
3,430
0.30
%
$
1,083,054
$
4,068
0.38
%
$
1,120,807
$
12,966
1.16
%
1,530,844
8,934
0.58
1,321,625
10,033
0.76
1,144,553
18,454
1.61
2,143,899
41,585
1.94
2,129,313
59,125
2.78
1,688,859
65,443
3.87
480,276
879
0.18
422,713
776
0.18
537,267
7,694
1.43
5,779
3
0.05
57,016
1,367
2.40
126,941
3,130
2.47
46,024
2,433
5.29
79,812
3,249
4.07
86,909
4,578
5.27
123,715
5,843
4.72
123,715
6,280
5.08
123,327
8,277
6.71
5,465,745
63,107
1.15
5,217,248
84,898
1.63
4,828,663
120,542
2.50
1,021,409
965,226
940,968
58,778
66,862
57,922
700,405
555,263
505,535
$
7,246,337
$
6,804,599
$
6,333,088
$
255,913
$
248,009
$
240,637
(4,474
)
(4,873
)
(5,260
)
$
251,439
$
243,136
$
235,377
3.70
%
3.81
%
3.87
%
3.89
%
4.05
%
4.25
%
(1)
Average loan balances include nonaccrual 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)
Includes interest on federal funds purchased and other borrowed funds. Excludes
long-term debt.
(4)
Net FTE interest margin during the period equals (i) the difference between interest
income on interest earning assets and the interest expense on interest bearing
liabilities, divided by (ii) average interest earning assets for the period.
Table of Contents
(Dollars in thousands)
Year Ended December 31, 2010
Year Ended December 31, 2009
Year Ended December 31, 2008
compared with
compared with
compared with
December 31, 2009
December 31, 2008
December 31, 2007
Volume
Rate
Net
Volume
Rate
Net
Volume
Rate
Net
$
(10,762
)
$
(2,758
)
$
(13,520
)
$
8,963
$
(34,140
)
$
(25,177
)
$
85,640
$
(52,684
)
$
32,956
21,136
(21,199
)
(63
)
4,349
(5,798
)
(1,449
)
1,484
(798
)
686
(238
)
7
(231
)
982
(1,809
)
(827
)
(1,631
)
(1,711
)
(3,342
)
(38
)
(12
)
(50
)
(148
)
(16
)
(164
)
15
196
211
(73
)
(523
)
(596
)
(853
)
(131
)
(984
)
2,330
(164
)
2,166
601
(28
)
573
6,212
(5,883
)
329
(1,010
)
(106
)
(1,116
)
10,626
(24,513
)
(13,887
)
19,505
(47,777
)
(28,272
)
86,828
(55,267
)
31,561
196
(834
)
(638
)
(437
)
(8,461
)
(8,898
)
2,749
(13,414
)
(10,665
)
1,588
(2,687
)
(1,099
)
2,855
(11,276
)
(8,421
)
5,229
(10,878
)
(5,649
)
405
(17,945
)
(17,540
)
17,068
(23,386
)
(6,318
)
27,309
(13,681
)
13,628
106
(3
)
103
(1,640
)
(5,278
)
(6,918
)
(805
)
(12,713
)
(13,518
)
(1,228
)
(136
)
(1,364
)
(1,724
)
(39
)
(1,763
)
5,953
(3,251
)
2,702
(1,375
)
559
(816
)
(374
)
(955
)
(1,329
)
3,930
181
4,111
(437
)
(437
)
26
(2,023
)
(1,997
)
6,956
(2,977
)
3,979
(308
)
(21,483
)
(21,791
)
15,774
(51,418
)
(35,644
)
51,321
(56,733
)
(5,412
)
$
10,934
$
(3,030
)
$
7,904
$
3,731
$
3,641
$
7,372
$
35,507
$
1,466
$
36,973
(1)
Interest income and average rates for tax exempt loans and securities are presented on a
FTE basis.
(2)
Includes interest on federal funds purchased and other borrowed funds.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
(Dollars in thousands except per share data)
First
Second
Third
Fourth
Full
Quarter
Quarter
Quarter
Quarter
Year
$
79,499
$
79,867
$
78,965
$
76,215
$
314,546
17,830
16,691
15,221
13,365
63,107
61,669
63,176
63,744
62,850
251,439
11,900
19,500
18,000
17,500
66,900
49,769
43,676
45,744
45,350
184,539
19,508
21,037
24,855
25,511
90,911
52,745
55,426
58,010
54,823
221,004
16,532
9,287
12,589
16,038
54,446
5,402
2,628
3,860
5,200
17,090
11,130
6,659
8,729
10,838
37,356
844
853
862
863
3,422
$
10,286
$
5,806
$
7,867
$
9,975
$
33,934
$
0.33
$
0.14
$
0.18
$
0.23
$
0.85
0.32
0.14
0.18
0.23
0.85
0.1125
0.1125
0.1125
0.1125
0.4500
$
81,883
$
81,148
$
82,325
$
82,678
$
328,034
22,820
21,958
21,026
19,094
84,898
59,063
59,190
61,299
63,584
243,136
9,600
11,700
10,500
13,500
45,300
49,463
47,490
50,799
50,084
197,836
26,213
27,267
25,000
22,210
100,690
50,445
54,737
57,376
55,152
217,710
25,231
20,020
18,423
17,142
80,816
8,543
6,684
6,105
5,621
26,953
16,688
13,336
12,318
11,521
53,863
844
853
862
863
3,422
$
15,844
$
12,483
$
11,456
$
10,658
$
50,441
$
0.50
$
0.40
$
0.37
$
0.34
$
1.61
0.49
0.39
0.36
0.34
1.59
0.1625
0.1125
0.1125
0.1125
0.5000
Table of Contents
(Dollars in thousands)
As of December 31,
2010
Percent
2009
Percent
2008
Percent
2007
Percent
2006
Percent
$
1,565,665
35.8
%
$
1,556,273
34.4
%
$
1,483,967
31.1
%
$
1,018,831
28.6
%
$
937,695
28.3
%
527,458
12.1
636,892
14.1
790,177
16.5
664,272
18.7
579,603
17.5
549,604
12.6
539,098
11.9
587,464
12.3
419,001
11.8
402,468
12.2
182,794
4.2
195,045
4.3
191,831
4.0
142,256
4.0
137,659
4.1
46,408
1.0
36,430
0.8
47,076
1.0
26,080
0.7
25,360
0.8
646,580
14.8
677,548
14.9
669,731
14.0
608,002
17.1
605,858
18.3
730,471
16.7
750,647
16.6
853,798
17.9
593,669
16.7
542,325
16.4
116,546
2.7
134,470
3.0
145,876
3.1
81,890
2.3
76,644
2.3
2,383
0.1
1,601
2,893
0.1
4,979
0.1
2,751
0.1
4,367,909
100.0
%
4,528,004
100.0
%
4,772,813
100.0
%
3,558,980
100.0
%
3,310,363
100.0
%
120,480
103,030
87,316
52,355
47,452
$
4,247,429
$
4,424,974
$
4,685,497
$
3,506,625
$
3,262,911
2.76
%
2.28
%
1.83
%
1.47
%
1.43
%
Table of Contents
Table of Contents
(Dollars in thousands)
Within
One Year to
After
One Year
Five Years
Five Years
Total
$
1,145,780
$
1,140,504
$
585,645
$
2,871,929
298,192
327,898
20,490
646,580
438,881
220,303
71,287
730,471
94,216
20,345
1,985
116,546
2,383
2,383
$
1,977,069
$
1,709,050
$
681,790
$
4,367,909
$
1,130,432
$
1,122,284
$
91,293
$
2,344,009
846,637
586,766
395,155
1,828,558
195,342
195,342
$
1,977,069
$
1,709,050
$
681,790
$
4,367,909
(Dollars in thousands)
As of December 31,
2010
2009
2008
2007
2006
$
195,342
$
115,030
$
85,632
$
31,552
$
14,764
1,852
4,965
3,828
2,171
1,769
13,490
4,683
1,462
1,027
1,060
210,684
124,678
90,922
34,750
17,593
33,632
38,400
6,025
928
529
$
244,316
$
163,078
$
96,947
$
35,678
$
18,122
4.82
%
2.75
%
1.90
%
0.98
%
0.53
%
5.55
3.57
2.03
1.00
0.55
3.26
2.28
1.46
0.68
0.36
Table of Contents
(Dollars in thousands)
As of December 31,
2010
2009
2008
2007
2006
$
169,961
$
101,751
$
79,167
$
27,513
$
9,645
2,720
2,265
2,944
1,202
1,359
36,906
19,774
8,594
5,722
5,583
1,093
888
217
313
1,006
4
$
210,684
$
124,678
$
90,922
$
34,750
$
17,593
Table of Contents
Table of Contents
(Dollars in thousands)
As of and for the year ended December 31,
2010
2009
2008
2007
2006
$
103,030
$
87,316
$
52,355
$
47,452
$
42,450
14,463
8,980
5,156
995
382
42
19,989
14,153
3,035
9
3,511
1,086
325
134
86
2,238
11
642
155
7,577
8,134
5,527
3,778
4,030
10,023
3,346
3,523
643
963
21
92
648
116
80
52,339
31,978
14,695
5,208
5,210
34
108
88
52
329
213
7
1
1
10
132
38
67
34
63
2,053
1,850
1,404
1,390
1,568
436
328
211
854
360
21
61
66
30
121
2,889
2,392
1,837
2,361
2,451
49,450
29,586
12,858
2,847
2,759
66,900
45,300
33,356
7,750
7,761
$
120,480
$
103,030
$
87,316
$
52,355
$
47,452
$
4,367,909
$
4,528,004
$
4,772,813
$
3,558,980
$
3,310,363
4,882,219
4,660,189
4,527,987
3,449,809
3,208,102
1.01
%
0.63
%
0.28
%
0.08
%
0.09
%
2.76
%
2.28
%
1.83
%
1.47
%
1.43
%
Table of Contents
(Dollars in thousands)
As of December 31,
2010
2009
2008
2007
2006
% of
% of
% of
% of
% of
Loan
Loan
Loan
Loan
Loan
Category
Category
Category
Category
Category
Allocated
to Total
Allocated
to Total
Allocated
to Total
Allocated
to Total
Allocated
to Total
Reserves
Loans
Reserves
Loans
Reserves
Loans
Reserves
Loans
Reserves
Loans
$
84,181
65.7
%
$
76,357
65.5
%
$
69,280
64.9
%
$
39,420
63.8
%
$
33,532
62.9
%
9,332
14.8
6,220
14.9
5,092
14.0
4,838
17.1
5,794
18.3
25,354
16.7
18,608
16.6
11,021
17.9
7,170
16.7
6,746
16.4
1,613
2.7
1,845
3.0
1,923
3.1
779
2.3
908
2.3
0.1
0.1
0.1
14
0.1
N/A
N/A
N/A
148
N/A
458
N/A
$
120,480
100.0
%
$
103,030
100.0
%
$
87,316
100.0
%
$
52,355
100.0
%
$
47,452
100.0
%
Table of Contents
% of Total
Weighted
Book
Investment
Average
Value
Securities
FTE Yield
$
196,239
10.15
%
0.35
%
759,778
39.30
0.87
(2,597
)
(0.13
)
NA
953,420
49.32
0.77
252,164
13.04
3.94
341,640
17.67
3.67
73,209
3.79
3.15
146,416
7.57
3.08
19,486
1.01
NA
832,915
43.08
3.52
7,599
0.39
5.59
26,628
1.38
5.92
51,766
2.68
5.86
60,857
3.15
5.68
NA
NA
NA
146,850
7.60
5.78
218
0.01
NA
NA
NA
NA
218
NA
$
1,933,403
100.00
%
2.33
%
(1)
Equity investments in community development entities. Investment income is in the form
of credits that reduce income tax expense.
Table of Contents
Table of Contents
As of December 31,
2010
Percent
2009
Percent
2008
Percent
2007
Percent
2006
Percent
$
1,063,869
18.0
%
$
1,026,584
17.6
%
$
985,155
19.0
%
$
836,753
20.9
%
$
888,694
24.0
%
1,218,078
20.5
1,197,254
20.6
1,059,818
20.5
1,019,208
25.5
964,312
26.0
1,718,521
29.0
1,362,410
23.4
1,198,783
23.2
992,571
24.8
798,497
21.5
908,044
15.3
996,839
17.1
821,437
15.9
464,560
11.6
408,813
11.0
1,017,201
17.2
1,240,969
21.3
1,109,066
21.4
686,309
17.2
648,195
17.5
4,861,844
82.0
4,797,472
82.4
4,189,104
81.0
3,162,648
79.1
2,819,817
76.0
$
5,925,713
100.0
%
$
5,824,056
100.0
%
$
5,174,259
100.0
%
$
3,999,401
100.0
%
$
3,708,511
100.0
%
Table of Contents
(Dollars in thousands)
As of and for the year ended December 31,
2010
2009
2008
$
$
$
30,625
9,323
64,994
57,230
121,390
0.00
%
0.21
%
2.14
%
0.22
$
620,154
$
474,141
$
525,501
480,276
422,713
537,267
620,154
474,141
576,845
0.18
%
0.18
%
1.43
%
0.14
0.38
0.34
Table of Contents
(Dollars in thousands)
Payments Due
Within
One Year to
Three Years
After
One Year
Three Years
to Five Years
Five Years
Total
$
4,000,468
$
$
$
$
4,000,468
1,564,798
265,925
94,501
21
1,925,245
620,154
620,154
4,991
4,991
208
217
244
35,021
35,690
37
84
109
1,582
1,812
3,308
5,333
4,018
5,476
18,135
1,389
1,389
123,715
123,715
$
6,195,353
$
271,559
$
98,872
$
165,815
$
6,731,599
Table of Contents
(1)
Included in other borrowed funds are tax deposits made by customers pending subsequent
withdrawal by the federal government and borrowings with original maturities of less than
one year. For additional information concerning other borrowed funds, see Notes to
Consolidated Financial Statements Long Term Debt and Other Borrowed Funds included in
Part IV, Item 15.
(2)
Long-term debt consists of various notes payable to FHLB at various rates with
maturities through October 31, 2017; a fixed rate subordinated term loan bearing interest
of 6.81% and maturing January 9, 2018; and a variable rate subordinated term loan maturing
February 28, 2018. For additional information concerning long-term debt, see Notes to
Consolidated Financial Statements Long Term Debt and Other Borrowed Funds included in
Part IV, Item 15.
(3)
Purchase obligations relate to obligations under construction contracts to build or
renovate banking offices and obligations to purchase investment securities.
(4)
The subordinated debentures are unsecured, with various interest rates and maturities
from March 26, 2033 through April 1, 2038. Interest distributions are payable quarterly;
however, we may defer interest payments at any time for a period not exceeding 20
consecutive quarters. For additional information concerning the subordinated debentures,
see Notes to Consolidated Financial Statements Subordinated Debentures Held by
Subsidiary Trusts included in Part IV, Item 15.
Table of Contents
Table of Contents
(Dollars in thousands)
Projected Maturity or Repricing
Three
Three
One
Months
Months to
Year to
After
or Less
One Year
Five Years
Five Years
Total
$
1,726,553
$
870,190
$
1,137,140
$
438,684
$
4,172,567
216,210
501,627
1,199,815
15,751
1,933,403
576,469
576,469
2,114
2,114
$
2,521,346
$
1,371,817
$
2,336,955
$
454,435
$
6,684,553
$
91,357
$
274,067
$
852,654
$
$
1,218,078
1,462,981
62,158
193,382
1,718,521
260,606
510,051
102,089
35,298
908,044
322,162
471,987
163,830
59,222
1,017,201
620,154
620,154
4,991
4,991
15,011
234
655
21,602
37,502
77,322
46,393
123,715
$
2,854,584
$
1,318,497
$
1,359,003
$
116,122
$
5,648,206
$
(333,238
)
$
53,320
$
977,952
$
338,313
$
1,036,347
(333,238
)
(279,918
)
698,034
1,036,347
-4.99
%
-4.19
%
10.44
%
15.50
%
15.50
%
(1)
Does not include nonaccrual loans of $195,342.
(2)
Adjusted to reflect: (a) expected shorter maturities based upon our historical
experience of early prepayments of principal, and (b) the redemption of callable
securities on their next call date.
Table of Contents
(3)
Includes savings deposits paying interest at market rates in the three month or less
category. All other deposit categories, while technically subject to immediate
withdrawal, actually display sensitivity characteristics that generally fall within one to
five years. Their allocation is presented based on that historical analysis. If these
deposits were included in the three month or less category, the above table would reflect
a negative three month gap of $1,715 million, a negative
cumulative one year gap of $1,326
million and a positive cumulative one to five year gap of $698 million.
(4)
Included in the three month to one year category are deposits of $214 million
maturing in three to six months.
Consolidated Balance Sheets December 31, 2010 and 2009
Consolidated Statements of Income Years Ended December 31, 2010, 2009 and 2008
Consolidated Statements of Stockholders Equity Years Ended December 31, 2010, 2009
and 2008
Consolidated Statements of Cash Flows Years Ended December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements
Table of Contents
First Interstate BancSystem, Inc.
Table of Contents
February 28, 2011
Table of Contents
(a) | 1. Our audited consolidated financial statements follow. |
-63-
-64-
First Interstate BancSystem, Inc.
