e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For
the quarterly period ended June 30, 2005
OR
o Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For
the transition period from to
COMMISSION FILE NUMBER 000-49733
First
Interstate BancSystem, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Montana
|
|
81-0331430 |
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer
Identification No.) |
|
|
|
401 North 31st Street, Billings, MT 59116-0918 |
|
|
|
(Address of principal executive offices)
|
|
Zip Code) |
Registrants telephone number, including area code: 406/255-5390
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The Registrant had 7,980,610 shares of common stock outstanding on June 30, 2005.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
2
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
199,645 |
|
|
$ |
235,251 |
|
Federal funds sold |
|
|
32,000 |
|
|
|
37,590 |
|
Interest bearing deposits in banks |
|
|
4,136 |
|
|
|
83,067 |
|
Investment securities: |
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
789,672 |
|
|
|
766,669 |
|
Held-to-maturity (estimated fair values of $108,380 as of
June 30, 2005 and $103,754 as of December 31, 2004) |
|
|
105,784 |
|
|
|
100,646 |
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
895,456 |
|
|
|
867,315 |
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
2,891,674 |
|
|
|
2,739,509 |
|
Less allowance for loan losses |
|
|
43,368 |
|
|
|
42,141 |
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
2,848,306 |
|
|
|
2,697,368 |
|
|
Premises and equipment, net |
|
|
118,157 |
|
|
|
121,928 |
|
Accrued interest receivable |
|
|
23,944 |
|
|
|
20,569 |
|
Company-owned life insurance |
|
|
61,473 |
|
|
|
60,645 |
|
Mortgage servicing rights, net of accumulated amortization and impairment reserve |
|
|
18,473 |
|
|
|
17,624 |
|
Goodwill |
|
|
37,390 |
|
|
|
37,390 |
|
Core deposit intangibles, net of accumulated amortization |
|
|
1,710 |
|
|
|
2,217 |
|
Net deferred tax asset |
|
|
2,907 |
|
|
|
1,911 |
|
Other assets |
|
|
34,013 |
|
|
|
34,418 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,277,610 |
|
|
$ |
4,217,293 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest bearing |
|
$ |
783,674 |
|
|
$ |
756,687 |
|
Interest bearing |
|
|
2,526,698 |
|
|
|
2,564,994 |
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
3,310,372 |
|
|
|
3,321,681 |
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements |
|
|
499,404 |
|
|
|
449,699 |
|
Accrued interest payable |
|
|
10,747 |
|
|
|
9,529 |
|
Accounts payable and accrued expenses |
|
|
22,481 |
|
|
|
16,899 |
|
Other borrowed funds |
|
|
7,568 |
|
|
|
7,995 |
|
Long-term debt |
|
|
59,680 |
|
|
|
61,926 |
|
Subordinated debenture held by subsidiary trust |
|
|
41,238 |
|
|
|
41,238 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,951,490 |
|
|
|
3,908,967 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Nonvoting noncumulative preferred stock without par value;
authorized 100,000 shares; no shares issued or outstanding as of
June 30, 2005 or December 31, 2004 |
|
|
|
|
|
|
|
|
Common stock without par value; authorized 20,000,000 shares;
issued and outstanding 7,980,610 shares as of June 30, 2005
and 7,980,300 shares as of December 31, 2004 |
|
|
36,466 |
|
|
|
36,803 |
|
Retained earnings |
|
|
292,839 |
|
|
|
275,172 |
|
Unearned compensation restricted stock |
|
|
(444 |
) |
|
|
(425 |
) |
Accumulated other comprehensive loss, net |
|
|
(2,741 |
) |
|
|
(3,224 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
326,120 |
|
|
|
308,326 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
4,277,610 |
|
|
$ |
4,217,293 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
3
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
For the six months |
|
|
ended June 30, |
|
ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
46,627 |
|
|
$ |
39,562 |
|
|
$ |
90,039 |
|
|
$ |
78,585 |
|
Interest and dividends on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
7,095 |
|
|
|
6,362 |
|
|
|
13,923 |
|
|
|
12,770 |
|
Exempt from Federal taxes |
|
|
1,115 |
|
|
|
1,029 |
|
|
|
2,188 |
|
|
|
2,032 |
|
Interest on deposits in banks |
|
|
139 |
|
|
|
6 |
|
|
|
304 |
|
|
|
7 |
|
Interest on Federal funds sold |
|
|
568 |
|
|
|
87 |
|
|
|
1,057 |
|
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
55,544 |
|
|
|
47,046 |
|
|
|
107,511 |
|
|
|
93,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
10,429 |
|
|
|
8,326 |
|
|
|
19,642 |
|
|
|
16,848 |
|
Interest on Federal funds purchased |
|
|
22 |
|
|
|
33 |
|
|
|
22 |
|
|
|
33 |
|
Interest on securities sold under repurchase agreements |
|
|
2,862 |
|
|
|
601 |
|
|
|
5,021 |
|
|
|
1,125 |
|
Interest on other borrowed funds |
|
|
28 |
|
|
|
20 |
|
|
|
46 |
|
|
|
31 |
|
Interest on long-term debt |
|
|
670 |
|
|
|
561 |
|
|
|
1,314 |
|
|
|
1,129 |
|
Interest on subordinated debenture held by subsidiary trust |
|
|
661 |
|
|
|
452 |
|
|
|
1,261 |
|
|
|
911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
14,672 |
|
|
|
9,993 |
|
|
|
27,306 |
|
|
|
20,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
40,872 |
|
|
|
37,053 |
|
|
|
80,205 |
|
|
|
73,536 |
|
Provision for loan losses |
|
|
1,365 |
|
|
|
2,541 |
|
|
|
2,990 |
|
|
|
4,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
39,507 |
|
|
|
34,512 |
|
|
|
77,215 |
|
|
|
68,577 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other service charges, commissions and fees |
|
|
5,621 |
|
|
|
4,957 |
|
|
|
11,171 |
|
|
|
9,473 |
|
Service charges on deposit accounts |
|
|
4,339 |
|
|
|
4,986 |
|
|
|
8,398 |
|
|
|
9,660 |
|
Technology services |
|
|
3,288 |
|
|
|
3,198 |
|
|
|
6,630 |
|
|
|
6,094 |
|
Income from origination and sale of loans |
|
|
2,011 |
|
|
|
2,351 |
|
|
|
3,790 |
|
|
|
4,074 |
|
Income from fiduciary activities |
|
|
1,543 |
|
|
|
1,439 |
|
|
|
3,118 |
|
|
|
2,817 |
|
Investment securities gains (losses), net |
|
|
(438 |
) |
|
|
(740 |
) |
|
|
(1,130 |
) |
|
|
(710 |
) |
Other income |
|
|
1,476 |
|
|
|
1,078 |
|
|
|
2,812 |
|
|
|
2,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
17,840 |
|
|
|
17,269 |
|
|
|
34,789 |
|
|
|
33,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
|
|
19,158 |
|
|
|
17,660 |
|
|
|
38,836 |
|
|
|
36,000 |
|
Furniture and equipment |
|
|
4,014 |
|
|
|
3,728 |
|
|
|
8,001 |
|
|
|
7,273 |
|
Occupancy, net |
|
|
3,620 |
|
|
|
2,913 |
|
|
|
6,931 |
|
|
|
5,601 |
|
Mortgage servicing rights amortization expense |
|
|
1,189 |
|
|
|
901 |
|
|
|
2,360 |
|
|
|
1,752 |
|
Professional fees |
|
|
668 |
|
|
|
696 |
|
|
|
1,292 |
|
|
|
1,466 |
|
Outsourced technology services |
|
|
647 |
|
|
|
564 |
|
|
|
1,078 |
|
|
|
1,121 |
|
Core deposit intangible amortization expense |
|
|
254 |
|
|
|
283 |
|
|
|
507 |
|
|
|
566 |
|
Other expenses |
|
|
8,093 |
|
|
|
5,557 |
|
|
|
15,034 |
|
|
|
14,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
37,643 |
|
|
|
32,302 |
|
|
|
74,039 |
|
|
|
67,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
19,704 |
|
|
|
19,479 |
|
|
|
37,965 |
|
|
|
34,457 |
|
Income tax expense |
|
|
6,824 |
|
|
|
6,907 |
|
|
|
13,126 |
|
|
|
12,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,880 |
|
|
$ |
12,572 |
|
|
$ |
24,839 |
|
|
$ |
22,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
1.62 |
|
|
$ |
1.59 |
|
|
$ |
3.12 |
|
|
$ |
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
1.59 |
|
|
$ |
1.58 |
|
|
$ |
3.06 |
|
|
$ |
2.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
4
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity and Comprehensive Income
(Dollars in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned |
|
Accumulated other |
|
Total |
|
|
Common |
|
Retained |
|
compensation - |
|
comprehensive |
|
stockholders |
|
|
stock |
|
earnings |
|
restricted stock |
|
income (loss) |
|
equity |
Balance at December 31, 2004 |
|
$ |
36,803 |
|
|
|
275,172 |
|
|
|
(425 |
) |
|
|
(3,224 |
) |
|
|
308,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
24,839 |
|
|
|
|
|
|
|
|
|
|
|
24,839 |
|
Unrealized losses on available-for-sale investment
securities, net of income tax benefit of $132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202 |
) |
|
|
(202 |
) |
Less reclassification adjustment for losses included in
net income, net of income tax benefit of $445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
685 |
|
|
|
685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,687 shares retired |
|
|
(1,945 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,945 |
) |
30,997 shares issued |
|
|
1,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,472 |
|
1,000 shares issued pursuant to restricted stock plan |
|
|
56 |
|
|
|
|
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurement of restricted stock awards |
|
|
80 |
|
|
|
|
|
|
|
(80 |
) |
|
|
|
|
|
|
|
|
Amortization of restricted stock awards |
|
|
|
|
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
117 |
|
|
Cash dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.90 per share) |
|
|
|
|
|
|
(7,172 |
) |
|
|
|
|
|
|
|
|
|
|
(7,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2005 |
|
$ |
36,466 |
|
|
|
292,839 |
|
|
|
(444 |
) |
|
|
(2,741 |
) |
|
|
326,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
$ |
33,187 |
|
|
