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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from _______ to _______
COMMISSION FILE NUMBER 333-3250
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First Interstate BancSystem of Montana, Inc.
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(Exact name of registrant as specified in its charter)
Montana 81-0331430
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
PO Box 30918, 401 North 31st Street, Billings, MT 59116-0918
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 406/255-5300
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N/A
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(Former name, former address, and former fiscal year, if changed
since last report)
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 [X] No [ ]
The Registrant had 1,973,460 shares of common stock and 20,000 shares of
preferred stock outstanding on April 30, 1997.
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FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC.
Quarterly Report on Form 10-Q
Index Page
----- ----
PART I. FINANCIAL INFORMATION
Restatement Explanatory Note 3
Item 1 - Financial Statements
Consolidated Balance Sheets
March 31,1997 and December 31,1996 4
Consolidated Statements of Income
Three months ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 6
Notes to Unaudited Consolidated Financial
Statements 7
As fully described in "Notes to Unadited Consolidated
Financial Statements," the Company has restated its 1997
consolidated financial statements
Item 2 - Managements' Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities 15
Item 3 - Defaults upon Senior Securities 15
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
3
RESTATEMENT EXPLANATORY NOTE
In 2000, the Company determined it was necessary to restate the Company's 2000,
1999, 1998 and 1997 consolidated quarterly financial statements to change the
accounting treatment for awards made pursuant to its Nonqualified Stock Option
and Stock Appreciation Rights Plan ("Stock Option Plan") from fixed to variable
plan accounting.
This Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997 amends and restates the previously filed
Form 10-Q in its entirety. In order to preserve the nature and character of the
disclosures set forth in the Form 10-Q as originally filed, no attempt has been
made in this Amendment No. 1 to modify or update such disclosures except as
required to reflect the effects of the restatement and make nonsubstantial
revisions to the unaudited consolidated financial statements and the notes to
the unaudited consolidated financial statements. For additional information
regarding the restatement, see "Notes to Unaudited Consolidated Financial
Statements - Restatement" included in Part I, Item 1.
Share and per share data presented have not been restated to give effect of a
four-for-one stock split occurring during the fourth quarter of 1997.
3
4
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)
March 31, December 31,
Assets 1997 1996
------ ----------- ------------
(Restated)
Cash and due from banks $ 131,878 160,962
Federal funds sold 27,695 4,945
Interest bearing deposits in banks 2,033 6,545
Investment securities:
Available-for-sale 98,709 124,502
Held-to-maturity 286,097 279,069
------------ ------------
384,806 403,571
Loans, net 1,401,668 1,375,479
Less allowance for loan losses 28,393 27,797
------------ ------------
Net loans 1,373,275 1,347,682
Premises and equipment, net 58,722 58,183
Accrued interest receivable 19,250 19,573
Excess of purchase price over equity in net assets of
subsidiaries less accumulated amortization of
$7,284 at June 30, 1997 (unaudited) and $5,971 at
December 31, 1996 38,269 39,010
Other real estate owned, net 878 1,546
Deferred tax asset 5,754 4,921
Other assets 15,040 16,899
------------ ------------
Total assets $ 2,057,600 2,063,837
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Noninterest bearing $ 341,421 385,371
Interest bearing 1,308,035 1,294,053
------------ ------------
Total deposits 1,649,456 1,679,424
Federal funds purchased 24,730 13,450
Securities sold under repurchase agreements 119,731 129,137
Accounts payable and accrued expenses 26,292 18,027
Other borrowed funds 23,898 13,071
Long-term debt 64,259 64,667
------------ ------------
Total liabilities 1,908,366 1,917,776
Stockholders' equity:
Non-voting noncumulative 8.53% preferred stock without
par value; authorized 100,000 shares; issued and
outstanding 20,000 shares 20,000 20,000
Common stock without par value; authorized 5,000,000
shares; issued and outstanding 1,972,161 shares at
June 30, 1997 (unaudited and 1,978,268 shares at
December 31, 1996 8,826 8,941
Retained earnings 120,227 116,613
Unrealized holding gain on investment securities
available-for-sale, net 181 507
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Total stockholders' equity 149,234 146,061
------------ ------------
Total liabilities and stockholders' equity $ 2,057,600 2,063,837
============ ============
See accompanying notes to unaudited consolidated financial statements.
