EXHIBIT 99
 | First Interstate BancSystem Reaching New Heights |
To our shareholders,
First Interstate BancSystem reported third quarter 2004 net income of $11,086,000, or $1.39 per diluted share compared to $11,830,000 or $1.50 per diluted share in third quarter 2003. Return on average equity (ROAE) was 15.54% in third quarter 2004 compared to 17.88% last year, return on average assets (ROAA) 1.10% versus 1.24%, and efficiency ratio of 66.10% versus 60.22%.
Net interest income of $37,554,000 in third quarter 2004 was $2,104,000 more than the same period last year. The net interest margin of 4.32% increased 4 basis points over the same period last year. Quarterly average loans grew $121,919,000, or 5%; while quarterly average deposits grew $152,217,000, also 5%.
Non-interest income of $19,722,000 was $2,415,000 or 14% higher than third quarter 2003. Residential real estate revenue continued it’s year over year decline with third quarter 2004 $1,991,000, or 46%, lower than third quarter 2003. In July 2004, the Cut Bank branch was sold resulting in a gain of $1,690,000. Further, in third quarter 2003, investment securities were sold resulting in a $1,594,000 loss. Removing the 2004 Cut Bank gain and 2003 securities loss, non-interest revenue would show a 5% decrease compared to third quarter 2003.
Non-interest expense was $6,091,000, or 19%, higher than the comparable quarter in 2003. In third quarter 2004, we recorded $1,180,000 mortgage servicing rights (MSR) impairment expense compared to $2,585,000 MSR impairment reversal for the third quarter in 2003. Excluding the effect of mortgage servicing impairment and reversal, non-interest expense increased $2,326,000, or 7%.
Year to date net income of $33,376,000 exceeded the first nine months of 2003 by $2,474,000 or 8%. The previously mentioned MSR fluctuations have a negligible year over year financial effect. Fully diluted earnings per share were $4.19, compared to $3.92 for the same period last year. Net interest income was up $7,184,000 due to strong loan and deposit growth. Non-interest revenue was up $74,000, the small increase year over year the result of a $6,593,000, or 51%, decrease in residential real
estate revenue which nearly offsets increases in other revenue categories. Non-interest expense was up $4,051,000, or 4%, from 2003. The efficiency ratio of 64.28% for the first nine months of 2004 was 39 basis points lower than last year.
Dividends of $.42 per share were paid on October 8th.
We are pleased with our financial results through third quarter 2004. Thank you to our talented team of employees, officers, managers and advisory directors who continue to effectively drive our progress on strategic initiatives in a challenging economic environment.
 |  | |
| Lyle R. Knight | Terrill R. Moore | |
| President | Chief Financial Officer | |
| Chief Executive Officer |
Financial Highlights
Three Months ended September 30
| in thousands except per share data | 2004 | 2003 | % Change | |||||||||
| (unaudited) | ||||||||||||
OPERATING RESULTS | ||||||||||||
| Net income | $ | 11,086 | $ | 11,830 | -6.3 | % | ||||||
| Diluted earnings per share | 1.39 | 1.50 | -7.3 | % | ||||||||
| Dividends per share | 0.40 | 0.32 | 25.0 | % | ||||||||
PERIOD END BALANCES | ||||||||||||
| Assets | 4,063,162 | 3,857,118 | 5.3 | % | ||||||||
| Loans | 2,674,963 | 2,566,288 | 4.2 | % | ||||||||
| Investment Securities | 841,029 | 770,878 | 9.1 | % | ||||||||
| Deposits | 3,236,518 | 3,124,176 | 3.6 | % | ||||||||
| Common Stockholders’ Equity | 302,299 | 266,382 | 13.5 | % | ||||||||
| Common Shares Outstanding | 7,990 | 7,909 | 1.0 | % | ||||||||
QUARTERLY AVERAGES | ||||||||||||
| Assets | 3,998,892 | 3,789,797 | 5.5 | % | ||||||||
| Loans | 2,651,383 | 2,529,464 | 4.8 | % | ||||||||
| Investment Securities | 799,916 | 785,380 | 1.9 | % | ||||||||
| Deposits | 3,202,681 | 3,050,464 | 5.0 | % | ||||||||
