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SECURITIES AND EXCHANGE COMMISSION
Exchange Act of 1934 (Amendment No.____)
Filed by a Party other than the Registranto
o | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
o | Definitive Proxy Statement | |
þ | Definitive Additional Materials | |
o | Soliciting Material Pursuant to §240.14a-12 |
þ | No fee required. | |
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
1) | Title of each class of securities to which transaction applies: | ||
2) | Aggregate number of securities to which transaction applies: | ||
3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||
4) | Proposed maximum aggregate value of transaction: | ||
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o | Fee paid previously with preliminary materials. | |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
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SECURITIES AND EXCHANGE COMMISSION
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) |
(Registrant’s telephone number, including area code)
o Large accelerated filer | o Accelerated filer | þ Non-accelerated filer(Do not check if a smaller reporting company) | o Smaller reporting company |
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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 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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• | 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 | ||
• | the enforcement of such actions through injunctions or restraining orders. |
• | the Federal Reserve’s proposed guidance on incentive compensation policies at banking organizations; | ||
• | proposals to limit a lender’s ability to foreclose on mortgages or make such foreclosures less economically viable, including allowing Chapter 13 bankruptcy plans to “cram down” the value of certain mortgages on a consumer’s principal residence to its market value and/or reset interest rates and monthly payments to permit defaulting debtors to remain in their home; and | ||
• | accelerating 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). |
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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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and Issuer Purchases of Equity Securities
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Valuation Based on | Appraised | |||||||
Financial Data as of | Valuation Effective Date | Minority Value | ||||||
December 31, 2007 | February 15, 2008 | $ | 83.50 | |||||
March 31, 2008 | May 15, 2008 | 84.75 | ||||||
June 30, 2008 | August 13, 2008 | 77.00 | ||||||
September 30, 2008 | November 14, 2008 | 79.75 | ||||||
December 31, 2008 | March 2, 2009 | 74.50 | ||||||
March 31, 2009 | May 15, 2009 | 61.00 | ||||||
June 30, 2009 | August 17, 2009 | 60.00 | ||||||
September 30, 2009 | November 16, 2009 | 61.50 | ||||||
December 31, 2009 | February 5, 2010 | 60.00 |
• | Members of the Scott family, as majority shareholders who own an aggregate of 6,103,238 shares, are subject to a shareholder’s agreement. Under this agreement, the Scott family has agreed to limit the transfer of shares owned by members of the Scott family to family members or charities, or with our approval, to our officers, directors, advisory directors or to our Savings Plan. | ||
• | Shareholders who are not Scott family members, with the exception of 17 shareholders who own an aggregate of 633,502 shares of unrestricted stock, are subject to shareholder’s agreements. Stock subject to these agreements may not be sold or transferred without triggering our option to acquire the stock in accordance with the terms of these agreements. In addition, the agreements grant us the right to repurchase all or some of the stock under certain conditions. |
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Amount | Total Cash | |||||||
Month Declared and Paid | Per Share | Dividends | ||||||
January 2008 | $ | 0.65 | $ | 5,207,192 | ||||
April 2008 | 0.65 | 5,124,399 | ||||||
July 2008 | 0.65 | 5,090,168 | ||||||
October 2008 | 0.65 | 5,157,034 | ||||||
January 2009 | 0.65 | 5,127,714 | ||||||
April 2009 | 0.45 | 3,522,836 | ||||||
July 2009 | 0.45 | 3,513,986 | ||||||
October 2009 | 0.45 | 3,528,996 | ||||||
January 2010 | 0.45 | 3,519,163 |
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 (1) | Paid Per Share | Plans or Programs | Plans or Programs | ||||||||
October 2009 | — | $ | — | Not Applicable | Not Applicable | |||||||
November 2009 | — | — | Not Applicable | Not Applicable | ||||||||
December 2009 | 24,331 | 61.50 | Not Applicable | Not Applicable | ||||||||
Total | 24,331 | $ | 61.50 | Not Applicable | Not Applicable | |||||||
(1) | Our common stock is not publicly traded, and there is no established trading market for the stock. There is only one class of common stock. As of December 31, 2009, approximately 92% of our common stock was subject to contractual transfer restrictions set forth in shareholder agreements. We have a right of first refusal to repurchase the restricted stock. Additionally, under certain conditions we may call restricted stock held by our officers, directors and employees. We have no obligation to purchase restricted or unrestricted stock, but have historically purchased such stock. All purchases indicated in the table above were effected pursuant to private transactions. |
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Period Ending | ||||||||||||||||||||||||
Index | 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | ||||||||||||||||||
First Interstate BancSystems, Inc. | 100.00 | 115.99 | 149.94 | 145.47 | 134.00 | 111.30 | ||||||||||||||||||
NASDAQ Composite | 100.00 | 101.37 | 111.03 | 121.92 | 72.49 | 104.31 | ||||||||||||||||||
NASDAQ Bank | 100.00 | 95.67 | 106.20 | 82.76 | 62.96 | 51.31 |
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As of or for the year ended December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Selected Balance Sheet Data: | ||||||||||||||||||||
Net loans | $ | 4,424,974 | $ | 4,685,497 | $ | 3,506,625 | $ | 3,262,911 | $ | 2,991,904 | ||||||||||
Investment securities | 1,446,280 | 1,072,276 | 1,128,657 | 1,124,598 | 1,019,901 | |||||||||||||||
Total assets | 7,137,653 | 6,628,347 | 5,216,797 | 4,974,134 | 4,562,313 | |||||||||||||||
Deposits | 5,824,056 | 5,174,259 | 3,999,401 | 3,708,511 | 3,547,590 | |||||||||||||||
Securities sold under repurchase agreements | 474,141 | 525,501 | 604,762 | 731,548 | 518,718 | |||||||||||||||
Long-term debt | 73,353 | 84,148 | 5,145 | 21,601 | 54,654 | |||||||||||||||
Subordinated debentures held by subsidiary trusts | 123,715 | 123,715 | 103,095 | 41,238 | 41,238 | |||||||||||||||
Preferred stockholders’ equity | 50,000 | 50,000 | — | — | — | |||||||||||||||
Common stockholders’ equity | 524,434 | 489,062 | 444,443 | 410,375 | 349,847 | |||||||||||||||
Selected Income Statement Data: | ||||||||||||||||||||
Interest income | $ | 328,034 | $ | 355,919 | $ | 325,557 | $ | 293,423 | $ | 233,857 | ||||||||||
Interest expense | 84,898 | 120,542 | 125,954 | 105,960 | 63,549 | |||||||||||||||
Net interest income | 243,136 | 235,377 | 199,603 | 187,463 | 170,308 | |||||||||||||||
Provision for loan losses | 45,300 | 33,356 | 7,750 | 7,761 | 5,847 | |||||||||||||||
Net interest income after provision for loan losses | 197,836 | 202,021 | 191,853 | 179,702 | 164,461 | |||||||||||||||
Non-interest income | 100,690 | 128,597 | 92,367 | 102,181 | 70,651 | |||||||||||||||
Non-interest expense | 217,710 | 222,541 | 178,786 | 164,775 | 151,087 | |||||||||||||||
Income before income taxes | 80,816 | 108,077 | 105,434 | 117,108 | 84,025 | |||||||||||||||
Income tax expense | 26,953 | 37,429 | 36,793 | 41,499 | 29,310 | |||||||||||||||
Net income | 53,863 | 70,648 | 68,641 | 75,609 | 54,715 | |||||||||||||||
Preferred stock dividends | 3,422 | 3,347 | — | — | — | |||||||||||||||
Net income available to common shareholders | $ | 50,441 | $ | 67,301 | $ | 68,641 | $ | 75,609 | $ | 54,715 | ||||||||||
Common Share Data: | ||||||||||||||||||||
Earnings per share: | ||||||||||||||||||||
Basic | $ | 6.44 | $ | 8.55 | $ | 8.45 | $ | 9.32 | $ | 6.84 | ||||||||||
Diluted | 6.37 | 8.38 | 8.25 | 9.11 | 6.71 | |||||||||||||||
Dividends per share | 2.00 | 2.60 | 2.97 | 2.27 | 1.88 | |||||||||||||||
Book value per share (1) | 66.91 | 62.00 | 55.51 | 50.38 | 43.20 | |||||||||||||||
Tangible book value per share (2) | 42.13 | 37.07 | 50.81 | 45.74 | 38.43 | |||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||
Basic | 7,833,917 | 7,871,034 | 8,126,804 | 8,112,610 | 8,001,682 | |||||||||||||||
Diluted | 7,919,625 | 8,028,168 | 8,322,480 | 8,303,990 | 8,149,337 | |||||||||||||||
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As of or for the year ended December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Financial Ratios: | ||||||||||||||||||||
Return on average assets | 0.79 | % | 1.12 | % | 1.37 | % | 1.60 | % | 1.26 | % | ||||||||||
Return on average common stockholders’ equity | 9.96 | 14.73 | 16.14 | 20.38 | 16.79 | |||||||||||||||
Average stockholders’ equity to average assets | 8.16 | 7.98 | 8.52 | 7.85 | 7.52 | |||||||||||||||
Yield on average earning assets | 5.44 | 6.37 | 7.21 | 6.94 | 6.12 | |||||||||||||||
Cost of average interest bearing liabilities | 1.63 | 2.50 | 3.43 | 3.05 | 1.99 | |||||||||||||||
Interest rate spread | 3.81 | 3.87 | 3.78 | 3.89 | 4.13 | |||||||||||||||
Net interest margin (3) | 4.05 | 4.25 | 4.46 | 4.47 | 4.48 | |||||||||||||||
Efficiency ratio (4) | 63.32 | 61.14 | 61.23 | 56.89 | 62.70 | |||||||||||||||
Common stock dividend payout ratio (5) | 31.06 | 30.41 | 35.15 | 24.36 | 27.49 | |||||||||||||||
Loan to deposit ratio | 77.75 | 92.24 | 88.99 | 89.26 | 85.53 | |||||||||||||||
Asset Quality Ratios | ||||||||||||||||||||
Non-performing loans to total loans (6) | 2.75 | % | 1.90 | % | 0.98 | % | 0.53 | % | 0.63 | % | ||||||||||
Non-performing assets to total loans and other real estate owned (OREO) (7) | 3.57 | 2.03 | 1.00 | 0.55 | 0.67 | |||||||||||||||
Non-performing assets to total assets | 2.28 | 1.46 | 0.68 | 0.36 | 0.45 | |||||||||||||||
Allowance for loan losses to total loans | 2.28 | 1.83 | 1.47 | 1.43 | 1.40 | |||||||||||||||
Allowance for loan losses to non-performing loans | 82.64 | 96.03 | 150.66 | 269.72 | 220.73 | |||||||||||||||
Net charge-offs to average loans | 0.63 | 0.28 | 0.08 | 0.09 | 0.19 | |||||||||||||||
Capital Ratios: | ||||||||||||||||||||
Tangible common equity to tangible assets (8) | 4.79 | % | 4.58 | % | 7.85 | % | 7.55 | % | 6.88 | % | ||||||||||
Tier 1 common capital to total risk weighted assets (9) | 6.43 | 5.35 | 9.95 | 9.68 | 8.94 | |||||||||||||||
Leverage ratio | 7.30 | 7.13 | 9.92 | 8.61 | 7.91 | |||||||||||||||
Tier 1 risk-based capital | 9.74 | 8.57 | 12.39 | 10.71 | 10.07 | |||||||||||||||
Total risk-based capital | 11.68 | 10.49 | 13.64 | 11.93 | 11.27 | |||||||||||||||
(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) | For purposes of computing tier 1 common capital to total risk-weighted assets, tier 1 common capital excludes preferred stock and trust preferred securities. |
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As of December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Preferred stockholders’ equity | $ | 50,000 | $ | 50,000 | $ | — | $ | — | $ | — | ||||||||||
Common stockholders’ equity | 524,434 | 489,062 | 444,443 | 410,375 | 349,847 | |||||||||||||||
Total stockholders’ equity | 574,434 | 539,062 | 444,443 | 410,375 | 349,847 | |||||||||||||||
Less goodwill and other intangible assets | 194,273 | 196,667 | 37,637 | 37,812 | 38,595 | |||||||||||||||
Less preferred stock | 50,000 | 50,000 | — | — | — | |||||||||||||||
Tangible common stockholders’ equity | $ | 330,161 | $ | 292,395 | $ | 406,806 | $ | 372,563 | $ | 311,252 | ||||||||||
Number of common shares outstanding | 7,837,397 | 7,887,519 | 8,006,041 | 8,144,788 | 8,098,933 | |||||||||||||||
Book value per common share | $ | 66.91 | $ | 62.00 | $ | 55.51 | $ | 50.38 | $ | 43.20 | ||||||||||
Tangible book value per common share | 42.13 | 37.07 | 50.81 | 45.74 | 38.43 | |||||||||||||||
Total assets | $ | 7,137,653 | $ | 6,628,347 | $ | 5,216,797 | $ | 4,974,134 | $ | 4,562,313 | ||||||||||
Less goodwill and other intangible assets | 194,273 | 196,667 | 37,637 | 37,812 | 38,595 | |||||||||||||||
Tangible assets | $ | 6,943,380 | $ | 6,431,680 | $ | 5,179,160 | $ | 4,936,322 | $ | 4,523,718 | ||||||||||
Tangible common stockholders’ equity to tangible assets | 4.76 | % | 4.55 | % | 7.85 | % | 7.55 | % | 6.88 | % | ||||||||||
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• | credit losses; |
• | concentrations of real estate loans; |
• | economic and market developments, including inflation; |
• | commercial loan risk; |
• | adequacy of our 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 our business; |
• | adverse economic conditions affecting Montana, Wyoming and western South Dakota; |
• | governmental regulation and changes in regulatory, tax and accounting rules and interpretations; |
• | changes in or noncompliance with governmental regulations; |
• | effects of recent legislative and regulatory efforts to stabilize financial markets; |
• | dependence on our management team; |
• | ability to attract and retain qualified employees; |
• | failure of technology; |
• | 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 our Bank subsidiary; |
• | failure to meet our debt covenants; |
• | soundness of other financial institutions; |
• | impact of Basel II capital standards; |
• | inability of our Bank subsidiary to pay dividends; |
• | change in dividend policy; |
• | lack of public market for our common stock; |
• | transfer restrictions on our common stock; |
• | limitations on stock repurchases |
• | voting control; |
• | dilution as a result of future equity issuances; |
• | anti-takeover provisions; and |
• | subordination of common stock to company debt and preferred stock. |
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Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||||||||||||||
Loans (1)(2) | $ | 4,660,189 | $ | 281,799 | 6.05 | % | $ | 4,527,987 | $ | 306,976 | 6.78 | % | $ | 3,449,809 | $ | 274,020 | 7.94 | % | ||||||||||||||||||
U.S. government agency and mortgage-backed securities | 1,016,632 | 41,887 | 4.12 | 923,912 | 43,336 | 4.69 | 892,850 | 42,650 | 4.78 | |||||||||||||||||||||||||||
Federal funds sold | 105,423 | 253 | 0.24 | 55,205 | 1,080 | 1.96 | 87,460 | 4,422 | 5.06 | |||||||||||||||||||||||||||
Other securities | 1,556 | 50 | 3.21 | 5,020 | 214 | 4.26 | 857 | 3 | 0.35 | |||||||||||||||||||||||||||
Tax exempt securities (2) | 134,373 | 8,398 | 6.25 | 147,812 | 9,382 | 6.35 | 111,732 | 7,216 | 6.46 | |||||||||||||||||||||||||||
Interest bearing deposits in banks | 199,316 | 520 | 0.26 | 5,946 | 191 | 3.21 | 26,165 | 1,307 | 5.00 | |||||||||||||||||||||||||||
Total interest earnings assets | 6,117,489 | 332,907 | 5.44 | 5,665,882 | 361,179 | 6.37 | 4,568,873 | 329,618 | 7.21 | |||||||||||||||||||||||||||
Non-earning assets | 687,110 | 667,206 | 423,893 | |||||||||||||||||||||||||||||||||
Total assets | $ | 6,804,599 | $ | 6,333,088 | $ | 4,992,766 | ||||||||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Demand deposits | $ | 1,083,054 | $ | 4,068 | 0.38 | % | $ | 1,120,807 | $ | 12,966 | 1.16 | % | $ | 1,004,019 | $ | 23,631 | 2.35 | % | ||||||||||||||||||
Savings deposits | 1,321,625 | 10,033 | 0.76 | 1,144,553 | 18,454 | 1.61 | 940,521 | 24,103 | 2.56 | |||||||||||||||||||||||||||
Time deposits | 2,129,313 | 59,125 | 2.78 | 1,688,859 | 65,443 | 3.87 | 1,105,959 | 51,815 | 4.69 | |||||||||||||||||||||||||||
Repurchase agreements | 422,713 | 776 | 0.18 | 537,267 | 7,694 | 1.43 | 558,469 | 21,212 | 3.80 | |||||||||||||||||||||||||||
Borrowings (3) | 56,817 | 1,367 | 2.41 | 126,690 | 3,130 | 2.47 | 8,515 | 428 | 5.03 | |||||||||||||||||||||||||||
Long-term debt | 79,812 | 3,249 | 4.07 | 86,909 | 4,578 | 5.27 | 9,230 | 467 | 5.06 | |||||||||||||||||||||||||||
Subordinated debentures held by by subsidiary trusts | 123,715 | 6,280 | 5.08 | 123,327 | 8,277 | 6.71 | 47,099 | 4,298 | 9.13 | |||||||||||||||||||||||||||
Total interest bearing liabilities | 5,217,049 | 84,898 | 1.63 | 4,828,412 | 120,542 | 2.50 | 3,673,812 | 125,954 | 3.43 | |||||||||||||||||||||||||||
Non-interest bearing deposits | 965,226 | 940,968 | 842,239 | �� | ||||||||||||||||||||||||||||||||
Other non-interest bearing liabilities | 67,061 | 58,173 | 51,529 | |||||||||||||||||||||||||||||||||
Stockholders’ equity | 555,263 | 505,535 | 425,186 | |||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 6,804,599 | $ | 6,333,088 | $ | 4,992,766 | ||||||||||||||||||||||||||||||
Net FTE interest income | $ | 248,009 | $ | 240,637 | $ | 203,664 | ||||||||||||||||||||||||||||||
Less FTE adjustments (2) | (4,873 | ) | (5,260 | ) | (4,061 | ) | ||||||||||||||||||||||||||||||
Net interest income from consoli- dated statements of income | $ | 243,136 | $ | 235,377 | $ | 199,603 | ||||||||||||||||||||||||||||||
Interest rate spread | 3.81 | % | 3.87 | % | 3.78 | % | ||||||||||||||||||||||||||||||
Net FTE interest margin (4) | 4.05 | % | 4.25 | % | 4.46 | % | ||||||||||||||||||||||||||||||
(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. |
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Year Ended December 31, 2009 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | ||||||||||||||||||||||||||||||||||
compared with | compared with | compared with | ||||||||||||||||||||||||||||||||||
December 31, 2008 | December 31, 2007 | December 31, 2006 | ||||||||||||||||||||||||||||||||||
Volume | Rate | Net | Volume | Rate | Net | Volume | Rate | Net | ||||||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||||||||||||||
Loans (1) | $ | 8,963 | $ | (34,140 | ) | $ | (25,177 | ) | $ | 85,640 | $ | (52,684 | ) | $ | 32,956 | $ | 18,599 | $ | 8,560 | $ | 27,159 | |||||||||||||||
U.S. government agency and mortgage-backed securities | 4,349 | (5,798 | ) | (1,449 | ) | 1,484 | (798 | ) | 686 | (1,029 | ) | 2,694 | 1,665 | |||||||||||||||||||||||
Federal funds sold | 982 | (1,809 | ) | (827 | ) | (1,631 | ) | (1,711 | ) | (3,342 | ) | 2,196 | 30 | 2,226 | ||||||||||||||||||||||
Other securities | (148 | ) | (16 | ) | (164 | ) | 15 | 196 | 211 | (1 | ) | (2 | ) | (3 | ) | |||||||||||||||||||||
Tax exempt securities (1) | (853 | ) | (131 | ) | (984 | ) | 2,330 | (164 | ) | 2,166 | 424 | (40 | ) | 384 | ||||||||||||||||||||||
Interest bearing deposits | — | — | ||||||||||||||||||||||||||||||||||
in banks | 6,212 | (5,883 | ) | 329 | (1,010 | ) | (106 | ) | (1,116 | ) | 790 | 157 | 947 | |||||||||||||||||||||||
Total change | 19,505 | (47,777 | ) | (28,272 | ) | 86,828 | (55,267 | ) | 31,561 | 20,979 | 11,399 | 32,378 | ||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Demand deposits | (437 | ) | (8,461 | ) | (8,898 | ) | 2,749 | (13,414 | ) | (10,665 | ) | 2,852 | 4,927 | 7,779 | ||||||||||||||||||||||
Savings deposits | 2,855 | (11,276 | ) | (8,421 | ) | 5,229 | (10,878 | ) | (5,649 | ) | 1,947 | 4,732 | 6,679 | |||||||||||||||||||||||
Time deposits | 17,068 | (23,386 | ) | (6,318 | ) | 27,309 | (13,681 | ) | 13,628 | 3,764 | 8,060 | 11,824 | ||||||||||||||||||||||||
Repurchase agreements | (1,640 | ) | (5,278 | ) | (6,918 | ) | (805 | ) | (12,713 | ) | (13,518 | ) | (3,175 | ) | (891 | ) | (4,066 | ) | ||||||||||||||||||
Borrowings (2) | (1,726 | ) | (37 | ) | (1,763 | ) | 5,940 | (3,238 | ) | 2,702 | (1,913 | ) | (17 | ) | (1,930 | ) | ||||||||||||||||||||