|
242,105 |
|
|
|
|
|
|
|
(1,066 |
) |
|
|
274,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
22,290 |
|
|
|
|
|
|
|
|
|
|
|
22,290 |
|
Unrealized losses on available-for-sale investment
securities, net of income tax benefit of $5,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,009 |
) |
|
|
(8,009 |
) |
Less reclassification adjustment for losses included in
net income, net of income tax benefit of $279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
431 |
|
|
|
431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,627 shares retired |
|
|
(1,821 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,821 |
) |
9,882 shares issued |
|
|
407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407 |
|
9,000 shares issued pursuant to restricted stock plan |
|
|
459 |
|
|
|
|
|
|
|
(459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurement of restricted stock awards |
|
|
13 |
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
Amortization of restricted stock awards |
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.74 per share) |
|
|
|
|
|
|
(5,848 |
) |
|
|
|
|
|
|
|
|
|
|
(5,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2004 |
|
$ |
32,245 |
|
|
|
258,547 |
|
|
|
(433 |
) |
|
|
(8,644 |
) |
|
|
281,715 |
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
5
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the six months |
|
|
ended June 30, |
|
|
2005 |
|
2004 |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
24,839 |
|
|
|
22,290 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Equity in undistributed earnings of joint ventures |
|
|
(236 |
) |
|
|
(472 |
) |
Provision for loan losses |
|
|
2,990 |
|
|
|
4,959 |
|
Depreciation |
|
|
7,099 |
|
|
|
6,041 |
|
Amortization of core deposit intangibles |
|
|
507 |
|
|
|
566 |
|
Amortization of mortgage servicing rights |
|
|
2,360 |
|
|
|
1,751 |
|
Net premium amortization on investment securities |
|
|
466 |
|
|
|
1,247 |
|
Net loss on sale of investment securities |
|
|
1,130 |
|
|
|
710 |
|
Net gain on sale of loans |
|
|
(3,790 |
) |
|
|
(4,074 |
) |
Net loss on sale of property and equipment |
|
|
8 |
|
|
|
18 |
|
Net impairment charges on mortgage servicing rights |
|
|
(313 |
) |
|
|
(1,076 |
) |
Net increase in cash surrender value of company-owned life insurance |
|
|
(828 |
) |
|
|
(845 |
) |
Write-down of property pending disposal |
|
|
16 |
|
|
|
65 |
|
Amortization of restricted stock awards |
|
|
117 |
|
|
|
39 |
|
Deferred income taxes |
|
|
(1,307 |
) |
|
|
586 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease in loans held for sale |
|
|
(225 |
) |
|
|
(15,430 |
) |
Increase in interest receivable |
|
|
(3,366 |
) |
|
|
(1,124 |
) |
Decrease (increase) in other assets |
|
|
(152 |
) |
|
|
554 |
|
Increase (decrease) in accrued interest payable |
|
|
1,218 |
|
|
|
(518 |
) |
Increase in accounts payable and accrued expenses |
|
|
5,582 |
|
|
|
3,809 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
36,115 |
|
|
|
19,096 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of investment securities: |
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
(7,500 |
) |
|
|
(6,741 |
) |
Available-for-sale |
|
|
(495,900 |
) |
|
|
(247,800 |
) |
Proceeds from maturities and paydowns of investment securities: |
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
2,319 |
|
|
|
1,865 |
|
Available-for-sale |
|
|
387,364 |
|
|
|
223,282 |
|
Proceeds from sales of available-for-sale investment securities |
|
|
84,650 |
|
|
|
25,411 |
|
Net decrease in cash equivalent mutual funds classified as
available-for-sale investment securities |
|
|
124 |
|
|
|
22 |
|
Purchases and originations of mortgage servicing rights |
|
|
(2,896 |
) |
|
|
(3,247 |
) |
Extensions of credit to customers, net of repayments |
|
|
(151,504 |
) |
|
|
(92,661 |
) |
Recoveries of loans charged-off |
|
|
1,027 |
|
|
|
1,029 |
|
Proceeds from sales of other real estate |
|
|
1,808 |
|
|
|
1,266 |
|
Net capital expenditures |
|
|
(3,832 |
) |
|
|
(11,108 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(184,340 |
) |
|
|
(108,682 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits |
|
|
(11,309 |
) |
|
|
72,044 |
|
Net increase in repurchase agreements |
|
|
49,705 |
|
|
|
42,952 |
|
Net increase (decrease) in other borrowed funds |
|
|
(427 |
) |
|
|
1,129 |
|
Borrowings of long-term debt |
|
|
8,000 |
|
|
|
14,025 |
|
Repayments of long-term debt |
|
|
(10,246 |
) |
|
|
(18,618 |
) |
Net decrease in debt issuance costs |
|
|
20 |
|
|
|
22 |
|
Proceeds from issuance of common stock |
|
|
1,472 |
|
|
|
407 |
|
Payments to retire common stock |
|
|
(1,945 |
) |
|
|
(1,821 |
) |
Dividends paid on common stock |
|
|
(7,172 |
) |
|
|
(5,848 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
28,098 |
|
|
|
104,292 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(120,127 |
) |
|
|
14,706 |
|
Cash and cash equivalents at beginning of period |
|
|
355,908 |
|
|
|
281,442 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
235,781 |
|
|
$ |
296,148 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
6
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
(1) |
|
Basis of Presentation |
|
|
|
In the opinion of management, the accompanying unaudited consolidated financial statements of
First Interstate BancSystem, Inc. (the Parent Company or FIBS) and subsidiaries (the
Company) contain all adjustments (all of which are of a normal recurring nature) necessary to
present fairly the financial position of the Company at June 30, 2005 and December 31, 2004 and
the results of operations and cash flows for each of the three and six month periods ended June
30, 2005 and 2004, in conformity with U.S. generally accepted accounting principles. The balance
sheet information at December 31, 2004 is derived from audited consolidated financial statements,
however, certain reclassifications, none of which were material, have been made to conform to the
June 30, 2005 presentation. |
|
|
|
These consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and related notes included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2004. Operating results for the three and six months
ended June 30, 2005 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2005. |
|
(2) |
|
Stock-Based Compensation |
|
|
|
The Company has two stock-based employee compensation plans, the 2004 Restricted Stock Award Plan
and the 2001 Stock Option Plan. The Company accounts for these plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting
for Stock Issued to Employees, and related interpretations. Compensation cost related to
restricted stock awards is recorded each period from the date of grant to the measurement date
based on the fair value of the Companys common stock at the end of the period. Stock options
granted pursuant to the 2001 Stock Option Plan have an exercise price equal to the fair value of
the Companys common stock at date of grant. Accordingly, the Company does not recognize
compensation expense for stock option awards. The following table illustrates the effect on net
income and earnings per share if compensation expense had been determined for stock option awards
based on an estimate of fair value of the option at the date of grant consistent with Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 123,
Accounting for Stock-Based Compensation, as amended. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Net income as reported |
|
$ |
12,880 |
|
|
$ |
12,572 |
|
|
$ |
24,839 |
|
|
$ |
22,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct: total stock-based employee
compensation expense determined using
a fair value based method for fixed plan
awards, net of tax effect |
|
|
(122 |
) |
|
|
(97 |
) |
|
|
(225 |
) |
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
12,758 |
|
|
$ |
12,475 |
|
|
$ |
24,614 |
|
|
$ |
22,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.62 |
|
|
$ |
1.59 |
|
|
$ |
3.12 |
|
|
$ |
2.82 |
|
Pro forma basic earnings per share |
|
$ |
1.60 |
|
|
$ |
1.58 |
|
|
$ |
3.09 |
|
|
$ |
2.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.59 |
|
|
$ |
1.58 |
|
|
$ |
3.06 |
|
|
$ |
2.80 |
|
Pro forma diluted earnings per share |
|
$ |
1.57 |
|
|
$ |
1.57 |
|
|
$ |
3.04 |
|
|
$ |
2.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of options was estimated at the grant date using a Black-Scholes option pricing
model, which requires the input of subjective assumptions. Because the Companys common stock and
stock options have characteristics significantly different from listed securities and traded
options, and because changes in the subjective input assumptions can materially affect the fair
value estimate, the existing models do not necessarily provide a reliable single measure of the
fair value of stock options. The weighted average fair values of options granted during the six
months ended June 30, 2005 and 2004 were $6.06 and $6.44, respectively. Weighted average
assumptions used in the valuation model include risk-free interest rates of 4.19% and 4.74% and
expected stock price volatility of 8.4% and 7.8% for the six months ended June 30, 2005 and 2004,
respectively; and, expected lives of options of 8.5 years and dividend yields of 3.05% in 2005 and
2004.
