BILLINGS, Mont.–(BUSINESS WIRE)–First Interstate BancSystem, Inc. (NASDAQ: FIBK) today reported financial results for the fourth quarter of 2019. For the quarter, the Company reported net income of $52.4 million, or $0.80 per share, which compares to net income of $49.1 million, or $0.76 per share, for the third quarter of 2019, and $40.4 million, or $0.67 per share, for the fourth quarter of 2018.
The third and fourth quarter of 2019 earnings included acquisition costs related to the acquisitions of Idaho Independent Bank (“IIBK”) and Community First Bank (“CMYF”), both acquired on April 8, 2019. The fourth quarter of 2018 earnings included acquisition costs related to the acquisition of Northwest Bancorporation, Inc. (“Northwest”), the parent company of Inland Northwest Bank (“INB”), acquired on August 16, 2018. The aforementioned acquisition costs negatively impacted earnings by $0.01, $0.04, and $0.09 per common share for the fourth quarter of 2019, the third quarter of 2019, and the fourth quarter of 2018, respectively.
For the year ending December 31, 2019, the Company reported net income of $181.0 million, or $2.83 per share, compared to $160.2 million, or $2.75 per share, in 2018.
The 2019 earnings included acquisition costs of $20.3 million related to the acquisitions of IIBK and CMYF and the 2018 earnings included acquisition costs of $12.4 million related to the acquisition of Northwest. The year-to-date acquisition costs negatively impacted earnings by $0.24 and $0.17 per common share for 2019 and 2018.
HIGHLIGHTS
- Asset quality improved in the fourth quarter of 2019, resulting in a $17.7 million, or 23.6%, decrease in non-performing assets and a $28.7 million, or 6.9%, decrease in criticized loans, in each case as compared to the third quarter of 2019.
- Efficiency ratio improved to 54.3% during the fourth quarter of 2019, compared to 57.8% during the third quarter of 2019 and 63.3% during the fourth quarter of 2018.
- Net income of $52.4 million during the fourth quarter of 2019, an increase of $12.0 million, or 29.7%, from the same period in the prior year of $40.4 million.
- Net interest margin ratio, on a fully taxable equivalent basis, increased to 3.94% for the fourth quarter of 2019, a one basis point increase from the prior quarter and a five basis point decrease from the same period in the prior year.
- Quarterly cash dividends increased 9.7% from $0.31 to $0.34 per share of common stock in January 2020.
- Continued focus on enhancing our digital offerings with the implementation of an online application process for consumer and business credit cards.
“We completed 2019 with a strong fourth quarter, as we generated sequential quarter improvement in our key performance metrics including efficiency ratio, return on average assets and return on average common equity,” said Kevin P. Riley, President and Chief Executive Officer of First Interstate BancSystem, Inc. “We executed well on our strategies for generating profitable growth and had a strong year of value creation in 2019, as we increased our tangible book value per share by 13.9% while returning $79.2 million of capital to shareholders through our quarterly dividend. We also significantly strengthened our franchise by increasing our presence in faster growing markets and investing in technology initiatives that expanded our products and services, improved our digital banking capabilities, and streamlined our workflow processes. We believe we are well positioned to continue generating profitable growth and further enhancing the value of our franchise in the coming years.”
DIVIDEND DECLARATION
On January 28, 2020, the Company’s board of directors declared a dividend of $0.34 per common share, payable on February 20, 2020, to common stockholders of record as of February 10, 2020. The dividend equates to a 3.24% annualized yield based on the $41.91 per share average closing price of the Company’s common stock as reported on NASDAQ during the fourth quarter of 2019 and reflects a 9.7% increase from dividends paid during the fourth quarter of 2019 of $0.31 per common share.
NET INTEREST INCOME
Net interest income increased to $128.2 million during the fourth quarter of 2019, compared to $125.5 million during the third quarter of 2019 and $118.9 million during the fourth quarter of 2018. The increase as compared to the fourth quarter of 2018 of 7.8% was primarily the result of higher levels of earning assets as a result of the impact of the INB, IIBK, and CMYF acquisitions and lower deposit costs.
- Included in net interest income this quarter was the recovery of previously charged-off interest of $0.3 million, compared to previously charged-off interest of $0.4 million during the third quarter of 2019 and $0.7 million during the fourth quarter of 2018.