Long-term debt | (374 | ) | (955 | ) | (1,329 | ) | 3,930 | 181 | 4,111 | (1,215 | ) | 106 | (1,109 | ) | ||||||||||||||||||||||
Subordinated debentures held by subsidiary trusts | 26 | (2,023 | ) | (1,997 | ) | 6,956 | (2,977 | ) | 3,979 | 495 | 322 | 817 | ||||||||||||||||||||||||
Total change | 15,772 | (51,416 | ) | (35,644 | ) | 51,308 | (56,720 | ) | (5,412 | ) | 2,755 | 17,239 | 19,994 | |||||||||||||||||||||||
Increase (decrease) in FTE net interest income (1) | $ | 3,733 | $ | 3,639 | $ | 7,372 | $ | 35,520 | $ | 1,453 | $ | 36,973 | $ | 18,224 | $ | (5,840 | ) | $ | 12,384 | |||||||||||||||||
(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. |
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First | Second | Third | Fourth | Full | ||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Year | ||||||||||||||||
Year Ended December 31, 2009: | ||||||||||||||||||||
Interest income | $ | 81,883 | $ | 81,148 | $ | 82,325 | $ | 82,678 | $ | 328,034 | ||||||||||
Interest expense | 22,820 | 21,958 | 21,026 | 19,094 | 84,898 | |||||||||||||||
Net interest income | 59,063 | 59,190 | 61,299 | 63,584 | 243,136 | |||||||||||||||
Provision for loan losses | 9,600 | 11,700 | 10,500 | 13,500 | 45,300 | |||||||||||||||
Net interest income after | ||||||||||||||||||||
provision for loan losses | 49,463 | 47,490 | 50,799 | 50,084 | 197,836 | |||||||||||||||
Non-interest income | 26,213 | 27,267 | 25,000 | 22,210 | 100,690 | |||||||||||||||
Non-interest expense | 50,445 | 54,737 | 57,376 | 55,152 | 217,710 | |||||||||||||||
Income before income taxes | 25,231 | 20,020 | 18,423 | 17,142 | 80,816 | |||||||||||||||
Income tax expense | 8,543 | 6,684 | 6,105 | 5,621 | 26,953 | |||||||||||||||
Net income | 16,688 | 13,336 | 12,318 | 11,521 | 53,863 | |||||||||||||||
Preferred stock dividends | 844 | 853 | 862 | 863 | 3,422 | |||||||||||||||
Net income available to common shareholders | $ | 15,844 | $ | 12,483 | $ | 11,456 | $ | 10,658 | $ | 50,441 | ||||||||||
Basic earnings per common share | $ | 2.01 | $ | 1.59 | $ | 1.47 | $ | 1.36 | $ | 6.44 | ||||||||||
Diluted earnings per common share | 1.98 | 1.57 | 1.46 | 1.35 | 6.37 | |||||||||||||||
Dividends per common share | 0.65 | 0.45 | 0.45 | 0.45 | 2.00 | |||||||||||||||
Year Ended December 31, 2008: | ||||||||||||||||||||
Interest income | $ | 91,109 | $ | 88,068 | $ | 89,928 | $ | 86,814 | $ | 355,919 | ||||||||||
Interest expense | 34,306 | 29,697 | 29,234 | 27,305 | 120,542 | |||||||||||||||
Net interest income | 56,803 | 58,371 | 60,694 | 59,509 | 235,377 | |||||||||||||||
Provision for loan losses | 2,363 | 5,321 | 5,636 | 20,036 | 33,356 | |||||||||||||||
Net interest income after | ||||||||||||||||||||
provision for loan losses | 54,440 | 53,050 | 55,058 | 39,473 | 202,021 | |||||||||||||||
Non-interest income | 26,383 | 25,240 | 24,389 | 52,585 | 128,597 | |||||||||||||||
Non-interest expense | 53,169 | 49,677 | 55,190 | 64,505 | 222,541 | |||||||||||||||
Income before income taxes | 27,654 | 28,613 | 24,257 | 27,553 | 108,077 | |||||||||||||||
Income tax expense | 9,578 | 9,988 | 8,362 | 9,501 | 37,429 | |||||||||||||||
Net income | 18,076 | 18,625 | 15,895 | 18,052 | 70,648 | |||||||||||||||
Preferred stock dividends | 768 | 853 | 863 | 863 | 3,347 | |||||||||||||||
Net income available to common shareholders | $ | 17,308 | $ | 17,772 | $ | 15,032 | $ | 17,189 | $ | 67,301 | ||||||||||
Basic earnings per common share | $ | 2.19 | $ | 2.27 | $ | 1.93 | $ | 2.17 | $ | 8.55 | ||||||||||
Diluted earnings per common share | 2.14 | 2.22 | 1.89 | 2.13 | 8.38 | |||||||||||||||
Dividends per common share | 0.65 | 0.65 | 0.65 | 0.65 | 2.60 | |||||||||||||||
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As of December 31, | ||||||||||||||||||||||||||||||||||||||||
2009 | Percent | 2008 | Percent | 2007 | Percent | 2006 | Percent | 2005 | Percent | |||||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||||||
Realestate: | ||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 1,556,273 | 34.4 | % | $ | 1,483,967 | 31.1 | % | $ | 1,018,831 | 28.6 | % | $ | 937,695 | 28.3 | % | $ | 926,190 | 30.5 | % | ||||||||||||||||||||
Construction | 636,892 | 14.1 | 790,177 | 16.5 | 664,272 | 18.7 | 579,603 | 17.5 | 403,751 | 13.3 | ||||||||||||||||||||||||||||||
Residential | 539,098 | 11.9 | 587,464 | 12.3 | 419,001 | 11.8 | 402,468 | 12.2 | 408,659 | 13.4 | ||||||||||||||||||||||||||||||
Agricultural | 195,045 | 4.3 | 191,831 | 4.0 | 142,256 | 4.0 | 137,659 | 4.1 | 116,402 | 3.9 | ||||||||||||||||||||||||||||||
Other | 36,430 | 0.8 | 47,076 | 1.0 | 26,080 | 0.7 | 25,360 | 0.8 | 19,067 | 0.6 | ||||||||||||||||||||||||||||||
Consumer | 677,548 | 14.9 | 669,731 | 14.0 | 608,002 | 17.1 | 605,858 | 18.3 | 587,895 | 19.4 | ||||||||||||||||||||||||||||||
Commercial | 750,647 | 16.6 | 853,798 | 17.9 | 593,669 | 16.7 | 542,325 | 16.4 | 494,848 | 16.3 | ||||||||||||||||||||||||||||||
Agricultural | 134,470 | 3.0 | 145,876 | 3.1 | 81,890 | 2.3 | 76,644 | 2.3 | 74,561 | 2.5 | ||||||||||||||||||||||||||||||
Other loans | 1,601 | — | 2,893 | 0.1 | 4,979 | 0.1 | 2,751 | 0.1 | 2,981 | 0.1 | ||||||||||||||||||||||||||||||
Total loans | 4,528,004 | 100.0 | % | 4,772,813 | 100.0 | % | 3,558,980 | 100.0 | % | 3,310,363 | 100.0 | % | 3,034,354 | 100.0 | % | |||||||||||||||||||||||||
Less allowance for loan losses | 103,030 | 87,316 | 52,355 | 47,452 | 42,450 | |||||||||||||||||||||||||||||||||||
Net loans | $ | 4,424,974 | $ | 4,685,497 | $ | 3,506,625 | $ | 3,262,911 | $ | 2,991,904 | ||||||||||||||||||||||||||||||
Ratio of allowance to total loans | 2.28 | % | 1.83 | % | 1.47 | % | 1.43 | % | 1.40 | % | ||||||||||||||||||||||||||||||
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Within | One Year to | After | ||||||||||||||
One Year | Five Years | Five Years | Total | |||||||||||||
| | | | | ||||||||||||||||
Real estate | $ | 1,944,565 | $ | 901,020 | $ | 118,153 | $ | 2,963,738 | ||||||||
Consumer | 349,664 | 302,390 | 25,494 | 677,548 | ||||||||||||
Commercial | 608,652 | 131,102 | 10,893 | 750,647 | ||||||||||||
Agricultural | 121,664 | 12,728 | 78 | 134,470 | ||||||||||||
Other loans | 1,601 | — | — | 1,601 | ||||||||||||
Total loans | $ | 3,026,146 | $ | 1,347,240 | $ | 154,618 | $ | 4,528,004 | ||||||||
Loans at fixed interest rates | $ | 913,394 | $ | 1,332,110 | $ | 139,927 | $ | 2,385,431 | ||||||||
Loans at variable interest rates | 1,997,722 | 15,130 | 14,691 | 2,027,543 | ||||||||||||
Nonaccrual loans | 115,030 | — | — | 115,030 | ||||||||||||
Total loans | $ | 3,026,146 | $ | 1,347,240 | $ | 154,618 | $ | 4,528,004 | ||||||||
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As of December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Nonaccrual loans | $ | 115,030 | $ | 85,632 | $ | 31,552 | $ | 14,764 | $ | 17,142 | ||||||||||
Accruing loans past due 90 days or more | 4,965 | 3,828 | 2,171 | 1,769 | 1,001 | |||||||||||||||
Restructured loans | 4,683 | 1,462 | 1,027 | 1,060 | 1,089 | |||||||||||||||
Total non-performing loans | 124,678 | 90,922 | 34,750 | 17,593 | 19,232 | |||||||||||||||
OREO | 38,400 | 6,025 | 928 | 529 | 1,091 | |||||||||||||||
Total non-performing assets | $ | 163,078 | $ | 96,947 | $ | 35,678 | $ | 18,122 | $ | 20,323 | ||||||||||
Non-performing loans to total loans | 2.75 | % | 1.90 | % | 0.98 | % | 0.53 | % | 0.63 | % | ||||||||||
Non-performing assets to total loans and OREO | 3.57 | 2.03 | 1.00 | 0.55 | 0.67 | |||||||||||||||
Non-performing assets to total assets | 2.28 | 1.46 | 0.68 | 0.36 | 0.45 | |||||||||||||||
As of December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Real estate | $ | 101,751 | $ | 79,167 | $ | 27,513 | $ | 9,645 | $ | 8,702 | ||||||||||
Consumer | 2,265 | 2,944 | 1,202 | 1,359 | 1,563 | |||||||||||||||
Commercial | 19,774 | 8,594 | 5,722 | 5,583 | 8,499 | |||||||||||||||
Agricultural | 888 | 217 | 313 | 1,006 | 468 | |||||||||||||||
Total non-performing loans | $ | 124,678 | $ | 90,922 | $ | 34,750 | $ | 17,593 | $ | 19,232 | ||||||||||
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As of and for the year ended December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Balance at the beginning of period | $ | 87,316 | $ | 52,355 | $ | 47,452 | $ | 42,450 | $ | 42,141 | |||||||||||
Allowance of acquired banking offices Charge-offs: | — | 14,463 | — | — | — | ||||||||||||||||
Real estate | |||||||||||||||||||||
Commercial | 5,156 | 995 | 382 | 42 | 560 | ||||||||||||||||
Construction | 14,153 | 3,035 | — | 9 | 15 | ||||||||||||||||
Residential | 1,086 | 325 | 134 | 86 | 382 | ||||||||||||||||
Agricultural | 11 | 642 | 155 | — | — | ||||||||||||||||
Consumer | 8,134 | 5,527 | 3,778 | 4,030 | 4,133 | ||||||||||||||||
Commercial | 3,346 | 3,523 | 643 | 963 | 2,228 | ||||||||||||||||
Agricultural | 92 | 648 | 116 | 80 | 133 | ||||||||||||||||
Total charge-offs | 31,978 | 14,695 | 5,208 | 5,210 | 7,451 | ||||||||||||||||
Recoveries: | |||||||||||||||||||||
Real estate | |||||||||||||||||||||
Commercial | 108 | 88 | 52 | 329 | 44 | ||||||||||||||||
Construction | 7 | 1 | 1 | 10 | — | ||||||||||||||||
Residential | 38 | 67 | 34 | 63 | 13 | ||||||||||||||||
Agricultural | — | — | — | — | — | ||||||||||||||||
Consumer | 1,850 | 1,404 | 1,390 | 1,568 | 1,297 | ||||||||||||||||
Commercial | 328 | 211 | 854 | 360 | 552 | ||||||||||||||||
Agricultural | 61 | 66 | 30 | 121 | 7 | ||||||||||||||||
Total recoveries | 2,392 | 1,837 | 2,361 | 2,451 | 1,913 | ||||||||||||||||
Net charge-offs | 29,586 | 12,858 | 2,847 | 2,759 | 5,538 | ||||||||||||||||
Provision for loan losses | 45,300 | 33,356 | 7,750 | 7,761 | 5,847 | ||||||||||||||||
Balance at end of period | $ | 103,030 | $ | 87,316 | $ | 52,355 | $ | 47,452 | $ | 42,450 | |||||||||||
Period end loans | $ | 4,528,004 | $ | 4,772,813 | $ | 3,558,980 | $ | 3,310,363 | $ | 3,034,354 | |||||||||||
Average loans | 4,660,189 | 4,527,987 | 3,449,809 | 3,208,102 | 2,874,723 | ||||||||||||||||
Net charge-offs to average loans | 0.63 | % | 0.28 | % | 0.08 | % | 0.09 | % | 0.19 | % | |||||||||||
Allowance to period-end loans | 2.28 | % | 1.83 | % | 1.47 | % | 1.43 | % | 1.40 | % | |||||||||||
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As of December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||||||||||||||||||
% 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 | |||||||||||||||||||||||||||||||
Real estate | $ | 76,357 | 65.5 | % | $ | 69,280 | 64.9 | % | $ | 39,420 | 63.8 | % | $ | 33,532 | 62.9 | % | $ | 22,622 | 61.7 | % | ||||||||||||||||||||
Consumer | 6,220 | 14.9 | 5,092 | 14.0 | 4,838 | 17.1 | 5,794 | 18.3 | 7,544 | 19.4 | ||||||||||||||||||||||||||||||
Commercial | 18,608 | 16.6 | 11,021 | 17.9 | 7,170 | 16.7 | 6,746 | 16.4 | 7,607 | 16.3 | ||||||||||||||||||||||||||||||
Agricultural | 1,845 | 3.0 | 1,923 | 3.1 | 779 | 2.3 | 908 | 2.3 | 1,147 | 2.5 | ||||||||||||||||||||||||||||||
Other loans | — | — | — | 0.1 | — | 0.1 | 14 | 0.1 | 15 | 0.1 | ||||||||||||||||||||||||||||||
Unallocated (1) | — | N/A | — | N/A | 148 | N/A | 458 | N/A | 3,515 | N/A | ||||||||||||||||||||||||||||||
Totals | $ | 103,030 | 100.0 | % | $ | 87,316 | 100.0 | % | $ | 52,355 | 100.0 | % | $ | 47,452 | 100.0 | % | $ | 42,450 | 100.0 | % | ||||||||||||||||||||
(1) | During 2006, we refined the methodology for determining the allocated components of the allowance for loan losses. This refinement included improved evaluation of qualitative risk factors internal and external to us and use of a migration analysis of historical loan losses. This refinement resulted in a reallocation among specific loan categories and the allocation of previously unallocated allowance amounts to specific loan categories. As a result, allocation of the allowance for loan losses in 2005 is not directly comparable to the 2006, 2007, 2008 and 2009 presentation. |
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% of Total | Weighted | |||||||||||
Book | Investment | Average | ||||||||||
Value | Securities | Yield (1) | ||||||||||
U.S. Government agency securities | ||||||||||||
Maturing within one year | $ | 2,679 | 0.2 | % | 4.94 | % | ||||||
Maturing in one to five years | 554,674 | 38.3 | 2.56 | |||||||||
Maturing in five to ten years | 11,352 | 0.8 | 4.01 | |||||||||
Mark-to-market adjustments on securities available-for-sale | 2,741 | 0.2 | NA | |||||||||
Total | 571,446 | 39.5 | 2.59 | |||||||||
Mortgage-backed securities | ||||||||||||
Maturing within one year | 180,768 | 12.5 | 4.72 | |||||||||
Maturing in one to five years | 325,310 | 22.5 | 4.74 | |||||||||
Maturing in five to ten years | 86,749 | 6.0 | 4.67 | |||||||||
Maturing after ten years | 130,124 | 9.0 | 4.73 | |||||||||
Mark-to-market adjustments on securities available-for-sale | 22,032 | 1.5 | NA | |||||||||
Total | 744,983 | 51.5 | 4.59 | |||||||||
Tax exempt securities | ||||||||||||
Maturing within one year | 9,648 | 0.7 | 6.21 | |||||||||
Maturing in one to five years | 31,743 | 2.2 | 6.14 | |||||||||
Maturing in five to ten years | 41,147 | 2.9 | 6.12 | |||||||||
Maturing after ten years | 46,843 | 3.2 | 6.02 | |||||||||
Mark-to-market adjustments on securities available-for-sale | NA | NA | NA | |||||||||
Total | 129,381 | 9.0 | 6.10 | |||||||||
Other securities (2) | ||||||||||||
No stated maturity | 470 | — | NA | |||||||||
Mark-to-market adjustments on securities available-for-sale | NA | NA | NA | |||||||||
Total | 470 | — | NA | |||||||||
Total | $ | 1,446,280 | 100.0 | % | 3.93 | % | ||||||
(1) | Average yields have been calculated on a FTE basis. | |
(2) | Equity investments in community development entities. Investment income is in the form of credits that reduce income tax expense. |
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As of December 31, | 2009 | Percent | 2008 | Percent | 2007 | Percent | 2006 | Percent | 2005 | Percent | ||||||||||||||||||||||||||||||
Non-interest bearing demand Interest bearing: | $ | 1,026,584 | 17.6 | % | $ | 985,155 | 19.0 | % | $ | 836,753 | 20.9 | % | $ | 888,694 | 24.0 | % | $ | 864,128 | 24.4 | % | ||||||||||||||||||||
Demand | 1,197,254 | 20.6 | 1,059,818 | 20.5 | 1,019,208 | 25.5 | 964,312 | 26.0 | 792,263 | 22.3 | ||||||||||||||||||||||||||||||
Savings | 1,362,410 | 23.4 | 1,198,783 | 23.2 | 992,571 | 24.8 | 798,497 | 21.5 | 879,586 | 24.8 | ||||||||||||||||||||||||||||||
Time, $100 and over | 996,839 | 17.1 | 821,437 | 15.9 | 464,560 | 11.6 | 408,813 | 11.0 | 352,324 | 9.9 | ||||||||||||||||||||||||||||||
Time, other | 1,240,969 | 21.3 | 1,109,066 | 21.4 | 686,309 | 17.2 | 648,195 | 17.5 | 659,289 | 18.6 | ||||||||||||||||||||||||||||||
Total interest bearing | 4,797,472 | 82.4 | 4,189,104 | 81.0 | 3,162,648 | 79.1 | 2,819,817 | 76.0 | 2,683,462 | 75.6 | ||||||||||||||||||||||||||||||
Total deposits | $ | 5,824,056 | 100.0 | % | $ | 5,174,259 | 100.0 | % | $ | 3,999,401 | 100.0 | % | $ | 3,708,511 | 100.0 | % | $ | 3,547,590 | 100.0 | % | ||||||||||||||||||||
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As of and for the year ended December 31, | 2009 | 2008 | 2007 | |||||||||
Federal funds purchased: | ||||||||||||
Balance at period end | $ | — | $ | 30,625 | $ | — | ||||||
Average balance | 9,323 | 64,994 | 5,172 | |||||||||
Maximum amount outstanding at any month-end | 57,230 | 121,390 | 29,470 | |||||||||
Average interest rate: | ||||||||||||
During the year | 0.21 | % | 2.14 | % | 5.17 | % | ||||||
At period end | — | 0.22 | — | |||||||||
Securities sold under repurchase agreements: | ||||||||||||
Balance at period end | $ | 474,141 | $ | 525,501 | $ | 604,762 | ||||||
Average balance | 422,713 | 537,267 | 558,469 | |||||||||
Maximum amount outstanding at any month-end | 474,141 | 576,845 | 679,247 | |||||||||
Average interest rate: | ||||||||||||
During the year | 0.18 | % | 1.43 | % | 3.80 | % | ||||||
At period end | 0.38 | 0.34 | 3.09 | |||||||||
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Payments Due | ||||||||||||||||||||
Within | One Year to | Three Years | After | |||||||||||||||||
One Year | Three Years | to Five Years | Five Years | Total | ||||||||||||||||
Deposits without a stated maturity | $ | 3,586,248 | $ | — | $ | — | $ | — | $ | 3,586,248 | ||||||||||
Time deposits | 1,882,363 | 281,425 | 73,995 | 25 | 2,237,808 | |||||||||||||||
Securities sold under repurchase agreements | 474,141 | — | — | — | 474,141 | |||||||||||||||
Other borrowed funds (1) | 5,423 | — | — | — | 5,423 | |||||||||||||||
Long-term debt obligation (2) | 35,816 | 216 | 218 | 35,256 | 71,506 | |||||||||||||||
Capital lease obligations | 34 | 77 | 93 | 1,643 | 1,847 | |||||||||||||||
Operating lease obligations | 3,258 | 5,785 | 4,344 | 6,860 | 20,247 | |||||||||||||||
Purchase obligations (3) | 14,779 | — | — | — | 14,779 | |||||||||||||||
Subordinated debentures held by subsidiary trusts (4) | — | — | — | 123,715 | 123,715 | |||||||||||||||
Total contractual obligations | $ | 6,002,062 | $ | 287,503 | $ | 78,650 | $ | 167,499 | $ | 6,535,714 | ||||||||||
(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; variable rate term notes under our syndicated credit agreement maturing on December 31, 2010; 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. |
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Projected Maturity or Repricing | ||||||||||||||||||||
Three | Three | One | ||||||||||||||||||
Months | Months to | Year to | After | |||||||||||||||||
or Less | One Year | Five Years | Five Years | Total | ||||||||||||||||
Interest earning assets: | ||||||||||||||||||||
Loans (1) | $ | 1,765,672 | $ | 732,447 | $ | 1,750,533 | $ | 164,322 | $ | 4,412,974 | ||||||||||
Investment securities (2) | 168,566 | 330,452 | 667,101 | 280,161 | 1,446,280 | |||||||||||||||
Interest bearing deposits in banks | 398,979 | — | — | — | 398,979 | |||||||||||||||
Federal funds sold | 11,474 | — | — | — | 11,474 | |||||||||||||||
Total interest earning assets | $ | 2,344,691 | $ | 1,062,899 | $ | 2,417,634 | $ | 444,483 | $ | 6,269,707 | ||||||||||
Interest bearing liabilities: | ||||||||||||||||||||
Interest bearing demand accounts (3) | $ | 89,794 | $ | 269,382 | $ | 838,078 | $ | — | $ | 1,197,254 | ||||||||||
Savings deposits (3) | 239,862 | 845,291 | 277,257 | — | 1,362,410 | |||||||||||||||
Time deposits, $100 or more (4) | 279,903 | 573,098 | 143,838 | — | 996,839 | |||||||||||||||
Other time deposits | 389,681 | 639,624 | 211,639 | 25 | 1,240,969 | |||||||||||||||
Securities sold under repurchase agreements | 474,141 | — | — | — | 474,141 | |||||||||||||||
Other borrowed funds | 5,423 | — | — | — | 5,423 | |||||||||||||||
Long-term debt | 49,320 | 1,535 | 630 | 21,868 | 73,353 | |||||||||||||||
Subordinated debentures held by subsidiary trusts | 77,322 | — | 46,393 | — | 123,715 | |||||||||||||||
Total interest bearing liabilities | $ | 1,605,446 | $ | 2,328,930 | $ | 1,517,835 | $ | 21,893 | $ | 5,474,104 | ||||||||||
Rate gap | $ | 739,245 | $ | (1,266,031 | ) | $ | 899,799 | $ | 422,590 | $ | 795,603 | |||||||||
Cumulative rate gap | 739,245 | (526,786 | ) | 373,013 | 795,603 | |||||||||||||||
Cumulative rate gap as a percentage of total interest earning assets | 11.79 | % | -8.40 | % | 5.95 | % | 12.69 | % | 12.69 | % | ||||||||||
(1) | Does not include nonaccrual loans of $115,030. | |
(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. | |
(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 $1,491 million, a negative cumulative one year gap of $1,692 million and a positive cumulative one to five year gap of $323 million. | |