7
FIRST
INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
|
|
In December 2004, the FASB issued SFAS No. 123(Revised), Share-Based Payment (SFAS No. 123(R)),
establishing accounting standards for a wide range of share-based compensation arrangements
including stock options, restricted stock, performance-based stock awards, stock appreciation
rights and employee stock purchase plans. SFAS No. 123(R) replaces existing requirements under
SFAS No. 123 and eliminates the ability to account for share-based compensation transactions using
APB Opinion No. 25. Effective April 21, 2005, the Securities and Exchange Commission amended the
date for compliance with SFAS No. 123(R) to the first interim or annual reporting period of the
first fiscal year beginning on or after June 15, 2005. Pursuant to this ruling, the provisions of
SFAS No. 123(R) are effective for the Company on January 1, 2006. The approximate impact of
adoption of SFAS No. 123(R) is illustrated by the pro forma disclosure of net income and earnings
per share above. However, the Company has not yet determined that it will continue to use a
Black-Scholes pricing model upon the adoption of SFAS No. 123(R). Additionally, expected stock
price volatility assumptions used in pricing models have a significant impact on the estimated fair
value of stock options. Because the Companys common stock is not actively traded and there is no
established trading market for the stock, the Company bases expected stock price volatility
assumptions on the historical volatility of the Companys common stock calculated using the
quarterly appraised value of a minority interest over a ten year period. The Company is currently
evaluating the reasonableness of this method of estimation under the new guidance provided by SFAS
No. 123(R) and subsequent interpretations. |
|
(3) |
|
Computation of Earnings per Share |
|
|
|
Basic earnings per common share (EPS) is calculated by dividing net income by the weighted average
number of common shares outstanding during the period presented. Diluted earnings per common
share is calculated by dividing net income by the weighted average number of common shares and
potential common shares outstanding during the period. |
|
|
|
The following table sets forth the computation of basic and diluted earnings per share for the
three and six month periods ended June 30, 2005 and 2004. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Net income basic and diluted |
|
$ |
12,880 |
|
|
$ |
12,572 |
|
|
$ |
24,839 |
|
|
$ |
22,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average outstanding shares basic |
|
|
7,964,416 |
|
|
|
7,891,044 |
|
|
|
7,967,125 |
|
|
|
7,899,417 |
|
Add: effect of dilutive stock options |
|
|
150,987 |
|
|
|
75,811 |
|
|
|
138,593 |
|
|
|
70,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average outstanding shares diluted |
|
|
8,115,403 |
|
|
|
7,966,855 |
|
|
|
8,105,718 |
|
|
|
7,970,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.62 |
|
|
$ |
1.59 |
|
|
$ |
3.12 |
|
|
$ |
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.59 |
|
|
$ |
1.58 |
|
|
$ |
3.06 |
|
|
$ |
2.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
Financial Instruments with Off-Balance Sheet Risk |
|
|
|
The Company is a party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. 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. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash requirements. At June
30, 2005, commitments to extend credit to existing and new borrowers approximated $771,120, which
includes $152,156 on unused credit card lines and $200,453 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. At June 30, 2005, the Company had outstanding standby
letters of credit of $80,984. The estimated fair value of the obligation undertaken by the Company
in issuing the standby letters of credit is included in other liabilities in the Companys
consolidated balance sheet. |
8
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
(5) |
|
Segment Reporting |
|
|
|
The Company has two operating segments, Community Banking and Technology Services. Community
Banking encompasses commercial and consumer banking services offered to individuals, businesses and
municipalities. Technology Services encompasses technology services provided to affiliated and
non-affiliated financial institutions. |
|
|
|
The Other category includes the net funding cost and other expenses of the Parent Company, the
operational results of non-bank subsidiaries (except the Companys technology services subsidiary)
and intercompany eliminations. |
|
|
|
Selected segment information for the three and six month periods ended June 30, 2005 and 2004
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2005 |
|
|
Community |
|
Technology |
|
|
|
|
|
|
Banking |
|
Services |
|
Other |
|
Total |
|
|
|
Net interest income (expense) |
|
$ |
41,772 |
|
|
$ |
23 |
|
|
$ |
(923 |
) |
|
$ |
40,872 |
|
Provision for loan losses |
|
|
1,365 |
|
|
|
|
|
|
|
|
|
|
|
1,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
after provision |
|
|
40,407 |
|
|
|
23 |
|
|
|
(923 |
) |
|
|
39,507 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sources |
|
|
14,434 |
|
|
|
3,288 |
|
|
|
118 |
|
|
|
17,840 |
|
Internal sources |
|
|
|
|
|
|
3,489 |
|
|
|
(3,489 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
14,434 |
|
|
|
6,777 |
|
|
|
(3,371 |
) |
|
|
17,840 |
|
Noninterest expense |
|
|
34,225 |
|
|
|
4,940 |
|
|
|
(1,522 |
) |
|
|
37,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
20,616 |
|
|
|
1,860 |
|
|
|
(2,772 |
) |
|
|
19,704 |
|
Income tax expense (benefit) |
|
|
7,231 |
|
|
|
738 |
|
|
|
(1,145 |
) |
|
|
6,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
13,385 |
|
|
$ |
1,122 |
|
|
$ |
(1,627 |
) |
|
$ |
12,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and core deposit
intangibles amortization |
|
$ |
3,765 |
|
|
$ |
|
|
|
$ |
61 |
|
|
$ |
3,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2004 |
|
|
Community |
|
Technology |
|
|
|
|
|
|
Banking |
|
Services |
|
Other |
|
Total |
|
|
|
Net interest income (expense) |
|
$ |
37,835 |
|
|
$ |
4 |
|
|
$ |
(786 |
) |
|
$ |
37,053 |
|
Provision for loan losses |
|
|
2,541 |
|
|
|
|
|
|
|
|
|
|
|
2,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
after provision |
|
|
35,294 |
|
|
|
4 |
|
|
|
(786 |
) |
|
|
34,512 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sources |
|
|
14,063 |
|
|
|
3,198 |
|
|
|
8 |
|
|
|
17,269 |
|
Internal sources |
|
|
1 |
|
|
|
3,321 |
|
|
|
(3,322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
14,064 |
|
|
|
6,519 |
|
|
|
(3,314 |
) |
|
|
17,269 |
|
Noninterest expense |
|
|
29,065 |
|
|
|
4,979 |
|
|
|
(1,742 |
) |
|
|
32,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
20,293 |
|
|
|
1,544 |
|
|
|
(2,358 |
) |
|
|
19,479 |
|
Income tax expense (benefit) |
|
|
7,241 |
|
|
|
613 |
|
|
|
(947 |
) |
|
|
6,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
13,052 |
|
|
$ |
931 |
|
|
$ |
(1,411 |
) |
|
$ |
12,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and core deposit
amortization expense |
|
$ |
3,335 |
|
|
$ |
|
|
|
$ |
49 |
|
|
$ |
3,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
FIRST
INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2005 |
|
|
Community |
|
Technology |
|
|
|
|
|
|
Banking |
|
Services |
|
Other |
|
Total |
|
|
|
Net interest income (expense) |
|
$ |
81,922 |
|
|
$ |
40 |
|
|
$ |
(1,757 |
) |
|
$ |
80,205 |
|
Provision for loan losses |
|
|
2,990 |
|
|
|
|
|
|
|
|
|
|
|
2,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
after provision |
|
|
78,932 |
|
|
|
40 |
|
|
|
(1,757 |
) |
|
|
77,215 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sources |
|
|
27,850 |
|
|
|
6,630 |
|
|
|
309 |
|
|
|
34,789 |
|
Internal sources |
|
|
1 |
|
|
|
6,894 |
|
|
|
(6,895 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
27,851 |
|
|
|
13,524 |
|
|
|
(6,586 |
) |
|
|
34,789 |
|
Noninterest expense |
|
|
67,338 |
|
|
|
9,802 |
|
|
|
(3,101 |
) |
|
|
74,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
39,445 |
|
|
|
3,762 |
|
|
|
(5,242 |
) |
|
|
37,965 |
|
Income tax expense (benefit) |
|
|
13,814 |
|
|
|
1,491 |
|
|
|
(2,179 |
) |
|
|
13,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
25,631 |
|
|
$ |
2,271 |
|
|
$ |
(3,063 |
) |
|
$ |
24,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and core deposit
amortization expense |
|
$ |
7,484 |
|
|
$ |
|
|
|
$ |
122 |
|
|
$ |
7,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2005 |
|
|
Community |
|
Technology |
|
|
|
|
|
|
Banking |
|
Services |
|
Other |
|
Total |
|
|
|
Net interest income (expense) |
|
$ |
75,084 |
|
|
$ |
8 |
|
|
$ |
(1,556 |
) |
|
$ |
73,536 |
|
Provision for loan losses |
|
|
4,959 |
|
|
|
|
|
|
|
|
|
|
|
4,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
after provision |
|
|
70,125 |
|
|
|
8 |
|
|
|
(1,556 |
) |
|
|
68,577 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sources |
|
|
27,525 |
|
|
|
6,239 |
|
|
|
132 |
|
|
|
33,896 |
|
Internal sources |
|
|
2 |
|
|
|
6,641 |
|
|
|
(6,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
27,527 |
|
|
|
12,880 |
|
|
|
(6,511 |
) |
|
|
33,896 |
|
Noninterest expense |
|
|
61,528 |
|
|
|
9,816 |
|
|
|
(3,328 |
) |
|
|
68,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
36,124 |
|
|
|
3,072 |
|
|
|
(4,739 |
) |
|
|
34,457 |
|
Income tax expense (benefit) |
|
|
12,681 |
|
|
|
1,220 |
|
|
|
(1,734 |
) |
|
|
12,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
23,443 |
|
|
$ |
1,852 |
|
|
$ |
(3,005 |
) |
|
$ |
22,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and core deposit
amortization expense |
|
$ |
6,511 |
|
|
$ |
|
|
|
$ |
96 |
|
|
$ |
6,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) |
|
Commitments and Contingencies |
|
|
|
The Company guarantees the debt of a joint venture in which it has an ownership
interest. As of June 30, 2005, the joint venture had indebtedness of $5,788. |
|
|
|
The Company had commitments to purchase investment securities of $1,021 as of June 30, 2005. |
|
|
|
The Company had commitments under construction contracts of $1,173 as of June 30, 2005. |
10
FIRST
INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
(7) |
|
Supplemental Disclosures to Consolidated Statement of Cash Flows |
|
|
|
The Company paid cash of $26,088 and $20,595 for interest during the six months ended June 30, 2005
and 2004, respectively. The Company paid cash for income taxes of $11,534 and $7,774 during the
six months ended June 30, 2005 and 2004, respectively. |
11
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Companys Annual Report on
Form 10-K for the year ended December 31, 2004, including the audited financial statements
contained therein, filed with the Securities and Exchange Commission.
FORWARD LOOKING STATEMENTS
Certain statements contained in this document that are not statements of historical fact
constitute forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Words such as believes, anticipates, expects, intends, plans and
similar expressions are intended to identify forward-looking statements but are not the exclusive
means of identifying such statements. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or achievements
expressed or implied by such statements. Such factors include, among others, the following:
general economic and business conditions in those areas in which the Company operates; demographic
changes; competition; fluctuations in interest rates; changes in business strategy or development
plans; changes in governmental regulation; credit quality; the availability of capital to fund the
expected expansion of the Companys business; and, other factors identified in the Companys Annual
Report on Form 10-K for the year ended December 31, 2004, including, without limitation,
information under the caption Business Risk Factors included in Part I, Item 1. Given these
uncertainties, shareholders and prospective investors are cautioned not to place undue reliance on
such forward-looking statements. Forward-looking statements speak only as of the date on which
such statements are made. The Company disclaims any obligation to update any such factors or to
publicly announce the results of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT ACCOUNTING POLICIES
The Companys consolidated financial statements are prepared in accordance with U.S. generally
accepted accounting principles and follow general practices within the industries in which it
operates. Application of these principles requires management to make estimates, assumptions and
judgments that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ significantly from those estimates.
The Companys accounting policies are fundamental to understanding Managements Discussion and
Analysis of Financial Condition and Results of Operations. The most significant accounting
policies followed by the Company are presented in Note 1 of the Notes to Consolidated Financial
Statements included in the Companys Annual Report on Form 10-K for the year ended December 31,
2004.
The Company has identified the allowance for loan losses and the valuation of mortgage
servicing rights to be critical accounting estimates because they require management to make
particularly difficult, subjective and/or complex judgments about matters that are inherently
uncertain, and changes in the estimates that are reasonably likely to occur from period to period,
or the use of different estimates that management could have reasonably used in the current period,
would have a material impact on the Companys consolidated financial statements, results of
operations or liquidity.