- Interest accretion attributable to the fair valuation of acquired loans contributed $5.2 million to net interest income during the fourth quarter of 2019, of which approximately $2.4 million was related to early payoffs. This compares to interest accretion of $4.0 million in net interest income during the third quarter of 2019, of which approximately $1.2 million was related to early payoffs, and interest accretion of $4.1 million in net interest income during the fourth quarter of 2018, of which approximately $1.7 million was related to early payoffs.
The net interest margin ratio was 3.94% for the fourth quarter of 2019 compared to 3.93% reported during the third quarter of 2019 and 3.99% during the fourth quarter of 2018.
- Exclusive of the impact of the recovery of charged-off interest and interest accretion, the Company’s net interest margin ratio contracted three basis points to 3.77% during the fourth quarter of 2019, compared to 3.80% during the third quarter of 2019, primarily as a result of lower yields on earning assets partially offset by lower funding costs.
- Exclusive of the impact of the recovery of charged-off interest and interest accretion, the net interest margin ratio contracted seven basis points, compared to 3.84% during the fourth quarter of 2018, primarily as a result of the impact of the reduction in the federal funds rate partially offset by lower deposit costs.
PROVISION FOR LOAN LOSSES
The Company recorded a provision for loan losses of $3.8 million during the fourth quarter of 2019, compared to $2.6 million during the third quarter of 2019, and $1.6 million during the fourth quarter of 2018. Net charge offs were $5.8 million, or 0.25% of average loans outstanding, for the fourth quarter of 2019, compared to $1.8 million, or 0.08% of average loans outstanding, for the third quarter of 2019.
The Company’s allowance for loan losses as a percentage of period-end loans was 0.81%, 0.82%, and 0.86% at December 31, 2019, September 30, 2019 and December 31, 2018, respectively. The decrease in the percentage from December 31, 2018 is primarily a result of increased loan balances from the IIBK and CMYF acquired loans, which were provisionally recorded at fair value in accordance with United States generally accepted accounting principles (“GAAP”), with no corresponding allowance for loan losses as prescribed by GAAP. Coverage of non-performing loans was 149.90%, 131.35%, 125.65% at December 31, 2019, September 30, 2019 and December 31, 2018, respectively.
NON-INTEREST INCOME
Total non-interest income decreased $3.1 million, or 7.7%, to $37.2 million during the fourth quarter of 2019, as compared to $40.3 million during the third quarter of 2019 and increased $2.9 million, or 8.5%, from $34.3 million during the fourth quarter of 2018. The changes in non-interest income is primarily the result of fluctuations in mortgage banking revenues.
Mortgage banking revenues decreased $1.9 million, or 19.0%, to $8.1 million during the fourth quarter of 2019, as compared to $10.0 million during the third quarter of 2019 and increased $2.5 million, or 44.6%, during the fourth quarter of 2019 from $5.6 million during the fourth quarter of 2018. The decrease from the third quarter of 2019 is due primarily to seasonal declines in mortgage loan production, while the increase from the fourth quarter of 2018 is primarily due to increased mortgage loan production as a result of higher levels of refinance activity and lower interest rates. During the fourth quarter of 2019, loans originated for home purchases accounted for approximately 55.3% of loan production, as compared to 66.0% during the third quarter of 2019 and 82.5% during the fourth quarter of 2018.
Other income decreased $1.5 million, or 37.5%, to $2.5 million during the fourth quarter of 2019, as compared to $4.0 million during the third quarter of 2019 and decreased $1.6 million, or 39.0%, during the fourth quarter of 2019 from $4.1 million during the fourth quarter of 2018. Other income is subject to fluctuations throughout the year based on timing of normal business activities.
NON-INTEREST EXPENSE
Non-interest expense decreased $6.1 million, or 6.2%, to $92.7 million during the fourth quarter of 2019, as compared to $98.8 million during the third quarter of 2019, primarily due to a quarter-over-quarter decrease of $3.1 million in acquisition related expenses and our focus on reducing operating expenses. Non-interest expense decreased $6.7 million, or 6.7%, from $99.4 million during the fourth quarter of 2018, primarily due to a quarter-over-quarter decrease of $6.3 million in acquisition related expenses and the disposal of other real estate owned, which were offset by an increase in operating costs related to the inclusion of the operations of the business of IIBK and CMYF following their acquisitions.