February 28, 2011
Table of Contents
December 31, | 2010 | 2009 | ||||||
Assets
|
||||||||
Cash and due from banks
|
$ | 107,035 | $ | 213,029 | ||||
Federal funds sold
|
2,114 | 11,474 | ||||||
Interest bearing deposits in banks
|
576,469 | 398,979 | ||||||
Total cash and cash equivalents
|
685,618 | 623,482 | ||||||
Investment securities:
|
||||||||
Available-for-sale
|
1,786,335 | 1,316,429 | ||||||
Held-to-maturity (estimated fair values of $146,508 and
$130,855 at December 31, 2010 and 2009, respectively)
|
147,068 | 129,851 | ||||||
Total investment securities
|
1,933,403 | 1,446,280 | ||||||
Loans
|
4,367,909 | 4,528,004 | ||||||
Less allowance for loan losses
|
120,480 | 103,030 | ||||||
Net loans
|
4,247,429 | 4,424,974 | ||||||
Premises and equipment, net
|
188,138 | 196,307 | ||||||
Goodwill
|
183,673 | 183,673 | ||||||
Company-owned life insurance
|
73,056 | 71,374 | ||||||
Other real estate owned (OREO), net of write-downs
|
33,632 | 38,400 | ||||||
Accrued interest receivable
|
33,628 | 37,123 | ||||||
Deferred tax asset
|
18,472 | | ||||||
Mortgage servicing rights, net of accumulated amortization and impairment reserve
|
13,191 | 17,325 | ||||||
Core deposit intangibles, net of accumulated amortization
|
8,803 | 10,551 | ||||||
Other assets
|
81,927 | 88,164 | ||||||
Total assets
|
$ | 7,500,970 | $ | 7,137,653 | ||||
Liabilities and Stockholders Equity
|
||||||||
Deposits:
|
||||||||
Non-interest bearing
|
$ | 1,063,869 | $ | 1,026,584 | ||||
Interest bearing
|
4,861,844 | 4,797,472 | ||||||
Total deposits
|
5,925,713 | 5,824,056 | ||||||
Securities sold under repurchase agreements
|
620,154 | 474,141 | ||||||
Accounts payable and accrued expenses
|
38,915 | 44,946 | ||||||
Accrued interest payable
|
13,178 | 17,585 | ||||||
Other borrowed funds
|
4,991 | 5,423 | ||||||
Long-term debt
|
37,502 | 73,353 | ||||||
Subordinated debentures held by subsidiary trusts
|
123,715 | 123,715 | ||||||
Total liabilities
|
6,764,168 | 6,563,219 | ||||||
Stockholders equity:
|
||||||||
Nonvoting noncumulative preferred stock without par value;
authorized 100,000 shares; issued and outstanding 5,000 shares as of
December 31, 2010 and 2009
|
50,000 | 50,000 | ||||||
Common stock
|
264,174 | 112,135 | ||||||
Retained earnings
|
413,253 | 397,224 | ||||||
Accumulated other comprehensive income, net
|
9,375 | 15,075 | ||||||
Total stockholders equity
|
736,802 | 574,434 | ||||||
Total liabilities and stockholders equity
|
$ | 7,500,970 | $ | 7,137,653 | ||||
-65-
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Interest income:
|
||||||||||||
Interest and fees on loans
|
$ | 266,472 | $ | 279,985 | $ | 305,152 | ||||||
Interest and dividends on investment securities:
|
||||||||||||
Taxable
|
42,338 | 41,978 | 43,583 | |||||||||
Exempt from federal taxes
|
4,621 | 5,298 | 5,913 | |||||||||
Interest on deposits in banks
|
1,093 | 520 | 191 | |||||||||
Interest on federal funds sold
|
22 | 253 | 1,080 | |||||||||
Total interest income
|
314,546 | 328,034 | 355,919 | |||||||||
Interest expense:
|
||||||||||||
Interest on deposits
|
53,949 | 73,226 | 96,863 | |||||||||
Interest on federal funds purchased
|
| 20 | 1,389 | |||||||||
Interest on securities sold under repurchase agreements
|
879 | 776 | 7,694 | |||||||||
Interest on other borrowed funds
|
3 | 1,347 | 1,741 | |||||||||
Interest on long-term debt
|
2,433 | 3,249 | 4,578 | |||||||||
Interest on subordinated debentures held by subsidiary trusts
|
5,843 | 6,280 | 8,277 | |||||||||
Total interest expense
|
63,107 | 84,898 | 120,542 | |||||||||
Net interest income
|
251,439 | 243,136 | 235,377 | |||||||||
Provision for loan losses
|
66,900 | 45,300 | 33,356 | |||||||||
Net interest income after provision for loan losses
|
184,539 | 197,836 | 202,021 | |||||||||
Non-interest income:
|
||||||||||||
Other service charges, commissions and fees
|
29,494 | 28,747 | 28,193 | |||||||||
Income from the origination and sale of loans
|
22,868 | 30,928 | 12,290 | |||||||||
Service charges on deposit accounts
|
18,181 | 20,323 | 20,712 | |||||||||
Wealth managment revenues
|
12,387 | 10,821 | 12,352 | |||||||||
Investment securities gains, net
|
170 | 137 | 101 | |||||||||
Gain on sale of nonbank subsidiary
|
| | 27,096 | |||||||||
Technology services revenues
|
| | 17,699 | |||||||||
Other income
|
7,811 | 9,734 | 10,154 | |||||||||
Total non-interest income
|
90,911 | 100,690 | 128,597 | |||||||||
Non-interest expense:
|
||||||||||||
Salaries, wages and employee benefits
|
112,667 | 113,569 | 114,024 | |||||||||
Occupancy, net
|
16,251 | 15,898 | 16,361 | |||||||||
Furniture and equipment
|
13,434 | 12,405 | 18,880 | |||||||||
FDIC insurance premiums
|
10,044 | 12,130 | 2,912 | |||||||||
Outsourced technology services
|
9,477 | 10,567 | 4,016 | |||||||||
Mortgage servicing rights amortization
|
4,615 | 7,568 | 5,918 | |||||||||
Mortgage servicing rights impairment (recovery)
|
(787 | ) | (7,224 | ) | 10,940 | |||||||
OREO expense, net of income
|
7,670 | 6,397 | 215 | |||||||||
Core deposit intangibles amortization
|
1,748 | 2,131 | 2,503 | |||||||||
Other expenses
|
45,885 | 44,269 | 46,772 | |||||||||
Total non-interest expense
|
221,004 | 217,710 | 222,541 | |||||||||
Income before income tax expense
|
54,446 | 80,816 | 108,077 | |||||||||
Income tax expense
|
17,090 | 26,953 | 37,429 | |||||||||
Net income
|
37,356 | 53,863 | 70,648 | |||||||||
Preferred stock dividends
|
3,422 | 3,422 | 3,347 | |||||||||
Net income available to common shareholders
|
$ | 33,934 | $ | 50,441 | $ | 67,301 | ||||||
Basic earnings per common share
|
$ | 0.85 | $ | 1.61 | $ | 2.14 | ||||||
Diluted earnings per common share
|
0.85 | 1.59 | 2.10 | |||||||||
-66-
Accumulated | ||||||||||||||||||||
Other | Total | |||||||||||||||||||
Preferred | Common | Retained | Comprehensive | Stockholders | ||||||||||||||||
Stock | Stock | Earnings | Income (Loss) | Equity | ||||||||||||||||
Balance at December 31, 2007
|
$ | | $ | 29,773 | $ | 416,425 | $ | (1,755 | ) | $ | 444,443 | |||||||||
Cumulative effect of adoption of new accounting
principle related to deferred compensation
and split-dollar life insurance policies
|
| | (633 | ) | | (633 | ) | |||||||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
| | 70,648 | | 70,648 | |||||||||||||||
Other comprehensive income, net of tax
|
| | | 10,727 | 10,727 | |||||||||||||||
|
||||||||||||||||||||
Total comprehensive income
|
81,375 | |||||||||||||||||||
|
||||||||||||||||||||
Preferred stock transactions:
|
||||||||||||||||||||
5,000 preferred shares issued
|
50,000 | | | | 50,000 | |||||||||||||||
Preferred stock issuance costs
|
| | (38 | ) | | (38 | ) | |||||||||||||
Common stock transactions:
|
||||||||||||||||||||
1,333,572 common shares purchased and retired
|
| (27,912 | ) | | | (27,912 | ) | |||||||||||||
617,152 common shares issued
|
| 11,884 | | | 11,884 | |||||||||||||||
242,332 stock options exercised, net of
130,040
shares tendered in payment of option price
and income tax withholding amounts
|
| 1,779 | | | 1,779 | |||||||||||||||
Tax benefit of stock-based compensation
|
| 1,178 | | | 1,178 | |||||||||||||||
Stock-based compensation expense
|
| 911 | | | 911 | |||||||||||||||
Transfer from retained earnings to common stock
|
| 100,000 | (100,000 | ) | | | ||||||||||||||
Cash dividends declared:
|
||||||||||||||||||||
Common ($0.65 per share)
|
| | (20,578 | ) | | (20,578 | ) | |||||||||||||
Preferred (6.75% per share)
|
| | (3,347 | ) | | (3,347 | ) | |||||||||||||
Balance at December 31, 2008
|
50,000 | 117,613 | 362,477 | 8,972 | 539,062 | |||||||||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
| | 53,863 | | 53,863 | |||||||||||||||
Other comprehensive income, net of tax
|
| | | 6,103 | 6,103 | |||||||||||||||
|
||||||||||||||||||||
Total comprehensive income
|
59,966 | |||||||||||||||||||
|
||||||||||||||||||||
Common stock transactions:
|
||||||||||||||||||||
642,752 common shares purchased and retired
|
| (11,052 | ) | | | (11,052 | ) | |||||||||||||
254,156 common shares issued
|
| 3,813 | | | 3,813 | |||||||||||||||
64,136 restricted common shares issued
|
| | | | | |||||||||||||||
299,436 stock options exercised, net of
175,464
shares tendered in payment of option price
and income tax withholding amounts
|
| 144 | | | 144 | |||||||||||||||
Tax benefit of stock-based compensation
|
| 742 | | | 742 | |||||||||||||||
Stock-based compensation expense
|
| 875 | | | 875 | |||||||||||||||
Cash dividends declared:
|
||||||||||||||||||||
Common ($0.50 per share)
|
| | (15,694 | ) | | (15,694 | ) | |||||||||||||
Preferred (6.75% per share)
|
| | (3,422 | ) | | (3,422 | ) | |||||||||||||
Balance at December 31, 2009
|
$ | 50,000 | $ | 112,135 | $ | 397,224 | $ | 15,075 | $ | 574,434 | ||||||||||
-67-
Accumulated | ||||||||||||||||||||
Other | Total | |||||||||||||||||||
Preferred | Common | Retained | Comprehensive | Stockholders | ||||||||||||||||
Stock | Stock | Earnings | Income (Loss) | Equity | ||||||||||||||||
Balance at December 31, 2009
|
$ | 50,000 | $ | 112,135 | $ | 397,224 | $ | 15,075 | $ | 574,434 | ||||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
| | 37,356 | | 37,356 | |||||||||||||||
Other comprehensive loss, net of tax
|
| | | (5,700 | ) | (5,700 | ) | |||||||||||||
|
||||||||||||||||||||
Total comprehensive income
|
31,656 | |||||||||||||||||||
|
||||||||||||||||||||
Common stock transactions:
|
||||||||||||||||||||
246,596 common shares purchased and retired
|
| (3,699 | ) | | | (3,699 | ) | |||||||||||||
11,506,503 common shares issued
|
| 153,257 | | | 153,257 | |||||||||||||||
117,140 non-vested common shares issued
|
| | | | | |||||||||||||||
18,821 non-vested common shares forfeited
|
| | | | | |||||||||||||||
Non-vested common shares vesting during period
|
| 59 | | | 59 | |||||||||||||||
92,880 stock options exercised, net of 111,792
shares tendered in payment of option price
and income tax withholding amounts
|
| 649 | | | 649 | |||||||||||||||
Tax benefit of stock-based compensation
|
| 239 | | | 239 | |||||||||||||||
Stock-based compensation expense
|
| 1,534 | | | 1,534 | |||||||||||||||
Cash dividends declared:
|
||||||||||||||||||||
Common ($0.45 per share)
|
| | (17,905 | ) | | (17,905 | ) | |||||||||||||
Preferred (6.75% per share)
|
| | (3,422 | ) | | (3,422 | ) | |||||||||||||
Balance at December 31, 2010
|
$ | 50,000 | $ | 264,174 | $ | 413,253 | $ | 9,375 | $ | 736,802 | ||||||||||
-68-
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Cash flows from operating activities:
|
||||||||||||
Net income
|
$ | 37,356 | $ | 53,863 | $ | 70,648 | ||||||
Adjustments to reconcile net income from operations to net cash
provided by operating activities:
|
||||||||||||
Provisions for loan losses
|
66,900 | 45,300 | 33,356 | |||||||||
Net loss on disposal of property and equipment
|
672 | 306 | 111 | |||||||||
Depreciation and amortization
|
20,136 | 22,286 | 23,622 | |||||||||
Net premium amortization on investment securities
|
6,762 | 1,293 | 728 | |||||||||
Net gains on investment securities transactions
|
(170 | ) | (137 | ) | (101 | ) | ||||||
Net gains on sales of loans held for sale
|
(15,321 | ) | (18,315 | ) | (7,068 | ) | ||||||
Net gains on sales of loans
|
(374 | ) | | | ||||||||
Net loss on sale of mortgage servicing assets
|
1,525 | 48 | | |||||||||
Other than temporary impairment of investment securitites
|
| | 1,286 | |||||||||
Gain on sale of nonbank subsidiary
|
| | (27,096 | ) | ||||||||
Write-down of OREO and equipment pending disposal
|
6,724 | 5,895 | 34 | |||||||||
Loss on early extinguishment of debt
|
306 | | | |||||||||
Net increase (decrease) in valuation reserve for mortgage servicing rights
|
(787 | ) | (7,224 | ) | 10,940 | |||||||
Deferred income tax expense (benefit)
|
(17,257 | ) | 5,547 | (7,578 | ) | |||||||
Net increase in cash surrender value of company-owned life insurance policies
|
(1,682 | ) | (1,859 | ) | (2,439 | ) | ||||||
Stock-based compensation expense
|
1,661 | 1,024 | 911 | |||||||||
Tax benefits from stock-based compensation
|
239 | 742 | 1,178 | |||||||||
Excess tax benefits from stock-based compensation
|
(225 | ) | (719 | ) | (1,140 | ) | ||||||
Changes in operating assets and liabilities:
|
||||||||||||
Increase (decrease) in loans held for sale
|
1,121 | 19,280 | (20,039 | ) | ||||||||
Decrease in accrued interest receivable
|
3,495 | 1,571 | 1,502 | |||||||||
Decrease (increase) in other assets
|
7,450 | (36,120 | ) | (8,953 | ) | |||||||
Decrease in accrued interest payable
|
(4,407 | ) | (2,946 | ) | (3,207 | ) | ||||||
Increase (decrease) in accounts payable and accrued expenses
|
(4,969 | ) | (8,043 | ) | 10,784 | |||||||
Net cash provided by operating activities
|
109,155 | 81,792 | 77,479 | |||||||||
Cash flows from investing activities:
|
||||||||||||
Purchases of investment securities:
|
||||||||||||
Held-to-maturity
|
(33,118 | ) | (9,910 | ) | (16,831 | ) | ||||||
Available-for-sale
|
(1,317,938 | ) | (868,917 | ) | (341,587 | ) | ||||||
Proceeds from maturities, paydowns and calls of investment securities:
|
||||||||||||
Held-to-maturity
|
15,134 | 19,785 | 20,684 | |||||||||
Available-for-sale
|
833,910 | 493,389 | 505,870 | |||||||||
Proceeds from sales of mortgage servicing rights, net of acquisitions
|
2,480 | 2,051 | (34 | ) | ||||||||
Extensions of credit to customers, net of repayments
|
71,762 | 146,943 | (492,297 | ) | ||||||||
Proceeds from sales of loans
|
25,032 | | | |||||||||
Recoveries of loans charged-off
|
2,889 | 2,392 | 1,837 | |||||||||
Proceeds from sales of OREO
|
20,336 | 10,849 | 623 | |||||||||
Proceeds from sale of nonbank subsidiary, net of cash payments
|
| | 40,766 | |||||||||
Capital expenditures, net of sales
|
(7,998 | ) | (26,393 | ) | (32,852 | ) | ||||||
Capital contributions to unconsolidated subsidiaries and joint ventures
|
| | (620 | ) | ||||||||
Acquisition of banks and data services company, net of cash and cash
equivalents received
|
| | (135,706 | ) | ||||||||
Net cash used in investing activities
|
$ | (387,511 | ) | $ | (229,811 | ) | $ | (450,147 | ) | |||
|
-69-
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Cash flows from financing activities:
|
||||||||||||
Net increase in deposits
|
$ | 101,657 | $ | 649,797 | $ | 362,931 | ||||||
Net decrease in federal funds purchased
|
| (30,625 | ) | 30,625 | ||||||||
Net increase (decrease) in repurchase agreements
|
146,013 | (51,360 | ) | (84,293 | ) | |||||||
Net increase (decrease) in short-term borrowings
|
(432 | ) | (73,793 | ) | 69,857 | |||||||
Borrowings of long-term debt
|
| | 113,500 | |||||||||
Repayments of long-term debt
|
(35,851 | ) | (10,795 | ) | (38,107 | ) | ||||||
Debt issuance costs
|
| (261 | ) | (609 | ) | |||||||
Proceeds from issuance of subordinated debentures held
by subsidiary trusts
|
| | 20,620 | |||||||||
Preferred stock issuance costs
|
| | (38 | ) | ||||||||
Proceeds from issuance of common stock
|
167,503 | 3,957 | 13,663 | |||||||||
Common stock issuance costs
|
(13,597 | ) | | | ||||||||
Excess tax benefits from stock-based compensation
|
225 | 719 | 1,140 | |||||||||
Purchase and retirement of common stock
|
(3,699 | ) | (11,052 | ) | (27,912 | ) | ||||||
Dividends paid to common stockholders
|
(17,905 | ) | (15,694 | ) | (20,578 | ) | ||||||
Dividends paid to preferred stockholders
|
(3,422 | ) | (3,422 | ) | (3,347 | ) | ||||||
Net cash provided by financing activities
|
340,492 | 457,471 | 437,452 | |||||||||
Net increase in cash and cash equivalents
|
62,136 | 309,452 | 64,784 | |||||||||
Cash and cash equivalents at beginning of year
|
623,482 | 314,030 | 249,246 | |||||||||
Cash and cash equivalents at end of year
|
$ | 685,618 | $ | 623,482 | $ | 314,030 | ||||||
Supplemental disclosures of cash flow information:
|
||||||||||||
Cash paid during the year for income taxes
|
$ | 37,325 | $ | 25,813 | $ | 35,376 | ||||||
Cash paid during the year for interest expense
|
67,514 | 87,844 | 121,115 | |||||||||
-70-
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Business . First Interstate BancSystem, Inc. (the Parent Company and collectively with its subsidiaries, the Company) is a financial and bank holding company that, through the branch offices of its bank subsidiary, provides a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities throughout Montana, Wyoming and western South Dakota. In addition to its primary emphasis on commercial and consumer banking services, the Company also offers trust, employee benefit and investment and insurance services through its bank subsidiary. The Company is subject to competition from other financial institutions and nonbank financial companies, and is also subject to the regulations of various government agencies and undergoes periodic examinations by those regulatory authorities. | ||
Basis of Presentation . The Companys consolidated financial statements include the accounts of the Parent Company and its operating subsidiaries. As of December 31, 2010, the Companys subsidiaries were First Interstate Bank (FIB), First Western Data, Inc. (Data), First Interstate Insurance Agency, Inc., Commerce Financial, Inc., FIB, LLC and FIBCT, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made in the consolidated financial statements for 2009 and 2008 to conform to the 2010 presentation. No changes were made in the current year to previously reported net income or stockholders equity. | ||
On March 5, 2010, the Companys shareholders approved proposals to recapitalize the Companys existing common stock. The recapitalization included, among other things, a redesignation of existing common stock as Class B common stock; a four-for-one stock split of the Class B common stock; and, the creation of a new class of common stock designated as Class A common stock. All share and per share information included in the accompanying consolidated financial statements, including the notes thereto, has been adjusted to give effect to the recapitalization of the common stock, including the four-for-one stock split of Class B common stock, as if the recapitalization had occurred on January 1, 2008, the earliest date presented. For additional information regarding the recapitalization, see Note 12Capital Stock and Dividend Restrictions. | ||
Merger of Bank Subsidiaries . On September 25, 2009, the Company merged First Western Bank (Wall) and The First Western Bank Sturgis (Sturgis) into FIB. Subsequent to the merger, FIB is the Companys only bank subsidiary. | ||
Sale of Nonbank Subsidiary. On December 31, 2008, the Company sold its technology services subsidiary, i_Tech Corporation (i_Tech). Concurrent with the sale, the Company entered into a service agreement with the purchaser to receive certain technology services previously provided by i_Tech. The assets, liabilities and results of operations and cash flows of i_Tech are not presented as discontinued operations due to the continuation of cash flows between the Company and i_Tech under the terms of the service agreement. Subsequent to the sale, the Company no longer receives technology services revenues from non-affiliated customers of i_Tech. | ||