The allowance for loan losses represents managements estimate of probable credit losses
inherent in the loan portfolio. Determining the amount of the allowance for loan losses is
considered a critical accounting estimate because it requires significant judgment and the use of
subjective measurements, including managements assessment of the internal risk classifications of
loans, changes in the nature of the loan portfolio, industry concentrations and the impact of
current local, regional and national economic factors on the quality of the loan portfolio, all of
which may be susceptible to significant change. Note 1 of the Notes to Consolidated Financial
Statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2004
describes the methodology used to determine the allowance for loan losses. A discussion of the
factors driving changes in the amount of the allowance for loan losses is included below.
The Company utilizes the expertise of a third-party consultant to estimate quarterly the fair
value of its mortgage servicing rights. In evaluating the mortgage servicing rights, the
consultant uses discounted cash flow modeling techniques, which require estimates regarding the
amount and timing of expected future cash flows, including assumptions about loan repayment rates,
costs to service, as well as interest rate assumptions that contemplate the risk involved.
Management believes the valuation techniques and assumptions used by the consultant are reasonable.
Management considers the determination of the fair value of mortgage servicing rights to be a
critical accounting estimate because of the assets sensitivity to changes in estimates and
assumptions used, particularly loan repayment speeds and discount rates. Notes 1 and 7 of the
Notes to Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the year
ended December 31, 2004 describe the methodology used to determine fair value of mortgage
servicing rights.
12
EXECUTIVE OVERVIEW
During the first half of 2005, the Company remained focused on improving internal efficiency
and generating additional revenue through sales initiatives and pricing opportunities. The Company
reported net income of $12.9 million, or $1.59 per diluted share, for the quarter ended June 30,
2005 as compared to $12.6 million, or $1.58 per diluted share, for the same period in 2004. For
the six months ended June 30, 2005, the Company reported net income of $24.8 million, or $3.06 per
diluted share, as compared to $22.3 million, or $2.80 per diluted share, for the same period in
2004. Quarter-to-date and year-to-date improvements in earnings were primarily due to higher net
interest income, largely the result of internal loan growth, higher yields on interest earning
assets and lower provisions for loan losses in the current year. Noninterest income for the three
and six months ended June 30, 2005 increased 3.3% and 3.1%, respectively, from the same periods in
the prior year primarily due to increased debit and credit card interchange income and higher core
data processing revenues. Noninterest expense for the three and six months ended June 30, 2005
increased 16.5% and 9.1%, respectively, from the same periods in the prior year primarily due to
annual merit increases in salary and benefits expense, higher occupancy and depreciation costs
associated with the addition and renovation of banking facilities and fluctuations in impairment
charges or reversals related to capitalized mortgage servicing rights.
The Company has made a strategic decision to discontinue the operation of nine branch
banking offices located inside Wal-Mart stores. As of June 30, 2005, operations at five of the
nine Wal-Mart in-store branch banking offices had been discontinued and customer loan and deposit
accounts had been transferred to existing branch banking offices located in the same communities.
Management expects the discontinuation of operations at the four remaining Wal-Mart in-store branch
banking offices and all resulting expenses will be completed within twelve months. During the six
months ended June 30, 2005, the Company recorded expenses of $897 thousand directly related to the
discontinuation of operations, primarily including estimated costs to restore the leased facilities
to their original conditions, lease termination fees and acceleration of depreciation on leasehold
improvements and equipment attached to the premises.
RESULTS OF OPERATIONS
Net Interest Income. Net interest income, the Companys largest source of operating income,
is derived from interest, dividends and fees received on interest earning assets, less interest
expense incurred on interest bearing liabilities. The most significant impact on the Companys net
interest income between periods is derived from the interaction of changes in the volume of and
rates earned or paid on interest earning assets and interest bearing liabilities (spread). The
volume of loans, investment securities and other interest earning assets, compared to the volume of
interest bearing deposits and indebtedness, combined with the spread, produces changes in the net
interest income between periods.
The following tables present, for the periods indicated, condensed average balance sheet
information for the Company, together with interest income and yields earned on average interest
earning assets and interest expense and rates paid on average interest bearing liabilities.
Average Balance Sheets, Yields and Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
2005 |
|
2004 |
|
|
Average |
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
Average |
|
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1) |
|
$ |
2,830,362 |
|
|
|
46,865 |
|
|
|
6.64 |
% |
|
$ |
2,618,223 |
|
|
|
39,748 |
|
|
|
6.09 |
% |
Investment securities (1) |
|
|
864,639 |
|
|
|
8,811 |
|
|
|
4.09 |
|
|
|
841,359 |
|
|
|
7,985 |
|
|
|
3.81 |
|
Federal funds sold |
|
|
76,704 |
|
|
|
568 |
|
|
|
2.97 |
|
|
|
32,147 |
|
|
|
87 |
|
|
|
1.09 |
|
Interest bearing deposits in banks |
|
|
20,287 |
|
|
|
139 |
|
|
|
2.75 |
|
|
|
607 |
|
|
|
6 |
|
|
|
3.96 |
|
|
|
|
Total interest earning assets |
|
|
3,791,992 |
|
|
|
56,383 |
|
|
|
5.96 |
% |
|
|
3,492,336 |
|
|
|
47,826 |
|
|
|
5.49 |
% |
|
Noninterest earning assets |
|
|
458,597 |
|
|
|
|
|
|
|
|
|
|
|
459,164 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,250,589 |
|
|
|
|
|
|
|
|
|
|
$ |
3,951,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
644,011 |
|
|
|
902 |
|
|
|
0.56 |
% |
|
$ |
572,262 |
|
|
|
362 |
|
|
|
0.25 |
% |
Savings deposits |
|
|
895,169 |
|
|
|
2,492 |
|
|
|
1.12 |
|
|
|
884,505 |
|
|
|
1,519 |
|
|
|
0.69 |
|
Time deposits |
|
|
1,003,888 |
|
|
|
7,035 |
|
|
|
2.81 |
|
|
|
1,036,154 |
|
|
|
6,445 |
|
|
|
2.49 |
|
Federal funds purchased |
|
|
2,954 |
|
|
|
22 |
|
|
|
2.99 |
|
|
|
13,478 |
|
|
|
33 |
|
|
|
0.98 |
|
Borrowings (2) |
|
|
502,806 |
|
|
|
2,890 |
|
|
|
2.31 |
|
|
|
360,328 |
|
|
|
621 |
|
|
|
0.69 |
|
Long-term debt |
|
|
63,176 |
|
|
|
670 |
|
|
|
4.25 |
|
|
|
49,228 |
|
|
|
561 |
|
|
|
4.57 |
|
Subordinated debenture |
|
|
41,238 |
|
|
|
661 |
|
|
|
6.43 |
|
|
|
41,238 |
|
|
|
452 |
|
|
|
4.40 |
|
|
|
|
Total interest bearing liabilities |
|
|
3,153,242 |
|
|
|
14,672 |
|
|
|
1.87 |
% |
|
|
2,957,193 |
|
|
|
9,993 |
|
|
|
1.36 |
% |
|
|
|
Noninterest bearing deposits |
|
|
751,042 |
|
|
|
|
|
|
|
|
|
|
|
673,541 |
|
|
|
|
|
|
|
|
|
Other noninterest bearing liabilities |
|
|
33,388 |
|
|
|
|
|
|
|
|
|
|
|
32,180 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
312,917 |
|
|
|
|
|
|
|
|
|
|
|
288,586 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & stockholders equity |
|
$ |
4,250,589 |
|
|
|
|
|
|
|
|
|
|
$ |
3,951,500 |
|
|
|
|
|
|
|
|
|
|
|
|
13
Average Balance Sheets, Yields and Rates (continued)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
2005 |
|
2004 |
|
|
Average |
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
Average |
|
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
|
|
|
Net FTE interest income |
|
|
|
|
|
$ |
41,711 |
|
|
|
|
|
|
|
|
|
|
$ |
37,833 |
|
|
|
|
|
Less FTE adjustments |
|
|
|
|
|
|
(839 |
) |
|
|
|
|
|
|
|
|
|
|
(780 |
) |
|
|
|
|
|
|
|
Net interest income from consolidated
statements of income |
|
|
|
|
|
$ |
40,872 |
|
|
|
|
|
|
|
|
|
|
$ |
37,053 |
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
4.09 |
% |
|
|
|
|
|
|
|
|
|
|
4.13 |
% |
|
|
|
Net FTE yield on interest earning assets(3) |
|
|
|
|
|
|
|
|
|
|
4.41 |
% |
|
|
|
|
|
|
|
|
|
|
4.36 |
% |
|
|
|
|
|
|
|
|
(1) Interest income and average rates for tax exempt loans and securities are
presented on a fully-taxable equivalent (FTE) basis. |
|
|
|
(2) Includes interest on federal funds purchased, securities sold under repurchase
agreements and other borrowed funds. Excludes long-term debt. |
|
|
|
(3) Net FTE yield on interest earning assets during the period equals (i) the
difference between annualized interest income on interest earning assets and annualized
interest expense on interest bearing liabilities, divided by (ii) average interest earning
assets for the period. |
Average Balance Sheets, Yields and Rates
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
2005 |
|
2004 |
|
|
Average |
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
Average |
|
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1) |
|
$ |
2,785,427 |
|
|
|
90,514 |
|
|
|
6.55 |
% |
|
$ |
2,588,254 |
|
|
|
78,971 |
|
|
|
6.14 |
% |
Investment securities (1) |
|
|
861,896 |
|
|
|
17,290 |
|
|
|
4.05 |
|
|
|
819,773 |
|
|
|
15,976 |
|
|
|
3.92 |
|
Federal funds sold |
|
|
77,327 |
|
|
|
1,057 |
|
|
|
2.76 |
|
|
|
42,251 |
|
|
|
219 |
|
|
|
1.04 |
|
Interest bearing deposits in banks |
|
|
24,844 |
|
|
|
304 |
|
|
|
2.47 |
|
|
|
452 |
|
|
|
7 |
|
|
|
3.11 |
|
|
|
|
|
Total interest earning assets |
|
|
3,749,494 |
|
|
|
109,165 |
|
|
|
5.87 |
% |
|
|
3,450,730 |
|
|
|
95,173 |
|
|
|
5.55 |
% |
|
Noninterest earning assets |
|
|
455,813 |
|
|
|
|
|
|
|
|
|
|
|
450,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,205,307 |
|
|
|
|
|
|
|
|
|
|
$ |
3,901,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
626,269 |
|
|
|
1,513 |
|
|
|
0.49 |
% |
|
$ |
565,868 |
|
|
|
711 |
|
|
|
0.25 |
% |
Savings deposits |
|
|
907,309 |
|
|
|
4,575 |
|
|
|
1.02 |
|
|
|
879,034 |
|
|
|
3,006 |
|
|
|
0.69 |
|
Time deposits |
|
|
1,004,619 |
|
|
|
13,554 |
|
|
|
2.72 |
|
|
|
1,035,859 |
|
|
|
13,131 |
|
|
|
2.55 |
|
Federal funds purchased |
|
|
1,482 |
|
|
|
22 |
|
|
|
2.99 |
|
|
|
6,772 |
|
|
|
33 |
|
|
|
0.98 |
|
Borrowings(2) |
|
|
483,101 |
|
|
|
5,067 |
|
|
|
2.12 |
|
|
|
354,378 |
|
|
|
1,156 |
|
|
|
0.66 |
|
Long-term debt |
|
|
63,551 |
|
|
|
1,314 |
|
|
|
4.17 |
|
|
|
49,952 |
|
|
|
1,129 |
|
|
|
4.55 |
|
Subordinated debenture |
|
|
41,238 |
|
|
|
1,261 |
|
|
|
6.17 |
|
|
|
41,238 |
|
|
|
911 |
|
|
|
4.44 |
|
|
|
|
|
Total interest bearing liabilities |
|
|
3,127,569 |
|
|
|
27,306 |
|
|
|
1.76 |
% |
|
|
2,933,101 |
|
|
|
20,077 |
|
|
|
1.38 |
% |
|
|
|
|
Noninterest bearing deposits |
|
|
734,113 |
|
|
|
|
|
|
|
|
|
|
|
655,819 |
|
|
|
|
|
|
|
|
|
Other noninterest bearing liabilities |
|
|
31,053 |
|
|
|
|
|
|
|
|
|
|
|
30,017 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
312,572 |
|
|
|
|
|
|
|
|
|
|
|
282,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & stockholders equity |
|
$ |
4,205,307 |
|
|
|
|
|
|
|
|
|
|
$ |
3,901,280 |
|
|
|
|
|
|
|
|
|
|
|
|
Net FTE interest income |
|
|
|
|
|
$ |
81,859 |
|
|
|
|
|
|
|
|
|
|
$ |
75,096 |
|
|
|
|
|
Less FTE adjustments |
|
|
|
|
|
|
(1,654 |
) |
|
|
|
|
|
|
|
|
|
|
(1,560 |
) |
|
|
|
|
|
|
|
Net interest income from consolidated
statements of income |
|
|
|
|
|
$ |
80,205 |
|
|
|
|
|
|
|
|
|
|
$ |
73,536 |
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
4.11 |
% |
|
|
|
|
|
|
|
|
|
|
4.17 |
% |
|
|
|
Net FTE yield on interest earning assets(3) |
|
|
|
|
|
|
|
|
|
|
4.40 |
% |
|
|
|
|
|
|
|
|
|
|
4.38 |
% |
|
|
|
14
|
|
|
|
|
(1) Interest income and average rates for tax exempt loans and securities are
presented on a fully-taxable equivalent (FTE) basis.