(4) | Included in the three month to one year category are deposits of $212 million maturing in three to six months. |
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December 31, 2009 Expected Maturity, Principal Repayment or Repricing | ||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
Interest-sensitive assets: | ||||||||||||||||||||||||||||
Cash and short-term investments | $ | 623,482 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 623,482 | ||||||||||||||
Net loans | 3,056,528 | 531,957 | 373,510 | 275,905 | 111,351 | 73,037 | 4,422,288 | |||||||||||||||||||||
Securities available-for-sale | 188,807 | 180,109 | 289,694 | 277,767 | 145,223 | 234,829 | 1,316,429 | |||||||||||||||||||||
Securities held-to-maturity | 9,610 | 9,010 | 7,656 | 7,294 | 8,073 | 89,212 | 130,855 | |||||||||||||||||||||
Accrued interest receivable | 37,123 | — | — | — | — | — | 37,123 | |||||||||||||||||||||
Mortgage servicing rights | 3,441 | 2,987 | 2,396 | 1,855 | 1,456 | 5,611 | 17,746 | |||||||||||||||||||||
Total interest-sensitive assets | $ | 3,918,991 | $ | 724,063 | $ | 673,256 | $ | 562,821 | $ | 266,103 | $ | 402,689 | $ | 6,547,923 | ||||||||||||||
Interest-sensitive liabilities: | ||||||||||||||||||||||||||||
Deposits, excluding time | $ | 1,861,658 | $ | 369,555 | $ | 369,555 | $ | 985,480 | $ | — | $ | — | $ | 3,586,248 | ||||||||||||||
Time deposits | 1,895,727 | 213,914 | 68,245 | 38,881 | 29,436 | 20 | 2,246,223 | |||||||||||||||||||||
Federal funds purchased | — | — | ||||||||||||||||||||||||||
Repurchase agreements | 474,141 | — | — | — | — | — | 474,141 | |||||||||||||||||||||
Derivative contract | 245 | 245 | ||||||||||||||||||||||||||
Accrued interest payable | 17,585 | — | — | — | — | — | 17,585 | |||||||||||||||||||||
Other borrowed funds | 5,423 | — | — | — | — | — | 5,423 | |||||||||||||||||||||
Long-term debt | 36,029 | 381 | 169 | 351 | 147 | 37,836 | 74,913 | |||||||||||||||||||||
Subordinated debentures held by subsidiary trusts | 80,597 | 3,101 | 2,937 | 42,167 | — | — | 128,802 | |||||||||||||||||||||
Total interest-sensitive liabilities | $ | 4,371,405 | $ | 586,951 | $ | 440,906 | $ | 1,066,879 | $ | 29,583 | $ | 37,856 | $ | 6,533,580 | ||||||||||||||
Consolidated Balance Sheets — December 31, 2009 and 2008
Consolidated Statements of Income — Years Ended December 31, 2009, 2008 and 2007
Consolidated Statements of Stockholders’ Equity — Years Ended December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows — Years Ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
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First Interstate BancSystem, Inc.
February 19, 2010
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December 31, | 2009 | 2008 | ||||||
Assets | ||||||||
Cash and due from banks | $ | 213,029 | $ | 205,070 | ||||
Federal funds sold | 11,474 | 107,502 | ||||||
Interest bearing deposits in banks | 398,979 | 1,458 | ||||||
Total cash and cash equivalents | 623,482 | 314,030 | ||||||
Investment securities: | ||||||||
Available-for-sale | 1,316,429 | 961,914 | ||||||
Held-to-maturity (estimated fair values of $130,855 and $109,809 at December 31, 2009 and 2008, respectively) | 129,851 | 110,362 | ||||||
Total investment securities | 1,446,280 | 1,072,276 | ||||||
Loans | 4,528,004 | 4,772,813 | ||||||
Less allowance for loan losses | 103,030 | 87,316 | ||||||
Net loans | 4,424,974 | 4,685,497 | ||||||
Premises and equipment, net | 196,307 | 177,799 | ||||||
Goodwill | 183,673 | 183,673 | ||||||
Company-owned life insurance | 71,374 | 69,515 | ||||||
Other real estate owned (“OREO”) | 38,400 | 6,025 | ||||||
Accrued interest receivable | 37,123 | 38,694 | ||||||
Mortgage servicing rights, net of accumulated amortization and impairment reserve | 17,325 | 11,002 | ||||||
Core deposit intangibles, net of accumulated amortization | 10,551 | 12,682 | ||||||
Net deferred tax asset | — | 7,401 | ||||||
Other assets | 88,164 | 49,753 | ||||||
Total assets | $ | 7,137,653 | $ | 6,628,347 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 1,026,584 | $ | 985,155 | ||||
Interest bearing | 4,797,472 | 4,189,104 | ||||||
Total deposits | 5,824,056 | 5,174,259 | ||||||
Federal funds purchased | — | 30,625 | ||||||
Securities sold under repurchase agreements | 474,141 | 525,501 | ||||||
Accounts payable and accrued expenses | 44,946 | 51,290 | ||||||
Accrued interest payable | 17,585 | 20,531 | ||||||
Other borrowed funds | 5,423 | 79,216 | ||||||
Long-term debt | 73,353 | 84,148 | ||||||
Subordinated debentures held by subsidiary trusts | 123,715 | 123,715 | ||||||
Total liabilities | 6,563,219 | 6,089,285 | ||||||
Stockholders’ equity: | ||||||||
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; issued and outstanding 5,000 as of December 31, 2009 and December 31, 2008 | 50,000 | 50,000 | ||||||
Common stock without par value; authorized 20,000,000 shares; issued and outstanding 7,837,397 shares and 7,887,519 shares as of December 31, 2009 and 2008, respectively | 112,135 | 117,613 | ||||||
Retained earnings | 397,224 | 362,477 | ||||||
Accumulated other comprehensive income, net | 15,075 | 8,972 | ||||||
Total stockholders’ equity | 574,434 | 539,062 | ||||||
Total liabilities and stockholders’ equity | $ | 7,137,653 | $ | 6,628,347 | ||||
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Year Ended December 31, | 2009 | 2008 | 2007 | |||||||||
Interest income: | ||||||||||||
Interest and fees on loans | $ | 279,985 | $ | 305,152 | $ | 272,482 | ||||||
Interest and dividends on investment securities: | ||||||||||||
Taxable | 41,978 | 43,583 | 42,660 | |||||||||
Exempt from federal taxes | 5,298 | 5,913 | 4,686 | |||||||||
Interest on deposits in banks | 520 | 191 | 1,307 | |||||||||
Interest on federal funds sold | 253 | 1,080 | 4,422 | |||||||||
Total interest income | 328,034 | 355,919 | 325,557 | |||||||||
Interest expense: | ||||||||||||
Interest on deposits | 73,226 | 96,863 | 99,549 | |||||||||
Interest on federal funds purchased | 20 | 1,389 | 267 | |||||||||
Interest on securities sold under repurchase agreements | 776 | 7,694 | 21,212 | |||||||||
Interest on other borrowed funds | 1,347 | 1,741 | 161 | |||||||||
Interest on long-term debt | 3,249 | 4,578 | 467 | |||||||||
Interest on subordinated debentures held by subsidiary trusts | 6,280 | 8,277 | 4,298 | |||||||||
Total interest expense | 84,898 | 120,542 | 125,954 | |||||||||
Net interest income | 243,136 | 235,377 | 199,603 | |||||||||
Provision for loan losses | 45,300 | 33,356 | 7,750 | |||||||||
Net interest income after provision for loan losses | 197,836 | 202,021 | 191,853 | |||||||||
Non-interest income: | ||||||||||||
Income from the origination and sale of loans | 30,928 | 12,290 | 11,245 | |||||||||
Other service charges, commissions and fees | 28,747 | 28,193 | 24,221 | |||||||||
Service charges on deposit accounts | 20,323 | 20,712 | 17,787 | |||||||||
Wealth managment revenues | 10,821 | 12,352 | 11,734 | |||||||||
Investment securities gains, net | 137 | 101 | 59 | |||||||||
Gain on sale of nonbank subsidiary | — | 27,096 | — | |||||||||
Technology services revenues | — | 17,699 | 19,080 | |||||||||
Other income | 9,734 | 10,154 | 8,241 | |||||||||
Total non-interest income | 100,690 | 128,597 | 92,367 | |||||||||
Non-interest expense: | ||||||||||||
Salaries, wages and employee benefits | 113,569 | 114,024 | 98,134 | |||||||||
Occupancy, net | 15,898 | 16,361 | 14,741 | |||||||||
Furniture and equipment | 12,405 | 18,880 | 16,229 | |||||||||
FDIC insurance premiums | 12,130 | 2,912 | 444 | |||||||||
Outsourced technology services | 10,567 | 4,016 | 3,116 | |||||||||
Mortgage servicing rights amortization | 7,568 | 5,918 | 4,441 | |||||||||
Mortgage servicing rights impairment (recovery) | (7,224 | ) | 10,940 | 1,702 | ||||||||
OREO expense, net of income | 6,397 | 215 | (81 | ) | ||||||||
Core deposit intangibles amortization | 2,131 | 2,503 | 174 | |||||||||
Other expenses | 44,269 | 46,772 | 39,886 | |||||||||
Total non-interest expense | 217,710 | 222,541 | 178,786 | |||||||||
Income before income tax expense | 80,816 | 108,077 | 105,434 | |||||||||
Income tax expense | 26,953 | 37,429 | 36,793 | |||||||||
Net income | 53,863 | 70,648 | 68,641 | |||||||||
Preferred stock dividends | 3,422 | 3,347 | — | |||||||||
Net income available to common shareholders | $ | 50,441 | $ | 67,301 | $ | 68,641 | ||||||
Basic earnings per common share | $ | 6.44 | $ | 8.55 | $ | 8.45 | ||||||
Diluted earnings per common share | 6.37 | 8.38 | 8.25 | |||||||||
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Accumulated | ||||||||||||||||||||
Other | Total | |||||||||||||||||||
Preferred | Common | Retained | Comprehensive | Stockholders’ | ||||||||||||||||
Stock | Stock | Earnings | Income (Loss) | Equity | ||||||||||||||||
Balance at December 31, 2006 | $ | — | $ | 45,477 | $ | 372,039 | $ | (7,141 | ) | $ | 410,375 | |||||||||
Cumulative effect of adoption of new accounting principle related to post-retirement benefits | — | — | (274 | ) | (274 | ) | ||||||||||||||
Comprehensive income: | — | |||||||||||||||||||
Net income | — | — | 68,641 | — | 68,641 | |||||||||||||||
Other comprehensive income, net of tax | — | — | — | 5,660 | 5,660 | |||||||||||||||
Total comprehensive income | 74,301 | |||||||||||||||||||
Common stock transactions: | ||||||||||||||||||||
294,760 common shares purchased and retired | — | (25,887 | ) | — | — | (25,887 | ) | |||||||||||||
17,248 common shares issued | — | 1,497 | — | — | 1,497 | |||||||||||||||
138,765 stock options exercised, net of 21,309 shares tendered in payment of option price and income tax withholding amounts | — | 5,074 | — | — | 5,074 | |||||||||||||||
Tax benefit of stock-based compensation | — | 2,519 | — | — | 2,519 | |||||||||||||||
Stock-based compensation expense | — | 1,093 | — | — | 1,093 | |||||||||||||||
Cash dividends declared: | ||||||||||||||||||||
Common ($2.97 per share) | — | — | (24,255 | ) | — | (24,255 | ) | |||||||||||||
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: | ||||||||||||||||||||
333,393 common shares purchased and retired | — | (27,912 | ) | — | — | (27,912 | ) | |||||||||||||
154,288 common shares issued | — | 11,884 | — | — | 11,884 | |||||||||||||||
60,583 stock options exercised, net of 32,510 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 ($2.60 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 | |||||||||||
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Accumulated | ||||||||||||||||||||
Other | Total | |||||||||||||||||||
Preferred | Common | Retained | Comprehensive | Stockholders’ | ||||||||||||||||
Stock | Stock | Earnings | Income (Loss) | Equity | ||||||||||||||||
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: | ||||||||||||||||||||
160,688 common shares purchased and retired | — | (11,052 | ) | — | — | (11,052 | ) | |||||||||||||
63,539 common shares issued | — | 3,813 | — | — | 3,813 | |||||||||||||||
16,034 restricted common shares issued | — | — | — | — | — | |||||||||||||||
74,859 stock options exercised, net of 43,866 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 ($2.00 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 | ||||||||||
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Year Ended December 31, | 2009 | 2008 | 2007 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 53,863 | $ | 70,648 | $ | 68,641 | ||||||
Adjustments to reconcile net income from operations to net cash provided by operating activities: | ||||||||||||
Provisions for loan losses | 45,300 | 33,356 | 7,750 | |||||||||
Depreciation and amortization | 22,286 | 23,622 | 19,083 | |||||||||
Net premium amortization (discount accretion) on investment securities | 1,293 | 728 | (2,393 | ) | ||||||||
Net gains on investment securities transactions | (137 | ) | (101 | ) | (59 | ) | ||||||
Net gains on sales of loans held for sale | (18,315 | ) | (7,068 | ) | (6,701 | ) | ||||||
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 | 5,895 | 34 | 164 | |||||||||
Net increase (decrease) in valuation reserve for mortgage servicing rights | (7,224 | ) | 10,940 | 1,702 | ||||||||
Deferred income tax expense (benefit) | 5,547 | (7,578 | ) | (2,180 | ) | |||||||
Earnings on company-owned life insurance policies | (1,859 | ) | (2,439 | ) | (2,371 | ) | ||||||
Stock-based compensation expense | 1,024 | 911 | 1,093 | |||||||||
Tax benefits from stock-based compensation | 742 | 1,178 | 2,519 | |||||||||
Excess tax benefits from stock-based compensation | (719 | ) | (1,140 | ) | (2,508 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Increase (decrease) in loans held for sale | 19,280 | (20,039 | ) | (529 | ) | |||||||
Decrease (increase) in accrued interest receivable | 1,571 | 1,502 | (1,302 | ) | ||||||||
Decrease (increase) in other assets | (35,766 | ) | (8,842 | ) | 3,672 | |||||||
Increase (decrease) in accrued interest payable | (2,946 | ) | (3,207 | ) | 2,232 | |||||||
Increase (decrease) in accounts payable and accrued expenses | (8,043 | ) | 10,784 | (5,704 | ) | |||||||
Net cash provided by operating activities | 81,792 | 77,479 | 83,109 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of investment securities: | ||||||||||||
Held-to-maturity | (9,910 | ) | (16,831 | ) | (17,995 | ) | ||||||
Available-for-sale | (868,917 | ) | (341,587 | ) | (1,936,961 | ) | ||||||
Proceeds from maturities, paydowns and calls of investment securities: | ||||||||||||
Held-to-maturity | 19,785 | 20,684 | 15,300 | |||||||||
Available-for-sale | 493,389 | 505,870 | 1,947,408 | |||||||||
Net decrease in cash equivalent mutual funds classified as available-for-sale investment securities | — | — | 37 | |||||||||
Proceeds from sales of mortgage servicing rights, net of acquisitions | 2,051 | (34 | ) | 2,292 | ||||||||
Extensions of credit to customers, net of repayments | 146,943 | (492,297 | ) | (254,240 | ) | |||||||
Recoveries of loans charged-off | 2,392 | 1,837 | 2,361 | |||||||||
Proceeds from sales of OREO | 10,849 | 623 | 705 | |||||||||
Proceeds from sale of nonbank subsidiary, net of cash payments | — | 40,766 | — | |||||||||
Capital expenditures, net of sales | (26,393 | ) | (32,852 | ) | (17,957 | ) | ||||||
Capital contributions to unconsolidated subsidiaries and joint ventures | — | (620 | ) | (1,857 | ) | |||||||
Acquisition of banks and data services company, net of cash and cash equivalents received | — | (135,706 | ) | — | ||||||||
Net cash used in investing activities | $ | (229,811 | ) | $ | (450,147 | ) | $ | (260,907 | ) | |||
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Year Ended December 31, | 2009 | 2008 | 2007 | |||||||||
Cash flows from financing activities: | ||||||||||||
Net increase in deposits | $ | 649,797 | $ | 362,931 | $ | 290,890 | ||||||
Net increase (decrease) in short-term borrowings | (155,778 | ) | 16,189 | (123,750 | ) | |||||||
Borrowings of long-term debt | — | 113,500 | — | |||||||||
Repayments of long-term debt | (10,795 | ) | (38,107 | ) | (16,456 | ) | ||||||
Debt issuance costs | (261 | ) | (609 | ) | (225 | ) | ||||||
Proceeds from issuance of subordinated debentures held by subsidiary trusts | — | 20,620 | 61,857 | |||||||||
Preferred stock issuance costs | — | (38 | ) | — | ||||||||
Proceeds from issuance of common stock | 3,957 | 13,663 | 6,571 | |||||||||
Excess tax benefits from stock-based compensation | 719 | 1,140 | 2,508 | |||||||||
Purchase and retirement of common stock | (11,052 | ) | (27,912 | ) | (25,887 | ) | ||||||
Dividends paid to common stockholders | (15,694 | ) | (20,578 | ) | (24,255 | ) | ||||||
Dividends paid to preferred stockholders | (3,422 | ) | (3,347 | ) | — | |||||||
Net cash provided by financing activities | 457,471 | 437,452 | 171,253 | |||||||||
Net increase (decrease) in cash and cash equivalents | 309,452 | 64,784 | (6,545 | ) | ||||||||
Cash and cash equivalents at beginning of year | 314,030 | 249,246 | 255,791 | |||||||||
Cash and cash equivalents at end of year | $ | 623,482 | $ | 314,030 | $ | 249,246 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Cash paid during the year for income taxes | $ | 25,813 | $ | 35,376 | $ | 45,233 | ||||||
Cash paid during the year for interest expense | 87,844 | 121,115 | 123,722 | |||||||||
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(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 subsidiaries. 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 Company’s consolidated financial statements include the accounts of the Parent Company and its operating subsidiaries. As of December 31, 2009, the Company’s 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 2008 and 2007 to conform to the 2009 presentation. No changes were made in the current year to previously reported net income or stockholders’ equity. | |||
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 Company’s 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 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 Company’s proportionate share of distributions and earnings or losses of the joint venture. | |||
Variable Interest Entities.The Company’s 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. | |||
Assets Held in Fiduciary or Agency Capacity.The Company holds certain trust assets in a fiduciary or agency capacity. The Company also purchases and sells federal funds as an agent. These and other assets held in an agency or fiduciary capacity are not assets of the Company and, accordingly, are not included in the accompanying consolidated financial statements. | |||
Use of Estimates.The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, the valuation of goodwill, other real estate owned, mortgage servicing rights and the fair values of other financial instruments. |
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Cash and Cash Equivalents. For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold for one day periods and interest bearing deposits in banks with original maturities of less than three months. As of December 31, 2009, the Company had cash of $397,474 on deposit with the Federal Reserve Bank to meet regulatory reserve and clearings requirements. No such reserve requirements existed as of December 31, 2008. In addition, the Company maintained compensating balances with the Federal Reserve Bank of approximately $65,000 as of December 31, 2009 and 2008 to reduce service charges for check clearing services. | ||
Investment Securities. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Investments in debt securities that may be sold in response to or in anticipation of changes in interest rates and resulting prepayment risk, or other factors, and marketable equity securities are classified as available-for-sale and carried at fair value. The unrealized gains and losses on these securities are reported, net of applicable income taxes, as a separate component of stockholders’ equity and comprehensive income. Management determines the appropriate classification of securities at the time of purchase and at each reporting date management reassesses the appropriateness of the classification. | ||
The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for accretion of discounts to maturity and amortization of premiums over the estimated average life of the security, or in the case of callable securities, through the first call date, using the effective yield method. Such amortization and accretion is included in interest income. Realized gains and losses are included in investment securities gains (losses). Declines in the fair value of securities below their cost that are judged to be other-than-temporary are included in other expenses. In estimating other-than-temporary impairment losses, the Company considers, among other things, the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recover in fair vale. The cost of securities sold is based on the specific identification method. | ||