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5
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands, except share and per share data)
(Unaudited)
For the three months
ended March 31,
-------------------------
1997 1996
------------ -----------
(Restated)
Interest income:
Interest and fees on loans $ 33,330 21,897
Interest and dividends on investment securities:
Taxable 5,343 3,451
Exempt from Federal taxes 251 236
Interest on deposits with banks 85 204
Interest on Federal funds sold 152 483
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Total interest income 39,161 26,271
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Interest expense:
Interest on deposits 13,387 9,808
Interest on Federal funds purchased 318 31
Interest on securities sold under repurchase agreements 1,325 1,129
Interest on other borrowed funds 73 84
Interest on long-term debt 1,289 322
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Total interest expense 16,392 11,374
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Net interest income 22,769 14,897
Provision for loan losses 1,223 491
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Net interest income after provision for loan losses 21,546 14,406
Other operating income:
Income from fiduciary activities 1,033 862
Service charges on deposit accounts 2,379 1,715
Data processing 1,841 2,041
Other service charges, commissions, and fees 892 624
Net investment securities gains 58 2
Other income 422 301
---------- ---------
Total other operating income 6,625 5,545
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Other operating expenses:
Salaries and wages 6,987 4,897
Employee benefits 3,159 1,370
Occupancy expense, net 1,600 1,039
Furniture and equipment expenses 1,819 1,290
Other real estate expense (income), net (134) (89)
Other expenses 5,435 2,925
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Total other operating expenses 18,866 11,432
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Income before income taxes 9,305 8,519
Income tax expense 3,548 3,283
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Net income $ 5,757 5,236
========== =========
Net income per common share $ 2.69 2.68
========== =========
Dividends per common share $ 0.87 0.71
========== =========
Weighted average common shares outstanding 1,985,404 1,953,802
========== =========
See accompanying notes to unaudited consolidated financial statements.
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6
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands, except per share data)
(Unaudited)
For the three months
ended March 31,
---------------------------
1997 1996
---------- ---------
(Restated)
Cash flows from operating activities:
Net income $ 5,757 $ 5,236
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan and other real estate losses 1,223 491
Depreciation and amortization 2,177 1,037
Net premium amortization on investment securities 296 300
Gain on sales of investments (58) (2)
Gain on sales of other real estate owned (185) (112)
Loss on sales of property and equipment 3 2
Provision for deferred income taxes (660) (257)
Increase in interest receivable 323 (75)
Decrease (increase) in other assets 1,859 (155)
Increase in accounts payable and accrued expenses 8,311 2,304
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Net cash provided by operating activities 19,046 8,769
--------- --------
Cash flows from investing activities:
Purchases of investment securities:
Held-to-maturity (170,215) (40,310)
Available-for-sale (442) (10,119)
Proceeds from maturities and paydowns of investment securities:
Held-to-maturity 162,989 25,176
Available-for-sale 5,696 3,105
Proceeds from sales of available-for-sale investment securities 20,000 --
Decrease in interest bearing deposits in banks 4,512 4
Extensions of credit to customers, net of repayments (27,550) (27,303)
Recoveries of loans charged-off 734 243
Proceeds from sales of other real estate 853 284
Distribution from real estate joint venture -- 150
Capital expenditures, net (1,978) (1,787)
--------- --------
Net cash used in investing activities (5,401) (50,557)
--------- --------
Cash flows from financing activities:
Net decrease in deposits (29,968) (2,793)
Net increase in Federal funds and repurchase agreements 1,874 (15,027)
Net increase in other borrowed funds 10,827 2,149
Proceeds from long-term borrowings 250 424
Repayment of long-term borrowings (658) (1,000)
Proceeds from issuance of common stock 352 277
Payments to retire common stock (513) (864)
Dividends paid on common stock (1,722) (1,385)
Dividends paid on preferred stock (421) --
--------- --------
Net cash provided by (used in) by financing activities (19,979) (18,219)
---------- --------
Net decrease in cash and cash equivalents (6,334) (60,007)
Cash and cash equivalents at beginning of period 165,907 165,067
--------- --------
Cash and cash equivalents at end of period 159,573 105,060
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $17,140 11,885
Cash paid during the period for taxes 300 60
Noncash Investing and Financing Activities:
The Company transferred loans of $197 to other real estate owned during the
three months ended March 31, 1996. In conjunction with the exercise of stock
options, the Company transferred $46 from accrued liabilities to stockholders'
equity during the three months ended March 31, 1997.
See accompanying notes to unaudited consolidated financial statements.
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7
FIRST INTERSTATE BANK OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share data)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited, restated
consolidated financial statements contain all adjustments (all of which are
of a normal recurring nature) necessary to present fairly the consolidated
financial position at March 31, 1997 and December 31, 1996, and the results
of consolidated operations and cash flows for each of the three month
periods ended March 31, 1997 and 1996 in conformity with generally accepted
accounting principles. The balance sheet information at December 31, 1996
is derived from audited consolidated financial statements, however, certain
reclassifications have been made to conform to the March 31, 1997
presentation. For additional information regarding the restatement, see
Note 10.
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS No. 125 requires the Company to recognize as separate
assets the rights to service mortgage loans for others, whether the
servicing rights are acquired through purchases or loan originations.