|
|
|
|
(2) Includes interest on federal funds purchased, securities sold under repurchase
agreements and other borrowed funds. Excludes long-term debt. |
|
|
|
(3) Net FTE yield on interest earning assets during the period equals (i) the
difference between annualized interest income on interest earning assets and annualized
interest expense on interest bearing liabilities, divided by (ii) average interest earning
assets for the period. |
Net interest income, on a fully taxable equivalent (FTE) basis, increased $3.9
million, or 10.3%, to $41.7 million for the three months ended June 30, 2005 as compared to $37.8
million for the same period in 2004. During the six month period ended June 30, 2005, FTE net
interest income increased $6.8 million, or 9.0%, to $81.9 million as compared to $75.1 million for
the same period in 2004. Quarter-to-date and year-to-date increases in FTE net interest margin as
compared to the same periods in 2004 are primarily the result of internal loan growth (principally
commercial, commercial real estate and construction loans) combined with higher yields earned on
loans and investment securities. Average interest earning assets increased 8.6% and 8.7% for the
three and six months ended June 20, 2005, respectively, as compared to the same periods in the
prior year while the Companys funding sources grew at a slower rate of 6.6% for the three and six
month periods ended June 30, 2005 as compared to the same periods in the prior year. Increases in
FTE net interest income were partially offset by higher funding costs, the result of increases in
market interest rates. The FTE net interest margin ratio increased 5 basis points to 4.41% for
the three months ended June 30, 2005 as compared to 4.36% for the same period in the prior year and
2 basis points to 4.40% for the six months ended June 30, 2005 as compared to 4.38% for the same
period in the prior year.
The table below sets forth, for the periods indicated, a summary of the changes in interest
income and interest expense resulting from estimated changes in average asset and liability
balances (volume) and estimated changes in average interest rates (rate). Changes which are
not due solely to volume or rate have been allocated to these categories based on the respective
percent changes in average volume and average rate as they compare to each other.
Analysis of Interest Changes Due To Volume and Rates
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2005 compared with 2004 |
|
2005 compared with 2004 |
|
|
Volume |
|
Rate |
|
Net |
|
Volume |
|
Rate |
|
Net |
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1) |
|
$ |
3,221 |
|
|
|
3,896 |
|
|
|
7,117 |
|
|
|
5,999 |
|
|
|
5,544 |
|
|
|
11,543 |
|
Investment securities(1) |
|
|
221 |
|
|
|
605 |
|
|
|
826 |
|
|
|
819 |
|
|
|
495 |
|
|
|
1,314 |
|
Interest bearing deposits in banks |
|
|
195 |
|
|
|
(62 |
) |
|
|
133 |
|
|
|
377 |
|
|
|
(80 |
) |
|
|
297 |
|
Federal funds sold |
|
|
121 |
|
|
|
360 |
|
|
|
481 |
|
|
|
181 |
|
|
|
657 |
|
|
|
838 |
|
|
|
|
|
Total change |
|
|
3,758 |
|
|
|
4,799 |
|
|
|
8,557 |
|
|
|
7,376 |
|
|
|
6,616 |
|
|
|
13,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
45 |
|
|
|
495 |
|
|
|
540 |
|
|
|
76 |
|
|
|
726 |
|
|
|
802 |
|
Savings deposits |
|
|
18 |
|
|
|
955 |
|
|
|
973 |
|
|
|
96 |
|
|
|
1,473 |
|
|
|
1,569 |
|
Time deposits |
|
|
(201 |
) |
|
|
791 |
|
|
|
590 |
|
|
|
(395 |
) |
|
|
818 |
|
|
|
423 |
|
Federal funds purchased |
|
|
(26 |
) |
|
|
15 |
|
|
|
(11 |
) |
|
|
(26 |
) |
|
|
15 |
|
|
|
(11 |
) |
Borrowings(2) |
|
|
246 |
|
|
|
2,023 |
|
|
|
2,269 |
|
|
|
419 |
|
|
|
3,492 |
|
|
|
3,911 |
|
Long-term debt |
|
|
159 |
|
|
|
(50 |
) |
|
|
109 |
|
|
|
307 |
|
|
|
(122 |
) |
|
|
185 |
|
Subordinated debenture |
|
|
|
|
|
|
209 |
|
|
|
209 |
|
|
|
|
|
|
|
350 |
|
|
|
350 |
|
|
|
|
|
Total change |
|
|
241 |
|
|
|
4,438 |
|
|
|
4,679 |
|
|
|
477 |
|
|
|
6,752 |
|
|
|
7,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in FTE
net interest income |
|
$ |
3,517 |
|
|
|
361 |
|
|
|
3,878 |
|
|
|
6,899 |
|
|
|
(136 |
) |
|
|
6,763 |
|
|
|
|
|
|
|
|
|
(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, securities sold under repurchase
agreements and other borrowed funds. |
Noninterest Income. The Companys principal sources of noninterest income include other
service charges, commissions and fees; service charges on deposit accounts; technology services
revenues; income from the origination and sale of loans; and, income from fiduciary activities.
Noninterest income increased $571 thousand, or 3.3%, to $17.8 million for the three months ended
June 30, 2005 as compared to $17.3 million for the same period in 2004 and $1.0 million, or 3.1%,
to $34.8 million for the six months ended June 30, 2005 as compared to $33.8 million for the same
period in 2004. Significant components of these increases are discussed below.
15
Other service charges, commissions and fees primarily include debit and credit card
interchange income, mortgage servicing fees, investment services revenues and ATM service charge revenues. Other service
charges, commissions and fees increased $664 thousand, or 13.4%, to $5.6 million for the three
months ended June 30, 2005 as compared to $5.0 million for the same period in 2004 and $1.7
million, or 17.9%, to $11.2 million for the six months ended June 30, 2005 as compared to $9.5
million for the same period in 2004 primarily due to increases in debit and credit card interchange
income.
Service charges on deposit accounts decreased $647 thousand, or 13.0%, to $4.3 million for the
three months ended June 30, 2005 as compared to $5.0 million for the same period in 2004 and $1.3
million, or 13.1%, to $8.4 million for the six months ended June 30, 2004 as compared to $9.7
million for the same period in 2004. Quarter-to-date and year-to-date decreases were primarily due
to lower overdraft activity, the result of changes in consumer behavior. In addition, service
charges on cash management deposit accounts decreased during the three and six months ended June
30, 2005 as compared to the same period in 2004 primarily due to higher earnings credit rates. The
earnings credit rate, which is based on market interest rates, reflects the value of deposit
balances maintained by cash management customers. The earnings credit is used to offset service
charges incurred by cash management customers. Because market interest rates have trended upward
since first quarter 2004, the earnings credit offset to service charges on cash management deposits
is higher relative to 2004.
Technology services revenues increased $90 thousand, or 2.8%, to $3.3 million for
the three months ended June 30, 2005 as compared to $3.2 million for the same period in 2004
and $536 thousand, or 8.8%, to $6.6 million for the six months ended June 30, 2005 as compared to
$6.1 million for the same period in 2004 primarily due to increases in the number of accounts and
volume of transactions processed by the Companys core data services. Lower cash card revenues
partially offset the quarter-to-date increase over the same period in the prior year. Although
cash card transactions volumes increased quarter over quarter, pricing decreases implemented during
third quarter 2004 caused cash card revenues to decline.
Revenues from fiduciary activities, comprised principally of fees earned for management of
trust assets, increased $104 thousand, or 7.2%, to $1.5 million for the three months ended June 30,
2005 as compared to $1.4 million for the same period in 2004 and $301 thousand, or 10.7%, to $3.1
million for the six months ended June 30, 2005 as compared to $2.8 million for the same period in
2004. Quarter-to-date and year-to-date increases are primarily due to higher asset management fees
resulting from improved market performance of underlying trust account assets and the addition of
new trust customers.