Equity Method Investments. The Company has an investment in a real estate joint venture that is not consolidated because the Company does not own a majority voting interest, control the operations or receive a majority of the losses or earnings of the joint venture. This joint venture is accounted for using the equity method of accounting whereby the Company initially records its investment at cost and then subsequently adjusts the cost for the Companys proportionate share of distributions and earnings or losses of the joint venture. | ||
Variable Interest Entities. The Companys wholly-owned business trusts, First Interstate Statutory Trust (FIST), FI Statutory Trust I (Trust I), FI Capital Trust II (Trust II), FI Statutory Trust III (Trust III), FI Capital Trust IV (Trust IV), FI Statutory Trust V (Trust V) and FI Statutory Trust VI (Trust VI) are variable interest entities for which the Company is not a primary beneficiary. Accordingly, the accounts of FIST, Trust I, Trust II, Trust III, Trust IV, Trust V and Trust VI are not included in the accompanying consolidated financial statements, and are instead accounted for using the equity method of accounting. |
-71-
-72-
-73-
-74-
-75-
(2) | INVESTMENT SECURITIES |
Gross | Gross | Estimated | ||||||||||||||
Available-for-Sale | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
December 31, 2010 | Cost | Gains | Losses | Value | ||||||||||||
Obligations of U.S. government agencies
|
$ | 956,017 | $ | 3,337 | $ | (5,934 | ) | $ | 953,420 | |||||||
U.S. agency mortgage-backed securities
|
812,372 | 24,107 | (4,619 | ) | 831,860 | |||||||||||
Private mortgage-backed securities
|
1,057 | 10 | (12 | ) | 1,055 | |||||||||||
Total
|
$ | 1,769,446 | $ | 27,454 | $ | (10,565 | ) | $ | 1,786,335 | |||||||
Gross | Gross | Estimated | ||||||||||||||
Held-to-Maturity | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
December 31, 2010 | Cost | Gains | Losses | Value | ||||||||||||
State, county and municipal securities
|
$ | 146,850 | $ | 1,375 | $ | (1,935 | ) | $ | 146,290 | |||||||
Other securities
|
218 | | | 218 | ||||||||||||
Total
|
$ | 147,068 | $ | 1,375 | $ | (1,935 | ) | $ | 146,508 | |||||||
Gross | Gross | Estimated | ||||||||||||||
Available-for-Sale | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
December 31, 2009 | Cost | Gains | Losses | Value | ||||||||||||
Obligations of U.S. government agencies
|
$ | 568,705 | $ | 4,207 | $ | (1,466 | ) | $ | 571,446 | |||||||
U.S. agency mortgage-backed securities
|
721,555 | 23,212 | (1,127 | ) | 743,640 | |||||||||||
Private mortgage-backed securities
|
1,396 | | (53 | ) | 1,343 | |||||||||||
Total
|
$ | 1,291,656 | $ | 27,419 | $ | (2,646 | ) | $ | 1,316,429 | |||||||
Gross | Gross | Estimated | ||||||||||||||
Held-to-Maturity | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
December 31, 2009 | Cost | Gains | Losses | Value | ||||||||||||
State, county and municipal securities
|
$ | 129,381 | $ | 1,439 | $ | (435 | ) | $ | 130,385 | |||||||
Other securities
|
470 | | | 470 | ||||||||||||
Total
|
$ | 129,851 | $ | 1,439 | $ | (435 | ) | $ | 130,855 | |||||||
-76-
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2010 | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Available-for-Sale
|
||||||||||||||||||||||||
Obligations of U.S. government agencies
|
$ | 498,344 | $ | (5,934 | ) | $ | | $ | | $ | 498,344 | $ | (5,934 | ) | ||||||||||
U.S. agency mortgage-backed securities
|
160,161 | (4,619 | ) | | | 160,161 | (4,619 | ) | ||||||||||||||||
Private mortgage-backed securities
|
| | 249 | (12 | ) | 249 | (12 | ) | ||||||||||||||||
Total
|
$ | 658,505 | $ | (10,553 | ) | $ | 249 | $ | (12 | ) | $ | 658,754 | $ | (10,565 | ) | |||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2010 | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Held-to-Maturity
|
||||||||||||||||||||||||
State, county and municipal securities
|
$ | 42,178 | $ | (1,814 | ) | $ | 3,023 | $ | (121 | ) | $ | 45,201 | $ | (1,935 | ) | |||||||||
|
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2009 | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Available-for-Sale
|
||||||||||||||||||||||||
Obligations of U.S. government agencies
|
$ | 185,376 | $ | (1,466 | ) | $ | | $ | | $ | 185,376 | $ | (1,466 | ) | ||||||||||
U.S. agency mortgage-backed securities
|
92,918 | (1,127 | ) | 10 | | 92,928 | (1,127 | ) | ||||||||||||||||
Private mortgage-backed securities
|
| | 1,337 | (53 | ) | 1,337 | (53 | ) | ||||||||||||||||
Total
|
$ | 278,294 | $ | (2,593 | ) | $ | 1,347 | $ | (53 | ) | $ | 279,641 | $ | (2,646 | ) | |||||||||
|
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2009 | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Held-to-Maturity
|
||||||||||||||||||||||||
State, county and municipal securities
|
$ | 16,641 | $ | (348 | ) | $ | 1,409 | $ | (87 | ) | $ | 18,050 | $ | (435 | ) | |||||||||
-77-
Available-for-Sale | Held-to-Maturity | |||||||||||||||
Amortized | Estimated | Amortized | Estimated | |||||||||||||
December 31, 2010 | Cost | Fair Value | Cost | Fair Value | ||||||||||||
Within one year
|
$ | 448,403 | $ | 455,050 | $ | 7,599 | $ | 7,328 | ||||||||
After one year but within five years
|
1,101,418 | 1,106,398 | 26,628 | 26,992 | ||||||||||||
After five years but within ten years
|
73,209 | 74,962 | 51,766 | 52,474 | ||||||||||||
After ten years
|
146,416 | 149,925 | 60,857 | 59,496 | ||||||||||||
Total
|
1,769,446 | 1,786,335 | 146,850 | 146,290 | ||||||||||||
Investments with no stated maturity
|
| | 218 | 218 | ||||||||||||
Total
|
$ | 1,769,446 | $ | 1,786,335 | $ | 147,068 | $ | 146,508 | ||||||||
-78-
December 31, | 2010 | 2009 | ||||||
Real estate loans:
|
||||||||
Commercial
|
$ | 1,565,665 | $ | 1,556,273 | ||||
Construction:
|
||||||||
Land acquisition & development
|
329,720 | 403,866 | ||||||
Residential
|
99,196 | 134,970 | ||||||
Commercial
|
98,542 | 98,056 | ||||||
Total construction loans
|
527,458 | 636,892 | ||||||
Residential
|
549,604 | 539,098 | ||||||
Agricultural
|
182,794 | 195,045 | ||||||
Mortgage loans originated for sale
|
46,408 | 36,430 | ||||||
Total real estate loans
|
2,871,929 | 2,963,738 | ||||||
Consumer:
|
||||||||
Indirect consumer loans
|
423,552 | 423,104 | ||||||
Other consumer loans
|
162,137 | 195,331 | ||||||
Credit card loans
|
60,891 | 59,113 | ||||||
Total consumer loans
|
646,580 | 677,548 | ||||||
Commercial
|
730,471 | 750,647 | ||||||
Agricultural
|
116,546 | 134,470 | ||||||
Other loans, including overdrafts
|
2,383 | 1,601 | ||||||
Total loans
|
$ | 4,367,909 | $ | 4,528,004 | ||||
-79-
Total | ||||||||||||||||||||||||||||
Accruing Loans | Nonaccruing Loans | Loans 30 | ||||||||||||||||||||||||||
30 - 89 | 30 - 89 | or More | ||||||||||||||||||||||||||
Days Past | Past Due | Days Past | Past Due | Days Past | Current | Total | ||||||||||||||||||||||
Year ended December 31, 2010 | Due | > 90 Days | Due | > 90 Days | Due | Loans | Loans | |||||||||||||||||||||
Real estate
|
||||||||||||||||||||||||||||
Commercial
|
$ | 17,959 | $ | | $ | 7,582 | $ | 13,047 | $ | 38,588 | $ | 1,527,077 | $ | 1,565,665 | ||||||||||||||
Construction:
|
||||||||||||||||||||||||||||
Land acquisition & development
|
9,608 | | 1,559 | 7,462 | 18,629 | 311,091 | 329,720 | |||||||||||||||||||||
Residential
|
3,022 | | 359 | 992 | 4,373 | 94,823 | 99,196 | |||||||||||||||||||||
Commercial
|
2,794 | | 1,213 | 3,376 | 7,383 | 91,159 | 98,542 | |||||||||||||||||||||
Total construction loans
|
15,424 | | 3,131 | 11,830 | 30,385 | 497,073 | 527,458 | |||||||||||||||||||||
Residential
|
2,192 | | 160 | 359 | 2,711 | 546,893 | 549,604 | |||||||||||||||||||||
Agricultural
|
4,856 | | 406 | 392 | 5,654 | 177,140 | 182,794 | |||||||||||||||||||||
Mortgage loans originated for sale
|
| | | | | 46,408 | 46,408 | |||||||||||||||||||||
Total real estate loans
|
40,431 | | 11,279 | 25,628 | 77,338 | 2,794,591 | 2,871,929 | |||||||||||||||||||||
Consumer:
|
||||||||||||||||||||||||||||
Indirect consumer loans
|
3,717 | | 81 | 63 | 3,861 | 419,691 | 423,552 | |||||||||||||||||||||
Other consumer loans
|
1,552 | 15 | 87 | 568 | 2,222 | 159,915 | 162,137 | |||||||||||||||||||||
Credit card loans
|
1,005 | 759 | | | 1,764 | 59,127 | 60,891 | |||||||||||||||||||||
Total consumer loans
|
6,274 | 774 | 168 | 631 | 7,847 | 638,733 | 646,580 | |||||||||||||||||||||
Commercial
|
8,069 | 957 | 744 | 8,707 | 18,477 | 711,994 | 730,471 | |||||||||||||||||||||
Agricultural
|
2,114 | 117 | | 25 | 2,256 | 114,290 | 116,546 | |||||||||||||||||||||
Other loans, including overdrafts
|
123 | 4 | | | 127 | 2,256 | 2,383 | |||||||||||||||||||||
Total
|
$ | 57,011 | $ | 1,852 | $ | 12,191 | $ | 34,991 | $ | 106,045 | $ | 4,261,864 | $ | 4,367,909 | ||||||||||||||
-80-
Year ended December 31, | 2010 | 2009 | ||||||
Real estate
|
||||||||
Commercial
|
$ | 68,948 | $ | 34,477 | ||||
Construction:
|
||||||||
Land acquisition & development
|
41,547 | 38,416 | ||||||
Residential
|
16,679 | 10,263 | ||||||
Commercial
|
16,589 | 4,460 | ||||||
Total construction loans
|
74,815 | 53,139 | ||||||
Residential
|
15,222 | 5,861 | ||||||
Agricultural
|
2,497 | 785 | ||||||
Total real estate loans
|
161,482 | 94,262 | ||||||
Consumer:
|
||||||||
Indirect consumer loans
|
564 | 268 | ||||||
Other consumer loans
|
1,337 | 1,119 | ||||||
Credit card loans
|
30 | | ||||||
Total consumer loans
|
1,931 | 1,387 | ||||||
Commercial
|
30,953 | 18,818 | ||||||
Agricultural
|
976 | 563 | ||||||
Total
|
$ | 195,342 | $ | 115,030 | ||||
Year Ended | ||||||||||||||||||||||||
As of December 31, 2010 | December 31, | |||||||||||||||||||||||
Unpaid | Recorded | Recorded | 2010 | |||||||||||||||||||||
Total | Investment | Investment | Total | Average | ||||||||||||||||||||
Principal | With No | With | Recorded | Related | Recorded | |||||||||||||||||||
Balance | Allowance | Allowance | Investment | Allowance | Investment | |||||||||||||||||||
Real estate:
|
||||||||||||||||||||||||
Commercial
|
$ | 79,193 | $ | 31,925 | $ | 41,703 | $ | 73,628 | $ | 10,315 | $ | 49,713 | ||||||||||||
Construction:
|
||||||||||||||||||||||||
Land acquisition & development
|
48,371 | 24,120 | 20,440 | 44,560 | 8,064 | 34,871 | ||||||||||||||||||
Residential
|
18,632 | 2,993 | 13,721 | 16,714 | 3,431 | 15,097 | ||||||||||||||||||
Commercial
|
17,458 | 2,976 | 13,578 | 16,554 | 3,877 | 21,086 | ||||||||||||||||||
Total construction loans
|
84,461 | 30,089 | 47,739 | 77,828 | 15,372 | 71,054 | ||||||||||||||||||
Residential
|
8,951 | 1,741 | 7,110 | 8,851 | 1,266 | 10,889 | ||||||||||||||||||
Agricultural
|
3,045 | 1,065 | 1,432 | 2,497 | 128 | 1,737 | ||||||||||||||||||
Total real estate loans
|
175,650 | 64,820 | 97,984 | 162,804 | 27,081 | 133,393 | ||||||||||||||||||
Commercial
|
36,251 | 11,354 | 24,168 | 35,522 | 14,892 | 22,017 | ||||||||||||||||||
Agricultural
|
976 | 498 | 478 | 976 | 253 | 974 | ||||||||||||||||||
Total
|
$ | 212,877 | $ | 76,672 | $ | 122,630 | $ | 199,302 | $ | 42,226 | $ | 156,384 | ||||||||||||
-81-
-82-
Other Assets | Total | |||||||||||||||
Especially | Criticized | |||||||||||||||
Mentioned | Substandard | Doubtful | Loans | |||||||||||||
As of December 31, 2010
|
||||||||||||||||
Real estate:
|
||||||||||||||||
Commercial
|
$ | 133,700 | $ | 149,604 | $ | 41,662 | $ | 324,966 | ||||||||
Construction:
|
||||||||||||||||
Land acquisition & development
|
73,151 | 36,552 | 21,795 | 131,498 | ||||||||||||
Residential
|
9,083 | 9,842 | 13,721 | 32,646 | ||||||||||||
Commercial
|
9,025 | 18,611 | 13,598 | 41,234 | ||||||||||||
Total construction loans
|
91,259 | 65,005 | 49,114 | 205,378 | ||||||||||||
Residential
|
13,889 | 18,725 | 11,474 | 44,088 | ||||||||||||
Agricultural
|
12,683 | 20,885 | 1,432 | 35,000 | ||||||||||||
Total real estate loans
|
251,531 | 254,219 | 103,682 | 609,432 | ||||||||||||
Consumer:
|
||||||||||||||||
Indirect consumer loans
|
768 | 1,964 | 315 | 3,047 | ||||||||||||
Other consumer loans
|
903 | 1,499 | 1,131 | 3,533 | ||||||||||||
Credit card loans
|
| 571 | 3,467 | 4,038 | ||||||||||||
Total consumer loans
|
1,671 | 4,034 | 4,913 | 10,618 | ||||||||||||
Commercial
|
47,307 | 39,145 | 24,280 | 110,732 | ||||||||||||
Agricultural
|
5,416 | 6,255 | 478 | 12,149 | ||||||||||||
Total
|
$ | 305,925 | $ | 303,653 | $ | 133,353 | $ | 742,931 | ||||||||
-83-
(4) | ALLOWANCE FOR LOAN LOSSES | |
The following table presents a summary of changes in the allowance for loan losses by portfolio segment for the year ended December 31, 2010: |
Year ended December 31, 2010 | Real Estate | Consumer | Commercial | Agriculture | Other | Total | ||||||||||||||||||
Allowance for loan losses:
|
||||||||||||||||||||||||
Beginning balance
|
$ | 76,357 | $ | 6,220 | $ | 18,608 | $ | 1,845 | $ | | $ | 103,030 | ||||||||||||
Provision charged to opertating expense
|
42,163 | 8,636 | 16,333 | (232 | ) | | 66,900 | |||||||||||||||||
Less loans charged-off
|
(34,718 | ) | (7,577 | ) | (10,023 | ) | (21 | ) | | (52,339 | ) | |||||||||||||
Add back recoveries of loans previously charged-off
|
379 | 2,053 | 436 | 21 | | 2,889 | ||||||||||||||||||
Ending balance
|
$ | 84,181 | $ | 9,332 | $ | 25,354 | $ | 1,613 | $ | | $ | 120,480 | ||||||||||||
|
||||||||||||||||||||||||
Individually evaluated for impairment
|
$ | 27,081 | $ | | $ | 14,892 | $ | 253 | $ | | $ | 42,226 | ||||||||||||
Collectively evaluated for impairment
|
57,100 | 9,314 | 10,480 | 1,360 | | 78,254 | ||||||||||||||||||
Ending balance
|
$ | 84,181 | $ | 9,314 | $ | 25,372 | $ | 1,613 | $ | | $ | 120,480 | ||||||||||||
|
||||||||||||||||||||||||
Total loans:
|
||||||||||||||||||||||||
Individually evaluated for impairment
|
$ | 162,804 | $ | | $ | 35,522 | $ | 976 | $ | | $ | 199,302 | ||||||||||||
Collectively evaluated for impairment
|
2,709,125 | 646,580 | 694,949 | 115,570 | 2,383 | 4,168,607 | ||||||||||||||||||
Total loans
|
$ | 2,871,929 | $ | 646,580 | $ | 730,471 | $ | 116,546 | $ | 2,383 | $ | 4,367,909 | ||||||||||||
In determining the allowance for loan losses, the Company estimates losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates. |
The allowance for loan losses consists of three elements: (1) specific valuation allowances based on probable losses on impaired loans; (2) historical valuation allowances based on loan loss experience for similar loans with similar characteristics and trends; and (3) general valuation allowances determined based on general economic conditions and other qualitative risk factors both internal and external to us. |
Specific allowances are established for loans where management has determined that probability of a loss exists by analyzing the borrowers ability to repay amounts owed, collateral deficiencies and any relevant qualitative or environmental factors impacting the loan. Historical valuation allowances are determined by applying percentage loss factors to the credit exposures from outstanding loans. For commercial, agricultural and real estate loans, loss factors are applied based on the internal risk classifications of these loans. For consumer loans, loss factors are applied on a portfolio basis. For commercial, agriculture and real estate loans, loss factor percentages are based on a migration analysis of our historical loss experience, designed to account for credit deterioration. For consumer loans, loss factor percentages are based on a one-year loss history. General valuation allowances are determined by evaluating, on a quarterly basis, changes in the nature and volume of the loan portfolio, overall portfolio quality, industry concentrations, current economic and regulatory factors and the estimated impact of current economic, environmental and regulatory conditions on historical loss rates. |
-84-
The following table presents a summary of changes in the allowance for loan losses for the years indicated: |
Year ended December 31, | 2009 | 2008 | ||||||
Balance at beginning of year
|
$ | 87,316 | $ | 52,355 | ||||
Allowance of acquired banking offices
|
| 14,463 | ||||||
Provision charged to operating expense
|
45,300 | 33,356 | ||||||
Less loans charged-off
|
(31,978 | ) | (14,695 | ) | ||||
Add back recoveries of loans previously charged-off
|
2,392 | 1,837 | ||||||
Balance at end of year
|
$ | 103,030 | $ | 87,316 | ||||
(5) | PREMISES AND EQUIPMENT | |
Premises and equipment and related accumulated depreciation are as follows: |
December 31, | 2010 | 2009 | ||||||
Land
|
$ | 35,573 | $ | 36,388 | ||||
Buildings and improvements
|
185,606 | 187,471 | ||||||
Furniture and equipment
|
61,689 | 65,985 | ||||||
|
282,868 | 289,844 | ||||||
Less accumulated depreciation
|
(94,730 | ) | (93,537 | ) | ||||
Premises and equipment, net
|
$ | 188,138 | $ | 196,307 | ||||
The Parent Company and a FIB branch office lease premises from an affiliated partnership. See Note 15Commitments and Contingencies. |
(6) | COMPANY-OWNED LIFE INSURANCE | |
Company-owned life insurance consists of the following: |
December 31, | 2010 | 2009 | ||||||
Key executive, principal shareholder
|
$ | 4,680 | $ | 4,480 | ||||
Key executive split dollar
|
4,330 | 4,212 | ||||||
Group life
|
64,046 | 62,682 | ||||||
Total
|
$ | 73,056 | $ | 71,374 | ||||
The Company maintains key executive life insurance policies on certain principal shareholders. Under these policies, the Company receives benefits payable upon the death of the insured. The net cash surrender value of key executive, principal shareholder insurance policies was $4,680 and $4,480 at December 31, 2010 and 2009, respectively. | ||
The Company also has life insurance policies covering selected other key officers. The net cash surrender value of these policies was $4,330 and $4,212 at December 31, 2010 and 2009, respectively. Under these policies, the Company receives benefits payable upon death of the insured. An endorsement split dollar agreement has been executed with the selected key officers whereby a portion of the policy death benefit is payable to their designated beneficiaries. The endorsement split dollar agreement will provide postretirement coverage for those selected key officers meeting specified retirement qualifications. The Company expenses the earned portion of the post-employment benefit through the vesting period. | ||
-85-
The Company has a group life insurance policy covering selected officers of FIB. The net cash surrender value of the policy was $64,046 and $62,682 at December 31, 2010 and 2009, respectively. Under the policy, the Company receives benefits payable upon death of the insured. An endorsement split dollar agreement has been executed with the insured officers whereby a portion of the policy death benefit is payable to their designated beneficiaries if they are employed by the Company at the time of death. The marginal income produced by the policy is used to offset the cost of employee benefit plans of FIB. |