Servicing rights are initially recorded at fair value based upon the
present value of estimated future cash flows. Subsequently, the servicing
rights are assessed for impairment, with impairment losses recognized in
the statement of income in the period the impairment occurs. For purposes
of performing the impairment evaluation, the related portfolio must be
stratified on the basis of certain risk characteristics including loan type
and note rate. SFAS No. 125 also specifies that financial assets subject to
prepayment, including loans that can be contractually prepaid or otherwise
settled in such a way that the holder would not recover substantially all
of its recorded investment, be measured like debt securities
available-for-sale or trading securities under SFAS No. 115. The Company
adopted the provisions of SFAS No. 125 as of January 1, 1997. The adoption
did not have a material effect on the financial position or results of
operations of the Company.
(2) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and Federal funds sold for
one-day-periods.
(3) Computation of Earnings Per Share
Earnings per common share are computed by dividing net income less
preferred stock dividends by the weighted average number of shares of
common stock outstanding during the period presented. Stock options
outstanding are considered common stock equivalents, and are included in
computations of weighted average shares outstanding.
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8
FIRST INTERSTATE BANK OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share data)
(4) Cash Dividends
On April 14, 1997, the Company paid a cash dividend on first quarter
earnings of $0.98 per share to stockholders of record on that date. It has
been the Company's practice to pay quarterly dividends based upon earnings.
The April 1997 dividend represents 30% of the Company's net income for the
quarter ended March 31, 1997 without taking into effect compensation
expense related to stock options.
(5) Allowance for Loan Losses
Transactions in the allowance for loan losses are summarized below:
For the three months
ended March 31,
-----------------------
1997 1996
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Balance at beginning of period $ 27,797 15,171
Provision charged to operating expense 1,223 491
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29,020 15,662
Deduct:
Loans charged-off 1,361 663
Recoveries of loans previously charged-off (734) (243)
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Net chargeoffs 627 420
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Balance at end of period $ 28,393 15,242
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(6) Other Real Estate Owned (OREO)
Other real estate owned consists of the following:
March 31, December 31,
1997 1996
--------- ------------
Other real estate $ 1,344 2,057
Less allowance for OREO losses 466 511
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$ 878 1,546
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9
FIRST INTERSTATE BANK OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share data)
A summary of transactions in the allowance for OREO losses follows:
For the three months
ended March 31,
-----------------------
1997 1996
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Balance at beginning of period $ 511 554
Provision (reversal) during period -- --
Losses on disposition (45) (6)
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Balance at end of period $ 466 548
======= =======
Changes in the balance of other real estate owned for the three months
ended March 31, 1997 and 1996 are summarized as follows:
Three months ended March 31,
----------------------------
1997 1996
------- -------
Balance at beginning of period $ 2,057 1,903
Add transfers from loans -- 197
Less writedowns charged to reserves (45) --
Cash proceeds from sales 853 284
Less gains on sales 185 112
------- -------
Net basis of OREO sold (668) (172)
------- -------
Balances, end of period $ 1,344 1,928
======= =======
(7) Acquisitions
On February 5, 1997, First Interstate Bank of Montana, N.A. purchased the
assets of Mountain Financial, a loan production office located in Eureka,
Montana. The total cash purchase price of the assets acquired aggregated
$1,726, of which $166 was for premises and equipment and the remaining
$1,560 was for loans acquired.
(8) Commitments and Contingencies
In the normal course of business, the Company is named or threatened to be
named as defendant in various lawsuits, some of which involve claims for
substantial amounts of actual and/or punitive damages. With respect to each
of these suits it is the opinion of management, following consultation with
legal counsel, the suits are without merit or in the event the plaintiff
prevails, the ultimate liability or disposition thereof will not have a
material adverse effect on the consolidated financial condition or the
results of operations.
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10
FIRST INTERSTATE BANK OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share data)
During 1985, the Company entered into a partnership agreement with two
outside parties for the purpose of purchasing certain land and building
with an aggregate cost of approximately $20,000. The Company is a tenant in
the building and owns a 50% undivided interest in the property.
Indebtedness of the partnership in the amount of $10,617 at June 30, 1997
is guaranteed by each of the partners.
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. These instruments involve, in varying
degrees, elements of credit and interest rate risk in excess of amounts
recorded in the consolidated balance sheet.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party. Most commitments extend for no more than two
years. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. The
Company holds various collateral supporting those commitments for which
collateral is deemed necessary.
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. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's credit
evaluation of the customer. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, and income-producing
commercial properties.