Income from the origination and sale of loans includes origination and processing fees on
residential real estate loans held for sale and gains on residential real estate loans sold to
third parties. Fluctuations in market interest rates have a significant impact on the level of
income generated from the origination and sale of loans. Higher interest rates can substantially
reduce the demand for home loans and loans to refinance existing mortgages. Conversely, lower
interest rates generally stimulate home loan origination and refinancing. Income from the
origination and sale of loans decreased $340 thousand, or 14.5%, to $2.0 million for the three
months ended June 30, 2005 as compared to $2.4 million for the same period in 2004 and $284
thousand, or 7.0%, to $3.8 million for the six months ended June 30, 2005 as compared to $4.1
million for the same period in 2004 primarily due to lower demand for loan refinancing, largely the
result of a sustained low interest rate environment.
The Company recorded net losses of $438 thousand on sales of investment securities during the
three months ended June 30, 2005 as compared to net losses on sales of $740 thousand for the same
period in 2004 and recorded net losses of $1.1 million during the six months ended June 30, 2005 as
compared to net losses of $710 thousand for the same period in 2004. During 2005, lower yielding
U.S. government agency securities were sold and the proceeds were reinvested in higher yielding
mortgage-backed and U.S. government agency securities.
Other income primarily includes increases in the cash surrender value of company-owned life
insurance, check printing income, agency stock dividends and gains on sales of assets other than
investment securities. Other income increased $398 thousand, or 36.9%, to $1.5 million for the
three months ended June 30, 2005 as compared to $1.1 million for the same period in 2004 and $469
thousand, or 20.0%, to $2.8 million for the six months ended June 30, 2005 as compared to $2.3
million for the same period in 2004 primarily due to increased earnings on securities held in trust
for certain executive officers and directors of the Company who elected to defer a portion of their
compensation and higher revenues from customer webpage design and maintenance.
Noninterest Expense. Noninterest expense increased $5.3 million, or 16.5%, to $37.6 million
for the three months ended June 30, 2005 as compared to $32.3 million for the same period in 2004
and $6.2 million, or 9.1%, to $74.0 million for the six months ended June 30, 2005 as compared to
$67.9 million for the same period in 2004. Significant components of these increases are discussed
below.
16
Salaries, wages and employee benefits expense increased $1.5 million, or 8.5%, to $19.2
million for the three months ended June 30, 2005 as compared to $17.7 million for the same period
in 2004 and $2.8 million, or 7.9%, to $38.8 million for
the six months ended June 30, 2005 as compared to $36.0 million for the same period in 2004
primarily due to normal, annual merit increases and increases in accruals for incentive bonuses.
Furniture and equipment expenses increased $286 thousand, or 7.7%, to $4.0 million
for the three months ended June 30, 2005 as compared to $3.7 million for the same period in 2004
and $728 thousand, or 10.0%, to $8.0 million for the six months ended June 30, 2005 as compared to
$7.3 million for the same period in 2004 primarily due to expenses associated with furnishing new
facilities and upgrading existing facilities.
Occupancy expense increased $707 thousand, or 24.3%, to $3.6 million for the three months
ended June 30, 2005 as compared to $2.9 million for the same period in 2004 and $1.3
million, or 23.7%, to $6.9 million for the six months ended June 30, 2005 as compared to
$5.6 million for the same period in 2004. The Company
accelerated the depreciation of leasehold improvements at Wal-Mart
in-store branch banking offices to the date of their expected closure
resulting in additional expense of $199 thousand and $330 thousand
during the three and six months ended June 30, 2005,
respectively. The remaining quarter-to-date and year-to-date
increases are primarily due to depreciation and other expenses
associated with the addition of new facilities and higher depreciation expense associated with
upgrades of existing facilities.
Mortgage servicing rights are amortized in proportion to and over the period of estimated net
servicing income. Changes in estimated servicing period and growth in the serviced loan portfolio
cause amortization expense to vary between periods. Mortgage servicing rights amortization
increased $288 thousand, or 32.0%, to $1.2 million for the three months ended June 30, 2005 as
compared to $901 thousand for the same period in 2004 and $608 thousand, or 34.7%, to $2.4 million
for the six months ended June 30, 2005 as compared to $1.8 million for the same period in 2004.
Other expenses include advertising and public relation costs; office supply, postage, freight,
telephone and travel expenses; other losses; and, impairment charges or reversals related to
capitalized mortgage servicing rights and long-lived assets pending disposition. Other
expenses increased $2.5 million, or 45.6%, to $8.1 million for the three months ended
June 30, 2005 as compared to $5.6 million for the same period in 2004 primarily due to fluctuations
in impairment charges related to capitalized mortgage servicing rights. The Company recorded
impairment of $150 thousand related to mortgage servicing rights during the three months ended June
30, 2005 as compared to a $2.1 million reversal of impairment charges during the same period in
2004.
Other expenses increased $942 thousand, or 6.7%, to $15.0 million for the six months ended
June 30, 2005 as compared to $14.1 million for the same period in 2004 primarily due to
fluctuations in impairment charges related to capitalized mortgage servicing rights. The Company
reversed impairment charges of $313 thousand during the six months ended June 30, 2005 as compared
to impairment reversals of $1.1 million during the same period in 2004. In addition,
the Company recorded expenses of $420 thousand during the six months
ended June 30, 2005
related to the restoration of leased facilities and lease termination fees associated with the
discontinuation of operations at Wal-Mart in-store
branch banking offices.
Income Tax Expense. The Companys effective combined federal and state income tax rate was
34.6% and 35.3 % for the six months ended June 30, 2005 and 2004, respectively. The lower
effective tax rate in the current year as compared to the prior year is primarily due to higher
volumes of tax exempt municipal securities and other tax-credit qualified investments.
OPERATING SEGMENT RESULTS
The Companys primary operating segment is Community Banking. The Community Banking segment
represented over 90% of the combined revenues and income of the Company during the three and six
months ended June 30, 2005 and 2004, and the consolidated assets of the Company as of June 30, 2005
and December 31, 2004.
17
The following table summarizes net income (loss) for each of the Companys operating segments.
Operating Segment Results
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Community Banking |
|
$ |
13,385 |
|
|
|
13,052 |
|
|
|
25,631 |
|
|
|
23,443 |
|
Technology Services |
|
|
1,122 |
|
|
|
931 |
|
|
|
2,271 |
|
|
|
1,852 |
|
Other |
|
|
(1,627 |
) |
|
|
(1,411 |
) |
|
|
(3,063 |
) |
|
|
(3,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,880 |
|
|
|
12,572 |
|
|
|
24,839 |
|
|
|
22,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from the Community Banking operating segment increased $333 thousand, or 2.6%, to
$13.4 million for the three months ended June 30, 2005 as compared to $13.1 million for the same
period in the prior year. For the six months ended June 30, 2005, net income from the Community
Banking operating segment increased $2.2 million, or 9.3%, to $25.6 million as compared to $23.4
million for the same period in 2004. Quarter-to-date and year-to-date increases are primarily due
to higher net interest income, the combined effect of internal growth in loans and higher yields on
loans and investment securities; and, lower provisions for loan losses. These increases were
partially offset by normal, annual merit increases in salaries and benefits expenses, fluctuations
in impairment charges and reversals related to capitalized mortgage servicing rights and higher
occupancy expenses associated with the addition of new branch banking offices, the upgrade of
existing branch banking offices and expenses related to the
discontinuation of operations at Wal-Mart in-store branch banking
offices.
Net income from the Technology Services operating segment increased $191 thousand, or 20.5%,
to $1.1 million for the three months ended June 30, 2005 as compared to $931 thousand for the same
period in the prior year and $419 thousand, or 22.6%, to $2.3 million for the six months ended June
30, 2005 as compared to $1.9 million for the same period in 2004 primarily due to increases in the
number of accounts and volume of transactions processed by the Companys core data services.
FINANCIAL CONDITION
Loans. Total loans increased $152.2 million, or 5.6%, to $2,891.7 million as of June 30, 2005
from $2,739.5 million as of December 31, 2004 due to internal growth. All major categories of
loans increased from December 31, 2004, with the largest growth occurring in commercial, commercial
real estate and indirect consumer loans. Management attributes the Companys strong loan growth to
its strategic focus on internal growth within the Companys market areas. While each loan
originated must meet minimum underwriting standards established in the Companys credit policies,
lending officers are granted certain levels of autonomy in approving and pricing loans to assure
that the banking offices are responsive to competitive issues and community needs in each market
area.
Investment Securities. The Companys investment portfolio is managed to attempt to obtain the
highest yield while meeting the Companys risk tolerance and liquidity needs and satisfying
pledging requirements for deposits of state and political subdivisions and securities sold under
repurchase agreements. Investment securities increased $28.1 million, or 3.2%, to $895.5 million
as of June 30, 2005 from $867.3 million as of December 31, 2004. The Company evaluates its
investment portfolio quarterly for other-than-temporary declines in the market value of individual
investment securities. This evaluation includes monitoring credit ratings; market, industry and
corporate news; volatility in market prices; and, determining whether the market value of a
security has been below its cost for an extended period of time. As of June 30, 2005,
the Company had investment securities with fair values of $253.6 million that had been in a
continuous loss position more than twelve months. Gross unrealized losses on these securities
totaled $3.9 million as of June 30, 2005 and were primarily attributable to changes in interest
rates. The Company recorded no impairment losses during the three or six months ended June 30,
2005 and 2004.
Cash and Cash Equivalents. 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. Cash and cash equivalents of $235.8 million as of
June 30, 2005 decreased $120.1 million, or 33.8%, from $355.9 million as of December 31, 2004.
Available liquidity was used to fund loan growth.
Deferred Tax Asset. Deferred tax asset of $2.9 million as of June 30, 2005 increased $996
thousand, or 52.1%, from $1.9 million as of December 31, 2004 primarily due to temporary timing
differences in the recognition of depreciation expense for financial statement and tax purposes.
18
Deposits. Total deposits decreased $11.3 million, or less than 1.0%, to $3,310.4 million as of
June 30, 2005 from $3,321.7 million as of December 31, 2004. Decreases in time and savings
deposits were partially offset by increases in interest bearing and noninterest bearing demand
deposits. Seasonal declines in overall deposit growth have historically occurred during the first
half of the year but have been offset in some years by acquisitions and/or internal growth
generated through new branch openings.