(7) | OTHER REAL ESTATE OWNED | |
Information with respect to the Companys other real estate owned follows: |
Year ended December 31, | 2010 | 2009 | 2008 | |||||||||
Balance at beginning of year
|
$ | 38,400 | $ | 6,025 | $ | 928 | ||||||
Additions
|
21,314 | 42,212 | 5,810 | |||||||||
Capitalized improvements
|
240 | 6,515 | | |||||||||
Valuation adjustments
|
(6,724 | ) | (5,545 | ) | (34 | ) | ||||||
Dispositions
|
(19,598 | ) | (10,807 | ) | (679 | ) | ||||||
Balance at end of year
|
$ | 33,632 | $ | 38,400 | $ | 6,025 | ||||||
(8) | MORTGAGE SERVICING RIGHTS |
Information with respect to the Companys mortgage servicing rights follows: |
Year ended December 31, | 2010 | 2009 | 2008 | |||||||||
Balance at beginning of year
|
$ | 18,732 | $ | 27,788 | $ | 27,561 | ||||||
Sales of mortgage servicing rights
|
(4,528 | ) | (3,022 | ) | | |||||||
Purchases of mortgage servicing rights
|
| 8 | 34 | |||||||||
Originations of mortgage servicing rights
|
4,222 | 9,681 | 6,111 | |||||||||
Amortization expense
|
(4,615 | ) | (7,568 | ) | (5,918 | ) | ||||||
Write-off of permanent impairment
|
| (8,155 | ) | | ||||||||
Balance at end of year
|
13,811 | 18,732 | 27,788 | |||||||||
Less valuation reserve
|
(620 | ) | (1,407 | ) | (16,786 | ) | ||||||
Balance at end of year
|
$ | 13,191 | $ | 17,325 | $ | 11,002 | ||||||
Principal balances of loans serviced for others
|
$ | 1,594,697 | $ | 2,394,331 | $ | 2,077,131 | ||||||
Mortgage servicing rights as a percentage of
serviced loans
|
0.83 | % | 0.72 | % | 0.53 | % | ||||||
At December 31, 2010, the estimated fair value and weighted average remaining life of the Companys mortgage servicing rights were $13,694 and 4.7 years, respectively. The fair value of mortgage servicing rights was determined using discount rates ranging from 9.25% to 21.00% and monthly prepayment speeds ranging from 0.7% to 6.2% depending upon the risk characteristics of the underlying loans. The Company recorded impairment reversals of $787 and $7,224 in 2010 and 2009, respectively and recorded as other expense, impairment charges of $10,940 in 2008. Permanent impairment of $8,155 was charged against the carrying value of mortgage servicing rights in 2009. No permanent impairment was recorded in 2010 or 2008. |
The Company sold mortgage servicing rights with a carrying value of $4,528 and $3,022 in 2010 and 2009, respectively. Losses of $1,525 and $48 on the sales were recorded as other expense in 2010 and 2009, respectively. In conjunction with the sales, the Company entered into agreements with the purchaser whereby the Company continues to sub-service the loans underlying the sold mortgage servicing rights. |
-86-
(9) | DEPOSITS |
Deposits are summarized as follows: |
December 31, | 2010 | 2009 | ||||||
Non-interest bearing demand
|
$ | 1,063,869 | $ | 1,026,584 | ||||
Interest bearing:
|
||||||||
Demand
|
1,218,078 | 1,197,254 | ||||||
Savings
|
1,718,521 | 1,362,410 | ||||||
Time, $100 and over
|
908,044 | 996,839 | ||||||
Time, other
|
1,017,201 | 1,240,969 | ||||||
Total interest bearing
|
4,861,844 | 4,797,472 | ||||||
Total deposits
|
$ | 5,925,713 | $ | 5,824,056 | ||||
The Company had no brokered time deposits as of December 31, 2010 and 2009. |
Other time deposits include deposits obtained through the Companys participation in the Certificate of Deposit Account Registry Service (CDARS). CDARS deposits totaled $139,431 and $253,344 as of December 31, 2010 and 2009, respectively. |
Maturities of time deposits at December 31, 2010 are as follows: |
Time, $100 | ||||||||
and Over | Total Time | |||||||
2011
|
$ | 770,657 | $ | 1,564,798 | ||||
2012
|
77,037 | 199,996 | ||||||
2013
|
25,052 | 65,929 | ||||||
2014
|
14,964 | 41,555 | ||||||
2015
|
20,334 | 52,946 | ||||||
Thereafter
|
| 21 | ||||||
Total
|
$ | 908,044 | $ | 1,925,245 | ||||
Interest expense on time deposits of $100 or more was $18,595, $25,212 and $28,794 for the years ended December 31, 2010, 2009 and 2008, respectively. |
-87-
A summary of long-term debt follows: |
December 31, | 2010 | 2009 | ||||||
Parent Company:
|
||||||||
6.81% subordinated term loan maturing January 9, 2018, principal
due at maturity, interest payable quarterly
|
$ | 20,000 | $ | 20,000 | ||||
Variable rate term notes, principal and interest due quarterly
|
| 33,929 | ||||||
|
||||||||
Subsidiaries:
|
||||||||
Variable rate subordinated term loan maturing February 28, 2018,
principal due at maturity, interest payable quarterly (rate
of 2.29%
at December 31, 2010)
|
15,000 | 15,000 | ||||||
Various notes payable to FHLB, interest due monthly at various
rates and maturities through October 31, 2017 (weighted average
rate of 4.95% at December 31, 2010)
|
690 | 2,577 | ||||||
8.00% capital lease obligation with term ending October 25, 2029
|
1,812 | 1,847 | ||||||
Total long-term debt
|
$ | 37,502 | $ | 73,353 | ||||
Maturities of long-term debt at December 31, 2010 are as follows: |
2011
|
$ | 245 | ||
2012
|
49 | |||
2013
|
252 | |||
2014
|
58 | |||
2015
|
295 | |||
Thereafter
|
36,603 | |||
Total
|
$ | 37,502 | ||
Proceeds from the variable rate term notes and the 6.81% subordinated term loan were used to fund the First Western acquisition in 2008. See Note 23Acquisitions and Dispositions. |
On January 10, 2008, the Company entered into a credit agreement (Credit Agreement) with four syndicated banks. Under the original terms of the Credit Agreement, the Company borrowed $50,000 on variable rate term notes maturing January 10, 2013. On March 29, 2010, the Company repaid all amounts due under the Credit Agreement. A loss of $306 on the early extinguishment of debt, comprised of unamortized debt issuance costs, was included in other expenses in the Companys consolidated statement of income. |
On January 10, 2008, the Company borrowed $20,000 on a 6.81% unsecured subordinated term loan maturing January 9, 2018, with interest payable quarterly and principal due at maturity. The unsecured subordinated term loan qualifies as tier 2 capital under regulatory capital adequacy guidelines. |
During February 2008, the Company borrowed $15,000 on a variable rate unsecured subordinated term loan maturing February 28, 2018, with interest payable quarterly and principal due at maturity. The Company may elect at various dates either prime or LIBOR plus 2.00%. The interest rate on the subordinated term loan was 2.29% as of December 31, 2010. The unsecured subordinated term loan qualifies as tier 2 capital under regulatory capital adequacy guidelines. |
The notes payable to FHLB are secured by a blanket assignment of the Companys qualifying residential and commercial real estate loans. The Company has available lines of credit with the FHLB of approximately $141,064, subject to collateral availability. As of December 31, 2010 and 2009, FHLB advances of $690 and $2,577, respectively, were included in long-term debt. As of December 31, 2010 and December 31, 2009 there were no short-term advances outstanding with the FHLB. |
-88-
The Company has a capital lease obligation on a banking office. The balance of the obligation was $1,812 and $1,847 as of December 31, 2010 and 2009, respectively. Assets acquired under capital lease, consisting solely of a building and leasehold improvements, are included in premises and equipment and are subject to depreciation. |
The Company had other borrowed funds of $4,991 and $5,423 as of December 31, 2010 and 2009, respectively, consisting of demand notes issued to the United States Treasury, secured by investment securities and bearing no interest. |
The Company has federal funds lines of credit with third parties amounting to $185,000, subject to funds availability. These lines are subject to cancellation without notice. The Company also has a line of credit with the Federal Reserve Bank for borrowings up to $319,900 secured by a blanket pledge of indirect consumer loans. |
(11) | SUBORDINATED DEBENTURES HELD BY SUBSIDIARY TRUSTS |
The Company sponsors seven wholly-owned business trusts, FIST, Trust I, Trust II, Trust III, Trust IV, Trust V and Trust VI (collectively, the Trusts). The Trusts were formed for the exclusive purpose of issuing an aggregate of $120,000 of 30-year floating rate mandatorily redeemable capital trust preferred securities (Trust Preferred Securities) to third-party investors. The Trusts also issued, in aggregate, $3,715 of common equity securities to the Parent Company. Proceeds from the issuance of the Trust Preferred Securities and common equity securities were invested in 30-year junior subordinated deferrable interest debentures (Subordinated Debentures) issued by the Parent Company. |
A summary of Subordinated Debenture issuances follows: |
In March 2003, the Company issued $41,238 of Subordinated Debentures to FIST. The Subordinated Debentures bear a cumulative floating interest rate equal to LIBOR plus 3.15% per annum. As of December 31, 2010 the interest rate on the Subordinated Debentures was 3.45%. |
In October 2007, the Company issued $10,310 of Subordinated Debentures to Trust II. The Subordinated Debentures bear a cumulative floating interest rate equal to LIBOR plus 2.25% per annum. As of December 31, 2010 the interest rate on the Subordinated Debentures was 2.54%. |
In November 2007, the Company issued $15,464 of Subordinated Debentures to Trust I. The Subordinated Debentures bear interest at a fixed rate of 7.50% for five years after issuance, and thereafter at a variable rate equal to LIBOR plus 2.75% per annum. |
-89-
In December 2007, the Company issued $20,619 of Subordinated Debentures to Trust III. The Subordinated Debentures bear interest at a fixed rate of 6.88% for five years after issuance, and thereafter at a variable rate equal to LIBOR plus 2.40% per annum. |
In December 2007, the Company issued $15,464 of Subordinated Debentures to Trust IV. The Subordinated Debentures bear a cumulative floating interest rate equal to LIBOR plus 2.70% per annum. As of December 31, 2010 the interest rate on the Subordinated Debentures was 2.99%. |
In January 2008, the Company issued $10,310 of Subordinated Debentures to Trust V. The Subordinated Debentures bear interest at a fixed rate of 6.78% for five years after issuance, and thereafter at a variable rate equal to LIBOR plus 2.75% per annum. |
In January 2008, the Company issued $10,310 of Subordinated Debentures to Trust VI. The Subordinated Debentures bear a cumulative floating interest rate equal to LIBOR plus 2.75% per annum. As of December 31, 2010, the interest rate on the Subordinated Debentures was 3.04%. |
The Subordinated Debentures are unsecured with interest distributions payable quarterly. The Company may defer the payment of interest at any time provided that the deferral period does not extend past the stated maturity. During any such deferral period, distributions on the Trust Preferred Securities will also be deferred and the Companys ability to pay dividends on its common and preferred shares is restricted. The Subordinated Debentures may be redeemed, subject to approval by the Federal Reserve Bank, at the Companys option on or after five years from the date of issue, or at any time in the event of unfavorable changes in laws or regulations. Debt issuance costs consisting primarily of underwriting discounts and professional fees were capitalized and are being amortized through maturity to interest expense using the straight-line method, which approximates level yield. |
The terms of the Trust Preferred Securities are identical to those of the Subordinated Debentures. The Trust Preferred Securities are subject to mandatory redemption upon repayment of the Subordinated Debentures at their stated maturity dates or earlier redemption in an amount equal to their liquidation amount plus accumulated and unpaid distributions to the date of redemption. The Company guarantees the payment of distributions and payments for redemption or liquidation of the Trust Preferred Securities to the extent of funds held by the Trusts. |
The Trust Preferred Securities qualify as tier 1 capital of the Parent Company under the Federal Reserve Boards capital adequacy guidelines. Proceeds from the issuance of the Trust Preferred Securities were used to fund acquisitions. For additional information regarding acquisitions, see Note 23 Acquisitions and Dispositions. |
(12) | CAPITAL STOCK AND DIVIDEND RESTRICTIONS |
On January 10, 2008, the Company issued 5,000 shares of 6.75% Series A noncumulative redeemable preferred stock (Series A Preferred Stock) with an aggregate value of $50,000 as partial consideration for the acquisition of the First Western entities, see Note 23 Acquisitions and Dispositions. The Series A Preferred Stock was issued to the former owner of the First Western entities, an accredited investor, in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The Series A Preferred Stock ranks senior to the Companys common stock with respect to dividend and liquidation rights and has no voting rights. Holders of the Series A Preferred Stock are entitled to receive, if and when declared, noncumulative dividends at an annual rate of $675 per share, based on a 360 day year. The Company may redeem all or part of the Series A Preferred Stock at any time after the fifth anniversary of the date issued at a redemption price of $10,000 per share plus all accrued and unpaid dividends. Following the tenth anniversary of the date issued, the Series A Preferred Stock may be converted, at the option of the holder, into shares of the Companys Class B common stock at a ratio of 320 shares of common stock for every one share of Series A Preferred Stock. |
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On March 5, 2010, the Companys shareholders approved proposals to recapitalize the Companys existing common stock. The recapitalization included a redesignation of existing common stock as Class B common stock with five votes per share, convertible into Class A common stock on a share for share basis; a four-for-one stock split of the Class B common stock; an increase in the authorized number of Class B common shares from 20,000,000 to 100,000,000; and, the creation of a new class of common stock designated as Class A common stock, with one vote per share, with 100,000,000 shares authorized. |
On March 29, 2010, the Company concluded its initial public offering (IPO) of 10,000,000 shares of Class A common stock, and an additional 1,500,000 shares of Class A common stock pursuant to the full exercise of the underwriters option to purchase Class A common shares in the offering. The Company received net proceeds of $153,153 from the sale of the shares, after deducting the underwriting discount, commissions and other offering expenses. |
As of December 31, 2010, the Company had 15,598,632 shares of Class A common stock outstanding, including 10,000,000 shares issued in the IPO, 1,500,000 issued pursuant to the underwriters option, 6,503 issued under the Companys stock compensation plans and 4,092,129 shares converted from Class B common stock. |
The Company had 27,202,062 and 31,349,588 shares of Class B common stock outstanding as of December 31, 2010 and December 31, 2009, respectively. |
The payment of dividends by subsidiary banks is subject to various federal and state regulatory limitations. In general, a bank is limited, without the prior consent of its regulators, to paying dividends that do not exceed current year net profits together with retained earnings from the two preceding calendar years. The Companys debt instruments also include limitations on the payment of dividends. For additional information regarding dividend restrictions, see Note 10 Long-Term Debt and Other Borrowed Funds. |
(13) | EARNINGS PER COMMON SHARE |
The following table sets forth the computation of basic and diluted earnings per common share: |
For the year ended December 31, | 2010 | 2009 | 2008 | |||||||||
Net income
|
$ | 37,356 | $ | 53,863 | $ | 70,648 | ||||||
Less preferred stock dividends
|
3,422 | 3,422 | 3,347 | |||||||||
Net income available to common shareholders,
basic and diluted
|
$ | 33,934 | $ | 50,441 | $ | 67,301 | ||||||
|
||||||||||||
Weighted average common shares outstanding
|
39,907,640 | 31,335,668 | 31,484,136 | |||||||||
Weighted average commons shares issuable upon exercise
of stock options and restricted stock awards
|
219,725 | 342,832 | 628,536 | |||||||||
Weighted average common and common equivalent
shares outstanding
|
40,127,365 | 31,678,500 | 32,112,672 | |||||||||
|
||||||||||||
Basic earnings per common share
|
$ | 0.85 | $ | 1.61 | $ | 2.14 | ||||||
Diluted earnings per common share
|
$ | 0.85 | $ | 1.59 | $ | 2.10 | ||||||
The Company had 2,301,413, 1,933,532 and 1,138,332 stock options outstanding that were antidilutive as of December 31, 2010, 2009 and 2008, respectively. |
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(14) | REGULATORY CAPITAL | |
The Company is subject to the regulatory capital requirements administered by federal banking regulators and the Federal Reserve. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Companys assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Parent Company, like all bank holding companies, is not subject to the prompt corrective action provisions. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. | ||
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets, as defined in the regulations. As of December 31, 2010, the Company exceeded all capital adequacy requirements to which it is subject. | ||
The Companys actual capital amounts and ratios and selected minimum regulatory thresholds as of December 31, 2010 and 2009 are presented in the following table: |
Actual | Adequately Capitalized | Well Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
As of December 31,
2010:
|
||||||||||||||||||||||||
Total
risk-based
capital:
|
||||||||||||||||||||||||
Consolidated
|
$ | 772,337 | 15.5 | % | $ | 398,720 | 8.0 | % | NA | NA | ||||||||||||||
FIB
|
634,976 | 12.8 | 396,754 | 8.0 | $ | 495,943 | 10.0 | % | ||||||||||||||||
Tier 1
risk-based
capital:
|
||||||||||||||||||||||||
Consolidated
|
674,319 | 13.5 | 199,360 | 4.0 | NA | NA | ||||||||||||||||||
FIB
|
557,261 | 11.2 | 198,377 | 4.0 | $ | 297,566 | 6.0 | |||||||||||||||||
Leverage
capital ratio:
|
||||||||||||||||||||||||
Consolidated
|
674,319 | 9.3 | 291,023 | 4.0 | NA | NA | ||||||||||||||||||
FIB
|
557,261 | 7.7 | 290,071 | 4.0 | $ | 362,589 | 5.0 | |||||||||||||||||
Actual | Adequately Capitalized | Well Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
As of December 31,
2009:
|
||||||||||||||||||||||||
Total
risk-based
capital:
|