| Common Stockholders’ Equity | 283,837 | 262,538 | 8.1 | % | ||||||||
| Common Shares Outstanding | 7,887 | 7,848 | 0.5 | % | ||||||||
Third Quarter 2004
Third Quarter 2004
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| Total interest income | $ | 48,143 | $ | 46,839 | $ | 141,756 | $ | 141,698 | ||||||||
| Total interest expense | 10,589 | 11,389 | 30,666 | 37,792 | ||||||||||||
| Net interest income | 37,554 | 35,450 | 111,090 | 103,906 | ||||||||||||
| Provision for loan losses | 2,387 | 2,422 | 7,346 | 7,422 | ||||||||||||
| Net interest income after provision for loan losses | 35,167 | 33,028 | 103,744 | 96,484 | ||||||||||||
| Noninterest income | 19,722 | 17,307 | 53,618 | 53,544 | ||||||||||||
| Noninterest expense | 37,861 | 31,770 | 105,877 | 101,826 | ||||||||||||
| Income before taxes | 17,028 | 18,565 | 51,485 | 48,202 | ||||||||||||
| Income taxes | 5,942 | 6,735 | 18,109 | 17,300 | ||||||||||||
Net income | $ | 11,086 | $ | 11,830 | $ | 33,376 | $ | 30,902 | ||||||||
COMMON SHARE DATA: | ||||||||||||||||
| Diluted EPS | 1.39 | 1.50 | 4.19 | 3.92 | ||||||||||||
| Dividends | 0.40 | 0.32 | 1.14 | 0.98 | ||||||||||||
| Book value | 37.88 | 33.68 | ||||||||||||||
| Tangible book value | 33.20 | 28.92 | ||||||||||||||
| Appraised value | * | 49.50 | ||||||||||||||
* Currently not available, $54.50 as of June 30, 2004
Selected Ratios (Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
PERFORMANCE | ||||||||||||||||
| Return on avg common equity | 15.54 | % | 17.88 | % | 15.76 | % | 16.26 | % | ||||||||
| Return on avg common equity excl. market adj of securities | 15.02 | % | 18.06 | % | 15.63 | % | 16.40 | % | ||||||||
| Return on avg assets | 1.10 | % | 1.24 | % | 1.13 | % | 1.12 | % | ||||||||
| Net interest margin, FTE | 4.32 | % | 4.28 | % | 4.36 | % | 4.38 | % | ||||||||
| Efficiency ratio | 66.10 | % | 60.22 | % | 64.28 | % | 64.67 | % | ||||||||
CREDIT QUALITY (Period End) | ||||||||||||||||
| Provision for loan losses to average loans | 0.38 | % | 0.41 | % | ||||||||||||
| Net charge offs to average loans | 0.20 | % | 0.28 | % | ||||||||||||
| Allowance for loan losses to loans | 1.58 | % | 1.52 | % | ||||||||||||
| Allowance for loan losses to non-accruing loans | 189.12 | % | 152.14 | % | ||||||||||||
CAPITAL ADEQUACY & LIQUIDITY | ||||||||||||||||
| Leverage capital ratio | 7.34 | % | 7.01 | % | ||||||||||||
| Avg loans to avg deposits | 82.61 | % | 81.18 | % | ||||||||||||
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
| September 30 | ||||||||
| 2004 | 2003 | |||||||
ASSETS | ||||||||
| Cash and due from banks | $ | 233,071 | $ | 221,344 | ||||
| Federal funds sold | 56,415 | 57,310 | ||||||
| Interest bearing deposits | 6,816 | 695 | ||||||
| Investment securities | 841,029 | 770,878 | ||||||
| Loans | 2,674,963 | 2,566,288 | ||||||
| Less: allowance for loan losses | 42,396 | 38,782 | ||||||
| Net loans | 2,632,567 | 2,527,506 | ||||||
| Premises & equipment, net | 120,015 | 108,438 | ||||||
| Accrued interest receivable | 22,015 | 21,805 | ||||||
| Goodwill and core deposit intangibles | 39,878 | 41,368 | ||||||
| Other real estate owned, net | 1,647 | 1,627 | ||||||
| Other assets | 109,709 | 106,147 | ||||||
Total Assets | $ | 4,063,162 | $ | 3,857,118 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Deposits | $ | 3,236,518 | $ | 3,124,176 | ||||
| Securities sold under repurchase agreements | 401,078 | 335,012 | ||||||
| Other liabilities | 31,443 | 32,957 | ||||||
| Other borrowed funds | 8,051 | 9,190 | ||||||
| Long-term debt | 42,535 | 49,401 | ||||||
| Subordinated debenture and trust preferred securities | 41,238 | 40,000 | ||||||
Total Liabilities | 3,760,863 | 3,590,736 | ||||||
| Common stockholders’ equity | 302,299 | 266,382 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 4,063,162 | $ | 3,857,118 | ||||
Navigating our course
First InterstateBancSystem
P.O. Box 30918 • Billings, Montana 59116 • (406) 255-5390
www.firstinterstatebank.com