Repurchase Agreements. In addition to deposits, repurchase agreements with primarily
commercial depositors provide an additional source of funds for the Company. Under repurchase
agreements, deposit balances are invested in short-term U.S. government agency securities overnight
and are then repurchased the following day. All outstanding repurchase agreements are due in one
day. Repurchase agreements increased $49.7 million, or 11.1%, to $499.4 million as of June 30,
2005 from $449.7 million as of December 31, 2004 primarily due to high balances maintained by one
large commercial customer. Increases in repurchase agreements were used, in part, to fund
investment securities growth.
Accounts Payable and Accrued Expenses. Accounts payable and accrued expenses increased $5.6
million, or 33.0%, to $22.5 million as of June 30, 2005 from $16.9 million as of December 31, 2004
primarily due to timing of corporate income tax payments.
ASSET QUALITY
Non-performing Assets. Non-performing assets include loans past due 90 days or more and still
accruing interest, nonaccrual loans, loans renegotiated in troubled debt restructurings and other
real estate owned (OREO). The following table sets forth information regarding non-performing
assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing Assets |
|
(Dollars in thousands) |
|
June 30, |
|
|
Mar. 31, |
|
|
Dec. 31, |
|
|
Sept. 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2004 |
|
|
Non-performing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
19,457 |
|
|
|
16,189 |
|
|
|
17,585 |
|
|
|
22,438 |
|
|
|
21,731 |
|
Accruing loans past due 90 days or more |
|
|
2,668 |
|
|
|
3,490 |
|
|
|
905 |
|
|
|
1,474 |
|
|
|
1,207 |
|
Restructured loans |
|
|
1,381 |
|
|
|
1,383 |
|
|
|
1,384 |
|
|
|
1,397 |
|
|
|
1,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
23,506 |
|
|
|
21,062 |
|
|
|
19,874 |
|
|
|
25,309 |
|
|
|
24,343 |
|
OREO |
|
|
1,290 |
|
|
|
2,701 |
|
|
|
1,828 |
|
|
|
1,647 |
|
|
|
1,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
24,796 |
|
|
|
23,763 |
|
|
|
21,702 |
|
|
|
26,956 |
|
|
|
26,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets to total loans and OREO |
|
|
0.86 |
% |
|
|
0.86 |
% |
|
|
0.79 |
% |
|
|
1.01 |
% |
|
|
0.98 |
% |
|
Non-performing assets increased $3.1 million, or 14.3%, to $24.8 million as of June 30, 2005
as compared to $21.7 million as of December 31, 2004 primarily due to one commercial loan placed on
nonaccrual during second quarter 2005 and several small loans past due 90 days or more but in the
process of renewal as of June 30, 2005.
Provision/Allowance for Loan Losses. The Company performs a quarterly assessment of the risks
inherent in its loan portfolio, as well as a detailed review of each significant asset with
identified weaknesses. Based on this analysis, the Company records a provision for loan losses in
order to maintain the allowance for loan losses at a level considered sufficient to provide for
known and inherent losses within the loan portfolio at each balance sheet date. Fluctuations in
the provision for loan losses result from managements assessment of the adequacy of the allowance
for loan losses. The provision for loan losses decreased $1.2 million, or 46.3%, to $1.4 million
for the three months ended June 30, 2005 as compared to $2.5 million for the same period in the
prior year and $2.0 million, or 39.7%, to $3.0 million for the six months ended June 30, 2005 as
compared to $5.0 million for the same period in 2004. Lower provisions for loan losses in 2005 as
compared to 2004 reflect positive trends in several important credit quality measures including
levels of internally classified loans and net charge-offs, improvement in average nonaccrual and
past due loans as a percentage of total average loans and improvement in national and local
economic factors. The allowance for loan losses was $43.4 million, or 1.50% of total loans, as of
June 30, 2005 as compared to $42.1 million, or 1.54% of total loans, at December 31, 2004.
19
The following table sets forth information regarding the Companys allowance for loan losses
as of and for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
(Dollars in thousands) |
|
Three months ended |
|
|
Jun 30, |
|
Mar 31, |
|
Dec 31, |
|
Sep 30, |
|
Jun 30, |
|
|
2005 |
|
2005 |
|
2004 |
|
2004 |
|
2004 |
|
|
Balance at beginning of period |
|
$ |
42,660 |
|
|
|
42,141 |
|
|
|
42,396 |
|
|
|
41,174 |
|
|
|
39,998 |
|
Provision charged to operating expense |
|
|
1,365 |
|
|
|
1,625 |
|
|
|
1,387 |
|
|
|
2,387 |
|
|
|
2,541 |
|
Less loans charged off |
|
|
(1,092 |
) |
|
|
(1,698 |
) |
|
|
(2,373 |
) |
|
|
(1,673 |
) |
|
|
(1,864 |
) |
Add back recoveries of loans previously charged off |
|
|
435 |
|
|
|
592 |
|
|
|
731 |
|
|
|
508 |
|
|
|
499 |
|
|
|
Net loans charged-off |
|
|
(657 |
) |
|
|
(1,106 |
) |
|
|
(1,642 |
) |
|
|
(1,165 |
) |
|
|
(1,365 |
) |
|
|
Balance at end of period |
|
$ |
43,368 |
|
|
|
42,660 |
|
|
|
42,141 |
|
|
|
42,396 |
|
|
|
41,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period end loans |
|
$ |
2,891,674 |
|
|
|
2,769,056 |
|
|
|
2,739,509 |
|
|
|
2,674,963 |
|
|
|
2,660,375 |
|
Average loans |
|
|
2,830,362 |
|
|
|
2,740,492 |
|
|
|
2,690,004 |
|
|
|
2,651,383 |
|
|
|
2,618,223 |
|
Annualized net loans charged off to average loans |
|
|
0.09 |
% |
|
|
0.16 |
% |
|
|
0.24 |
% |
|
|
0.17 |
% |
|
|
0.21 |
% |
Allowance to period end loans |
|
|
1.50 |
% |
|
|
1.54 |
% |
|
|
1.54 |
% |
|
|
1.58 |
% |
|
|
1.55 |
% |
|
CAPITAL RESOURCES
A significant source of strength of a financial institution is its stockholders equity.
Stockholders equity is influenced primarily by earnings, dividends and, to a lesser extent, sales
and redemptions of common stock and changes in the unrealized holding gains or losses, net of
taxes, on available-for-sale investment securities. Stockholders equity increased $17.8 million,
or 5.8%, to $326.1 million as of June 30, 2005 from $308.3 million as of December 31, 2004
primarily due to retention of earnings. At June 30, 2005, the Company and its bank subsidiary each
exceeded the well-capitalized requirements issued by the Federal Reserve Board.
The Company paid dividends of $0.42 and $0.48 per common share during the first and second
quarters of 2005, respectively, as compared to $0.34 and $0.40 per common share during the first
and second quarters of 2004, respectively.
ASSET LIABILITY MANAGEMENT
The primary objective of the Companys asset liability management process is to optimize net
interest income while prudently managing balance sheet risks by understanding the levels of risk
accompanying its decisions and monitoring and managing these risks. The ability to optimize net
interest margin is largely dependent on the achievement of an interest rate spread that can be
managed during periods of fluctuating interest rates. Interest sensitivity is a measure of the
extent to which net interest income will be affected by market interest rates over a period of
time. Interest rate sensitivity is related to the difference between amounts of interest earning
assets and interest bearing liabilities that reprice or mature within a given period of time.
Management monitors the sensitivity of the net interest margin by utilizing income simulation
models and traditional interest rate gap analysis. The Companys balance sheet structure is
primarily short-term in nature with most interest earning assets and interest bearing liabilities
repricing or maturing in less than five years. The Company targets a mix of interest earning
assets and interest bearing liabilities such that no more than 5% of the net interest margin will
be at risk over a one-year period should short-term interest rates shift gradually up or down 2%.
As of June 30, 2005, the Companys income simulation model predicted net interest income would
decrease $437 thousand, or 0.3%, assuming a gradual 2% increase in short-term market interest rates
and gradual 1.0% increase in long-term interest rates. This scenario predicts the Companys
funding sources will reprice faster than its interest earning assets and at higher rates, thereby
reducing interest rate spread and net interest margin. Conversely, assuming a gradual 2% decrease
in short-term market interest rates and gradual 1.0% decrease in long-term interest rates, the
Companys income simulation model predicted net interest income would decrease $6.4 million, or
3.7%.
The preceding interest rate sensitivity analysis does not represent a forecast and should not
be relied upon as being indicative of expected operating results.
20
LIQUIDITY MANAGEMENT
Liquidity measures the Companys ability to meet current and future cash flow needs as they
become due. The Company manages its liquidity position to meet the daily cash flow needs of
customers, while maintaining an appropriate balance between assets and liabilities to meet the
return on investment objectives of its shareholders. The Companys liquidity position is supported
by management of its liquid assets and liabilities. Liquid assets include cash, interest bearing
deposits in banks, federal funds sold, available-for-sale investment securities and maturing or
prepaying balances in the Companys held-to-maturity investment and loan portfolios. Liquid
liabilities include core deposits, federal funds purchased, securities sold under repurchase
agreements and borrowings. The Company does not engage in derivatives or related hedging
activities to support its liquidity position.
Short-term and long-term liquidity requirements of the Company are primarily to fund on-going
operations, including payment of interest on deposits and debt, extensions of credit, capital
expenditures and shareholder dividends. These liquidity requirements are met primarily through
cash flow from operations, redeployment of prepaying and maturing balances in the Companys loan
and investment portfolios, debt obligations and customer deposits.
For additional information regarding the Companys operating, investing and financing cash
flows, see Consolidated Statements of Cash Flows contained herein.
As a holding company, FIBS is a corporation separate and apart from its bank subsidiary and,
therefore, provides for its own liquidity. Substantially all of FIBS revenues are obtained from
management fees and dividends declared and paid by its bank subsidiary. There are statutory and
regulatory provisions that could limit the ability of the bank subsidiary to pay dividends to FIBS.
Management of FIBS believes that such restrictions will not have an impact on the ability of FIBS
to meet its ongoing cash obligations.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As of June 30, 2005, there have been no material changes in the quantitative and qualitative
information about market risk provided pursuant to Item 305 of Regulation S-K as presented in the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.
Item 4.
CONTROLS AND PROCEDURES
Management of the Company is responsible for establishing and maintaining effective disclosure
controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934. As of June 30, 2005, an evaluation was performed, under the supervision and with the
participation of management, including the Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Companys disclosure controls and procedures.
Based on that evaluation, management concluded that the Companys disclosure controls and
procedures as of June 30, 2005 were effective in ensuring that information required to be disclosed
in this Quarterly Report on Form 10-Q was recorded, processed, summarized, and reported within the
time period required by the Securities and Exchange Commissions rules and forms.