The Company invests in securities on behalf of certain officers and directors of the Company who have elected to participate in the Company’s deferred compensation plans. These securities are included in other assets and are carried at their fair value based on quoted market prices. Net realized and unrealized holding gains and losses are included in other non-interest income. | ||
Loans. Loans are reported at the principal amount outstanding. Interest is calculated using the simple interest method on the daily balance of the principal amount outstanding. | ||
Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full, timely collection of interest or principal or when a loan becomes contractually past due by ninety days or more with respect to interest or principal, unless such past due loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. Loans renegotiated in troubled debt restructurings are those loans on which concessions in terms have been granted because of a borrower’s financial difficulty. | ||
Loan origination fees, prepaid interest and certain direct origination costs are deferred, and the net amount is amortized as an adjustment of the related loan’s yield using a level yield method over the expected lives of the related loans. The amortization of deferred loan fees and costs and the accretion of unearned discounts on non-performing loans is discontinued during periods of nonperformance. | ||
Included in loans are certain residential mortgage loans originated for sale. These loans are carried at the lower of aggregate cost or estimated market value. Loans sold are subject to standard representations and warranties. Market value is estimated based on binding contracts or quotes or bids from third party investors. Residential mortgages held for sale were $36,430 and $47,076 as of December 31, 2009 and 2008, respectively. |
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Gains and losses on sales of mortgage loans are determined using the specific identification method and are included in income from the origination and sale of loans. These gains and losses are adjusted to recognize the present value of future servicing fee income over the estimated lives of the related loans. | ||
Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses which is charged to expense. Loans, or portions thereof, are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely or, with respect to consumer installment loans, according to an established delinquency schedule. The allowance balance is an amount that management believes will be adequate to absorb known and inherent losses in the loan portfolio based upon quarterly analyses of the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans and actual loss experience, industry concentrations, current economic, political and regulatory factors and the estimated impact of current economic, political, regulatory and environmental conditions on historical loss rates. | ||
A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect, on a timely basis, all amounts due according to the contractual terms of the loan’s original agreement. The amount of the impairment is measured using cash flows discounted at the loan’s effective interest rate, except when it is determined that the primary source of repayment for the loan is the operation or liquidation of the underlying collateral. In such cases, the current value of the collateral, reduced by anticipated selling costs, is used to measure impairment. The Company considers impaired loans to be those non-consumer loans which are nonaccrual or have been renegotiated in a troubled debt restructuring. | ||
Goodwill. The excess purchase price over the fair value of net assets from acquisitions, or goodwill, is evaluated for impairment at least annually and on an interim basis if an event or circumstance indicates that it is likely an impairment has occurred. In testing for impairment, the fair value of net assets is estimated based on an analysis of market-based trading and transaction multiples of selected peer banks; and, if required, the estimated fair value is allocated to the acquired assets and liabilities comprising the goodwill. The determination of goodwill is sensitive to market-based trading and transaction multiples. Variability in market conditions could result in impairment of goodwill, which is recorded as a non-cash adjustment to income. As of December 31, 2009, we had goodwill of $184 million, all of which was attributable to FIB. No impairment losses were recognized during 2009, 2008 or 2007. | ||
Core Deposit Intangibles.Core deposit intangibles represent the intangible value of depositor relationships resulting from deposit liabilities assumed and are amortized using an accelerated method based on the estimated weighted average useful lives of the related deposits of 9.5 years. Accumulated core deposit intangibles amortization was $16,369 as of December 31, 2009 and $14,238 as of December 31, 2008. Amortization expense related to core deposit intangibles recorded as of December 31, 2009 is expected to total $1,748, $1,446, $1,421, $1,417 and $1,417 in 2010, 2011, 2012, 2013 and 2014, respectively. | ||
Mortgage Servicing Rights. The Company recognizes the rights to service mortgage loans for others, whether acquired or internally originated. 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 by discounting the expected future cash flows, taking into consideration the estimated level of prepayments based on current industry expectations and the predominant risk characteristics of the underlying loans including loan type, note rate and loan term. Impairment adjustments, if any, are recorded through a valuation allowance. | ||
Premises and Equipment. Buildings, furniture and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using straight-line methods over estimated useful lives of 5 to 50 years for buildings and improvements and 2.5 to 15 years for furniture and equipment. Leasehold improvements and assets acquired under capital lease are amortized over the shorter of their estimated useful lives or the terms of the related leases. Land is recorded at cost. |
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Company-Owned Life Insurance. Key executive life insurance policies are recorded at their cash surrender value. Group life insurance policies are subject to a stable value contract that offsets the impact of interest rate fluctuations on the market value of the policies. Group life insurance policies are recorded at the stabilized investment value. Increases in the cash surrender or stabilized investment value of insurance policies, as well as insurance proceeds received, are recorded as other non-interest income, and are not subject to income taxes. | ||
Impairment of Long-Lived Assets.Long-lived assets, including premises and equipment and certain identifiable intangibles, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The amount of the impairment loss, if any, is based on the asset’s fair value. Impairment losses of $350 were recognized in other non-interest expense in 2009. No impairment losses were recognized during 2008 or 2007. | ||
Other Real Estate Owned. Real estate acquired in satisfaction of loans is initially carried at current fair value less estimated selling costs. The value of the underlying loan is written down to the fair value of the real estate acquired by charge to the allowance for loan losses, if necessary, at or within 90 days of foreclosure. Subsequent declines in fair value less estimated selling costs are included in OREO expense. Subsequent increases in fair value less estimated selling costs are recorded as a reduction in OREO expense to the extent of recognized losses. Carrying costs, operating expenses, net of related income, and gains or losses on sales are included in OREO expense. Write-downs of $5,545, $34 and $164 were recorded in 2009, 2008 and 2007 respectively. The valuation of OREO is subjective and may be adjusted in the future to changes in economic conditions. | ||
Restricted Equity Securities.The Company, as a member of the Federal Reserve Bank and the Federal Home Loan Bank (“FHLB”), is required to maintain investments in each of the organization’s capital stock. As of December 31, 2009, restricted equity securities of the Federal Reserve Bank and the Federal Home Loan Bank of $13,338 and $6,886, respectively, were included in other assets at cost. As of December 31, 2008, restricted equity securities of the Federal Reserve Bank and the Federal Home Loan Bank were $13,332 and $8,079, respectively. Restricted equity securities are periodically reviewed for impairment based on ultimate recovery of par value. The determination of whether a decline affects the ultimate recovery of par value is influenced by the significance of the decline compared to the cost basis of the restricted equity securities, the length of time a decline has persisted, the impact of legislative and regulatory changes on the issuing organizations and the liquidity positions of the issuing organizations. Although the FHLB was classified as undercapitalized by its regulator in 2009, the Company does not believe its investment in FHLB restricted equity securities was impaired as of December 31, 2009. No impairment losses were recorded on restricted equity securities during 2009, 2008 or 2007. | ||
Income from Fiduciary Activities. Consistent with industry practice, income for trust services is recognized on the basis of cash received. However, use of this method in lieu of accrual basis accounting does not materially affect reported earnings. | ||
Income Taxes. The Parent Company and its subsidiaries have elected to be included in a consolidated federal income tax return. For state income tax purposes, the combined taxable income of the Parent Company and its subsidiaries is apportioned among the states in which operations take place. Federal and state income taxes attributable to the subsidiaries, computed on a separate return basis, are paid to or received from the Parent Company. | ||
The Company accounts for income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are determined based on enacted income tax rates which will be in effect when the differences between the financial statement carrying values and tax bases of existing assets and liabilities are expected to be reported in taxable income. |
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Notes to Consolidated Financial Statements
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. Uncertain tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Company provides for interest and, in some cases, penalties on tax positions that may be challenged by the taxing authorities. Interest expense is recognized beginning in the first period that such interest would begin accruing. Penalties are recognized in the period that the Company claims the position in the tax return. Interest and penalties on income tax uncertainties are classified within income tax expense in the income statement. With few exceptions, the Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2006. | ||
Earnings Per Common Share. Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares and potential common shares outstanding during the period. | ||
Comprehensive Income.Comprehensive income includes net income, as well as other changes in stockholders’ equity that result from transactions and economic events other than those with shareholders. In addition to net income, the Company’s comprehensive income includes the after tax effect of changes in unrealized gains and losses on available-for-sale investment securities and changes in net actuarial gains and losses on defined benefit post-retirement benefits plans. | ||
Segment Reporting.An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and evaluate performance. Beginning January 1, 2009, the Company has one operating segment, community banking, which encompasses commercial and consumer banking services offered to individuals, businesses, municipalities and other entities. Prior to 2009, the Company reported two operating segments, community banking and technology services. Technology services encompassed services provided through i_Tech 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 FIB. | ||
Advertising Costs.Advertising costs are expensed as incurred. Advertising expense was $3,422, $3,447, and $2,892 in 2009, 2008 and 2007, respectively. | ||
Transfers of Financial Assets.Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company; the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets; and, the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. | ||
Technology Services Revenue Recognition.Revenues from technology services are transaction-based and are recognized as transactions are processed or services are rendered. | ||
Stock-Based Compensation. Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the requisite service period for awards expected to vest. Stock-based compensation expense of $1,024, $911 and $1,093 for the years ended December 31, 2009, 2008 and 2007, respectively, is included in salaries, wages and benefits expense in the Company’s consolidated statements of income. Related income tax benefits recognized for the years ended December 31, 2009, 2008 and 2007 were $392, $348 and $418, respectively. | ||
Fair Value Measurements.In general, fair value measurements are based upon quoted market prices, where available. If quoted market prices are not available, fair value measurements are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and require some degree of |
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judgment regarding interest rates, credit risk, prepayments and other factors. The use of different assumptions or estimation techniques may have a significant effect on the fair value amounts reported. |
The amortized cost and approximate fair values of investment securities are summarized as follows: |
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 | |||||||
Residential mortgage-backed securities | 721,555 | 23,212 | (1,127 | ) | 743,640 | |||||||||||
Private mortgage-backed securities | 1,396 | — | (53 | ) | 1,343 | |||||||||||
Other securities | — | — | — | — | ||||||||||||
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 | |||||||
Gross gains of $138 and gross losses of $1 were realized on the disposition of available-for-sale securities in 2009. |
Gross | Gross | Estimated | ||||||||||||||
Available-for-Sale | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
December 31, 2008 | Cost | Gains | Losses | Value | ||||||||||||
Obligations of U.S. government agencies | $ | 264,008 | $ | 6,371 | $ | — | $ | 270,379 | ||||||||
Residential mortgage-backed securities | 646,456 | 9,891 | (1,088 | ) | 655,259 | |||||||||||
State, county and municipal securities | 33,287 | 107 | (8 | ) | 33,386 | |||||||||||
Other securities | 2,891 | 1 | (6 | ) | 2,886 | |||||||||||
Mutual funds | 4 | — | — | 4 | ||||||||||||
Total | $ | 946,646 | $ | 16,370 | $ | (1,102 | ) | $ | 961,914 | |||||||
Gross | Gross | Estimated | ||||||||||||||
Held-to-Maturity | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
December 31, 2008 | Cost | Gains | Losses | Value | ||||||||||||
State, county and municipal securities | $ | 109,744 | $ | 856 | $ | (1,409 | ) | $ | 109,191 | |||||||
Other securities | 618 | — | — | 618 | ||||||||||||
Total | $ | 110,362 | $ | 856 | $ | (1,409 | ) | $ | 109,809 | |||||||
Gross gains of $102 and gross losses of $1 were realized on the disposition of available-for-sale securities in 2008. | |||
Gross gains of $59 were realized on the disposition of available-for-sale securities in 2007. No gross losses were realized on disposition of available-for-sale securities in 2007. |
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Notes to Consolidated Financial Statements
In conjunction with the merger of the Company’s bank subsidiaries on September 25, 2009, the Company transferred available-for-sale investment state, county and municipal investment securities with amortized costs and fair values of $28,288 and $29,426, respectively, into the held-to-maturity category. Unrealized net gains of $1,138 included in accumulated other comprehensive income at the time of the transfer are being amortized to yield over the remaining lives of the transferred securities of 3.4 years. | |||
The following table shows the gross unrealized losses and fair values of investment securities, aggregated by investment category, and the length of time individual investment securities have been in a continuous unrealized loss position, as of December 31, 2009 and 2008. |
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 | ) | ||||||||||
Residential 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 | ) | |||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2008 | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Available-for-Sale | ||||||||||||||||||||||||
Residential mortgage-backed securities | $ | 102,193 | $ | (699 | ) | $ | 61,782 | $ | (389 | ) | $ | 163,975 | $ | (1,088 | ) | |||||||||
State, county and municipal securities | 1,862 | (8 | ) | — | — | 1,862 | (8 | ) | ||||||||||||||||
Other securities | 997 | (6 | ) | — | — | 997 | (6 | ) | ||||||||||||||||
Total | $ | 105,052 | $ | (713 | ) | $ | 61,782 | $ | (389 | ) | $ | 166,834 | $ | (1,102 | ) | |||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2008 | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Held-to-Maturity | ||||||||||||||||||||||||
State, county and municipal securities | $ | 28,537 | $ | (1,002 | ) | $ | 11,278 | $ | (407 | ) | $ | 39,815 | $ | (1,409 | ) | |||||||||
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The investment portfolio is evaluated quarterly for other-than-temporary declines in the market value of each individual investment security. Consideration is given to the length of time and the extent to which the fair value has been less than cost; the financial condition and near term prospects of the issuer; and, the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. As of December 31, 2009, the Company had 75 individual investment securities that were in an unrealized loss position. As of December 31, 2008, the Company had 155 individual investment securities that were in an unrealized loss position. Unrealized losses as of December 31, 2009 and 2008 related primarily to fluctuations in the current interest rates. As of December 31, 2009, the Company had the intent and ability to hold these investment securities for a period of time sufficient to allow for an anticipated recovery. Furthermore, the Company does not have the intent to sell any of the available-for-sale securities in the above table and it is more likely than not that the Company will not have to sell any such securities before a recovery in cost. No impairment losses were recorded during 2009 or 2007. Impairment losses of $1,286 were recorded in other expenses in 2008. | |||
Maturities of investment securities at December 31, 2009 are shown below. Maturities of mortgage-backed securities have been adjusted to reflect shorter maturities based upon estimated prepayments of principal. All other investment securities maturities are shown at contractual maturity dates. |
