EXHIBIT 99
To our shareholders,
First Interstate BancSystem reported first quarter 2007 income of $16,496,000, or $1.97 per diluted share, compared to $16,134,000, or $1.95 per diluted share, in first quarter 2006. First quarter earnings, although lower than fourth quarter 2006 primarily due to the fourth quarter gain on sale of our iPay investment, are the highest first quarter earnings reported in our history. Return on average common equity was 16.14% in first quarter 2007 compared to 18.41% in first quarter 2006, return on average assets was 1.37% versus 1.44%, and efficiency ratio increased to 61.32% versus 59.19%.
Quarterly Results
Net interest income of $48,144,000 in first quarter 2007 was $2,529,000 more than first quarter 2006. The increase in net interest margin dollars over last year was the result of loan growth. First quarter 2007 average loans grew $262,764,000, or 9%, over the same period last year. Despite loan growth, the net interest margin decreased 13 basis points from first quarter 2006 to 4.46% for first quarter 2007. Net interest margin declined due to higher costs for deposits and securities sold under repurchase agreements (Repo). First quarter 2007 average deposits grew 197,868,000, or 6%, due mainly to demand deposit growth, over the same period last year. In order to provide business customers an alternative to our traditional Repo, a new money market cash sweep deposit product was introduced in the first quarter 2007. Money market cash sweep balances averaged $39,665,000 for first quarter 2007 and consisted mainly of customer migration from our current Repo product. The migration of customer balances out of our Repo product increases our liquidity as securities are required to be pledged as collateral for Repo balances. The provision for loan losses of $1,875,000 was $122,000, or 7%, higher than first quarter 2006.
Noninterest income of $21,697,000 was $2,404,000, or 12%, higher than first quarter 2006. Major components of the increase were gain on sale of assets, technology services revenue, debit/credit card revenue and income from sale of residential real estate loans held for sale of $1,046,000, $720,000, $422,000 and $297,000, respectively. Gain on sale of assets increased as a result of a $1,100,000 gain recorded in March 2007 on the sale of mortgage servicing rights for mortgage loans with principal balances of approximately $263,000,000. We had purchased these servicing rights from another mortgage originator in recent years.
Noninterest expense of $42,770,000 was $4,403,000, or 11%, higher than the comparable quarter in 2006. Salary and benefits expense increased $2,719,000, or 13%, as compared to first quarter 2006 primarily due to inflationary wage increases, increased number of employees and
Financial Highlights
Three Months ended March 31
Three Months ended March 31
| (unaudited) | 2007 | 2006 | % Change | |||||||||
| (in thousands except per share data) | ||||||||||||
OPERATING RESULTS | ||||||||||||
| Net income | $ | 16,496 | $ | 16,134 | 2.2 | % | ||||||
| Diluted earnings per share | 1.97 | 1.95 | 1.0 | % | ||||||||
| Dividends per share | 1.02 | 0.50 | 104.0 | % | ||||||||
PERIOD END BALANCES | ||||||||||||
| Assets | 4,959,855 | 4,632,647 | 7.1 | % | ||||||||
| Loans | 3,363,981 | 3,116,927 | 7.9 | % | ||||||||
| Investment securities | 984,245 | 995,861 | -1.2 | % | ||||||||
| Deposits | 3,863,224 | 3,512,581 | 10.0 | % | ||||||||
| Common stockholders’ equity | 421,617 | 359,647 | 17.2 | % | ||||||||
| Common shares outstanding | 8,183 | 8,108 | 0.9 | % | ||||||||
QUARTERLY AVERAGES | ||||||||||||
| Assets | 4,884,328 | 4,548,963 | 7.4 | % | ||||||||
| Loans | 3,322,149 | 3,059,385 | 8.6 | % | ||||||||
| Investment securities | 1,075,443 | 966,262 | 11.3 | % | ||||||||
| Deposits | 3,680,205 | 3,482,337 | 5.7 | % | ||||||||
| Common stockholders’ equity | 414,502 | 355,327 | 16.7 | % | ||||||||
| Common shares outstanding | 8,188 | 8,108 | 0.9 | % | ||||||||
higher incentive bonus and profit sharing accruals. Also contributing to the increase in salary and benefits was an extra expense of $250,000 to fund our health insurance trust for employees. In addition, a $793,000 mortgage servicing impairment was recorded in first quarter 2007 compared to a $170,000 impairment reversal for the first quarter 2006.
On April 6, 2007, we paid a $.65 dividend per common share.