The following table presents, for the periods indicated, acquisition related expenses.
|
|
Quarter Ended |
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|
|
Dec 31, 2019 |
Sep 30, 2019 |
Jun 30, 2019 |
Mar 31, 2019 |
Dec 31, 2018 |
|||||||||||||||
|
Legal and professional fees |
$ |
|
0.2 |
|
$ |
|
0.1 |
|
$ |
|
0.4 |
|
$ |
|
0.3 |
|
$ |
|
1.1 |
|
|
Employee expenses |
— |
|
|
1.4 |
|
|
6.2 |
|
|
0.6 |
|
|
1.0 |
|
||||||
|
Technology conversion and contract terminations |
|
0.4 |
|
|
1.5 |
|
|
6.4 |
|
|
0.8 |
|
|
4.6 |
|
|||||
|
Other |
|
0.1 |
|
|
0.8 |
|
|
0.5 |
|
|
0.6 |
|
|
0.3 |
|
|||||
|
Total acquisition related expenses |
$ |
|
0.7 |
|
$ |
|
3.8 |
|
$ |
|
13.5 |
|
$ |
|
2.3 |
|
$ |
|
7.0 |
|
|
|
|
|
|
|
|
|||||||||||||||
|
After-tax impact on earnings per share |
$ |
|
0.01 |
|
$ |
|
0.04 |
|
$ |
|
0.16 |
|
$ |
|
0.03 |
|
$ |
|
0.09 |
|
|
|
|
|
|
|
|
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Exclusive of acquisition related expenses, non-interest expense decreased to $92.0 million during the fourth quarter of 2019, as compared to $95.0 million during the third quarter of 2019, and decreased $0.4 million, compared to $92.4 million during the fourth quarter of 2018. The linked quarter decrease was primarily the result of lower professional fees and focus on reducing operating expenses offset by gains on the sale of other real estate owned. The year-over-year increase is the result of higher operating costs attributable to the IIBK and CMYF acquisitions, which were offset by the disposal of other real estate owned.
Other expenses decreased $0.9 million, or 3.0%, to $29.5 million during the fourth quarter of 2019, as compared to $30.4 million during the third quarter of 2019 and increased $2.4 million, or 8.9%, during the fourth quarter of 2019 from $27.1 million during the fourth quarter of 2018, primarily as a result of the recent acquisitions and fluctuations in normal business activities.
Other real estate owned income, net of expenses increased $0.9 million, or 112.5%, to $1.7 million during the fourth quarter of 2019, as compared to $0.8 million during the third quarter of 2019. Other real estate owned income, net of expenses increased $1.7 million from the fourth quarter of 2018, as a result of higher levels of other real estate owned dispositions.
BALANCE SHEET
Total assets decreased $57.4 million, or 0.4%, to $14,644.2 million as of December 31, 2019, from $14,701.6 million as of the end of the third quarter of 2019 primarily due to a decrease in non-interest bearing deposits. Total assets increased $1,344.0 million from $13,300.2 million as of December 31, 2018 primarily as a result of the acquisitions of IIBK and CMYF and through organic growth.
Total loans decreased $69.9 million, or 0.8%, to $9,031.6 million as of December 31, 2019, from $9,101.5 million as of September 30, 2019, primarily due to seasonal decreases in agricultural operating lines and declines in commercial and consumer loans offset by an increase in real estate loans. Total loans increased $527.9 million, or 6.2%, to $9,031.6 million as of December 31, 2019, from $8,503.7 million as of December 31, 2018, of which $417.1 million was attributable to the IIBK and CMYF acquired loans and $110.8 million of organic loan growth.
Total real estate loans increased $26.0 million, or 0.4%, to $6,235.1 million as of December 31, 2019, from $6,209.1 million as of September 30, 2019, primarily driven by a $44.8 million increase in commercial construction loans and a $16.5 million increase in commercial real estate loans which were offset by decreases in residential construction loans of $17.7 million, residential real estate loans of $10.2 million, and land acquisition and development construction loans of $7.5 million. Year-over-year, total real estate loans increased $401.6 million, or 6.9%, from December 31, 2018. Exclusive of IIBK and CMYF acquired loans of $328.0 million, total real estate loans increased organically $73.6 million, or 1.3%. Organic growth within the real estate loan portfolio is primarily attributable to an increase of $97.8 million, or 3.0% in commercial loans.