Available-for-Sale | Held-to-Maturity | |||||||||||||||
Amortized | Estimated | Amortized | Estimated | |||||||||||||
December 31, 2009 | Cost | Fair Value | Cost | Fair Value | ||||||||||||
Within one year | $ | 183,447 | $ | 263,305 | $ | 9,648 | $ | 9,139 | ||||||||
After one year but within five years | 879,984 | 870,444 | 31,743 | 32,034 | ||||||||||||
After five years but within ten years | 98,101 | 108,182 | 41,147 | 41,924 | ||||||||||||
After ten years | 130,124 | 74,498 | 46,843 | 47,288 | ||||||||||||
Total | 1,291,656 | 1,316,429 | 129,381 | 130,385 | ||||||||||||
Investments with no stated maturity | — | — | 470 | 470 | ||||||||||||
Total | $ | 1,291,656 | $ | 1,316,429 | $ | 129,851 | $ | 130,855 | ||||||||
At December 31, 2009, the Company had investment securities callable within one year with amortized costs and estimated fair values of $382,723 and $383,382, respectively. These investment securities are primarily classified as available-for-sale and included in the after one year but within five years category in the table above. | |||
Maturities of securities do not reflect rate repricing opportunities present in adjustable rate mortgage-backed securities. At December 31, 2009 and 2008, the Company had variable rate securities with amortized costs of $336 and $1,558, respectively. | |||
There are no significant concentrations of investments at December 31, 2009, (greater than 10 percent of stockholders’ equity) in any individual security issuer, except for U.S. government or agency-backed securities. | |||
Investment securities with amortized cost of $1,069,191 and $894,045 at December 31, 2009 and 2008, respectively, were pledged to secure public deposits and securities sold under repurchase agreements. The approximate fair value of securities pledged at December 31, 2009 and 2008 was $1,095,068 and $907,156, respectively. All securities sold under repurchase agreements are with customers and mature on the next banking day. The Company retains possession of the underlying securities sold under repurchase agreements. |
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December 31, | 2009 | 2008 | ||||||
Real estate loans: | ||||||||
Commercial | $ | 1,556,273 | $ | 1,483,967 | ||||
Construction | 636,892 | 790,177 | ||||||
Residential | 539,098 | 587,464 | ||||||
Agricultural | 195,045 | 191,831 | ||||||
Mortgage loans originated for sale | 36,430 | 47,076 | ||||||
Total real estate loans | 2,963,738 | 3,100,515 | ||||||
Consumer: | ||||||||
Indirect consumer loans | 423,104 | 417,243 | ||||||
Other consumer loans | 195,331 | 198,324 | ||||||
Credit card loans | 59,113 | 54,164 | ||||||
Total consumer loans | 677,548 | 669,731 | ||||||
Commercial | 750,647 | 853,798 | ||||||
Agricultural | 134,470 | 145,876 | ||||||
Other loans, including overdrafts | 1,601 | 2,893 | ||||||
Total loans | $ | 4,528,004 | $ | 4,772,813 | ||||
December 31, | 2009 | 2008 | ||||||||||||||
Recorded | Specific | Recorded | Specific | |||||||||||||
Loan | Loan Loss | Loan | Loan Loss | |||||||||||||
Balance | Reserves | Balance | Reserves | |||||||||||||
Impaired loans | ||||||||||||||||
With specific loan loss reserves assigned | $ | 52,446 | $ | 20,182 | $ | 17,749 | $ | 8,015 | ||||||||
With no specific loan loss reserves assigned | 61,529 | — | 66,667 | — | ||||||||||||
Total impaired loans | $ | 113,975 | $ | 20,182 | $ | 84,416 | $ | 8,015 | ||||||||
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Year ended December 31, | 2009 | 2008 | 2007 | |||||||||
Balance at beginning of year | $ | 87,316 | $ | 52,355 | $ | 47,452 | ||||||
Allowance of acquired banking offices | — | 14,463 | — | |||||||||
Provision charged to operating expense | 45,300 | 33,356 | 7,750 | |||||||||
Less loans charged-off | (31,978 | ) | (14,695 | ) | (5,208 | ) | ||||||
Add back recoveries of loans previously charged-off | 2,392 | 1,837 | 2,361 | |||||||||
Balance at end of year | $ | 103,030 | $ | 87,316 | $ | 52,355 | ||||||
December 31, | 2009 | 2008 | ||||||
Land | $ | 36,388 | $ | 31,934 | ||||
Buildings and improvements | 187,471 | 171,668 | ||||||
Furniture and equipment | 65,985 | 57,802 | ||||||
289,844 | 261,404 | |||||||
Less accumulated depreciation | (93,537 | ) | (83,605 | ) | ||||
Premises and equipment, net | $ | 196,307 | $ | 177,799 | ||||
December 31, | 2009 | 2008 | ||||||
Key executive, principal shareholder | $ | 4,480 | $ | 4,359 | ||||
Key executive split dollar | 4,212 | 4,088 | ||||||
Group life | 62,682 | 61,068 | ||||||
Total | $ | 71,374 | $ | 69,515 | ||||
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Notes to Consolidated Financial Statements
Year ended December 31, | 2009 | 2008 | 2007 | |||||||||
Balance at beginning of year | $ | 6,025 | $ | 928 | $ | 529 | ||||||
Additions | 42,212 | 5,810 | 1,135 | |||||||||
Capitalized improvements | 6,515 | — | — | |||||||||
Valuation adjustments | (5,545 | ) | (34 | ) | (164 | ) | ||||||
Dispositions | (10,807 | ) | (679 | ) | (572 | ) | ||||||
Balance at end of year | 38,400 | 6,025 | 928 | |||||||||
Less valuation reserve | — | — | — | |||||||||
Balance at end of year | $ | 38,400 | $ | 6,025 | $ | 928 | ||||||
Year ended December 31, | 2009 | 2008 | 2007 | |||||||||
Balance at beginning of year | $ | 27,788 | $ | 27,561 | $ | 26,788 | ||||||
Sales of mortgage servicing rights | (3,022 | ) | — | (1,607 | ) | |||||||
Purchases of mortgage servicing rights | 8 | 34 | 311 | |||||||||
Originations of mortgage servicing rights | 9,681 | 6,111 | 6,510 | |||||||||
Amortization expense | (7,568 | ) | (5,918 | ) | (4,441 | ) | ||||||
Write-off of permanent impairment | (8,155 | ) | — | — | ||||||||
Balance at end of year | 18,732 | 27,788 | 27,561 | |||||||||
Less valuation reserve | (1,407 | ) | (16,786 | ) | (5,846 | ) | ||||||
Balance at end of year | $ | 17,325 | $ | 11,002 | $ | 21,715 | ||||||
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December 31, | 2009 | 2008 | ||||||
Non-interest bearing demand | $ | 1,026,584 | $ | 985,155 | ||||
Interest bearing: | ||||||||
Demand | 1,197,254 | 1,059,818 | ||||||
Savings | 1,362,410 | 1,198,783 | ||||||
Time, $100 and over | 996,839 | 821,437 | ||||||
Time, other | 1,240,969 | 1,109,066 | ||||||
Total interest bearing | 4,797,472 | 4,189,104 | ||||||
Total deposits | $ | 5,824,056 | $ | 5,174,259 | ||||
Time, $100 | ||||||||
and Over | Total Time | |||||||
2010 | $ | 853,001 | $ | 1,882,363 | ||||
2011 | 100,863 | 212,921 | ||||||
2012 | 17,682 | 68,504 | ||||||
2013 | 13,825 | 41,060 | ||||||
2014 | 11,468 | 32,935 | ||||||
Thereafter | — | 25 | ||||||
Total | $ | 996,839 | $ | 2,237,808 | ||||
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Notes to Consolidated Financial Statements
December 31, | 2009 | 2008 | ||||||
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, balloon payment due at maturity on December 31, 2010 (weighted average rate of 3.75% at December 31, 2009) | 33,929 | 42,857 | ||||||
Subsidiaries: | ||||||||
Variable rate subordinated term loan maturing February 28, 2018, principal due at maturity, interest payable quarterly (rate of 2.26% at December 31, 2009) | 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 4.56% at December 31, 2009) | 2,577 | 4,413 | ||||||
8.00% capital lease obligation with term ending October 25, 2029 | 1,847 | 1,878 | ||||||
Total long-term debt | $ | 73,353 | $ | 84,148 | ||||
2010 | $ | 35,850 | ||
2011 | 245 | |||
2012 | 49 | |||
2013 | 253 | |||
2014 | 58 | |||
Thereafter | 36,898 | |||
Total | $ | 73,353 | ||
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Notes to Consolidated Financial Statements
The debt covenant ratios included in the syndicated credit agreement, as last amended, require us to, among other things, (1) maintain our ratio of non-performing assets to primary equity capital at a percentage not greater than 45.0%, (2) maintain our allowance for loan and lease losses in an amount not less than 65.0% of non-performing loans, (3) maintain our return on average assets at not less than 0.70% through March 30, 2010 and 0.65% thereafter, (4) maintain a consolidated total risk-based capital ratio of not less than 11.00% and a total risk-based capital ratio at the Bank of not less than 10.00%, (5) limit cash dividends to shareholders such that the aggregate amount of cash dividends in any four consecutive fiscal quarters does not exceed 37.5% of net income during such four-quarter period and (6) limit repurchases of our common stock, less cash proceeds from the issuance of our common stock, in any period of four consecutive fiscal quarters, as a percentage of consolidated book net worth as of the end of that period to 2.75% through March 31, 2010 and 2.25% thereafter. The Company was in compliance with all existing and amended debt covenants as of December 31, 2009. | |||
As of December 31, 2009, $33,929 was outstanding on the Term Notes bearing interest at a weighted average rate of 3.75%. The Term Notes are payable in equal quarterly principal installments of $1,786, with one final installment of $28,571 due at maturity on December 31, 2010. Interest on the Term Notes is payable quarterly. | |||
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 2.26% as of December 31, 2009. 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 Company’s qualifying residential and commercial real estate loans. The Company has available lines of credit with the FHLB of approximately $138,607, subject to collateral availability. As of December 31, 2009 and 2008, FHLB advances of $2,577 and $4,413, respectively, were included in long-term debt. As of December 31, 2009 there were no short-term advances outstanding with the FHLB. As of December 31, 2008, short-term FHLB advances of $75,000 were included in other borrowed funds. | |||
The Company has a capital lease obligation on a banking office. The balance of the obligation was $1,847 and $1,878 as of December 31, 2009 and 2008, 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. | |||
Other borrowed funds consist of overnight and term borrowings with original maturities of less than one year. Following is a summary of other borrowed funds: |
December 31, | 2009 | 2008 | |||||||
Interest bearing demand notes issued to the United States Treasury, secured by investment securities (0.0% interest rate at December 31, 2009) | $ | 5,423 | $ | 4,216 | |||||
Various notes payable to the FHLB | — | 75,000 | |||||||
$ | 5,423 | $ | 79,216 | ||||||
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 $278,180 secured by a blanket pledge of indirect consumer loans. |
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Notes to Consolidated Financial Statements
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: |
Principal Amount Outstanding | ||||||||||
as of December 31, | ||||||||||
Issuance | Maturity Date | 2009 | 2008 | |||||||
March 2003 | March 26, 2033 | $ | 41,238 | $ | 41,238 | |||||
October 2007 | January 1, 2038 | 10,310 | 10,310 | |||||||
November 2007 | December 15, 2037 | 15,464 | 15,464 | |||||||
December 2007 | December 15, 2037 | 20,619 | 20,619 | |||||||
December 2007 | April 1, 2038 | 15,464 | 15,464 | |||||||
January 2008 | April 1, 2038 | 10,310 | 10,310 | |||||||
January 2008 | April 1, 2038 | 10,310 | 10,310 | |||||||
Total subordinated debentures held by subsidiary trusts | $ | 123,715 | $ | 123,715 | ||||||
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, 2009 the interest rate on the Subordinated Debentures was 3.40%. | |||
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, 2009 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. | |||
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, 2009 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, 2009, the interest rate on the Subordinated Debentures was 3.04%. |
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Notes to Consolidated Financial Statements
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 Company’s 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 Company’s 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 Board’s 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. |
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 Company’s 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 Company’s common stock at a ratio of 80 shares of common stock for every one share of Series A Preferred Stock. |
At December 31, 2009, 91.9% of common shares held by shareholders were subject to shareholder’s agreements (“Agreements”). Under the Agreements, shares may not be sold or transferred, except in limited circumstances, without triggering the Company’s right of first refusal to repurchase shares from the shareholder at fair value. Additionally, shares held under the Agreements are subject to repurchase under certain conditions. |
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 Company’s 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. |
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Notes to Consolidated Financial Statements
The following table sets forth the computation of basic and diluted earnings per common share: |
For the year ended December 31, | 2009 | 2008 | 2007 | |||||||||
Net income | $ | 53,863 | $ | 70,648 | $ | 68,641 | ||||||
Less preferred stock dividends | 3,422 | 3,347 | — | |||||||||
Net income available to common shareholders, basic and diluted | $ | 50,441 | $ | 67,301 | $ | 68,641 | ||||||
Weighted average common shares outstanding | 7,833,917 | 7,871,034 | 8,126,804 | |||||||||
Weighted average commons shares issuable upon exercise of stock options and restricted stock awards | 85,708 | 157,134 | 195,676 | |||||||||
Weighted average common and common equivalent shares outstanding | 7,919,625 | 8,028,168 | 8,322,480 | |||||||||
Basic earnings per common share | $ | 6.44 | $ | 8.55 | $ | 8.45 | ||||||
Diluted earnings per common share | $ | 6.37 | $ | 8.38 | $ | 8.25 | ||||||
The Company had 483,383, 284,583 and 137,092 stock options outstanding that were antidilutive as of December 31, 2009, 2008 and 2007, respectively. |
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 Company’s 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 Company’s 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, 2009, the Company exceeded all capital adequacy requirements to which it is subject. |
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Notes to Consolidated Financial Statements
The Company’s actual capital amounts and ratios and selected minimum regulatory thresholds as of December 31, 2009 and 2008 are presented in the following table: |
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 | $ | 641,743 | 5.0 | |||||||||||||||||
Actual | Adequately Capitalized | Well Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
As of December 31, 2008: | ||||||||||||||||||||||||
Total risk-based capital: | ||||||||||||||||||||||||
Consolidated | $ | 554,418 | 10.5 | % | $ | 422,952 | 8.0 | % | NA | NA | ||||||||||||||
FIB | 459,785 | 10.3 | 356,100 | 8.0 | $ | 445,125 | 10.0 | % | ||||||||||||||||
Wall | 51,417 | 12.1 | 33,907 | 8.0 | 42,383 | 10.0 | ||||||||||||||||||
Sturgis | 48,432 | 12.4 | 31,184 | 8.0 | 38,980 | 10.0 | ||||||||||||||||||
Tier 1 risk-based capital: | ||||||||||||||||||||||||
Consolidated | 453,070 | 8.6 | 211,476 | 4.0 | NA | NA | ||||||||||||||||||
FIB | 388,966 | 8.7 | 178,050 | 4.0 | $ | 267,075 | 6.0 | |||||||||||||||||
Wall | 46,062 | 10.9 | 16,953 | 4.0 | 25,460 | 6.0 | ||||||||||||||||||
Sturgis | 43,529 | 11.2 | 15,592 | 4.0 | 23,388 | 6.0 | ||||||||||||||||||
Leverage capital ratio: | ||||||||||||||||||||||||
Consolidated | 453,070 | 7.1 | 254,085 | 4.0 | NA | NA | ||||||||||||||||||
FIB | 388,966 | 7.2 | 217,247 | 4.0 | $ | 271,559 | 5.0 | |||||||||||||||||
Wall | 46,062 | 9.7 | 19,093 | 4.0 | 23,867 | 5.0 | ||||||||||||||||||
Sturgis | 43,529 | 9.8 | 17,781 | 4.0 | 22,226 | 5.0 | ||||||||||||||||||
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 $5,881 and $26,716 as of December 31, 2009 and 2008, respectively. | |||
The Company had commitments to purchase held-to-maturity municipal investment securities of $406 and available-for-sale mortgage-backed investment securities of $8,493 as of December 31, 2009. |
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Notes to Consolidated Financial Statements
The Company leases certain premises and equipment from third parties under operating leases. Total rental expense to third parties was $2,425 in 2009, $3,474 in 2008 and $3,224 in 2007. | |||
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, 2009, are as follows: |
Third | Related | |||||||||||
Parties | Partnership | Total | ||||||||||
For the year ending December 31: | ||||||||||||
2010 | $ | 1,178 | $ | 2,080 | $ | 3,258 | ||||||
2011 | 1,120 | 1,997 | 3,117 | |||||||||
2012 | 778 | 1,890 | 2,668 | |||||||||
2013 | 536 | 1,726 | 2,262 | |||||||||
2014 | 467 | 1,615 | 2,082 | |||||||||
Thereafter | 5,726 | 1,134 | 6,860 | |||||||||
Total | $ | 9,805 | $ | 10,442 | $ | 20,247 | ||||||
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’s recorded its 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 March 31, 2011 or the date on which certain specifically designated Visa litigation has been resolved. As of December 31, 2009, a liability of $245 related to the derivative contract is included in accounts payable and accrued expenses. The derivative contract is collateralized by $1,400 of U.S. government agency investment securities. |
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 customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s 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 $998,193 at December 31, 2009, which included $253,794 on unused credit card lines |
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Notes to Consolidated Financial Statements
and $258,946 with commitment maturities beyond one year. Commitments to extend credit to borrowers approximated $1,135,217 at December 31, 2008, which included $330,514 on unused credit card lines and $301,338 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, 2009 and 2008, the Company had outstanding stand-by letters of credit of $82,980 and $90,761, 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 Company’s consolidated balance sheets. |
Income tax expense consists of the following: |
Year ended December 31, | 2009 | 2008 | 2007 | |||||||||
Current: | ||||||||||||
Federal | $ | 18,691 | $ | 39,389 | $ | 34,669 | ||||||
State | 2,715 | 5,618 | 4,304 | |||||||||
Total current | 21,406 | 45,007 | 38,973 | |||||||||
Deferred: | ||||||||||||
Federal | 4,846 | (6,691 | ) | (2,031 | ) | |||||||
State | 701 | (887 | ) | (149 | ) | |||||||
Total deferred | 5,547 | (7,578 | ) | (2,180 | ) | |||||||
Balance at end of year | $ | 26,953 | $ | 37,429 | $ | 36,793 | ||||||
Total income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35 percent in 2009, 2008 and 2007 to income before income taxes as a result of the following: |
Year ended December 31, | 2009 | 2008 | 2007 | |||||||||
Tax expense at the statutory tax rate | $ | 28,286 | $ | 37,827 | $ | 36,902 | ||||||
Increase (decrease) in tax resulting from: | ||||||||||||
Tax-exempt income | (3,784 | ) | (4,028 | ) | (3,434 | ) | ||||||
State income tax, net of federal income tax benefit | 2,225 | 3,130 | 2,632 | |||||||||
Other, net | 226 | 500 | 693 | |||||||||
Tax expense at effective tax rate | $ | 26,953 | $ | 37,429 | $ | 36,793 | ||||||