||||||||||||||||||||||||
Consolidated
|
$ | 599,458 | 11.7 | % | $ | 410,635 | 8.0 | % | NA | NA | ||||||||||||||
FIB
|
597,873 | 11.7 | 408,991 | 8.0 | $ | 511,238 | 10.0 | % | ||||||||||||||||
Tier 1
risk-based
capital:
|
||||||||||||||||||||||||
Consolidated
|
499,816 | 9.7 | 205,317 | 4.0 | NA | NA | ||||||||||||||||||
FIB
|
518,485 | 10.1 | 204,495 | 4.0 | $ | 306,743 | 6.0 | |||||||||||||||||
Leverage
capital ratio:
|
||||||||||||||||||||||||
Consolidated
|
499,816 | 7.3 | 274,059 | 4.0 | NA | NA | ||||||||||||||||||
FIB
|
518,485 | 7.6 | 273,258 | 4.0 | $ | 341,572 | 5.0 | |||||||||||||||||
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(15) | COMMITMENTS AND CONTINGENCIES |
In the normal course of business, the Company is involved in various claims and litigation. In the opinion of management, following consultation with legal counsel, the ultimate liability or disposition thereof will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company. |
The Company had commitments under construction contracts of $953 as of December 31, 2010. |
The Company had commitments to purchase held-to-maturity municipal investment securities of $436 as of December 31, 2010. |
The Company leases certain premises and equipment from third parties under operating leases. Total rental expense to third parties was $1,960 in 2010, $2,425 in 2009 and $3,474 in 2008. |
The total future minimum rental commitments, exclusive of maintenance and operating costs, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 2010, are as follows: |
Third | Related | |||||||||||
Parties | Partnership | Total | ||||||||||
For the year ending December 31:
|
||||||||||||
2011
|
$ | 1,225 | $ | 2,083 | $ | 3,308 | ||||||
2012
|
898 | 1,981 | 2,879 | |||||||||
2013
|
638 | 1,816 | 2,454 | |||||||||
2014
|
570 | 1,702 | 2,272 | |||||||||
2015
|
547 | 1,199 | 1,746 | |||||||||
Thereafter
|
5,476 | | 5,476 | |||||||||
Total
|
$ | 9,354 | $ | 8,781 | $ | 18,135 | ||||||
The Parent Company and the Billings office of FIB are the anchor tenants in a building owned by a partnership in which FIB is one of two partners, and has a 50% partnership interest. |
The Company participates in credit and debit card transactions through Visa U.S.A., Inc. card association or its affiliates (collectively Visa). On October 3, 2008, Visa completed a restructuring and issued shares of Class B Visa, Inc. common stock to its financial members, including 60,108 shares to the Company. For purposes of converting Class B shares to Class A shares of Visa, Inc., a conversion factor is applied, which is subject to adjustment depending on the outcome of certain specifically defined litigation against Visa. The Class B shares are not transferable, except to another member bank until the later of March 31, 2011 or the date on which certain specifically defined Visa litigation is resolved. The Company recorded the Visa Class B shares in other assets at their cost basis of $0. |
In September 2009, the Company sold all of its Visa Class B shares for $2,128. In conjunction with the sale, the Company entered into a derivative contract whereby the Company will make or receive payments based on subsequent changes in the conversion rate of Class B Visa common shares in Class A Visa common shares. The derivative contract terminates on the later of March 31, 2011 or the date on which certain specifically designated Visa litigation has been resolved. As of December 31, 2010 and 2009, a liability of $86 and $245, respectively, related to the derivative contract is included in accounts payable and accrued expenses. The derivative contract is collateralized by $1,205 of U.S. government agency investment securities. |
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Residential mortgage loans sold to investors in the secondary market are sold with varying recourse provisions. Essentially all of the loan sales agreements require the repurchase of a mortgage loan by the seller in situations such as breach of representation, warranty or covenant; untimely document delivery; false or misleading statements; failure to obtain certain certificates or insurance; unmarketability; etc. Certain loan sales agreements contain repurchase requirements based on payment-related defects that are defined in terms of the number of days or months since the purchase, the sequence number of the payment, and/or the number of days of payment delinquency. Based on the specific terms stated in the agreements, the Company had $5,987 and $7,705 of sold residential mortgage loans with recourse provisions still in effect as of December 31, 2010 and 2009, respectively. The Company did not repurchase any significant amount of loans from secondary market investors under the terms of loan sales agreements during the years ended December 31, 2010, 2009 and 2008. In the opinion of management, the risk of recourse and the subsequent requirement of loan repurchase to the Company is not significant, and accordingly no liabilities have been established related to such. In addition, the Company issues various representations and warranties associated with the sale of loans. The Company has not incurred significant losses resulting from these provisions. |
(16) | FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK | |
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recorded in the consolidated balance sheet. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained is based on managements credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, premises and equipment, and income-producing commercial properties. | ||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Generally, commitments to extend credit are subject to annual renewal. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to extend credit to borrowers approximated $1,038,979 at December 31, 2010, which included $270,142 on unused credit card lines and $232,795 with commitment maturities beyond one year. Commitments to extend credit to borrowers approximated $998,193 at December 31, 2009, which included $253,794 on unused credit card lines and $258,946 with commitment maturities beyond one year. | ||
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Most commitments extend for no more than two years and are generally subject to annual renewal. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At December 31, 2010 and 2009, the Company had outstanding stand-by letters of credit of $85,543 and $82,980, respectively. The estimated fair value of the obligation undertaken by the Company in issuing standby letters of credit is included in accounts payable and accrued expenses in the Companys consolidated balance sheets. |
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(17) | INCOME TAXES |
Income tax expense consists of the following: |
Year ended December 31, | 2010 | 2009 | 2008 | |||||||||
Current:
|
||||||||||||
Federal
|
$ | 29,866 | $ | 18,691 | $ | 39,389 | ||||||
State
|
4,481 | 2,715 | 5,618 | |||||||||
Total current
|
34,347 | 21,406 | 45,007 | |||||||||
Deferred:
|
||||||||||||
Federal
|
(15,268 | ) | 4,846 | (6,691 | ) | |||||||
State
|
(1,989 | ) | 701 | (887 | ) | |||||||
Total deferred
|
(17,257 | ) | 5,547 | (7,578 | ) | |||||||
Balance at end of year
|
$ | 17,090 | $ | 26,953 | $ | 37,429 | ||||||
Total income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35 percent in 2010, 2009 and 2008 to income before income taxes as a result of the following: |
Year ended December 31, | 2010 | 2009 | 2008 | |||||||||
Tax expense at the statutory tax rate
|
$ | 19,056 | $ | 28,286 | $ | 37,827 | ||||||
Increase (decrease) in tax resulting from:
|
||||||||||||
Tax-exempt income
|
(3,661 | ) | (3,784 | ) | (4,028 | ) | ||||||
State income tax, net of federal income
tax benefit
|
1,619 | 2,225 | 3,130 | |||||||||
Other, net
|
76 | 226 | 500 | |||||||||
Tax expense at effective tax rate
|
$ | 17,090 | $ | 26,953 | $ | 37,429 | ||||||
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The tax effects of temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax asset (liability) relate to the following: |
December 31, | 2010 | 2009 | ||||||
Deferred tax assets:
|
||||||||
Loans, principally due to allowance for loan losses
|
$ | 46,623 | $ | 28,657 | ||||
Employee benefits
|
7,182 | 5,334 | ||||||
Other real estate owned writedowns
|
3,170 | 1,952 | ||||||
Deferred gain on sale of subsidiary
|
1,263 | 1,594 | ||||||
Other
|
400 | 403 | ||||||
Deferred tax assets
|
58,638 | 37,940 | ||||||
Deferred tax liabilities:
|
||||||||
Fixed assets, principally differences in bases and depreciation
|
(4,467 | ) | (4,885 | ) | ||||
Investment securities, unrealized gains
|
(6,652 | ) | (9,758 | ) | ||||
Investment in joint venture partnership, principally due to
differences in depreciation of partnership assets
|
(735 | ) | (865 | ) | ||||
Prepaid amounts
|
(789 | ) | (801 | ) | ||||
Government agency stock dividends
|
(2,081 | ) | (2,056 | ) | ||||
Goodwill and core deposit intangibles
|
(19,044 | ) | (15,158 | ) | ||||
Mortgage servicing rights
|
(4,761 | ) | (5,419 | ) | ||||
Other
|
(1,637 | ) | (888 | ) | ||||
Deferred tax liabilities
|
(40,166 | ) | (39,830 | ) | ||||
Net deferred tax (liabilities) assets
|
$ | 18,472 | $ | (1,890 | ) | |||
As of December 31, 2010, the Company had a net deferred tax asset of $18,472. The Company had a current net income tax receivable of $1,764 and a current net income tax payable of $1,625 at December 31, 2010 and 2009, respectively, which are included in accounts payable and accrued expenses. |
(18) | STOCK-BASED COMPENSATION |
The Company has equity awards outstanding under two stock-based compensation plans; the 2006 Equity Compensation Plan (the 2006 Plan) and the 2001 Stock Option Plan. These plans were primarily established to enhance the Companys ability to attract, retain and motivate employees. The Companys Board of Directors or, upon delegation, the Compensation Committee of the Board of Directors (Compensation Committee) has exclusive authority to select employees, advisors and others, including directors, to receive awards and to establish the terms and conditions of each award made pursuant to the Companys stock-based compensation plans. |
The 2006 Plan, approved by the Companys shareholders in May 2006, was established to consolidate into one plan the benefits available under the 2001 Stock Option Plan and all other then existing share-based award plans (collectively, the Previous Plans). The Previous Plans continue with respect to awards made prior to May 2006. All shares of common stock available for future grant under the Previous Plans were transferred into the 2006 Plan. At December 31, 2010, there were 942,254 common shares available for future grant under the 2006 Plan. All awards granted subsequent to completion of the Companys IPO on March 29, 2010 will be for shares of Class A common stock. All awards granted prior to the Companys IPO are for shares of Class B common stock. |
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Stock Options. All options granted have an exercise price equal to fair market value, which is currently defined as the closing sales price for the stock as quoted on the NASDAQ Stock Market for the last market trading day proceeding the date that the Companys Board of Directors awards the benefit. Options may be subject to vesting as determined by the Companys Board of Directors or Compensation Committee; and, can be exercised for periods of up to ten years from the date of grant. |
Compensation expense related to stock option awards of $813, $588 and $896 was included in salaries, wages and benefits expense on the Companys consolidated income statements for the years ended December 31, 2010, 2009 and 2008, respectively. Related income tax benefits recognized for the years ended December 31, 2010, 2009 and 2008 were $311, $225 and $342, respectively. |
The weighted average grant date fair value of options granted was $4.58, $1.01 and $1.44 during the years ended December 31, 2010, 2009 and 2008, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The following table presents the weighted-average assumptions used in the option pricing model for the periods indicated: |
Years ended December 31, | 2010 | 2009 | 2008 | |||||||||
Expected volatility
|
35.66 | % | 9.58 | % | 6.91 | % | ||||||
Expected dividend yield
|
2.98 | % | 3.28 | % | 3.11 | % | ||||||
Risk-free interest rate
|
3.08 | % | 2.64 | % | 3.72 | % | ||||||
Expected life of options (in years)
|
7.7 | 7.7 | 6.2 |
Expected dividend yield is based on the Companys annualized expected dividends per share divided by the average common stock price. Risk-free interest rate is based on the U.S. treasury constant maturity yield for treasury securities with maturities approximating the expected life of the options granted on the date of grant. The 2010 expected life of options is based on the Companys historical exercise and post-vesting termination behaviors. Prior to 2009, the Company elected to use the simplified method to estimate expected life. The Company expected the historical volatility of its common stock would not be indicative of future volatility subsequent to the Companys IPO, which was concluded on March 29, 2010. As such, in 2010 the Company estimated expected volatility based on the share price volatility of a peer group of publicly-traded regional banks of similar size and performance as the Company over the expected life of options. Prior to 2010, expected volatility was based on the historical volatility of the Companys common stock calculated using the quarterly appraised value of a minority interest over the expected life of options. |
The following table summarizes stock option activity under the Companys active stock option plans for the year ended December 31, 2010: |
Weighted-Average | ||||||||||||
Number of | Weighted-Average | Remaining | ||||||||||
Shares | Exercise Price | Contract Life | ||||||||||
Outstanding options, beginning of year
|
3,577,332 | $ | 15.99 | |||||||||
Granted
|
285,628 | 15.09 | ||||||||||
Exercised
|
(204,672 | ) | 11.20 | |||||||||
Forfeited
|
(44,588 | ) | 16.60 | |||||||||
Expired
|
(28,848 | ) | 18.84 | |||||||||
Outstanding options, end of year
|
3,584,852 | $ | 16.15 | 5.14 years | ||||||||
Outstanding options exercisable, end of year
|
2,959,498 | $ | 16.11 | 4.45 years | ||||||||
-97-
The total intrinsic value of fully-vested stock options outstanding as of December 31, 2010 was $3,948. The total intrinsic value of options exercised was $757, $2,035 and $3,296 during the years ended December 31, 2010, 2009 and 2008, respectively. The actual tax benefit realized for the tax deduction from option exercises totaled $250, $733 and $1,178 for the years ended December 31, 2010, 2009 and 2008, respectively. The Company received cash of $649, $144 and $1,741 from stock option exercises during the years ended December 31, 2010, 2009 and 2008, respectively. In addition, the Company redeemed common stock with aggregate values of $1,643, $3,183 and $2,695 tendered in payment for stock option exercises during the years ended December 31, 2010, 2009 and 2008, respectively. |
Information with respect to the Companys nonvested stock options as of and for the year ended December 31, 2010 follows: |
Number of | Weighted-Average | |||||||
Shares | Grant Date Fair Value | |||||||
Nonvested stock options, beginning of year
|
811,428 | $ | 1.32 | |||||
Granted
|
285,628 | 4.58 | ||||||
Vested
|
(427,114 | ) | 1.71 | |||||
Forfeited
|
(44,588 | ) | 2.49 | |||||
Nonvested stock options, end of year
|
625,354 | $ | 2.46 | |||||
As of December 31, 2010, there was $970 of unrecognized compensation cost related to nonvested stock options granted under the Companys active stock option plans. That cost is expected to be recognized over a weighted-average period of 1.40 years. The total fair value of shares vested during 2010 was $730. |
Restricted Stock Awards. Common stock issued under the Companys restricted stock plan may not be sold or otherwise transferred until restrictions have lapsed or performance objectives have been obtained. During the vesting periods, participants have voting rights and receive dividends on the restricted shares. Upon termination of employment, common shares upon which restrictions have not lapsed must be returned to the Company. |
Based on the substantive terms of each award, restricted shares are classified as equity or liability awards. The fair value of equity-classified restricted stock awards, based on peer group of region banks of comparable size with performance ratios similar to our own, is being amortized as compensation expense on a straight-line basis over the period restrictions lapse or performance goals are met. Compensation cost for liability-classified awards is expensed each period from the date of grant to the measurement date based on the fair value of the Companys common stock at the end of each period. Compensation expense related to restricted stock awards of $847, $436 and $15 was included in salaries, wages and benefits expense on the Companys consolidated statements of income for the years ended December 31, 2010, 2009 and 2008, respectively. Related income tax benefits recognized for the years ended December 31, 2010, 2009 and 2008 were $324, $167 and $6, respectively. |
The following table presents information regarding the Companys restricted stock as of December 31, 2010: |
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Weighted-Average | ||||||||
Number of | Measurement Date | |||||||
Shares | Fair Value | |||||||
Restricted stock, beginning of year
|
68,136 | $ | 18.41 | |||||
Granted
|
117,140 | 15.00 | ||||||
Lapsed
|
(11,045 | ) | 16.90 | |||||
Forfeited
|
(18,821 | ) | 16.69 | |||||
Restricted stock, end of year
|
155,410 | $ | 15.76 | |||||
During 2010, the Company issued 117,140 restricted common shares as follows: 13,460 shares that vest in varying percentages upon achievement of defined return on asset performance goals and employment on December 31, 2012 and 103,680 shares that vest one-third on each annual anniversary of the grant date through February 5, 2013 contingent on continued employment |
As of December 31, 2010, there was $1,313 of unrecognized compensation cost related to nonvested restricted stock awards expected to be recognized over a period of 1.91 years. |
(19) | EMPLOYEE BENEFIT PLANS | |
Profit Sharing Plan. The Company has a noncontributory profit sharing plan. All employees, other than temporary employees, working 20 hours or more per week are eligible to participate in the profit sharing plan. The Companys Board of Directors authorizes quarterly contributions to the profit sharing plan that are not to exceed, on an individual basis, the lesser of 100% of compensation or $40 annually. Participants become 100% vested upon the completion of three years of vesting service. The Company accrued contribution expense for this plan of $1,197, $1,757 and $2,739 in 2010, 2009 and 2008, respectively. | ||