Total consumer loans decreased $21.7 million, or 2.0%, to $1,045.2 million as of December 31, 2019, from $1,066.9 million as of September 30, 2019. Within the consumer loan portfolio, indirect loans were seasonally lower with a decrease of $13.2 million, or 1.7%, direct loans decreased $9.8 million, or 5.2%, and credit card loans increased $1.3 million, or 1.6%, as of December 31, 2019 compared to September 30, 2019. Year-over-year, total consumer loans decreased $25.0 million, or 2.3%, from $1,070.2 million, as of December 31, 2018. Exclusive of IIBK and CMYF acquired loans of $14.6 million, consumer loans decreased organically $39.6 million, primarily attributable to the direct portfolio as compared to December 31, 2018. The decrease in the direct portfolio was primarily impacted by higher unsecured consumer credit underwriting standards implemented in the first quarter of 2019.
Commercial loans decreased $51.3 million, or 3.6%, to $1,371.3 million as of December 31, 2019, from $1,422.6 million as of September 30, 2019, primarily due to the pay-off of $6.8 million in the shared national credits portfolio and loan pay-downs during the quarter. Commercial loans increased $61.0 million, or 4.7%, from $1,310.3 million as of December 31, 2018. Exclusive of IIBK and CMYF acquired loans of $61.4 million, commercial loans remained stable as compared to December 31, 2018.
Agricultural loans decreased $13.6 million, or 4.6%, to $279.1 million as of December 31, 2019, from $292.7 million as of September 30, 2019, primarily due to seasonal pay-downs of operating lines. Year-over-year, agricultural loans increased $24.3 million, or 9.5%, from $254.8 million as of December 31, 2018. Exclusive of IIBK and CMYF acquired loans of $12.6 million, agricultural loans increased organically $11.7 million, or 4.6% as compared to December 31, 2018.
Mortgage loans held for sale decreased $8.0 million, or 7.3%, to $100.9 million as of December 31, 2019, from $108.9 million as of September 30, 2019, and increased $67.6 million, or 203.0%, as of December 31, 2019, from $33.3 million as of December 31, 2018. The decrease from the third quarter of 2019 is due primarily to seasonal declines in originations of mortgage loans held for sale while the increase from the fourth quarter of 2018 is primarily due to an increase in originations of mortgage loans held for sale as a result of higher levels of refinance activity and lower interest rates.
Goodwill and intangible assets, excluding mortgage servicing rights, decreased $3.9 million, to $711.7 million as of December 31, 2019, from $715.6 million as of September 30, 2019. The decrease is attributable to an adjustment to the provisional goodwill and core deposit intangibles amortization expense. Year-over-year, goodwill and intangible assets, excluding mortgage servicing rights, increased $80.1 million, from $631.6 million as of December 31, 2018, attributable to provisional goodwill and core deposit intangibles acquired in the IIBK and CMYF acquisitions net of core deposit intangibles amortization expense.
Company owned life insurance increased $1.0 million, or 0.3%, to $293.8 million as of December 31, 2019, from $292.8 million as of September 30, 2019, and increased $18.7 million, or 6.8%, as of December 31, 2019, from $275.1 million as of December 31, 2018, primarily attributable to the IIBK acquisition.
Premises and equipment increased $3.2 million, or 1.1%, to $306.0 million as of December 31, 2019, from $302.8 million as of September 30, 2019, primarily due to an increase in construction in progress. Year-over-year, premises and equipment increased $60.8 million, or 24.8%, from $245.2 million as of December 31, 2018. The increase was a result of $26.7 million of premises and equipment acquired from IIBK and CMYF, with the remaining increase primarily related to the adoption of the updated leasing standard, ASU 2016-02, on January 1, 2019, offset by depreciation expense.
Other real estate owned decreased $9.3 million, or 52.2%, to $8.5 million as of December 31, 2019, from $17.8 million as of September 30, 2019. Other real estate owned decreased $5.9 million, or 41.0%, as of December 31, 2019, from $14.4 million as of December 31, 2018. The decreases are primarily attributable to the disposition of properties during the normal course of business.
Other assets decreased $13.3 million, or 6.1%, to $206.3 million as of December 31, 2019, from $219.6 million as of September 30, 2019, primarily due to a decrease of $4.3 million in accrued interest receivables and a decrease of $9.6 million related to our interest rate swap contracts offset by an increase of $1.8 million of prepaid assets and deferred retirement plan assets. Year-over year, other assets increased $30.3 million, or 17.2%, as of December 31, 2019, from $176.0 million as of December 31, 2018. Exclusive of other assets of $8.7 million acquired from IIBK and CMYF, other assets increased $21.6 million, primarily due to an increase in Federal Reserve stock of $5.3 million and $13.1 million related to our interest rate swaps with the remaining decrease due to normal fluctuations in other assets.