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Notes to Consolidated Financial Statements
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, | 2009 | 2008 | ||||||
Deferred tax assets: | ||||||||
Loans, principally due to allowance for loan losses | $ | 28,657 | $ | 29,130 | ||||
Employee benefits | 5,334 | 5,115 | ||||||
Other real estate owned writedowns | 1,952 | — | ||||||
Deferred gain on sale of subsidiary | 1,594 | — | ||||||
Other | 403 | 455 | ||||||
Deferred tax assets | 37,940 | 34,700 | ||||||
Deferred tax liabilities: | ||||||||
Fixed assets, principally differences in bases and depreciation | (4,885 | ) | (3,500 | ) | ||||
Investment securities, unrealized gains | (9,758 | ) | (6,014 | ) | ||||
Investment in joint venture partnership, principally due to differences in depreciation of partnership assets | (865 | ) | (832 | ) | ||||
Prepaid amounts | (801 | ) | (633 | ) | ||||
Government agency stock dividends | (2,056 | ) | (2,060 | ) | ||||
Goodwill and core deposit intangibles | (15,158 | ) | (11,678 | ) | ||||
Mortgage servicing rights | (5,419 | ) | (1,186 | ) | ||||
Other | (888 | ) | (1,396 | ) | ||||
Deferred tax liabilities | (39,830 | ) | (27,299 | ) | ||||
Net deferred tax (liabilities) assets | $ | (1,890 | ) | $ | 7,401 | |||
As of December 31, 2009, the Company had a net deferred tax liability of $1,890 included in accounts payable and accrued expenses. The Company had current net income taxes payable of $1,625 at December 31, 2009 and $7,126 at December 31, 2008, which are included in accounts payable and accrued expenses. |
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 Company’s ability to attract, retain and motivate employees. The Company’s Board of Directors or, upon delegation, a committee consisting of the independent members of 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 Company’s stock-based compensation plans. | |||
The 2006 Plan, approved by the Company’s 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, 2009, there were 320,088 common shares available for future grant under the 2006 Plan. | |||
Stock Options.All options granted have an exercise price equal to fair market value, which is currently defined as the minority appraised value of the Company’s common stock at the date of grant; may be subject to vesting as determined by the Company’s Board of Directors or Compensation Committee; and, can be exercised for periods of up to ten years from the date of grant. Transfers of stock issued upon exercise of options are prohibited for a period of six months following the date of exercise. In addition, stock issued upon the exercise of options is subject to a shareholder agreement that grants the Company a right of first refusal to repurchase the |
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stock at fair market value and provides the Company a right to call some or all of the stock under certain conditions. | |||
Compensation expense related to stock option awards of $588, $896 and $996 was included in salaries, wages and benefits expense on the Company’s consolidated income statements for the years ended December 31, 2009, 2008 and 2007, respectively. Related income tax benefits recognized for the years ended December 31, 2009, 2008 and 2007 were $225, $342 and $380, respectively. | |||
The weighted average grant date fair value of options granted was $4.04, $5.74 and $7.89 during the years ended December 31, 2009, 2008 and 2007, 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, | 2009 | 2008 | 2007 | |||||||||
Expected volatility | 9.58 | % | 6.91 | % | 5.23 | % | ||||||
Expected dividend yield | 3.28 | % | 3.11 | % | 2.95 | % | ||||||
Risk-free interest rate | 2.64 | % | 3.72 | % | 4.80 | % | ||||||
Expected life of options (in years) | 7.7 | 6.2 | 6.2 | |||||||||
Expected dividend yield is based on the Company’s 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 2009 expected life of options is based on the Company’s historical exercise and post-vesting termination behaviors. Prior to 2009, the Company elected to use the “simplified” method to estimate expected life. Expected volatility is based on the historical volatility of the Company’s 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 Company’s active stock option plans for the year ended December 31, 2009: |
Weighted-Average | ||||||||||||
Number of | Weighted-Average | Remaining | ||||||||||
Shares | Exercise Price | Contract Life | ||||||||||
Outstanding options, beginning of year | 883,255 | $ | 62.99 | |||||||||
Granted | 109,650 | 61.25 | ||||||||||
Exercised | (74,859 | ) | 44.45 | |||||||||
Forfeited | (10,431 | ) | 73.38 | |||||||||
Expired | (13,282 | ) | 73.59 | |||||||||
Outstanding options, end of year | 894,333 | $ | 63.97 | 5.61 years | ||||||||
Outstanding options exercisable, end of year | 691,476 | $ | 61.49 | 4.74 years | ||||||||
The total intrinsic value of fully-vested stock options outstanding as of December 31, 2009 was $4,973. The total intrinsic value of options exercised was $2,035, $3,296 and $6,631 during the years ended December 31, 2009, 2008 and 2007, respectively. The actual tax benefit realized for the tax deduction from option exercises totaled $733, $1,178 and $2,536 for the years ended December 31, 2009, 2008 and 2007, respectively. The Company received cash of $144, $1,741 and $5,074 from stock option exercises during the years ended December 31, 2009, 2008 and 2007, respectively. In addition, the Company redeemed common stock with aggregate values of $3,183, $2,695 and $1,859 tendered in payment for stock option exercises during the years ended December 31, 2009, 2008 and 2007, respectively. |
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(Dollars in thousands, except share and per share data)
Information with respect to the Company’s nonvested stock options as of and for the year ended December 31, 2009 follows: |
Number of | Weighted-Average | |||||||
Shares | Grant Date Fair Value | |||||||
Nonvested stock options, beginning of year | 209,312 | $ | 6.48 | |||||
Granted | 109,650 | 4.04 | ||||||
Vested | (105,674 | ) | 6.33 | |||||
Forfeited | (10,431 | ) | 5.45 | |||||
Nonvested stock options, end of year | 202,857 | $ | 5.26 | |||||
As of December 31, 2009, there was $576 of unrecognized compensation cost related to nonvested stock options granted under the Company’s active stock option plans. That cost is expected to be recognized over a weighted-average period of 1.79 years. The total fair value of shares vested during 2009 was $669. | ||
Restricted Stock Awards.Common stock issued under the Company’s 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. Common shares issued under the Company’s restricted stock plan are subject to a shareholder’s agreement granting the Company the right of first refusal to repurchase vested shares at the then current minority appraised value and providing the Company a right to call some or all of the vested shares under certain circumstances. | ||
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 the most recent quarterly minority appraised value of the Company’s common stock at the date of grant, 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 Company’s common stock at the end of each period. Compensation expense related to restricted stock awards of $436, $15 and $97 was included in salaries, wages and benefits expense on the Company’s consolidated statements of income for the years ended December 31, 2009, 2008 and 2007, respectively. Related income tax benefits recognized for the years ended December 31, 2009, 2008 and 2007 were $167, $6 and $37, respectively. | ||
The following table presents information regarding the Company’s restricted stock as of December 31, 2009: |
Weighted-Average | ||||||||
Number of | Measurement Date | |||||||
Shares | Fair Value | |||||||
Restricted stock, beginning of year | 1,000 | $ | 74.50 | |||||
Granted | 16,034 | 73.60 | ||||||
Restricted stock, end of year | 17,034 | $ | 73.65 | |||||
During 2009, the Company issued 16,034 restricted common shares as follows: (i) 6,165 shares that vest in varying percentages upon achievement of defined return on asset performance goals and employment on December 31, 2010 or December 31 2011; (ii) 4,326 shares that vest one-third on each annual anniversary of the grant date through March 2, 2012 contingent on continued employment; (iii) 1,000 shares that vest upon continued employment through September 23, 2012 and, (iv) 4,543 shares that vest upon achievement of other subjective criteria established by the Company’s Board of Directors or Compensation Committee on the date of grant and employment on February 15, 2010 or December 31, 2010. |
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(Dollars in thousands, except share and per share data)
As of December 31, 2009, there was $591 of unrecognized compensation cost related to nonvested restricted stock awards expected to be recognized over a period of 1.3 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. Quarterly contributions are determined by the Company’s Board of Directors, but 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 $1,757, $2,739 and $2,816 in 2009, 2008 and 2007, 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 employee’s compensation. The Company accrued contribution expense for this plan of $3,857, $3,896 and $3,243 in 2009, 2008 and 2007, 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 Plan’s unfunded benefit obligation of $2,305 and $1,042 as of December 31, 2009 and 2008, respectively, is included in accounts payable and accrued expenses in the Company’s consolidated balance sheets. Net periodic benefit costs of $194, $152 and $130 for the years ended December 31, 2009, 2008 and 2007, respectively, are included in salaries, wages and employee benefits expense in the Company’s consolidated statements of income. | ||
Weighted average actuarial assumptions used to determine the postretirement benefit obligation at December 31, 2009 and 2008, and the net periodic benefit costs for the years 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 $102, $97, $85, $73, $73 and $366 for 2010, 2011, 2012, 2013, 2014, and 2015 through 2019, respectively. | ||
At December 31, 2009, the Company had accumulated other comprehensive loss related to the Plan of $1,595, or $997 net of related income tax benefit, comprised of net actuarial losses of $961 and unamortized transition asset of $636. The Company estimates $94 will be amortized from accumulated other comprehensive loss into net period benefit costs in 2010. |
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(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, | 2009 | 2008 | 2007 | |||||||||
Other comprehensive income (loss): | ||||||||||||
Investment securities available-for-sale: | ||||||||||||
Change in net unrealized gain during the period | $ | 10,322 | $ | 17,799 | $ | 9,455 | ||||||
Reclassification adjustment for gains included in income | (137 | ) | (101 | ) | (59 | ) | ||||||
Unamortized premium on available-for-sale securities transferred into held-to-maturity | 1,055 | — | — | |||||||||
Change in the net actuarial loss on defined benefit post-retirement benefit plans | (1,179 | ) | (13 | ) | — | |||||||
10,061 | 17,685 | 9,396 | ||||||||||
Deferred tax expense | 3,958 | 6,958 | 3,736 | |||||||||
Net other comprehensive income | $ | 6,103 | $ | 10,727 | $ | 5,660 | ||||||
The components of accumulated other comprehensive income, net of income taxes, are as follows: |
Year ended December 31, | 2009 | 2008 | ||||||||||
Net unrealized gain on investment securities available-for-sale | $ | 16,072 | $ | 9,254 | ||||||||
Net actuarial loss on defined benefit post-retirement benefit plans | (997 | ) | (282 | ) | ||||||||
Net accumulated other comprehensive income | $ | 15,075 | $ | 8,972 | ||||||||
(21) | NON-CASH INVESTING AND FINANCING ACTIVITIES | |
The Company transferred loans of $42,212, $5,645 and $1,135 to other real estate owned in 2009, 2008 and 2007, respectively. | ||
During 2009, the Company transferred equipment pending disposal of $1,519 to other assets. | ||
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 23—Acquisitions and Dispositions. | ||
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 23—Acquisitions and Dispositions. | ||
On March 27, 2008, the Company transferred $100,000 from retained earnings to common stock. |
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(Dollars in thousands, except share and per share data)
(22) | CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) | |
Following is condensed financial information of First Interstate BancSystem, Inc. |
December 31, | 2009 | 2008 | ||||||||||
Condensed balance sheets: | ||||||||||||
Cash and cash equivalents | $ | 30,749 | $ | 47,141 | ||||||||
Investment in subsidiaries, at equity: | ||||||||||||
Bank subsidiaries | 712,776 | 683,509 | ||||||||||
Nonbank subsidiaries | 1,961 | 2,562 | ||||||||||
Total investment in subsidiaries | 714,737 | 686,071 | ||||||||||
Premises and equipment | — | 1,584 | ||||||||||
Other assets | 26,213 | 21,551 | ||||||||||
Total assets | $ | 771,699 | $ | 756,347 | ||||||||
Other liabilities | $ | 19,569 | $ | 25,362 | ||||||||
Advances from subsidiaries, net | 52 | 5,351 | ||||||||||
Long-term debt | 53,929 | 62,857 | ||||||||||
Subordinated debentures held by subsidiary trusts | 123,715 | 123,715 | ||||||||||
Total liabilities | 197,265 | 217,285 | ||||||||||
Stockholders’ equity | 574,434 | 539,062 | ||||||||||
Total liabilities and stockholders’ equity | $ | 771,699 | $ | 756,347 | ||||||||
Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||
Condensed statements of income: | ||||||||||||
Dividends from subsidiaries | $ | 41,900 | $ | 64,539 | $ | 74,548 | ||||||
Other interest income | 9 | 29 | 71 | |||||||||
Other income, primarily management fees from subsidiaries | 11,529 | 9,101 | 9,625 | |||||||||
Gain on sale of nonbank subsidiary | — | 27,096 | — | |||||||||
Total income | 53,438 | 100,765 | 84,244 | |||||||||
Salaries and benefits | 12,687 | 9,030 | 10,687 | |||||||||
Interest expense | 8,773 | 12,075 | 4,588 | |||||||||
Other operating expenses, net | 6,270 | 7,713 | 6,475 | |||||||||
Total expenses | 27,730 | 28,818 | 21,750 | |||||||||
Earnings before income tax benefit | 25,708 | 71,947 | 62,494 | |||||||||
Income tax expense (benefit) | (6,261 | ) | 2,814 | (4,812 | ) | |||||||
Income before undistributed earnings of subsidiaries | 31,969 | 69,133 | 67,306 | |||||||||
Undistributed earnings of subsidiaries | 21,894 | 1,515 | 1,335 | |||||||||
Net income | $ | 53,863 | $ | 70,648 | $ | 68,641 | ||||||
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Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||
Condensed statements of cash flows: | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 53,863 | $ | 70,648 | $ | 68,641 | ||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||
Undistributed earnings of subsidiaries | (21,894 | ) | (1,515 | ) | (1,335 | ) | ||||||
Depreciation and amortization | 241 | 289 | 550 | |||||||||
Write-down of equipment pending sale | 350 | — | — | |||||||||
Deferred income tax benefit | (1,401 | ) | (706 | ) | (539 | ) | ||||||
Stock-based compensation expense | 1,024 | 911 | 1,093 | |||||||||
Tax benefits from stock-based compensation | 742 | 1,178 | 2,519 | |||||||||
Excess tax benefits from stock-based compensation | (719 | ) | (1,140 | ) | (2,508 | ) | ||||||
Gain on sale of nonbank subsidiary | — | (27,096 | ) | — | ||||||||
Other, net | (8,664 | ) | 10,130 | (10,782 | ) | |||||||
Net cash provided by operating activities | 23,542 | 52,699 | 57,639 | |||||||||
Cash flows from investing activities: | ||||||||||||
Maturities of available-for-sale investment securities | — | 100,000 | — | |||||||||
Purchases of available-for-sale investment securities | — | — | (99,931 | ) | ||||||||
Capital expenditures, net of sales | — | — | (47 | ) | ||||||||
Capitalization of subsidiaries | (535 | ) | (1,140 | ) | (2,117 | ) | ||||||
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 | (535 | ) | (58,195 | ) | (102,095 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Net increase (decrease) in advances from nonbank subsidiaries | (4,718 | ) | (1,634 | ) | 529 | |||||||
Borrowings of long-term debt | — | 98,500 | — | |||||||||
Repayments of long-term debt | (8,928 | ) | (35,643 | ) | — | |||||||
Proceeds from issuance subordinated debentures | — | 20,620 | 61,857 | |||||||||
Debt issuance costs | (261 | ) | (576 | ) | (225 | ) | ||||||
Preferred stock issuance costs | — | (38 | ) | — | ||||||||
Proceeds from issuance of common stock | 3,957 | 13,662 | 9,090 | |||||||||
Excess tax benefits from stock-based compensation | 719 | 1,140 | 2,485 | |||||||||
Purchase and retirement of common stock | (11,052 | ) | (27,912 | ) | (25,887 | ) | ||||||
Dividends paid to common stockholders | (15,694 | ) | (20,578 | ) | (24,255 | ) | ||||||
Dividends paid to preferred stockholders | (3,422 | ) | (3,347 | ) | — | |||||||
Net cash provided by (used in) financing activities | (39,399 | ) | 44,194 | 23,594 | ||||||||
Net change in cash and cash equivalents | (16,392 | ) | 38,698 | (20,862 | ) | |||||||
Cash and cash equivalents, beginning of year | 47,141 | 8,443 | 29,305 | |||||||||
Cash and cash equivalents, end of year | $ | 30,749 | $ | 47,141 | $ | 8,443 | ||||||
Noncash Investing and Financing Activities– 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. | |||
During 2009, the Company transferred equipment pending disposal of $1,519 to other assets. |
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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 23—Acquisitions 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 12—Capital 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 10—Long-Term Debt and Other Borrowed Funds and Note 11—Subordinated 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, and $387,304, $78,770 and $64,225, respectively, for the year ended December 31, 2007. | |||
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 will be 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 and 12,675 for technology services during 2008 and 2007, respectively. |
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(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 | ||||||||||||||
Active Markets for | Observable | Unobservable | Balance | |||||||||||||
Identical Assets | Inputs | Inputs | as of | |||||||||||||
As of December 31, 2009 | (Level 1) | (Level 2) | (Level 3) | 12/31/2009 | ||||||||||||
Investment securities available-for-sale | $ | — | $ | 1,316,429 | $ | — | $ | 1,316,429 | ||||||||
Mortgage servicing rights | — | 17,746 | — | 17,746 | ||||||||||||
Derivative contract | — | — | 245 | 245 | ||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | Balance | |||||||||||||
Identical Assets | Inputs | Inputs | as of | |||||||||||||
As of December 31, 2008 | (Level 1) | (Level 2) | (Level 3) | 12/31/2008 | ||||||||||||
Investment securities available-for-sale | $ | — | $ | 961,914 | $ | — | $ | 961,914 | ||||||||
Mortgage servicing rights | — | 11,832 | — | 11,832 | ||||||||||||
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 bond’s terms and conditions, among other things. | |||