First Interstate BancSystem is the regional employer of choice. This commitment to our employees has helped generate yet another record in quarterly earnings. Through the dedication of our employees, officers, advisory directors, and corporate directors, we continue to develop new products and services to serve our customers in an ever evolving and challenging banking and financial services environment.
 |  | |
| Lyle R. Knight | Terrill R. Moore | |
| President | Executive Vice President | |
| Chief Executive Officer | Chief Financial Officer |
First Quarter 2007
Condensed Consolidated Statements of Income
| Three Months Ended | ||||||||
| March 31 | ||||||||
| (unaudited) | 2007 | 2006 | ||||||
| (in thousands, except per share data) | ||||||||
| Total interest income | $ | 78,636 | $ | 66,969 | ||||
| Total interest expense | 30,492 | 21,354 | ||||||
| Net interest income | 48,144 | 45,615 | ||||||
| Provision for loan losses | 1,875 | 1,753 | ||||||
| Net interest income after provision for loan losses | 46,269 | 43,862 | ||||||
| Noninterest income | 21,697 | 19,293 | ||||||
| Noninterest expense | 42,770 | 38,367 | ||||||
| Income before taxes | 25,196 | 24,788 | ||||||
| Income taxes | 8,700 | 8,654 | ||||||
Net income | $ | 16,496 | $ | 16,134 | ||||
| DATA PER COMMON SHARE: | ||||||||
| Diluted EPS | $ | 1.97 | $ | 1.95 | ||||
| Dividends | 1.02 | .50 | ||||||
| Book value | 51.52 | 44.36 | ||||||
| Tangible book value | 46.95 | 39.75 | ||||||
| Appraised value | 89.00 | * | 74.50 | ** | ||||
* Based on the latest independent appraised minority share valuation as of December 31, 2006, effective for transactions on or after February 15, 2007.
** Based on the independent appraised minority share valuation as of March 31, 2006, effective for transactions on or after May 19, 2006.
Selected Ratios
| Three Months Ended | ||||||||
| March 31 | ||||||||
| (unaudited) | 2007 | 2006 | ||||||
PERFORMANCE | ||||||||
| Return on avg common equity | 16.14 | % | 18.41 | % | ||||
| Return on avg common equity excl. market adj of securities | 15.88 | % | 18.02 | % | ||||
| Return on avg assets | 1.37 | % | 1.44 | % | ||||
| Net interest margin, FTE | 4.46 | % | 4.59 | % | ||||
| Efficiency ratio | 61.32 | % | 59.19 | % | ||||
CREDIT QUALITY (Period End) | ||||||||
| Annualized provision for loan losses to average loans | 0.23 | % | 0.23 | % | ||||
| Annualized net charge offs to average loans | 0.09 | % | 0.08 | % | ||||
| Allowance for loan losses to loans | 1.45 | % | 1.40 | % | ||||
| Allowance for loan losses to non-accruing loans | 312.96 | % | 273.58 | % | ||||
CAPITAL ADEQUACY & LIQUIDITY | ||||||||
| Leverage capital ratio | 8.76 | % | 8.11 | % | ||||
| Avg loans to avg deposits | 90.27 | % | 87.85 | % | ||||
Condensed Consolidated Balance Sheet
| March 31 | ||||||||||||
| (unaudited) | 2007 | 2006 | ||||||||||
| (In thousands) | ||||||||||||
ASSETS | ||||||||||||
| Cash and due from banks | $ | 152,028 | $ | 197,400 | ||||||||
| Federal funds sold | 162,515 | 37,713 | ||||||||||
| Interest bearing deposits | 19,063 | 11,916 | ||||||||||
| Investment securities | 984,245 | 995,861 | ||||||||||
| Loans | 3,363,981 | 3,116,927 | ||||||||||
| Less: allowance for loan losses | 48,621 | 43,633 | ||||||||||
| Net loans | 3,315,360 | 3,073,294 | ||||||||||
| Premises & equipment, net | 119,923 | 120,086 | ||||||||||
| Accrued interest receivable | 31,786 | 27,686 | ||||||||||
| Goodwill | 37,380 | 37,380 | ||||||||||
| Mortgage servicing rights | 20,359 | 22,721 | ||||||||||
| Company owned life insurance | 65,261 | 63,058 | ||||||||||
| Other assets | 51,935 | 45,532 | ||||||||||
Total Assets | $ | 4,959,855 | $ | 4,632,647 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Deposits | $ | 3,863,224 | $ | 3,512,581 | ||||||||
| Securities sold under repurchase agreements | 568,042 | 618,307 | ||||||||||
| Accrued interest payable | 20,325 | 12,670 | ||||||||||
| Other liabilities | 33,952 | 33,271 | ||||||||||
| Other borrowed funds | 220 | 642 | ||||||||||
| Long — term debt | 11,237 | 54,291 | ||||||||||
| Subordinated debenture | 41,238 | 41,238 | ||||||||||
Total Liabilities | 4,538,238 | 4,273,000 | ||||||||||
| Common stockholders’ equity | 421,617 | 359,647 | ||||||||||
Total Liabilities and Stockholders’ Equity | $ | 4,959,855 | $ | 4,632,647 | ||||||||
Total Deposits
P.O. Box 30918o Billings, Montana 59116o (406) 255-5390
www.firstinterstatebank.com
www.firstinterstatebank.com