Total deposits decreased $136.1 million, or 1.2%, to $11,663.5 million as of December 31, 2019, from $11,799.6 million as of September 30, 2019, as a result of decreases in non-interest bearing business deposits and savings deposits. Year-over-year, total deposits increased $982.8 million, or 9.2%, from $10,680.7 million as of December 31, 2018. Exclusive of deposits of $706.7 million acquired from IIBK and CMYF, deposits grew organically $276.1 million, or 2.6%, compared to December 31, 2018, primarily related to an increase of $252.8 million in interest bearing deposits offset by a decrease of $23.3 million in non-interest bearing deposits.
Other liabilities decreased $13.3 million, or 7.3%, to $168.4 million as of December 31, 2019, from $181.7 million as of September 30, 2019, primarily due to a decrease in interest rate swap contracts mark-to-market of $4.2 million with the remaining decrease due to normal fluctuations in other liabilities. Year-over-year, other liabilities increased $57.9 million, or 52.4%, as of December 31, 2019, from $110.5 million as of December 31, 2018. Exclusive of other liabilities acquired from IIBK and CMYF of $20.7 million, other liabilities increased $37.2 million as compared to December 31, 2018, primarily related to the adoption of the updated leasing standard, ASU 2016-02.
The loan to deposit ratio was 77.4%, as of December 31, 2019, compared to 77.1% and 79.6% as of September 30, 2019 and December 31, 2018, respectively.
The Company is considered to be “well-capitalized” as of December 31, 2019, having exceeded all regulatory capital adequacy requirements. During the fourth quarter of 2019, the Company paid common stock dividends of approximately $20.2 million, or $0.31 per share.
CREDIT QUALITY
As of December 31, 2019, non-performing assets decreased $17.7 million, or 23.6%, to $57.2 million, compared to $74.9 million as of September 30, 2019, primarily due to the disposition of four other real estate owned properties and a decrease in non-accrual loans of $7.2 million. Non-accrual loans decreased to $42.9 million as of December 31, 2019, as compared to $50.1 million during the third quarter of 2019, primarily related to the execution and resolution of workout strategies within the commercial loan portfolios.
Criticized loans decreased $28.7 million, or 6.9%, to $387.4 million as of December 31, 2019, from $416.1 million as of September 30, 2019, driven primarily by pay downs in the commercial, commercial real estate, agriculture, and agricultural real estate categories. Criticized loans decreased $13.9 million from $401.3 million as of December 31, 2018, primarily due to pay-downs in the commercial real estate and construction real estate categories.
Net loan charge-offs increased $4.0 million, or 222.2%, to $5.8 million during the fourth quarter of 2019, as compared to $1.8 million during the third quarter of 2019. The net loan charge-offs in the fourth quarter of 2019 were composed of charge-offs of $7.3 million and recoveries of $1.5 million primarily due to the resolution of a long-term problem commercial loan with a charge-off of $2.3 million and net consumer charge-offs of $3.3 million. Net loan charge-offs during the fourth quarter of 2018 were $2.2 million.
NON-GAAP FINANCIAL MEASURES
In addition to results presented in accordance with GAAP in the United States of America, this release contains the following non-GAAP financial measures that management uses to evaluate our capital adequacy: (i) tangible book value per common share; (ii) tangible common stockholders’ equity to tangible assets; (iii) tangible assets; (iv) tangible common stockholders’ equity; and (v) return on average tangible common stockholders’ equity. Tangible book value per common share is calculated as tangible common stockholders’ equity divided by common shares outstanding. Tangible common stockholders’ equity to tangible assets is calculated as tangible common stockholders’ equity divided by tangible assets. Tangible assets is calculated as total assets less goodwill and other intangible assets (excluding mortgage servicing assets). Tangible common stockholders’ equity to tangible assets is calculated as tangible common stockholders’ equity divided by tangible assets. Return on average tangible common stockholders’ equity is calculated as net income available to common shareholders divided by average tangible common stockholders’ equity. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies because other companies may not calculate these non-GAAP measures in the same manner. They also should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP.
The Company adjusts the foregoing capital adequacy measures to exclude intangible assets except mortgage servicing rights, adjusts its non-interest expense to exclude acquisition related expenses, and adjusts its net interest margin ratio to exclude the impact of the recovery of charged-off interest and the impact of interest accretion on acquired loans.
Contacts
Marcy Mutch
Chief Financial Officer
First Interstate BancSystem, Inc.
(406) 255-5312
[email protected]
www.FIBK.com