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 Contract.During 2009, the Company entered into a derivative contract whereby cash payments received or paid, if any, are based on the resolution of litigation involving Visa. The value of the derivative contract was estimated based on the Company’s expectations regarding the ultimate resolution of that litigation, which involved a high degree of judgment and subjectivity. |
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The following table reconciles the beginning and ending balances of the derivative contract measured at fair value on a recurring basis using significant unobservable (Level 3) inputs as of December 31, 2009. |
Total | ||||
Fair Value | ||||
Balance, beginning of year | $ | — | ||
Additions during the period | 245 | |||
Net realized gains (losses) | — | |||
Balance, end of year | $ | 245 | ||
Additionally, from time to time, certain assets are measured at fair value on a non-recurring basis. These 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 Company’s 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, 2009 | Total | (Level 1) | (Level 2) | (Level 3) | (Losses) | |||||||||||||||
Impaired loans | $ | 41,343 | $ | — | $ | — | $ | 41,343 | $ | (27,237 | ) | |||||||||
Other real estate owned | 14,515 | — | — | 14,515 | (4,995 | ) | ||||||||||||||
Long-lived asset to be disposed of by sale | 1,169 | — | — | 1,169 | (350 | ) | ||||||||||||||
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, 2008 | Total | (Level 1) | (Level 2) | (Level 3) | (Losses) | |||||||||||||||
Impaired loans | $ | 9,734 | $ | — | $ | — | $ | 9,734 | $ | (8,015 | ) | |||||||||
Other real estate owned | 415 | — | — | 415 | (34 | ) | ||||||||||||||
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 2009, certain impaired loans with a carrying value of $68,580 were reduced by specific valuation allowance allocations and partial loan charge-offs of $27,237 resulting in a reported fair value of $41,343. During 2008, impaired loans with a carrying value of $17,749 were reduced by specific valuation allowance allocations of $8,015 resulting in a reported fair value of $9,734. |
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Other Real Estate Owned.The fair values of OREO are determined by independent appraisals or are estimated using observable market data and customized discounting criteria. Upon initial recognition, write-downs based on the foreclosed asset’s 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 other real estate owned expense in the period in which they are identified. During 2009, OREO with a carrying amount of $19,510 was written down to its fair value of $14,515, resulting in impairment charges of $4,995. In addition, during 2009, OREO with a carrying amount of $1,880 was written down to its fair value of $1,330 and subsequently sold. Impairment charges related to this property of $550 were recorded in 2009. During 2008, OREO with a carrying amount of $449 was written down to its fair value of $415, resulting in impairment charges of $34. | |||
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. 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. | |||
Mortgage Loans Held for Sale. 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, 2009 and 2008, 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 bond’s 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. | |||
Financial Liabilities.The fair values of demand deposits, savings accounts, federal funds purchased, 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. |
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A summary of the estimated fair values of financial instruments follows: |
2009 | 2008 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
As of December 31, | Amount | Fair Value | Amount | Fair Value | ||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | $ | 623,482 | $ | 623,482 | $ | 314,030 | $ | 314,030 | ||||||||
Investment securities available-for-sale | 1,316,429 | 1,316,429 | 961,914 | 961,914 | ||||||||||||
Investment securities held-to-maturity | 129,851 | 130,855 | 110,362 | 109,809 | ||||||||||||
Net loans | 4,424,974 | 4,422,288 | 4,685,497 | 4,696,287 | ||||||||||||
Accrued interest receivable | 37,123 | 37,123 | 38,694 | 38,694 | ||||||||||||
Mortgage servicing rights, net | 17,325 | 17,746 | 11,002 | 11,832 | ||||||||||||
Total financial assets | $ | 6,549,184 | $ | 6,547,923 | $ | 6,121,499 | $ | 6,132,566 | ||||||||
Financial liabilities: | ||||||||||||||||
Total deposits, excluding time deposits | $ | 3,586,248 | $ | 3,586,248 | $ | 3,243,756 | $ | 3,243,756 | ||||||||
Time deposits | 2,237,808 | 2,246,223 | 1,930,503 | 1,934,296 | ||||||||||||
Federal funds purchased | — | — | 30,625 | 30,625 | ||||||||||||
Securities sold under repurchase agreements | 474,141 | 474,141 | 525,501 | 525,501 | ||||||||||||
Derivative contract | 245 | 245 | — | — | ||||||||||||
Accrued interest payable | 17,585 | 17,585 | 20,531 | 20,531 | ||||||||||||
Other borrowed funds | 5,423 | 5,423 | 79,216 | 79,216 | ||||||||||||
Long-term debt | 73,353 | 74,913 | 84,148 | 88,255 | ||||||||||||
Subordinated debentures held by subsidiary trusts | 123,715 | 128,802 | 123,715 | 119,608 | ||||||||||||
Total financial liabilities | $ | 6,518,518 | $ | 6,533,580 | $ | 6,037,995 | $ | 6,041,788 | ||||||||
(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. | |||
Certain executive officers and directors of the Company and certain corporations and individuals related to such persons, incurred indebtedness in the form of loans, as customers, of $23,782 at December 31, 2009 and $24,977 at December 31, 2008. During 2009, new loans and advances on existing loans of $13,247 were funded and loan repayments totaled $10,321. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans and are allowable under the Sarbanes Oxley Act of 2002. Additionally, during 2009, loans of $4,121 were removed due to changes in related parties from the prior year. | |||
The Company leases aircraft from an entity wholly-owned by the chairman of the Company’s 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 2009, 2008 and 2007, the Company paid the related entity $230, $143 and $168, respectively, for its use of aircraft. In addition, the Company paid third party operating expenses of $66, $315 and $325 during 2009, 2008 and 2007, respectively. A portion of these third party operating expenses were recovered by the Company as discussed below. |
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The Company leases a portion of its hanger and provides pilot services to the related entity. During 2009, 2008 and 2007, the Company received payments from the related entity of $129, $140 and $161, respectively, for hanger use, pilot fees and reimbursement of certain third party operating expenses related to the chairman’s 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 majority ownership interest. The Company paid insurance premiums to the agency of $830, $649, and $340 in 2009, 2008 and 2007, respectively. | |||
The Company purchases services from an entity in which seven directors of the Company, including the chairman and vice chairman of the Board of Directors, have an aggregate ownership interest of 17.1%. Services provided for the Company’s benefit include shareholder education and communication, strategic enterprise planning and corporate governance consultation. During 2009, 2008 and 2007, the Company paid $342, $415 and $337, respectively, for these services. The Company also reimburses the related entity for certain costs incurred in the Company’s behalf, primarily office costs for the vice-chairman of the Company’s Board of Directors and the Company’s charitable foundation. These reimbursements totaled $81, $97 and $47 in 2009, 2008 and 2007, 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 2008, the Company purchased real property owned by a director of the Company for $1,250. The Company purchased the property from a developer who had purchased it from the director immediately prior to the Company’s purchase. Prior to the purchase, the Company’s Board of Directors approved the transaction after reviewing fully the relationships and proposed terms regarding the transaction. The director’s term of office expired in May 2009. |
(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 Company’s 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 Company’s bank subsidiary. |
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Notes to Consolidated Financial Statements
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 | ||||||||||
Community | Technology | Intersegment | ||||||||||||||||||
For the year ended December 31, 2007 | Banking | Services | Other | Eliminations | Total | |||||||||||||||
Net interest income | $ | 202,653 | $ | 190 | $ | 71,469 | ($74,709 | ) | $ | 199,603 | ||||||||||
Provision for loan losses | 7,750 | — | — | — | 7,750 | |||||||||||||||
Net interest income after provision for loan losses | 194,903 | 190 | 71,469 | (74,709 | ) | 191,853 | ||||||||||||||
Non-interest income: | ||||||||||||||||||||
External sources | 72,600 | 19,080 | 687 | — | 92,367 | |||||||||||||||
Intersegment | 1 | 12,675 | 9,408 | (22,084 | ) | — | ||||||||||||||
Total non-interest income | 72,601 | 31,755 | 10,095 | (22,084 | ) | 92,367 | ||||||||||||||
Non-interest expense | 157,118 | 25,805 | 17,947 | (22,084 | ) | 178,786 | ||||||||||||||
Net income before income tax expense | 110,386 | 6,140 | 63,617 | (74,709 | ) | 105,434 | ||||||||||||||
Income tax expense (benefit) | 39,142 | 2,434 | (4,783 | ) | — | 36,793 | ||||||||||||||
Net income | $ | 71,244 | $ | 3,706 | $ | 68,400 | $ | (74,709 | ) | $ | 68,641 | |||||||||
Depreciation and core deposit intangible amortizaton | $ | 14,092 | $ | — | $ | 227 | $ | — | $ | 14,319 | ||||||||||
Total assets as of December 31, 2007 | $ | 5,091,252 | $ | 7,120 | $ | 561,686 | $ | (443,261 | ) | $ | 5,216,797 | |||||||||
Investment in equity method investees as of December 31, 2007 | $ | 5,772 | $ | — | $ | — | $ | — | $ | 5,772 | ||||||||||
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(27) | AUTHORITATIVE ACCOUNTING GUIDANCE | ||
FASB ASC Topic 105, “Generally Accepted Accounting Principles.”On September 15, 2009, the Company adopted new authoritative guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 105, “Generally Accepted Accounting Principles.” ASC Topic 105 establishes the ASC as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the ASC carries an equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the ASC is superseded and deemed non-authoritative. Adoption of ASC Topic 105 did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity. | |||
FASB ASC Topic 260, “Earnings Per Share.”On January 1, 2009, the Company adopted new authoritative accounting guidance under ASC Topic 260, “Earnings Per Share,” which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Adoption of ASC Topic 260 did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity. | |||
FASB ASC Topic 320, “Investments—Debt and Equity Securities.”New authoritative accounting guidance under ASC Topic 320, “Investments—Debt and Equity Securities,” (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that an entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. The Company adopted the guidance provided under ASC Topic 320 during first quarter 2009. The adoption did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity. | |||
FASB Topic 505, “Equity: Accounting for Distributions to Shareholders with Components of Stock and Cash.”New authoritative accounting guidance under ASC Topic 505, “Equity: Accounting for Distributions to Shareholders with Components of Stock and Cash” clarifies that the stock portion of a distribution to shareholders that includes an election by the shareholders to receive cash or stock is considered a share issuance to be reflected in earnings per share prospectively and is not a stock dividend. New guidance provided under ASC Topic 505 is effective for interim and annual periods ended after December 15, 2009, and is applied retrospectively. Adoption of the new guidance did not impact the Company’s consolidated financial statements, results of operations or liquidity. | |||
FASB ASC Topic 715, “Compensation—Retirement Benefits.”New authoritative accounting guidance under ASC Topic 715, “Compensation—Retirement Benefits,” provides guidance related to an employer’s disclosures about plan assets of defined benefit pension or other post-retirement benefit plans. Under ASC Topic 715, disclosures should provide users of financial statements with an understanding of how investment allocation decisions are made, the factors that are pertinent to an understanding of investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period and significant concentrations of risk within plan assets. The Company adopted the disclosure requirements of the new authoritative accounting guidance under ASC Topic 715 in the consolidated financial statements for the year ended December 31, 2009. The adoption did not impact the Company’s consolidated financial statements, results of operations or liquidity. |
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Additional new authoritative accounting guidance under ASC Topic 715, “Compensation—Retirement Benefits,” requires the recognition of a liability and related compensation expense for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to post-retirement periods. Under ASC Topic 715, life insurance policies purchased for the purpose of providing such benefits do not effectively settle an entity’s obligation to the employee. Accordingly, the entity must recognize a liability and related compensation expense during the employee’s active service period based on the future cost of insurance to be incurred during the employee’s retirement. The Company adopted the new authoritative accounting guidance under ASC Topic 715 on January 1, 2008 as a change in accounting principle through a cumulative-effect adjustment to retained earnings totaling $633. | |||
FASB ASC Topic 805, “Business Combinations.”ASC Topic 805, “Business Combinations” applies to all transactions and other events in which one entity obtains control over one or more other businesses. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized at fair value if fair value can be reasonably estimated. ASC Topic 805 also requires acquirers to expense acquisition-related costs as incurred. The guidance in ASC Topic 805 is applicable to the Company’s accounting for business combinations closing on or after January 1, 2009. | |||
FASB ASC Topic 810, “Consolidation.”Authoritative accounting guidance under ASC Topic 810, “Consolidation,” amends prior guidance to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Under ASC Topic 810, a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, ASC Topic 810 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. The new authoritative guidance under ASC Topic 810 became effective for the Company on January 1, 2009 and did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity. | |||
Further new authoritative accounting guidance under ASC Topic 810 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 entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under ASC Topic 810 will be effective for the Company on January 1, 2010 and is not expected to have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity. | |||
Further new authoritative accounting guidance (Accounting Standards Update (“ASU”) No. 2010-02) under Topic 810 clarifies the scope of the decrease in ownership provisions under Subtopic 810-10 and related guidance. ASU No. 2010-02 also expands disclosure requirements about deconsolidation of a subsidiary or derecognition of a group of assets. ASU No. 2010-02 became effective for the Company on January 1, 2009 and did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity. |
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FASB ASC Topic 815, “Derivatives and Hedging.”New authoritative accounting guidance under ASC Topic 815, “Derivatives and Hedging,” requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. Adoption of the new authoritative accounting guidance under ASC Topic 815 on January 1, 2009 did not impact the Company’s consolidated financial statements, results of operations or liquidity. | |||
FASB ASC Topic 820, “Fair Value Measurements and Disclosures.”New authoritative accounting guidance under ASC Topic 820,“Fair Value Measurements and Disclosures,” clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic 820 also requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The new accounting guidance amended prior guidance to expand certain disclosure requirements. The Company adopted the new authoritative accounting guidance under ASC Topic 820 during the first quarter of 2009. The adoption did not impact the Company’s consolidated financial statements, results of operations or liquidity. | |||
Further new authoritative accounting guidance (ASU No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available. In such instances, a reporting entity is required to measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii) quoted prices for similar liabilities or similar liabilities when traded as assets, or (iii) another valuation technique that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach. The new authoritative accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The forgoing new authoritative accounting guidance under ASC Topic 820 became effective for the Company’s financial statements beginning October 1, 2009 and did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity. | |||
Further new authoritative accounting guidance (ASU No. 2009-12) amends ASC Topic 820 to permit a reporting entity to measure fair value of certain investments on the basis of the net asset value per share of the investment or its equivalent and requires new disclosures about the attributes of investments included in the scope of the amendment. ASU No. 2009-12 is effective for interim and annual periods ending after December 15, 2009. Adoption of ASU No. 2009-12 did not impact the Company’s consolidated financial statements, results of operations or liquidity. | |||
Further 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 is effective for interim and annual reporting periods beginning after December 15, 2009, 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 period within those years, beginning after December 15, 2010. The adoption of this new authoritative guidance under ASC Topic 820 is not expected to have a material impact on the Company’s consolidated financial statements, results of operations or liquidity. |
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FASB ASC Topic 825, “Financial Instruments.”New authoritative accounting guidance under ASC Topic 825,“Financial Instruments,” requires an entity to provide disclosures about the fair value of financial instruments in interim financial information and amends prior guidance to require those disclosures in summarized financial information at interim reporting periods. The Company adopted the new authoritative accounting guidance under ASC Topic 825 during the first quarter of 2009. The adoption did not impact the Company’s consolidated financial statements, results of operations or liquidity. | |||
FASB ASC Topic 855, “Subsequent Events.”New authoritative accounting guidance under ASC Topic 855, “Subsequent Events,” establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC Topic 855 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The new authoritative accounting guidance under ASC Topic 855 became effective for the Company’s financial statements for periods ending after June 15, 2009 and did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity | |||