Savings Plan. In addition, the Company has a contributory employee savings plan. Eligibility requirements for this plan are the same as those for the profit sharing plan discussed in the preceding paragraph. Employee participation in the plan is at the option of the employee. The Company contributes $1.25 for each $1.00 of employee contributions up to 4% of the participating employees compensation. The Company accrued contribution expense for this plan of $3,896, $3,857 and $3,896 in 2010, 2009 and 2008, respectively. | ||
Postretirement Healthcare Plan. The Company sponsors a contributory defined benefit healthcare plan (the Plan) for active employees and employees and directors retiring from the Company at the age of at least 55 years and with at least 15 years of continuous service. Retired Plan participants contribute the full cost of benefits based on the average per capita cost of benefit coverage for both active employees and retired Plan participants. | ||
The Plans unfunded benefit obligation of $3,575 and $2,305 as of December 31, 2010 and 2009, respectively, is included in accounts payable and accrued expenses in the Companys consolidated balance sheets. Net periodic benefit costs of $502, $194 and $152 for the years ended December 31, 2010, 2009 and 2008, respectively, are included in salaries, wages and employee benefits expense in the Companys consolidated statements of income. | ||
Weighted average actuarial assumptions used to determine the postretirement benefit obligation at December 31, 2010, and the net periodic benefit costs for the year then ended, included a discount rate of 5.3% and a 5.0% annual increase in the per capita cost of covered healthcare benefits. Weighted average actuarial assumptions used to determine the postretirement benefit obligation at December 31, 2009, and the net periodic benefit costs for the year then ended, included a discount rate of 6.0% and a 6.0% annual increase in the per capita cost of covered healthcare benefits. The estimated effect of a one percent increase or a one percent decrease in the assumed healthcare cost trend rate did not significantly impact the service and interest cost components of the net periodic benefit cost or the accumulated postretirement benefit obligation. Future benefit payments are expected to be $193, $177, $176, $207 $195 and $1,381 for 2011, 2012, 2013, 2014, 2015, and 2016 through 2020, respectively. |
At December 31, 2010, the Company had accumulated other comprehensive loss related to the Plan of $2,535, or $1,584 net of related income tax benefit, comprised of net actuarial losses of $2,011 and unamortized transition asset of $524. The Company estimates $135 will be amortized from accumulated other comprehensive loss into net period benefit costs in 2011. |
-99-
(20) | OTHER COMPREHENSIVE INCOME | |
Total comprehensive income is reported in the accompanying statements of changes in stockholders equity. Information related to net other comprehensive income is as follows: |
Year ended December 31, | 2010 | 2009 | 2008 | |||||||||
Other comprehensive income (loss):
|
||||||||||||
Investment securities available-for-sale:
|
||||||||||||
Change in net unrealized (loss) gain during the period
|
$ | (8,438 | ) | $ | 10,322 | $ | 17,799 | |||||
Reclassification adjustment for losses (gains) included in
income
|
(170 | ) | (137 | ) | (101 | ) | ||||||
Unamortized premium on available-for-sale securities
transferred into held-to-maturity
|
722 | 1,055 | | |||||||||
Change in the net actuarial loss on defined benefit post-retirement
benefit plans
|
(940 | ) | (1,179 | ) | (13 | ) | ||||||
|
(8,826 | ) | 10,061 | 17,685 | ||||||||
Deferred tax expense
|
(3,126 | ) | 3,958 | 6,958 | ||||||||
Net other comprehensive income
|
$ | (5,700 | ) | $ | 6,103 | $ | 10,727 | |||||
The components of accumulated other comprehensive income, net of income taxes, are as follows: |
Year ended December 31, | 2010 | 2009 | ||||||
Net unrealized gain on investment securities available-for-sale
|
$ | 10,959 | $ | 16,072 | ||||
Net actuarial loss on defined benefit post-retirement benefit
plans
|
(1,584 | ) | (997 | ) | ||||
Net accumulated other comprehensive income
|
$ | 9,375 | $ | 15,075 | ||||
(21) | NON-CASH INVESTING AND FINANCING ACTIVITIES | |
The Company transferred loans of $21,314, $42,212 and $5,645 to other real estate owned in 2010, 2009 and 2008, respectively. | ||
The Company transferred internally originated mortgage servicing assets of $4,222, $9,681 and $6,111 from loans to mortgage servicing assets in 2010, 2009 and 2008, respectively. | ||
The Company transferred real property pending disposal of $1,513 to other assets in 2010. The Company transferred equipment pending disposal of $1,519 to other assets in 2009. | ||
The Company transferred accrued liabilities of $59 to common stock in conjunction with the vesting of liability-classified non-vested stock awards during 2010. | ||
In conjunction with the sale of mortgage servicing rights, the Company recorded receivables of $1,204 and $938 during 2010 and 2009, respectively. | ||
During 2008, the Company transferred accrued liabilities of $38 to common stock in conjunction with the exercise of stock options. | ||
In conjunction with the sale of a nonbank subsidiary in December 2008, the Company divested assets and liabilities with book values of $9,299 and $128, respectively. For additional information regarding the sale, see Note 23Acquisitions and Dispositions. |
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On January 10, 2008, the Company issued 5,000 shares of Series A Preferred Stock with an aggregate value of $50,000. The Series A Preferred Stock was issued in partial consideration for the First Western acquisition. For additional information regarding the acquisition, see Note 23Acquisitions and Dispositions. | ||
On March 27, 2008, the Company transferred $100,000 from retained earnings to common stock. |
(22) | CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) | |
Following is condensed financial information of First Interstate BancSystem, Inc. |
December 31, | 2010 | 2009 | ||||||
Condensed balance sheets:
|
||||||||
Cash and cash equivalents
|
$ | 133,277 | $ | 30,749 | ||||
Investment in subsidiaries, at equity:
|
||||||||
Bank subsidiaries
|
740,006 | 712,776 | ||||||
Nonbank subsidiaries
|
1,975 | 1,961 | ||||||
Total investment in subsidiaries
|
741,981 | 714,737 | ||||||
Other assets
|
27,010 | 26,213 | ||||||
Total assets
|
$ | 902,268 | $ | 771,699 | ||||
Other liabilities
|
$ | 16,697 | $ | 19,569 | ||||
Advances from subsidiaries, net
|
5,054 | 52 | ||||||
Long-term debt
|
20,000 | 53,929 | ||||||
Subordinated debentures held by subsidiary trusts
|
123,715 | 123,715 | ||||||
Total liabilities
|
165,466 | 197,265 | ||||||
Stockholders equity
|
736,802 | 574,434 | ||||||
Total liabilities and stockholders equity
|
$ | 902,268 | $ | 771,699 | ||||
Years Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Condensed statements of income:
|
||||||||||||
Dividends from subsidiaries
|
$ | 15,400 | $ | 41,900 | $ | 64,539 | ||||||
Other interest income
|
105 | 9 | 29 | |||||||||
Other income, primarily management fees from
subsidiaries
|
11,336 | 11,529 | 9,101 | |||||||||
Gain on sale of nonbank subsidiary
|
| | 27,096 | |||||||||
Total income
|
26,841 | 53,438 | 100,765 | |||||||||
Salaries and benefits
|
13,435 | 12,687 | 9,030 | |||||||||
Interest expense
|
7,703 | 8,773 | 12,075 | |||||||||
Other operating expenses, net
|
6,827 | 6,270 | 7,713 | |||||||||
Total expenses
|
27,965 | 27,730 | 28,818 | |||||||||
Earnings before income tax benefit
|
(1,124 | ) | 25,708 | 71,947 | ||||||||
Income tax expense (benefit)
|
(6,254 | ) | (6,261 | ) | 2,814 | |||||||
Income before undistributed earnings of subsidiaries
|
5,130 | 31,969 | 69,133 | |||||||||
Undistributed earnings of subsidiaries
|
32,226 | 21,894 | 1,515 | |||||||||
Net income
|
$ | 37,356 | $ | 53,863 | $ | 70,648 | ||||||
-101-
Years Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Condensed statements of cash flows:
|
||||||||||||
Cash flows from operating activities:
|
||||||||||||
Net income
|
$ | 37,356 | $ | 53,863 | $ | 70,648 | ||||||
Adjustments to reconcile net income to cash provided by
operating activities:
|
||||||||||||
Undistributed earnings of subsidiaries
|
(32,226 | ) | (21,894 | ) | (1,515 | ) | ||||||
Depreciation and amortization
|
217 | 241 | 289 | |||||||||
Write-down of equipment pending sale
|
| 350 | | |||||||||
Deferred income tax benefit
|
(1,455 | ) | (1,401 | ) | (706 | ) | ||||||
Stock-based compensation expense
|
1,661 | 1,024 | 911 | |||||||||
Tax benefits from stock-based compensation
|
239 | 742 | 1,178 | |||||||||
Excess tax benefits from stock-based compensation
|
(225 | ) | (719 | ) | (1,140 | ) | ||||||
Gain on sale of nonbank subsidiary
|
| | (27,096 | ) | ||||||||
Other, net
|
(3,087 | ) | (8,664 | ) | 10,130 | |||||||
Net cash provided by operating activities
|
2,480 | 23,542 | 52,699 | |||||||||
Cash flows from investing activities:
|
||||||||||||
Maturities of available-for-sale investment securities
|
| | 100,000 | |||||||||
Capitalization of subsidiaries
|
(130 | ) | (535 | ) | (1,140 | ) | ||||||
Acquisition of banks and data service company, net of
cash and cash equivalents received
|
| | (198,081 | ) | ||||||||
Proceeds from disposition of nonbank subsidiary
|
| | 41,026 | |||||||||
Net cash used in investing activities
|
(130 | ) | (535 | ) | (58,195 | ) | ||||||
Cash flows from financing activities:
|
||||||||||||
Net increase (decrease) in advances
from nonbank subsidiaries
|
5,002 | (4,718 | ) | (1,634 | ) | |||||||
Borrowings of long-term debt
|
| | 98,500 | |||||||||
Repayments of long-term debt
|
(33,929 | ) | (8,928 | ) | (35,643 | ) | ||||||
Proceeds from issuance subordinated debentures
|
| | 20,620 | |||||||||
Debt issuance costs
|
| (261 | ) | (576 | ) | |||||||
Preferred stock issuance costs
|
| | (38 | ) | ||||||||
Proceeds from issuance of common stock
|
167,503 | 3,957 | 13,662 | |||||||||
Common stock issuance costs
|
(13,597 | ) | | | ||||||||
Excess tax benefits from stock-based compensation
|
225 | 719 | 1,140 | |||||||||
Purchase and retirement of common stock
|
(3,699 | ) | (11,052 | ) | (27,912 | ) | ||||||
Dividends paid to common stockholders
|
(17,905 | ) | (15,694 | ) | (20,578 | ) | ||||||
Dividends paid to preferred stockholders
|
(3,422 | ) | (3,422 | ) | (3,347 | ) | ||||||
Net cash provided by (used in) financing activities
|
100,178 | (39,399 | ) | 44,194 | ||||||||
Net change in cash and cash equivalents
|
102,528 | (16,392 | ) | 38,698 | ||||||||
Cash and cash equivalents, beginning of year
|
30,749 | 47,141 | 8,443 | |||||||||
Cash and cash equivalents, end of year
|
$ | 133,277 | $ | 30,749 | $ | 47,141 | ||||||
Noncash Investing and Financing Activities The Company transferred accrued liabilities of $59 to common stock in conjunction with the vesting of liability-classified non-vested stock awards during 2010. |
During 2009, the Company settled an intercompany payable to a nonbank subsidiary through investment in subsidiary. The settlement resulted in a decrease in advances from subsidiary of $581 and a corresponding decrease in investment in subsidiary. |
-102-
During 2009, the Company transferred equipment pending disposal of $1,519 to other assets. |
During 2008, the Company transferred $38 from accrued liabilities to common stock in conjunction with the exercise of stock options. |
In conjunction with the sale of a nonbank subsidiary in December 2008, the Parent Company settled intercompany balances through its investment in the i_Tech subsidiary. The settlement resulted in increases in other assets, accrued liabilities and long-term debt of $320, $1,188 and $299, respectively, with corresponding decreases in investment in subsidiary. |
On January 10, 2008, the Company issued 5,000 shares of Series A Preferred Stock with an aggregate value of $50,000. The Series A Preferred Stock was issued in partial consideration for the First Western acquisition. For additional information regarding the acquisition, see Note 23Acquisitions and Dispositions. |
On March 27, 2008, the Company transferred $100,000 from retained earnings to common stock. |
(23) | ACQUISITIONS AND DISPOSITIONS |
On January 10, 2008, the Company completed the purchase all of the outstanding stock of Sturgis, Wall and Data (collectively, First Western). At the acquisition date, First Western had total assets of approximately $913,000, loans of approximately $727,000 and deposits of approximately $814,000. Consideration for the acquisition of $248,081 consisted of cash of $198,081 and 5,000 shares of Series A Preferred Stock with an aggregate value of $50,000. See Note 12Capital Stock and Dividend Restrictions for further information regarding the Series A Preferred Stock. The cash portion of the purchase price was funded through debt financing. See Note 10Long-Term Debt and Other Borrowed Funds and Note 11Subordinated Debentures Held by Subsidiary Trusts for further information regarding debt financing. In conjunction with the acquisition, the Company recorded goodwill of $146,293, of which approximately $133,239 is expected to be deductible for income tax purposes, and core deposit intangibles of $14,928 with a weighted average amortization period of approximately 9.2 years. The consolidated statement of income for the year ended December 31, 2008 includes the operating results of the acquired entities from the date of acquisition. If the acquisition had occurred as of the beginning of each prior period presented, pro forma interest income, non-interest income and net income would have been $357,477, $128,516 and $71,055, respectively, for the year ended December 31, 2008. |
On December 31, 2008, the Company completed the sale of its technology services subsidiary, i_Tech. The aggregate sales price under the agreement was $41,180. Concurrent with the sale, the Company entered into a service agreement with the purchaser to receive data processing, electronic funds transfer and other technology services for a period of seven years at current market rates for such services. A net gain of $31,596 was recognized on the sale, of which $4,500 was deferred and is being amortized to outsourced technology services expense using the straight-line method over the term of the service agreement. The Company paid i_Tech $12,622 for technology services during 2008. |
-103-
(24) | FAIR VALUE MEASUREMENTS |
Financial assets and financial liabilities measured at fair value on a recurring basis are as follows: |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Balance | Active Markets for | Observable | Unobservable | |||||||||||||
as of | Identical Assets | Inputs | Inputs | |||||||||||||
12/31/2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Investment securities available-for-sale:
|
||||||||||||||||
Obligations of U.S. government agencies
|
$ | 953,420 | $ | | $ | 953,420 | $ | | ||||||||
U.S. agencies mortgage-backed securities
|
831,860 | | 831,860 | | ||||||||||||
Private mortgage-backed securities
|
1,055 | | 1,055 | | ||||||||||||
Mortgage servicing rights
|
13,694 | | 13,694 | | ||||||||||||
Derivative liability contract
|
86 | | | 86 |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Balance | Active Markets for | Observable | Unobservable | |||||||||||||
as of | Identical Assets | Inputs | Inputs | |||||||||||||
12/31/2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Investment securities available-for-sale:
|
||||||||||||||||
Obligations of U.S. government agencies
|
$ | 571,446 | $ | | $ | 571,446 | $ | | ||||||||
U.S. agencies mortgage-backed securities
|
743,640 | | 743,640 | | ||||||||||||
Private mortgage-backed securities
|
1,343 | | 1,343 | | ||||||||||||
Mortgage servicing rights
|
17,746 | | 17,746 | | ||||||||||||
Derivative liability contract
|
245 | | | 245 |
The following table reconciles the beginning and ending balances of the derivative liability contract measured at fair value on a recurring basis using significant unobservable (Level 3) inputs during the twelve months ended December 31, 2010 and 2009: |
For the Twelve Months Ended December 31, | 2010 | 2009 | ||||||
Balance, beginning of period
|
$ | 245 | $ | | ||||
Accruals during the period
|
155 | 245 | ||||||
Cash payments during the period
|
(314 | ) | | |||||
Balance, end of period
|
$ | 86 | $ | 245 | ||||
The following methods were used to estimate the fair value of each class of financial instrument above: |
Investment Securities Available-for-Sale . The Company obtains fair value measurements for investment securities available-for-sale from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the investments terms and conditions, among other things. |
-104-
Mortgage Servicing Rights. Mortgage servicing rights are initially recorded at fair value based on comparable market quotes and are amortized in proportion to and over the period of estimated net servicing income. Mortgage servicing rights are evaluated quarterly for impairment using an independent valuation service. The valuation service utilizes discounted cash flow modeling techniques, which consider observable data that includes market consensus prepayment speeds and the predominant risk characteristics of the underlying loans including loan type, note rate and loan term. Management believes the significant inputs utilized in the valuation model are observable in the market. |
Derivative Liability Contract. In conjunction with the sale of all of its Class B shares of Visa, Inc. (Visa) common stock in 2009, the Company entered into a derivative liability contract with the purchaser whereby the Company will make or receive cash payments based on subsequent changes in the conversion rate of the Class B shares into Class A shares of Visa. The conversion rate is dependent upon the resolution of certain litigation involving Visa U.S.A. Inc. card association or its affiliates. The value of the derivative liability contract is estimated based on the Companys expectations regarding the ultimate resolution of that litigation, which involves a high degree of judgment and subjectivity. On May 28, 2010 and October 8, 2010, Visa disclosed it had provided additional funding to its litigation escrow account thereby reducing the conversion rate of the Class B shares into Class A shares. In conjunction with these changes in conversion rate, the Company made cash payments to the purchaser of $314. In addition, during 2010 the Company revised its estimate of Visas future litigation funding and increased its derivative contract liability by $155. |