There were no changes in the Companys internal controls over financial reporting
for the quarter ended June 30, 2005 that have materially affected, or are reasonably likely to
materially affect, such controls.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes in legal proceedings as described in the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.
21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) During the three months ended June 30, 2005, the Company issued 1,323
unregistered shares to directors electing to receive their annual retainer in the
form of common stock. The aggregate value of unregistered shares issued was $83,349.
The issuances were made in reliance upon the no sale provisions of Section 2(a)(3)
of the Securities Act of 1933, and upon the exemptions from registration (to the
extent applicable) under Section 4(2) of the Securities Act of 1933.
(b) Not applicable.
(c) The following table provides information with respect to purchases made by
or on behalf of the Company or any affiliated purchasers (as defined in Rule
10b-18(a)(3) under the Securities Exchange Act of 1934), of the Companys common
stock during the three months ended June 30, 2005.
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Total Number of |
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Maximum Number |
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Shares Purchased |
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of Shares That |
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Total Number |
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as Part of Publicly |
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May Yet Be |
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|
Of Shares |
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Average Price |
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Announced Plans |
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Purchased Under the |
Period |
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Purchased |
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Paid Per Share |
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Or Programs(1) |
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Plans or Programs |
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April 2005 |
|
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8,874 |
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63.00 |
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|
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0 |
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Not Applicable |
May 2005 |
|
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2,598 |
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|
|
63.32 |
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|
|
0 |
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|
Not Applicable |
June 2005 |
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3,240 |
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63.50 |
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|
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0 |
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Not Applicable |
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Total |
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14,712 |
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$ |
61.17 |
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0 |
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Not Applicable |
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(1) |
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The common stock of the Company is not actively traded, and there is no
established trading market for the stock. There is only one class of common
stock, with approximately 90.7% of the shares subject to contractual transfer
restrictions set forth in shareholder agreements and approximately 9.3%
without such restrictions. The Company has a right of first refusal to
repurchase the restricted stock. Additionally, restricted stock held by
officers, directors and employees of the Company may be called by the Company
under certain conditions. The Company has no obligation to purchase
restricted or unrestricted stock, but has historically purchased such stock.
All purchases indicated in the table above were effected pursuant to private
transactions. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
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(a) |
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The Annual Meeting of Shareholders of First Interstate
BancSystem, Inc. was held on May 6, 2005. |
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(b) |
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Five directors were elected to serve three year terms. Thomas W.
Scott, Randall I. Scott, James W. Haugh, Michael J. Sullivan and Martin A. White
were elected as directors with terms expiring in 2008. The following directors
remained in office: Elouise C. Cobell, Richard A. Dorn, Lyle R. Knight, James
R. Scott, Julie A. Scott and Sandra A. Scott Suzor with terms expiring in 2006;
and, David H. Crum, William B. Ebzery, Charles M. Heyneman, Terry W. Payne and
Homer A. Scott, Jr. with terms expiring in 2007. |
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(c) |
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The following matters were submitted to a vote of security
holders at the Annual Meeting of Shareholders: |
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Matter |
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For |
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Against |
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Not Voted |
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Election of Directors |
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Nominees: |
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Martin A. White |
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6,314,432 |
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57,145 |
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Election of Directors |
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Directors Continuing in Office: |
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James W. Haugh |
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6,314,424 |
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60,153 |
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Randall I. Scott |
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6,314,432 |
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57,145 |
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Thomas W. Scott |
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6,314,432 |
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57,145 |
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Michael J. Sullivan |
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6,314,424 |
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60,153 |
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Appointment of McGladrey & Pullen LLP as
Independent Certified Public Accountants |
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6,271,359 |
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971 |
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102,247 |
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22
Item 5. Other Information
(a) Not applicable or required.
(b) None.
Item 6. Exhibits
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3.1 |
(1) |
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Restated Articles of Incorporation dated February 27, 1986 |
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3.2 |
(2) |
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Articles of Amendment to Restated Articles of Incorporation dated September 26,
1996 |
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3.3 |
(2) |
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Articles of Amendment to Restated Articles of Incorporation dated September 26,
1996 |
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3.4 |
(6) |
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Articles of Amendment to Restated Articles of Incorporation dated October 7, 1997 |
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3.5 |
(17) |
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Restated Bylaws of First Interstate BancSystem, Inc. dated July 29, 2004 |
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4.1 |
(4) |
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Specimen of common stock certificate of First Interstate BancSystem, Inc. |
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4.2 |
(1) |
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Shareholders Agreement for non-Scott family members |
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4.3 |
(11) |
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Shareholders Agreement for non-Scott family members dated August 24, 2001 |
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4.4 |
(13) |
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Shareholders Agreement for non-Scott family members dated August 19, 2002 |
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4.5 |
(9) |
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First Interstate Stockholders Agreements with Scott family members dated
January 11, 1999 |
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4.6 |
(9) |
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Specimen of Charity Shareholders Agreement with Charitable Shareholders |
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4.7 |
(14) |
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Junior Subordinated Indenture dated March 26, 2003 entered into between First
Interstate and U.S. Bank National Association, as Debenture Trustee |
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4.8 |
(14) |
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Certificate of Trust of First Interstate Statutory Trust dated as March 11, 2003 |
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4.10 |
(14) |
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Amended and Restated Trust Declaration of First Interstate Statutory Trust |
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4.11 |
(14) |
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Form of Capital Security Certificate of First Interstate Statutory Trust
(included as an exhibit to Exhibit 4.10) |
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4.12 |
(14) |
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Form of Common Security Certificate of First Interstate Statutory Trust
(included as an exhibit to Exhibit 4.10) |
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4.13 |
(14) |
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Guarantee Agreement between First Interstate BancSystem, Inc. and U.S. Bank
National Association |
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10.1 |
(18) |
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Credit Agreement dated June 30, 2005 between First Interstate BancSystem, Inc.,
as borrower, and Wells Fargo Bank, N.A. |
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10.2 |
(18) |
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Revolving Line of Credit Note dated June 30, 2005 between First Interstate
BancSystem, Inc. and Wells Fargo Bank, N.A. |
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10.4 |
(2) |
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Note Purchase Agreement dated August 30, 1996, between First Interstate
BancSystem, Inc. and the Montana Board of Investments |
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10.5 |
(1) |
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Lease Agreement Between Billings 401 Joint Venture and First Interstate Bank
Montana and addendum thereto |
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10.6 |
(5) |
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Credit Agreement between Billings 401 Joint Venture and Colorado National Bank
dated as of September 26, 1995 |
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10.7 |
(1) |
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Stock Option and Stock Appreciation Rights Plan of First Interstate BancSystem,
Inc., as amended |
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10.8 |
(8) |
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2001 Stock Option Plan |
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10.9 |
(15) |
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Employee Stock Purchase Plan of First Interstate BancSystem, Inc., as amended
and restated effective April 30, 2003 |
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10.10 |
(3) |
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Trademark License Agreements between Wells Fargo & Company and First Interstate
BancSystem, Inc. |
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10.12 |
(10) |
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Employment Agreement between First Interstate BancSystem, Inc. and Lyle R. Knight |
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10.13 |
(10) |
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First Interstate BancSystem, Inc. Executive Non-Qualified Deferred Compensation
Plan dated November 20, 1998 |
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10.14 |
(7) |
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First Interstate BancSystems Deferred Compensation Plan dated December 6, 2000 |
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10.15 |
(11) |
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First Interstate BancSystem, Inc. 2004 Restricted Stock Award Plan |
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10.16 |
(16) |
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Form of First Interstate BancSystem, Inc. Restricted Stock Award Agreement |
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10.17 |
(16) |
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Form of First Interstate BancSystem, Inc. Restricted Stock Award Notice of
Restricted Stock Award |
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31.1 |
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Certification of Quarterly Report on Form 10-Q pursuant to Section 302 of the
Sarbanes Oxley Act of 2002 by Chief Executive Officer |
23
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31.2 |
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Certification of Quarterly Report on Form 10-Q pursuant to Section 302 of the
Sarbanes Oxley Act of 2002 by Chief Financial Officer |
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32 |
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Certification of Quarterly Report on Form 10-Q pursuant to Section 906 of the
Sarbanes Oxley Act of 2002. |
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Management contract or compensatory plan or arrangement. |
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(1) |
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Incorporated by reference to the Registrants Registration
Statement on Form S-1, No. 33-84540. |
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(2) |
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Incorporated by reference to the Registrants Form 8-K dated
October 1, 1996. |
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(3) |
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Incorporated by reference to the Registrants Registration
Statement on Form S-1, No. 333-25633. |
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(4) |
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Incorporated by reference to the Registrants Registration
Statement on Form S-1, No. 333-3250. |
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(5) |
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Incorporated by reference to the Post-Effective Amendment No. 2
to the Registrants Registration Statement on Form S-1, No. 33-84540. |
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(6) |
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Incorporated by reference to the Registrants Registration
Statement on Form S-1, No. 333-37847. |
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(7) |
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Incorporated by reference to the Registrants Form 10-K
for the fiscal year ended December 31, 2002. |
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(8) |
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Incorporated by reference to the Registrants Registration
Statement on Form S-8, No. 333-106495. |
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(9) |
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Incorporated by reference to the Registrants Registration
Statement on Form S-8, No. 333-76825. |
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(10) |
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Incorporated by reference to the Registrants Form 10-K
for the fiscal year ended December 31, 1999. |
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(11) |
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Incorporated by reference to the Registrants Post-Effective
Amendment No. 1 to Registration Statement on Form S-8, No. 333-76825. |
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(12) |
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Incorporated by reference to the Registrants Form 10-K for the
fiscal year ended December 31, 2000. |
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(13) |
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Incorporated by reference to the Registrants Post-Effective
Amendment No. 2 to Registration Statement on Form S-8, No. 333-76825. |
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(14) |
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Incorporated by reference to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003. |
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(15) |
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Incorporated by reference to the Registrants Post-Effective
Amendment No. 3 to Registration Statement on Form S-8, No. 333-76825. |
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(16) |
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Incorporated by reference to Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 2004. |
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(17) |
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Incorporated by reference to Registrants Post-Effective Amendment
No. 4 to Registration Statement of Form S-8, No. 333-76825. |
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(18) |
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Incorporated by reference to the Registrants Form 8-K dated June
30, 2005. |
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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FIRST INTERSTATE BANCSYSTEM, INC.
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Date July 25, 2005 |
/s/ LYLE R. KNIGHT
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Lyle R. Knight |
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President and Chief Executive Officer |
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Date July 25, 2005 |
/s/ TERRILL R. MOORE
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Terrill R. Moore |
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Executive Vice President and
Chief Financial Officer |
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25