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First Interstate BancSystem Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 5, 2011 02:47PM
First Interstate BancSystem Inc. (FIBK) filed Quarterly Report for the period ended 2011-06-30.
Highlight of Business Operations:
We are a financial and bank holding company headquartered in Billings, Montana. As of June 30, 2011, we had consolidated assets of $7,203 million, deposits of $5,795 million, loans of $4,281 million and total stockholders equity of $759 million. We currently operate 71 banking offices in 42 communities located in Montana, Wyoming and western South Dakota. Through our bank subsidiary, First Interstate Bank, or the Bank, we deliver a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities throughout our market areas. Our customers participate in a wide variety of industries, including energy, healthcare and professional services, education and governmental services, construction, mining, agriculture, retail and wholesale trade.
On June 29, 2011, the FRB issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. This rule, Regulation II Debit Card Interchange Fees and Routing, implements provisions of the Dodd-Frank Act. Regulation II reduces the maximum allowable interchange fee per transaction to $0.21 plus a fraud allowance of five basis points on the transaction value and provides for an additional $0.01 fraud prevention on to the interchange fee for issuers that meet certain fraud prevention requirements. The debit card interchange fee limitations and fraud prevention adjustment provisions of Regulation II become effective October 1, 2011. Issuers with less than $10 billion in assets, like us, are exempt from the debit card interchange fee limitations set by Regulation II, although the payment card networks could make other fee adjustments for smaller issuers. The Company recorded debit card interchange fees of $2.9 million and $5.7 million during the three and six months ended June 30, 2011, respectively.
Difficult economic conditions and depressed real estate values and sales activity continued to negatively impact businesses and consumers in our market areas, especially in the Flathead, Gallatin Valley and Jackson market areas with economies dependent upon resort and second home communities. Our non-performing assets increased to $292 million, or 6.77% of total loans and OREO, as of June 30, 2011, from $244 million, or 5.55% of total loans and OREO, as of December 31, 2010. Approximately 46% of our non-performing assets were attributable to the Flathead, Gallatin Valley and Jackson market areas. Loan charge-offs, net of recoveries, totaled $15 million during the second quarter of 2011, as compared to $12 million during second quarter 2010. Approximately 78% of second quarter 2011 net charge-offs were attributable to the Flathead, Gallatin Valley and Jackson market areas. Net charge-offs are expected to remain elevated in future quarters as previously identified problem loans continue to work through the credit cycle. During second quarter 2011, we recorded provisions for loan losses of $15.4 million, as compared to $19.5 million during second quarter 2010. Management expects provisions for loan losses to decline as credit quality improves.
Net Interest Income. During second quarter 2011, our net interest income on a fully taxable equivalent, or FTE, basis, decreased $647 thousand, or 1.0%, to $63.7 million, as compared to $64.3 million during the same period in 2010, and our net FTE interest margin ratio decreased 12 basis points to 3.84%, as compared to 3.96% during the same period in 2010. For the six months ended June 30, 2011, our net FTE interest income decreased $537 thousand, or less than 1.0%, to $126.6 million, as compared to $127.1 million during the same period in 2010, and our net FTE interest margin ratio decreased 20 basis points to 3.78%, as compared to 3.98% during the same period in 2010. Although net FTE interest income remained stable, our net FTE interest margin ratio decreased during the three and six months ended June 30, 2011, as compared to the same periods in the prior year. Compression in the net FTE interest margin ratio was primarily due to diminished loan demand combined with lower interest rates earned on loans and investment securities, the effects of which were partially offset by decreases in average time deposits outstanding, overall reductions in the cost of funds and increases in interest free funding sources as a percentage of the funding base.
Stocks Discussed: FIBK,