Additionally, from time to time, certain assets are measured at fair value on a non-recurring basis. Adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment. |
The following table presents information about the Companys assets and liabilities measured at fair value on a non-recurring basis. |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||||
in Active | Other | Significant | ||||||||||||||||||
Markets for | Observable | Unobservable | Total | |||||||||||||||||
Identical Assets | Inputs | Inputs | Gains | |||||||||||||||||
As of December 31, 2010 | Total | (Level 1) | (Level 2) | (Level 3) | (Losses) | |||||||||||||||
Impaired loans
|
$ | 97,574 | $ | | $ | | $ | 97,574 | $ | (55,800 | ) | |||||||||
Other real estate owned
|
21,555 | | | 21,555 | (11,116 | ) | ||||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||||
in Active | Other | Significant | ||||||||||||||||||
Markets for | Observable | Unobservable | Total | |||||||||||||||||
Identical Assets | Inputs | Inputs | Gains | |||||||||||||||||
As of December 31, 2009 | Total | (Level 1) | (Level 2) | (Level 3) | (Losses) | |||||||||||||||
|
||||||||||||||||||||
Impaired loans
|
$ | 41,343 | $ | | $ | | $ | 41,343 | $ | (27,237 | ) | |||||||||
Other real estate owned
|
23,587 | | | 23,587 | (11,678 | ) | ||||||||||||||
Long-lived asset to be
disposed of by sale
|
1,169 | | | 1,169 | (350 | ) | ||||||||||||||
-105-
Impaired Loans. Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. The impaired loans are reported at fair value through specific valuation allowance allocations. In addition, when it is determined that the fair value of an impaired loan is less than the recorded investment in the loan, the carrying value of the loan is adjusted to fair value through a charge to the allowance for loan losses. Collateral values are estimated using inputs based upon observable market data and customized discounting criteria. During 2010, certain impaired loans with a carrying value of $153,375 were reduced by specific valuation allowance allocations of $42,226 and partial loan charge-offs of $17,170 resulting in a reported fair value of $97,574. During 2009, certain impaired loans with a carrying value of $68,580 were reduced by specific valuation allowance allocations of $20,182 and partial loan charge-offs of $7,055, resulting in a reported fair value of $97,574. |
OREO. The fair values of OREO are determined by independent appraisals or are estimated using observable market data in combination with customized discounting criteria. Upon initial recognition, write-downs based on the foreclosed assets fair value at foreclosure are reported through charges to the allowance for loan losses. Periodically, the fair value of foreclosed assets is remeasured with any subsequent write-downs charged to OREO expense in the period in which they are identified. During 2010, OREO with a carrying value of $32,671 was written down to its fair value of $21,555, resulting in charges to the allowance for loan losses of $4,392 and write-downs of $6,724. During 2009, OREO with a carrying value of $35,265 was written down to its fair value of $23,587, resulting in charges to the allowance for loan losses of $6,133 and write-downs of $5,545. |
Long-lived Assets to be Disposed of by Sale. Long-lived assets to be disposed of by sale are carried at the lower of carrying value or fair value less estimated costs to sell. The fair values of long-lived assets to be disposed of by sale are based upon observable market data and customized discounting criteria. As of December 31, 2010, the Company had a long-lived asset to be disposed of by sale of $1,513 that was carried at cost. During 2009, a long-lived asset to be disposed of by sale with a carrying amount of $1,519 was written down to its fair value of $1,169 resulting in an impairment charge of $350, which was included in other non-interest expense. |
In addition, mortgage loans held for sale are required to be measured at the lower of cost or fair value. The fair value of mortgage loans held for sale is based upon binding contracts or quotes or bids from third party investors. As of December 31, 2010 and 2009, all mortgage loans held for sale were recorded at cost. |
The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. The methodologies for estimating the fair value of financial instruments that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for estimating the fair value of other financial instruments are discussed below. For financial instruments bearing a variable interest rate where no credit risk exists, it is presumed that recorded book values are reasonable estimates of fair value. |
Financial Assets. Carrying values of cash, cash equivalents and accrued interest receivable approximate fair values due to the liquid and/or short-term nature of these instruments. Fair values for investment securities held-to-maturity are obtained from an independent pricing service, which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the investments terms and conditions, among other things. Fair values of fixed rate loans and variable rate loans that reprice on an infrequent basis are estimated by discounting future cash flows using current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality. Carrying values of variable rate loans that reprice frequently, and with no change in credit risk, approximate the fair values of these instruments. |
-106-
Financial Liabilities. The fair values of demand deposits, savings accounts, securities sold under repurchase agreements and accrued interest payable are the amount payable on demand at the reporting date. The fair values of fixed-maturity certificates of deposit are estimated using external market rates currently offered for deposits with similar remaining maturities. The carrying values of the interest bearing demand notes to the United States Treasury are deemed an approximation of fair values due to the frequent repayment and repricing at market rates. The fair value of the derivative contract was estimated by discounting cash flows using assumptions regarding the expected outcome of related litigation. The floating rate term notes, floating rate subordinated debentures, floating rate subordinated term loan and unsecured demand notes bear interest at floating market rates and, as such, carrying amounts are deemed to approximate fair values. The fair values of notes payable to the FHLB, fixed rate subordinated term debt and capital lease obligation are estimated by discounting future cash flows using current rates for advances with similar characteristics. |
Commitments to Extend Credit and Standby Letters of Credit. The fair value of commitments to extend credit and standby letters of credit, based on fees currently charged to enter into similar agreements, is not significant. |
A summary of the estimated fair values of financial instruments follows: |
2010 | 2009 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
As of December 31, | Amount | Fair Value | Amount | Fair Value | ||||||||||||
Financial assets:
|
||||||||||||||||
Cash and cash equivalents
|
$ | 685,618 | $ | 685,618 | $ | 623,482 | $ | 623,482 | ||||||||
Investment securities
available-for-sale
|
1,786,335 | 1,786,335 | 1,316,429 | 1,316,429 | ||||||||||||
Investment securities
held-to-maturity
|
147,068 | 146,508 | 129,851 | 130,855 | ||||||||||||
Net loans
|
4,247,429 | 4,222,984 | 4,424,974 | 4,422,288 | ||||||||||||
Accrued interest receivable
|
33,628 | 33,628 | 37,123 | 37,123 | ||||||||||||
Mortgage servicing rights, net
|
13,191 | 13,694 | 17,325 | 17,746 | ||||||||||||
Total financial assets
|
$ | 6,913,269 | $ | 6,888,767 | $ | 6,549,184 | $ | 6,547,923 | ||||||||
Financial liabilities:
|
||||||||||||||||
Total deposits, excluding time
deposits
|
$ | 4,000,468 | $ | 4,000,468 | $ | 3,586,248 | $ | 3,586,248 | ||||||||
Time deposits
|
1,925,245 | 1,936,011 | 2,237,808 | 2,246,223 | ||||||||||||
Securities sold under repurchase
agreements
|
620,154 | 620,154 | 474,141 | 474,141 | ||||||||||||
Derivative contract
|
86 | 86 | 245 | 245 | ||||||||||||
Accrued interest payable
|
13,178 | 13,178 | 17,585 | 17,585 | ||||||||||||
Other borrowed funds
|
4,991 | 4,991 | 5,423 | 5,423 | ||||||||||||
Long-term debt
|
37,502 | 40,031 | 73,353 | 74,913 | ||||||||||||
Subordinated debentures held by
subsidiary trusts
|
123,715 | 128,954 | 123,715 | 128,802 | ||||||||||||
Total financial liabilities
|
$ | 6,725,339 | $ | 6,743,873 | $ | 6,518,518 | $ | 6,533,580 | ||||||||
(25) | RELATED PARTY TRANSACTIONS |
The Company conducts banking transactions in the ordinary course of business with related parties, including directors, executive officers, shareholders and their associates, on the same terms as those prevailing at the same time for comparable transactions with unrelated persons and that do not involve more than a normal risk of collectibility or present other unfavorable features. |
-107-
Certain executive officers, directors and greater than 5% shareholders of the Company and certain entities and individuals related to such persons, incurred indebtedness in the form of loans, as customers, of $40,772 at December 31, 2010 and $48,395 at December 31, 2009. During 2010, new loans and advances on existing loans of $24,007 were funded and loan repayments totaled $31,267. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the Company and are allowable under the Sarbanes Oxley Act of 2002. Additionally, during 2010, net loans of $363 were removed due to changes in related parties from the prior year. |
The Company leases an aircraft from an entity wholly-owned by the chairman of the Companys Board of Directors. Under the terms of the lease, the Company pays a fee for each flight hour plus certain third party operating expenses related to the aircraft. During 2010, 2009 and 2008, the Company paid total fees and operating expenses of $305, $296 and $458, respectively, for its use of the aircraft. In addition, the Company leases a portion of its hanger and provides pilot services to the related entity. During 2010, 2009 and 2008, the Company received payments from the related entity of $63, $129 and $140, respectively, for hanger use, pilot fees and reimbursement of certain third party operating expenses related to the chairmans personal use of the aircraft. |
The Company purchases property, casualty and other insurance through an agency in which a director of the Company has a controlling ownership interest. The Company paid insurance premiums to the agency of $879, $830, and $649 in 2010, 2009 and 2008, respectively. |
The Company purchases services from an entity in which two greater than 5% shareholders and seven directors of the Company, including the chairman and vice chairman of the Board of Directors, have an aggregate ownership interest of 22.0%, and in which the vice chairman is the chairman of such entity. Services provided for the Companys benefit include shareholder education and communication, strategic enterprise planning and corporate governance consultation. During 2010, 2009 and 2008, the Company paid $337, $342 and $415, respectively, for these services. The Company also reimburses the related entity for certain costs incurred in the Companys behalf, primarily office costs for the vice chairman of the Companys Board of Directors and the Companys charitable foundation. These reimbursements totaled $88, $81 and $97 in 2010, 2009 and 2008, respectively. The related entity reimburses the Company for all salaries, wages and employee benefits expenses incurred by the Company in behalf of the related entity for its personnel. |
During 2010, the Company entered into an agreement to sell real property to a director of the Company. Under the terms of the agreement, the sale is scheduled to close in 2011. The sales price of $2,695 is subject to certain adjustments for property taxes, utilities and owners association fees. Prior to entering the agreement, the independent members of the Governance and Nominating Committee of the Companys Board of Directors approved the transaction after reviewing fully the relationship and proposed terms of the transaction. |
In conjunction with the First Western acquisition in January 2008, the Company assumed certain existing deferred compensatory agreements entered into by First Western prior to the acquisition. Under the terms of one such agreement, the Company is required to make cash payments to a director of the Company for the promotion of growth and development of new business through December 31, 2011. The total amount due under the agreement was fixed prior to the acquisition date at $577, with a portion to be paid over four years and the remaining balance of $424 due in January 2012. As additional consideration under the agreement, the director provided, among other things, a covenant not to compete. Under the terms of the agreement, the Company made cash payments of $38, $38 and $40 during 2010, 2009 and 2008. As of December 31, 2010, the Company had accrued a liability of $375 related to remaining payments due to the director under the agreement. |
During 2009, a director of the Company entered into an agreement with FIB to guarantee the payment of interest through December 31, 2011 on loans between FIB and an unrelated third party borrower. The interest guaranty agreement was subsequently extended through December 31, 2012. Under the terms of the interest guaranty agreement, the director made interest payments on behalf of the borrower to the Company of $487 during 2010. No payments were made under the interest guarantee agreement in 2009. In addition, the director pledged to the Company collateral aggregating $8,496 on the loans of the unrelated third party borrower, which in the event of borrower default is subject to liquidation by the Company in partial satisfaction of the debt. |
-108-
During 2008, the Company purchased real property owned by a director of the Company for $1,250. Prior to the purchase, the Companys Board of Directors approved the transaction after reviewing fully the relationships and proposed terms regarding the transaction. |
(26) | SEGMENT REPORTING |
Prior to 2009, the Company reported two operating segments, community banking and technology services. Technology services encompassed services provided through i_Tech, the Companys wholly-owned technology services subsidiary, to affiliated and non-affiliated customers. On December 31, 2008, the Company sold i_Tech and moved certain operational functions previously provided by i_Tech to the Companys bank subsidiary. |
The following table presents prior year segment information. The other category includes the net funding costs and other expenses of the Parent Company, the operational results of consolidated nonbank subsidiaries and intercompany eliminations. |
Community | Technology | Intersegment | ||||||||||||||||||
For the year ended December 31, 2008 | Banking | Services | Other | Eliminations | Total | |||||||||||||||
Net interest income
|
$ | 247,176 | $ | 80 | $ | 54,060 | ($65,939 | ) | $ | 235,377 | ||||||||||
Provision for loan losses
|
33,356 | | | | 33,356 | |||||||||||||||
Net interest income after provision for loan losses
|
213,820 | 80 | 54,060 | (65,939 | ) | 202,021 | ||||||||||||||
Non-interest income:
|
||||||||||||||||||||
External sources
|
83,298 | 18,592 | 26,707 | | 128,597 | |||||||||||||||
Intersegment
|
30 | 12,622 | 11,249 | (23,901 | ) | | ||||||||||||||
Total non-interest income
|
83,328 | 31,214 | 37,956 | (23,901 | ) | 128,597 | ||||||||||||||
Non-interest expense
|
201,114 | 26,459 | 18,869 | (23,901 | ) | 222,541 | ||||||||||||||
Net income before income tax expense
|
96,034 | 4,835 | 73,147 | (65,939 | ) | 108,077 | ||||||||||||||
Income tax expense
|
32,670 | 1,924 | 2,835 | | 37,429 | |||||||||||||||
Net income
|
$ | 63,364 | $ | 2,911 | $ | 70,312 | $ | (65,939 | ) | $ | 70,648 | |||||||||
Depreciation and core deposit intangible amortizaton
|
$ | 17,346 | $ | | $ | 246 | $ | | $ | 17,592 | ||||||||||
Total assets as of December 31, 2008
|
$ | 6,618,374 | $ | | $ | 9,973 | $ | | $ | 6,628,347 | ||||||||||
Investment in equity method investees
as of December 31, 2008
|
$ | 5,847 | $ | | $ | | $ | | $ | 5,847 | ||||||||||
(27) | AUTHORITATIVE ACCOUNTING GUIDANCE |
FASB ASC Topic 805, Business Combinations. New authoritative accounting guidance under ASC Topic 805, Business Combinations, requires an entity to disclose pro forma information for business combinations that occurred during the current year as of the beginning of the comparable prior annual reporting period only. The disclosures should be accompanied by a narrative description about the nature and amount of material, nonrecurring pro forma adjustments. The guidance is applicable to the Companys accounting for business combinations closing on or after December 15, 2010. |
FASB ASC Topic 350, Intangibles Goodwill and Other. New authoritative accounting guidance under ASC Topic 350, Intangibles Goodwill and Other, amends prior guidance. Under this amended guidance, an entity is required to perform Step 2 of the goodwill impairment test if the reporting unit has a zero or negative carrying amount and if it is more likely than not that a goodwill impairment exists. This guidance is effective for fiscal years, and interim periods within those years, that begin after December 15, 2010. Early application is not permitted. The adoption of this authoritative guidance is not expected to have a significant impact on the Companys consolidated financial statements, results of operations or liquidity. |
-109-
FASB ASC Topic 310, Receivables. New authoritative accounting guidance under Accounting Standard Codification (ASC) Topic 310, Receivables, clarifies that modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. This guidance became effective prospectively for modifications of loans accounted for within pools under Subtopic 310-30 occurring after June 30, 2010. The adoption of this new authoritative guidance under ASC Topic 310 did not impact the Companys consolidated financial statements, results of operations or liquidity. |
Additional new authoritative accounting guidance (Accounting Standards Update (ASU) No. 2010-20) under ASC Topic 310, Receivables, requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and non-accrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolios risk and performance. This ASU is effective for interim and annual reporting periods after December 15, 2010. In January 2011, the FASB announced that it was deferring the effective date of new disclosure requirements for troubled debt restructurings prescribed by the ASU. The effective date for those disclosures will be concurrent with the effective date for the proposed ASU, Receivables Clarifications to Accounting for Troubled Debt Restructurings by Creditors, which is anticipated to be effective for interim and annual periods ending after June 15, 2011. The Company will include the required disclosures in the notes to the financial statements beginning December 31, 2010. |