FASB ASC Topic 860, “Transfers and Servicing.”New authoritative accounting guidance 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 will be effective for the Company on January 1, 2010 and is not expected to have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity. |
(28) | SUBSEQUENT EVENTS | ||
Subsequent events have been evaluated for potential recognition and disclosure through February 19, 2010, the date financial statements were filed with the SEC. Through that date, the only event requiring disclosure is noted below. | |||
On January 15, 2010, the Company filed a registration statement with the SEC for a proposed initial public offering of shares of its Class A common stock. The offering is expected to consist of shares of Class A common stock to be sold by the Company and may include shares of the Company’s Class A common stock to be sold by certain existing shareholders. The consummation of the proposed offering is subject to market conditions and other factors. | |||
On January 22, 2010, the Company filed a preliminary proxy statement with the SEC regarding a special meeting of shareholders to consider certain amendments to our existing restated articles of incorporation. The proposed amendments would, among other things, redesignate our existing common stock as Class B common stock, with five votes per share, and create a new class of common stock designated as Class A common stock, with one vote per share. On February 3, 2010, the Company filed a revised preliminary proxy statement with the SEC. |
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(a) | 2. | Financial statement schedules | ||||
All other schedules to the consolidated financial statements of the Registrant are omitted since the required information is either not applicable, deemed immaterial, or is shown in the respective financial statements or in notes thereto. | ||||||
(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 Company’s 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 Company’s Current Report on Form 8-K filed on January 16, 2008) | |
3.1 | Restated Articles of Incorporation dated February 27, 1986 (incorporated herein by reference to the Company’s Registration Statement on Form S-1, filed on September 29, 1994) | |
3.2 | Articles of Amendment to Restated Articles of Incorporation dated September 26, 1996 (incorporated herein by reference to Exhibit 3.1-1 of the Company’s Current Report on Form 8-K, filed on October 15, 1996) | |
3.3 | Articles of Amendment to Restated Articles of Incorporation dated September 26, 1996 (incorporated herein by reference to Exhibit 3.1-2 of the Company’s Current Report on Form 8-K, filed on October 15, 1996) | |
3.4 | Articles of Amendment to Restated Articles of Incorporation dated October 7, 1997 (incorporated herein by reference to Exhibit 3.4 of the Company’s Registration Statement on Form S-1, filed on October 14, 1997) | |
3.5 | Articles of Amendment to Restated Articles of Incorporation dated September 27, 2007 (incorporated herein by reference to Exhibit 3.5 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007) | |
3.8 | Amended and Restated Bylaws dated January 28, 2010 (incorporated herein by reference to Exhibit 3.8 of the Company’s Current Report on Form 8-K filed on February 2, 2010) | |
4.1 | Specimen of common stock certificate of First Interstate BancSystem, Inc. (incorporated herein by reference to the Company’s Registration Statement on Form S-1, No. 333-3250) | |
4.3 | Specimen of Series A preferred stock certificate of First Interstate BancSystem, Inc. (incorporated herein by reference to Exhibit 4.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007) | |
4.4 | Shareholder’s Agreement for non-Scott family members (incorporated herein by reference to the Company’s Post-Effective Amendment No. 3 to Registration Statement on Form S-1, filed on September 29, 1994) | |
4.5 | Shareholder’s Agreement for non-Scott family members dated August 24, 2001 (incorporated herein by reference to Exhibit 4.26 of the Company’s Post-Effective Amendment No. 1 to Registration Statement on Form S-8, filed on September 6, 2001) | |
4.6 | Shareholder’s Agreement for non-Scott family members dated August 19, 2002 (incorporated herein by reference to Exhibit 4.27 of the Company’s Post-Effective Amendment No. 2 to Registration Statement on Form S-8, filed on August 8, 2002) | |
4.7 | First Interstate Shareholders’ Agreements with Scott family members dated January 11, 1999 (incorporated herein by reference to Exhibit 4.19 of the Company’s Registration Statement on Form S-8, filed on April 22, 1999) |
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Exhibit | ||
Number | Description | |
4.8 | Specimen of Charity Shareholder’s Agreement with Charitable Shareholders (incorporated herein by reference to Exhibit 4.20 of the Company’s Registration Statement on Form S-8, filed on April 22, 1999) | |
10.1 | Credit Agreement dated as of January 10, 2008, among First Interstate BancSystem, Inc., as Borrower; Various Lenders; and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.22 of the Company’s Current Report on Form 8-K filed on January 16, 2008) | |
10.2 | First Amendment to Credit Agreement dated as of October 3, 2008 among First Interstate BancSystem, Inc., as Borrower, Various Lenders and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.25 of the Company’s Current Report on Form 8-K filed on October 9, 2008) | |
10.3 | Second Amendment to Credit Agreement dated as of November 19, 2009 among First Interstate BancSystem, Inc., as Borrower, Various Lenders and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.19 of the Company’s Current Report on Form 8-K filed on November 25, 2009) | |
10.4 | Third Amendment to Credit Agreement dated as of December 31, 2009 among First Interstate BancSystem, Inc., as Borrower, Various Lenders and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on January 7, 2010) | |
10.5 | Security Agreement dated as of January 10, 2008, between First Interstate BancSystem, Inc. and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.23 of the Company’s Current Report on Form 8-K filed on January 16, 2008) | |
10.6 | 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 Company’s Current Report on Form 8-K filed on January 16, 2008) | |
10.7 | 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 Company’s Post-Effective Amendment No. 3 to Registration Statement on Form S-1, filed on September 29, 1994) | |
10.8† | Stock Option and Stock Appreciation Rights Plan of First Interstate BancSystem, Inc., as amended (incorporated herein by reference to Exhibit 10.9 of the Company’s Post-Effective Amendment No. 3 to Registration Statement on Form S-1, filed on September 29, 1994) | |
10.9† | 2001 Stock Option Plan (incorporated herein by reference to Exhibit 4.12 of the Company’s Registration Statement on Form S-8, filed on June 25, 2003) | |
10.10† | Employee Stock Purchase Plan of First Interstate BancSystem, Inc., as amended and restated, effective April 30, 2008 (incorporated herein by reference to Exhibit 4.30 of the Company’s Registration Statement on Form S-8, filed on August 18, 2008) | |
10.11† | First Interstate BancSystem, Inc. Executive Non-Qualified Deferred Compensation Plan dated November 20, 1998 (incorporated herein by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998) | |
10.12† | First Interstate BancSystem’s Deferred Compensation Plan dated December 6, 2000 (incorporated herein by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K, for the fiscal year ended December 31, 2002) | |
10.13† | First Interstate BancSystem, Inc. 2006 Equity Compensation Plan (incorporated herein by reference to Appendix A of the Company’s 2006 Definitive Proxy Statement on Schedule 14A, filed on April 3, 2006) |
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Exhibit | ||
Number | Description | |
10.14† | 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008) | |
10.15† | 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008) | |
10.16† | 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008) | |
10.17† | First Interstate BancSystem, Inc. 2006 Equity Compensation Plan Restricted Stock Agreement for Lyle R. Knight (incorporated herein by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008) | |
10.18† | Relocation Services Agreement between First Interstate BancSystem, Inc. and NRI Relocation, Inc. dated April 25, 2008 for the benefit of Julie Castle and related Memorandum Agreement between First Interstate BancSystem, Inc. and Julie Castle dated May 23, 2008 (incorporated herein by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008) | |
10.19 | 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 (incorporated herein by reference to Exhibit 14.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004) | |
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 | |
† | Management contract or compensatory plan or arrangement. | |
(b) | Exhibits | |
See Item 15(a)3 above. | ||
(c) | Financial Statements Schedules | |
See Item 15(a)2 above. |
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First Interstate BancSystem, Inc. | ||||||
By: | /s/ LYLE R. KNIGHT | February 19, 2010 | ||||
Lyle R. Knight President and Chief Executive Officer | Date |
By: | /s/ THOMAS W. SCOTT | February 19, 2010 | ||
Thomas W. Scott, Chairman of the Board | Date | |||
By: | /s/ JAMES R. SCOTT | February 19, 2010 | ||
James R. Scott, Vice Chairman of the Board | Date | |||
By: | /s/ RANDALL I. SCOTT | February 19, 2010 | ||
Randall I. Scott, Director | Date | |||
By: | /s/ JONATHAN R. SCOTT | February 19, 2010 | ||
Jonathan R. Scott, Director | Date | |||
By: | /s/ JULIE A. SCOTT | February 19, 2010 | ||
Julie A. Scott, Director | Date | |||
By: | /s/ SANDRA A. SCOTT SUZOR | February 19, 2010 | ||
Sandra A. Scott Suzor, Director | Date | |||
By: | /s/ STEVEN J. CORNING | February 19, 2010 | ||
Steven J. Corning, Director | Date | |||
By: | /s/ DAVID H. CRUM | February 19, 2010 | ||
David H. Crum, Director | Date | |||
By: | /s/ WILLIAM B. EBZERY | February 19, 2010 | ||
William B. Ebzery, Director | Date | |||
By: | /s/ CHARLES E. HART, M.D., M.S. | February 19, 2010 | ||
Charles E. Hart, M.D., M.S., Director | Date | |||
By: | /s/ JAMES W. HAUGH | February 19, 2010 | ||
James W. Haugh, Director | Date | |||
By: | /s/ CHARLES M. HEYNEMAN | February 19, 2010 | ||
Charles M. Heyneman, Director | Date | |||
By: | /s/ TERRY W. PAYNE | February 19, 2010 | ||
Terry W. Payne, Director | Date | |||
By: | /s/ MICHAEL J. SULLIVAN | February 19, 2010 | ||
Michael J. Sullivan, Director | Date |
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By: | /s/ MARTIN A. WHITE | February 19, 2010 | ||
Martin A. White, Director | Date | |||
By: | /s/ LYLE R. KNIGHT | February 19, 2010 | ||
Lyle R. Knight President, Chief Executive Officer and Director (Principal executive officer) | Date | |||
By: | /s/ TERRILL R. MOORE | February 19, 2010 | ||
Terrill R. Moore | Date | |||
Executive Vice President and Chief Financial Officer (Principal financial and accounting officer) |
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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 Company’s 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 Company’s Current Report on Form 8-K filed on January 16, 2008) | |
3.1 | Restated Articles of Incorporation dated February 27, 1986 (incorporated herein by reference to the Company’s Registration Statement on Form S-1, filed on September 29, 1994) | |
3.2 | Articles of Amendment to Restated Articles of Incorporation dated September 26, 1996 (incorporated herein by reference to Exhibit 3.1-1 of the Company’s Current Report on Form 8-K, filed on October 15, 1996) | |
3.3 | Articles of Amendment to Restated Articles of Incorporation dated September 26, 1996 (incorporated herein by reference to Exhibit 3.1-2 of the Company’s Current Report on Form 8-K, filed on October 15, 1996) | |
3.4 | Articles of Amendment to Restated Articles of Incorporation dated October 7, 1997 (incorporated herein by reference to Exhibit 3.4 of the Company’s Registration Statement on Form S-1, filed on October 14, 1997) | |
3.5 | Articles of Amendment to Restated Articles of Incorporation dated September 27, 2007 (incorporated herein by reference to Exhibit 3.5 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007) | |
3.8 | Amended and Restated Bylaws dated January 28, 2010 (incorporated herein by reference to Exhibit 3.8 of the Company’s Current Report on Form 8-K filed on February 2, 2010) | |
4.1 | Specimen of common stock certificate of First Interstate BancSystem, Inc. (incorporated herein by reference to the Company’s Registration Statement on Form S-1, No. 333-3250) | |
4.3 | Specimen of Series A preferred stock certificate of First Interstate BancSystem, Inc. (incorporated herein by reference to Exhibit 4.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007) | |
4.4 | Shareholder’s Agreement for non-Scott family members (incorporated herein by reference to the Company’s Post-Effective Amendment No. 3 to Registration Statement on Form S-1, filed on September 29, 1994) | |
4.5 | Shareholder’s Agreement for non-Scott family members dated August 24, 2001 (incorporated herein by reference to Exhibit 4.26 of the Company’s Post-Effective Amendment No. 1 to Registration Statement on Form S-8, filed on September 6, 2001) | |
4.6 | Shareholder’s Agreement for non-Scott family members dated August 19, 2002 (incorporated herein by reference to Exhibit 4.27 of the Company’s Post-Effective Amendment No. 2 to Registration Statement on Form S-8, filed on August 8, 2002) | |
4.7 | First Interstate Shareholders’ Agreements with Scott family members dated January 11, 1999 (incorporated herein by reference to Exhibit 4.19 of the Company’s Registration Statement on Form S-8, filed on April 22, 1999) | |
4.8 | Specimen of Charity Shareholder’s Agreement with Charitable Shareholders (incorporated herein by reference to Exhibit 4.20 of the Company’s Registration Statement on Form S-8, filed on April 22, 1999) |
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Exhibit | ||
Number | Description | |
10.1 | Credit Agreement dated as of January 10, 2008, among First Interstate BancSystem, Inc., as Borrower; Various Lenders; and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.22 of the Company’s Current Report on Form 8-K filed on January 16, 2008) | |
10.2 | First Amendment to Credit Agreement dated as of October 3, 2008 among First Interstate BancSystem, Inc., as Borrower, Various Lenders and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.25 of the Company’s Current Report on Form 8-K filed on October 9, 2008) | |
10.3 | Second Amendment to Credit Agreement dated as of November 19, 2009 among First Interstate BancSystem, Inc., as Borrower, Various Lenders and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.19 of the Company’s Current Report on Form 8-K filed on November 25, 2009) | |
10.4 | Third Amendment to Credit Agreement dated as of December 31, 2009 among First Interstate BancSystem, Inc., as Borrower, Various Lenders and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on January 7, 2010) | |
10.5 | Security Agreement dated as of January 10, 2008, between First Interstate BancSystem, Inc. and Wells Fargo Bank, National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.23 of the Company’s Current Report on Form 8-K filed on January 16, 2008) | |
10.6 | 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 Company’s Current Report on Form 8-K filed on January 16, 2008) | |
10.7 | 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 Company’s Post-Effective Amendment No. 3 to Registration Statement on Form S-1, filed on September 29, 1994) | |
10.8† | Stock Option and Stock Appreciation Rights Plan of First Interstate BancSystem, Inc., as amended (incorporated herein by reference to Exhibit 10.9 of the Company’s Post-Effective Amendment No. 3 to Registration Statement on Form S-1, filed on September 29, 1994) | |
10.9† | 2001 Stock Option Plan (incorporated herein by reference to Exhibit 4.12 of the Company’s Registration Statement on Form S-8, filed on June 25, 2003) | |
10.10† | Employee Stock Purchase Plan of First Interstate BancSystem, Inc., as amended and restated, effective April 30, 2008 (incorporated herein by reference to Exhibit 4.30 of the Company’s Registration Statement on Form S-8, filed on August 18, 2008) | |
10.11† | First Interstate BancSystem, Inc. Executive Non-Qualified Deferred Compensation Plan dated November 20, 1998 (incorporated herein by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998) | |
10.12† | First Interstate BancSystem’s Deferred Compensation Plan dated December 6, 2000 (incorporated herein by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K, for the fiscal year ended December 31, 2002) | |
10.13† | First Interstate BancSystem, Inc. 2006 Equity Compensation Plan (incorporated herein by reference to Appendix A of the Company’s 2006 Definitive Proxy Statement on Schedule 14A, filed on April 3, 2006) | |
10.14† | 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008) | |
10.15† | 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008) |
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Exhibit | ||
Number | Description | |
10.16† | 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008) | |
10.17† | First Interstate BancSystem, Inc. 2006 Equity Compensation Plan Restricted Stock Agreement for Lyle R. Knight (incorporated herein by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008) | |
10.18† | Relocation Services Agreement between First Interstate BancSystem, Inc. and NRI Relocation, Inc. dated April 25, 2008 for the benefit of Julie Castle and related Memorandum Agreement between First Interstate BancSystem, Inc. and Julie Castle dated May 23, 2008 (incorporated herein by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008) | |
10.19 | 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 (incorporated herein by reference to Exhibit 14.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004) | |
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 |
† | Management contract or compensatory plan or arrangement. |
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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 | Conneticut | 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 |
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February 19, 2010
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PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
1. | I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2009 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting. |
/s/ LYLE R. KNIGHT | ||||
Lyle R. Knight | ||||
President and Chief Executive Officer |
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PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
1. | I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2009 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting. |
/s/ TERRILL R. MOORE | ||||
Terrill R. Moore | ||||
Executive Vice President and Chief Financial Officer |
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PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
/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 | ||||