FASB ASC Topic 855, Subsequent Events. New authoritative accounting guidance under ASC Topic 855, Subsequent Events, amends prior guidance. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance became effective immediately and the Company adopted these new requirements for the period ended March 31, 2010. |
FASB ASC Topic 810, Consolidation. Authoritative accounting guidance under ASC Topic 810, Consolidation, amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entitys purpose and design and a companys ability to direct the activities of the entity that most significantly impact the entitys economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entitys involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entitys financial statements. The new authoritative accounting guidance under ASC Topic 810 became effective for the Companys financial statements for periods ending after January 1, 2010. The adoption of this authoritative guidance did not have a significant impact on the Companys consolidated financial statements, results of operations or liquidity. |
-110-
FASB ASC Topic 820, Fair Value Measurements and Disclosures. New authoritative accounting guidance (ASU No. 2010-06) under ASC Topic 820 requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and, present separately information about purchases, sales, issuances and settlements in the reconciliation for fair value measurements using Level 3 inputs. In addition, ASU No. 2010-06 clarifies that reporting entities must use judgment in determining the appropriate classes of assets and liabilities for purposes of reporting fair value measurements and disclose valuation techniques and inputs used to measure both recurring and nonrecurring fair value measurements. ASU No. 2010-06 became effective for the Company on January 1, 2010, except for disclosures about purchases, sales, issuances and settlements in the reconciliation for fair value measurements using Level 3 inputs. Those disclosures are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The adoption of this new authoritative guidance under ASC Topic 820 did not and is expected not to have a material impact on the Companys consolidated financial statements, results of operations or liquidity. |
FASB ASC Topic 860, Transfers and Servicing. New authoritative accounting guidance (ASU No. 2009-16) under ASC Topic 860, Transfers and Servicing, amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a qualifying special-purpose entity and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860, which became effective for the Company on January 1, 2010, did not have a significant impact on the Companys consolidated financial statements, results of operations or liquidity. |
(28) | SUBSEQUENT EVENTS |
Subsequent events have been evaluated for potential recognition and disclosure through the date financial statements were filed with the Securities and Exchange Commission. No events requiring recognition or disclosure were identified. |
-111-
(a) | 2. Financial statement schedules |
(a) | 3. Exhibits |
Exhibit | ||||
Number | Description | |||
|
||||
2.1 |
Stock Purchase Agreement dated as of September 18, 2007, by and between First
Interstate BancSystem, Inc. and First Western Bancorp, Inc. (incorporated herein
by reference to Exhibit 2.1 of the Companys Current Report on Form 8-K filed on
September 19, 2007)
|
|||
|
||||
2.2 |
First Amendment to Stock Purchase Agreement dated as of January 10, 2008,
between First Interstate BancSystem, Inc. and Christen Group, Inc. formerly
known as First Western Bancorp, Inc. (incorporated herein by reference to
Exhibit 10.20 of the Companys Current Report on Form 8-K filed on January 16,
2008)
|
|||
|
||||
3.1 |
Amended and Restated Articles of Incorporation dated March 5, 2010 (incorporated
herein by reference to Exhibit 3.1 of the Companys Current Report on Form 8-K/A
filed on March 10, 2010)
|
|||
|
||||
3.2 |
Second Amended and Restated Bylaws dated January 27, 2011 (incorporated herein
by reference to Exhibit 3.8 of the Companys Current Report on Form 8-K filed on
February 3, 2011)
|
|||
|
||||
4.1 |
Specimen of Series A preferred stock certificate of First Interstate BancSystem,
Inc. (incorporated herein by reference to Exhibit 4.2 of the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2007)
|
|||
|
||||
10.1 |
Credit Agreement Re: Subordinated Term Note dated as of January 10, 2008,
between First Interstate BancSystem, Inc. and First Midwest Bank (incorporated
herein by reference to Exhibit 10.24 of the Companys Current Report on Form 8-K
filed on January 16, 2008)
|
|||
|
||||
10.2 |
Lease Agreement between Billings 401 Joint Venture and First Interstate Bank
Montana dated September 20, 1985 and addendum thereto (incorporated herein by
reference to Exhibit 10.4 of the Companys Post-Effective Amendment No. 3 to
Registration Statement on Form S-1, No. 033-84540, filed on September 29, 1994)
|
|||
|
||||
10.3 |
First Interstate BancSystems Deferred Compensation Plan dated December 1, 2006
(incorporated herein by reference to Exhibit 10.9 of the Companys Pre-Effective
Amendment No. 3 to Registration Statement on Form S-1, No. 333-164380, filed on
March 23, 2010)
|
|||
|
||||
10.4 |
First Amendment to the First Interstate BancSystems Deferred Compensation Plan
dated October 24, 2008 (incorporated herein by reference to Exhibit 10.10 of the
Companys Pre-Effective Amendment No. 3 to Registration Statement on Form S-1,
No. 333-164380, filed on March 23, 2010)
|
|||
|
||||
10.5 |
2001 Stock Option Plan, as amended (incorporated herein by reference to Exhibit
4.12 of the Companys Registration Statement on Form S-8, No. 333-106495, filed
on June 25, 2003)
|
|||
|
||||
10.6 |
Second Amendment to 2001 Stock Option Plan (incorporated herein by reference to
Exhibit 10.6 of the Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2010)
|
|||
|
||||
10.7 |
First Interstate BancSystem, Inc. 2006 Equity Compensation Plan (incorporated
herein by reference to Appendix A of the Companys 2006 Definitive Proxy
Statement on Schedule 14A)
|
|||
|
||||
10.8 |
Amendment to the First Interstate BancSystem, Inc. 2006 Equity Compensation Plan
(incorporated herein by reference to Exhibit 10.1 of the Companys Current
Report on Form 8-K filed on March 22, 2010)
|
|||
|
||||
10.9 |
Second Amendment to the First Interstate BancSystem, Inc. 2006 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.9 of the
Companys Quarterly Report on Form 10-Q for the quarter ended September 30,
2010)
|
-112-
Exhibit | ||||
Number | Description | |||
|
||||
10.10 |
Form of First Interstate BancSystem, Inc. 2006 Equity Compensation Plan
Restricted Stock Agreement (Time) for Certain Executive Officers (incorporated
herein by reference to Exhibit 10.13 of the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2008)
|
|||
|
||||
10.11 |
Form of First Interstate BancSystem, Inc. 2006 Equity Compensation Plan
Restricted Stock Agreement (Performance) for Certain Executive Officers
(incorporated herein by reference to Exhibit 10.14 of the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2008)
|
|||
|
||||
10.12 |
First Interstate BancSystem, Inc. 2006 Equity Compensation Plan Restricted Stock
Agreement (Performance) for Lyle R. Knight (incorporated herein by reference to
Exhibit 10.15 of the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2008)
|
|||
|
||||
10.13 |
First Interstate BancSystem, Inc. 2006 Equity Compensation Plan Restricted Stock
Agreement (Performance) for Lyle R. Knight (incorporated herein by reference to
Exhibit 10.16 of the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2008)
|
|||
|
||||
10.14 |
Trademark License Agreements between Wells Fargo & Company and First Interstate
BancSystem, Inc. (incorporated herein by reference to Exhibit 10.11 of the
Registration Statement on Form S-1, filed on April 22, 1997)
|
|||
|
||||
14.1* |
Code of Ethics for Chief Executive Officer and Senior Financial Officers
|
|||
|
||||
21.1* |
Subsidiaries of First Interstate BancSystem, Inc.
|
|||
|
||||
23.1* |
Consent of McGladrey & Pullen, LLP, Independent Registered Public Accounting Firm
|
|||
|
||||
31.1* |
Certification of Annual Report on Form 10-K pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Executive Officer
|
|||
|
||||
31.2* |
Certification of Annual Report on Form 10-K pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Financial Officer
|
|||
|
||||
32* |
Certification of Annual Report on Form 10-K pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
* | Filed herewith. | |
| Management contract or compensatory plan or arrangement. |
(b) | Exhibits |
(c) | Financial Statements Schedules |
-113-
-114-
-115-
-116-
-117-
First Interstate BancSystem, Inc.
By:
/s/ LYLE R. KNIGHT
February 28, 2011
Date
President and Chief Executive Officer
/s/ THOMAS W. SCOTT
February 28, 2011
Thomas W. Scott, Chairman of the Board
Date
/s/ JAMES R. SCOTT
February 28, 2011
James R. Scott, Vice Chairman of the Board
Date
/s/ RANDALL I. SCOTT
February 28, 2011
Randall I. Scott, Director
Date
/s/ JULIE A. SCOTT
February 28, 2011
Julie A. Scott, Director
Date
/s/ SANDRA A. SCOTT SUZOR
February 28, 2011
Sandra A. Scott Suzor, Director
Date
/s/ STEVEN J. CORNING
February 28, 2011
Steven J. Corning, Director
Date
/s/ DAVID H. CRUM
February 28, 2011
David H. Crum, Director
Date
/s/ WILLIAM B. EBZERY
February 28, 2011
William B. Ebzery, Director
Date
/s/ CHARLES E. HART, M.D., M.S.
February 28, 2011
Charles E. Hart, M.D., M.S., Director
Date
/s/ JAMES W. HAUGH
February 28, 2011
James W. Haugh, Director
Date
/s/ JOHN M. HEYNEMAN, JR.
February 28, 2011
John M. Heyneman, Jr., Director
Date
/s/ TERRY W. PAYNE
February 28, 2011
Terry W. Payne, Director
Date
/s/ MICHAEL J. SULLIVAN
February 28, 2011
Michael J. Sullivan, Director
Date
/s/ MARTIN A. WHITE
February 28, 2011
Martin A. White, Director
Date
Table of Contents
/s/ LYLE R. KNIGHT
February 28, 2011
Lyle R. Knight
President, Chief Executive Officer and Director
(Principal executive officer)
Date
/s/ TERRILL R. MOORE
February 28, 2011
Terrill R. Moore
Date
(Principal financial and accounting
officer)
Table of Contents
Exhibit
Number
Description
2.1
2.2
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Table of Contents
Exhibit
Number
Description
10.11
10.12
10.13
10.14
14.1*
21.1*
23.1*
31.1*
31.2*
32*
*
Filed herewith.
Management contract or compensatory plan or arrangement.
| Conduct their personal and professional affairs in a way that avoids both real and apparent conflicts between their interests and the interests of FIBS. Conflicts of interest are prohibited in all cases unless a specific, case-by-case exception has been granted by the Companys Board of Directors after review and approval of the specific circumstances. Prohibited conflicts of interests include: (1) performing significant work for an outside employer; (2) use of ones position with the Company to influence or gain favors from others (self-dealing); (3) use of nonpublic or inside information for trading in the Companys stock or for any other purpose but the conduct of the Companys business; (4) unauthorized representation of the Company in written or oral communications; (5) personal use of Company assets, resources or facilities; and, (6) causing FIBS to enter into transactions with themselves, any of their immediate family members or any entity in which the CEO or Senior Finance Officers or any of their immediate family members have a direct or indirect interest (other than passive investments consisting of less than 1% of the outstanding shares of publicly traded companies which do not create the appearance of a conflict of interest). | ||
| Promptly bring to the attention of the Chairman of the Audit Committee or report on Ethicspoint (see information below regarding Ethicspoint) any information the CEO or Senior Finance Officer may have concerning any violation of FIBSs Code of Personal Conduct or this Code of Ethics including actual or apparent conflicts of interest between personal and professional relationships involving management or other employees who have a significant role in FIBSs financial reporting, disclosures and internal controls. | ||
| Refrain from engaging in any activity that would compromise their professional ethics or otherwise prejudice their ability to carry out their duties to FIBS. |
| Not take for themselves personally opportunities that are discovered through the use of corporate property, information or position without the consent of the Board of Directors of FIBS. | ||
| Communicate to executive management of FIBS and to external accountants engaged in financial audits of FIBS, all relevant unfavorable and favorable information and professional judgments or opinions relating to FIBSs financial reporting and disclosure in periodic reports filed with the SEC. | ||
| Encourage open communication and full disclosure of financial information by providing a well understood process under which management is kept informed of financial information of importance, including any departures from sound policy, practice, and accounting norms. | ||
| Ensure that all employees who have a significant role in financial reporting understand the Companys open communication and full disclosure standards and processes. | ||
| Refrain from disclosing confidential information obtained in the course of their work except where authorized, unless legally obligated to do so. | ||
| Inform staff members, as appropriate, of the confidentiality of information obtained in the course of their work and monitor, as needed, to ensure that staff members maintain that confidentiality. | ||
| Refrain from using or appearing to use confidential information obtained in the course of their work for unethical or illegal advantage, either personally or indirectly through others. |
| Carefully review a draft of each periodic report for accuracy and completeness before it is filed with the SEC, with particular focus on disclosures the CEO or Senior Finance Officer does not understand or agree with and on information known to the CEO or Senior Finance Officer that is not reflected in the report. | ||
| Establish appropriate systems and procedures to ensure that business transactions are recorded on the Companys books in accordance with generally accepted accounting principals (GAAP), established Company policy and appropriate regulatory pronouncements and guidelines. | ||
| Establish appropriate policies and procedures for the protection and retention of accounting records and information as required by applicable law, regulation or regulatory guidelines. | ||
| Establish and administer disclosure and financial accounting controls and procedures that are appropriate to ensure the integrity of the financial reporting process and the availability of timely, relevant information for the safe, sound, and profitable operation of FIBS and to ensure that material information is included in each periodic report during the period in which the periodic report is being prepared. | ||
| Meet with members of executive management and others involved in the disclosure process to discuss their comments on the draft periodic reports. | ||
| Completely disclose all relevant information reasonably expected to be needed by the Companys regulatory examiners, internal auditors and independent accountants for the full, complete and successful discharge of their duties and responsibilities. |
2
| Consult with the Audit Committee to determine whether they have identified any weaknesses or concerns with respect to internal controls. | ||
| Confirm that neither FIBSs internal auditor nor its independent accountants are aware of any material misstatements or omissions in draft periodic reports, or have any concerns about the managements discussion and analysis section of the periodic reports. | ||
| Bring to the attention of the Chairman of the Audit Committee or report on Ethicspoint matters that could compromise the integrity of FIBSs financial reports, disagreements on accounting matters and violations of any part of FIBSs Code of Personal Conduct or this Code of Ethics. | ||
| Comply with applicable laws, rules and regulations relating to the filing of periodic reports with the SEC by the Company. | ||
| Bring to the attention of the Chairman of the Audit Committee or report on Ethicspoint any information concerning evidence of a material violation of securities or other laws, rules or regulations applicable to FIBS and the operation of its business, by FIBS or any agent thereof, or of a violation of FIBSs Code of Personal Conduct or this Code of Ethics. |
3
|
||||
|
Printed Name | |||
|
||||
|
||||
|
Signature | |||
|
||||
|
||||
|
Date |
4
State of Incorporation or | ||||
Subsidiary | Jurisdiction of Organization | Business Name | ||
|
||||
First Interstate Bank
|
Montana | First Interstate Bank | ||
|
||||
First Western Data, Inc.
|
South Dakota | First Western Data, Inc. | ||
|
||||
First Interstate Statutory Trust
|
Delaware | First Interstate Statutory Trust | ||
|
||||
FI Statutory Trust I
|
Connecticut | FI Statutory Trust I | ||
|
||||
FI Capital Trust II
|
Delaware | FI Capital Trust II | ||
|
||||
FI Statutory Trust III
|
Delaware | FI Statutory Trust III | ||
|
||||
FI Capital Trust IV
|
Delaware | FI Capital Trust IV | ||
|
||||
FI Statutory Trust V
|
Delaware | FI Statutory Trust V | ||
|
||||
FI Statutory Trust VI
|
Delaware | FI Statutory Trust VI | ||
|
||||
Commerce Financial, Inc.
|
Montana | Commerce Financial, Inc. | ||
|
||||
First Interstate Insurance Agency, Inc.
|
Montana | First Interstate Insurance Agency, Inc. | ||
|
||||
FIBCT, LLC
|
Montana | Crytech | ||
|
||||
FIB, LLC
|
Montana | FIB, LLC |
/s/ MCGLADREY & PULLEN, LLP
|
||||
Des Moines, Iowa | ||||
February 28, 2011 |
1. | I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2010 of First Interstate BancSystem, Inc., | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ LYLE R. KNIGHT | ||||
Lyle R. Knight | ||||
President and Chief Executive Officer |
1. | I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2010 of First Interstate BancSystem, Inc., | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ TERRILL R. MOORE | ||||
Terrill R. Moore | ||||
Executive Vice President and
Chief Financial Officer |
/s/ LYLE R. KNIGHT | ||||
Lyle R. Knight | ||||
President and Chief Executive Officer | ||||
/s/ TERRILL R. MOORE | ||||
Terrill R. Moore | ||||
Executive Vice President and
Chief Financial Officer |
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