(9) Accounting Pronouncements Not Yet Adopted
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
simplifies the standards for computing earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS
on the face of the income statement for all entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of
common chares outstanding for the period. Diluted EPS reflects the
potential dilution of all securities that could share in the earnings of an
entity. SFAS No. 128 replaces APB Opinion 15 and is effective for financial
statements issued for periods ending after December 15,1997. The Company
does not expect adoption of SFAS No. 128 to have an impact on its EPS
disclosures.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which lists required disclosures about capital
structure that had been included in a number of previously existing
separate statements and opinions. SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. The Company does not
expect adoption of SFAS No. 129 to have a material impact on its capital
structure disclosures.
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11
FIRST INTERSTATE BANK OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share data)
(10) Restatement
In 2000, the Company determined that fixed plan accounting treatment
historically afforded its Stock Option Plan was not consistent with certain
elements of the Stock Option Plan's operations and accounting guidance
contained in APB Opinion 25 and related interpretations. Accordingly, the
Company has restated the accompanying unaudited 1997 consolidated financial
statements to reflect variable plan accounting treatment for awards made
pursuant to its Stock Option Plan.
The following is a summary of the effect of such restatement on the
Company's consolidated financial statements:
March 31, 1997
-------------------------
Originally
Reported Restated
---------- --------
Consolidated Balance Sheets
Deferred tax asset $ 5,230 5,754
Other assets 15,064 15,040
Total assets 2,061,002 2,061,502
Accounts payable and accrued expenses 29,339 30,194
Common stock 8,476 8,826
Retained earnings 120,932 120,227
========== =========
For the three months ended
March 31, 1997
--------------------------
Originally
Reported Restated
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Consolidated Statements of Income
Employee benefits $ 1,996 3,159
========== =========
Income before income taxes $ 10,468 9,305
Income tax expense 4,006 3,548
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Net income $ 6,462 5,757
========== =========
Net income per common share $ 3.04 2.69
========== =========
Included in the 1997 restated financial statement amounts are compensation
expense of $1,000 and a reduction in tax expense of $394 related to periods
prior to 1997. The impact on 1997 net income and earnings per share is a
decrease to net income of $606 and a decrease of $0.32 to earnings per
share.
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12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
(1) MATERIAL CHANGES IN FINANCIAL CONDITION. Comparison of balance sheet items
at March 31, 1997 and December 31, 1996.
General. During the three month period ending March 31, 1997, total assets
decreased slightly from $2,063,837 at December 31, 1996 to $2,061,502 at
March 31, 1997. While total assets reflect only a nominal change, there
were some notable shifts in the mix of assets and liabilities between
periods. Seasonal declines in deposits and increases in loans and federal
funds sold were funded with available cash, proceeds from maturities and
paydowns of investments transactions, and other borrowings.
Loans. Net loans increased $25,593 or 1.9% during the first three months of
1997 from $1,347,682 at December 31, 1996 to $1,373,275 at March 31, 1997.
The Company experienced increased loan volumes attributed to continued
strong economic conditions in the communities served by the Company's
banking subsidiaries, as well as some seasonal increases, particularly in
agricultural lending, following traditional paydowns in the fourth quarter.
Deposits. Total deposits decreased from $1,679,424 at December 31, 1996 to
$1,649,456 at March 31, 1997. The decrease in deposits is principally
related to an expected seasonal cycle in overall deposit growth that has
historically occurred during the first half of the year. While non-interest
bearing deposits declined $43,950 or 11.4% from December 31, 1996 to March
31, 1997, modest growth in interest bearing deposits offset a portion of
the decrease. Interest bearing deposits increased $13,982 or 1.1% from
$1,294,053 at December 31, 1996 to $1,308,035 at March 31, 1997.
Federal Funds Sold. Federal funds sold balances increased $22,750 to
$27,695 at March 31, 1997 from $4,945 at December 31, 1996 as the Company's
banking subsidiaries funded the cash requirements of correspondent banks
facing similar seasonal fluctuations in customer deposits.
Accounts Payable and Accrued Expenses. Accounts payable and accrued
expenses increased $8,265 from $18,027 at December 31, 1996 to $26,292 at
March 31, 1997. Approximately $855 of the increase resulted from the
accrual of compensation expense related to outstanding stock options. The
remaining increase is due primarily to the timing of federal and state
income tax payments.
Other Balance Sheet Accounts. Cash, amounts due from banks, interest
bearing deposits and investment securities decreased $52,361 (in aggregate)
and federal funds purchased, securities sold under repurchase agreements
and other borrowed funds increased $11,280 (in aggregate) during the first
quarter. These changes provided additional liquidity to fund increases in
other earning assets, primarily loans and federal funds sold for one day
periods.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS. Comparison of three months ended
March 31, 1997 and March 31, 1996.
General. On October 1, 1996, the Company acquired all of the outstanding
capital stock of First Interstate Bank of Montana, N.A. and First
Interstate Bank of Wyoming, N.A. and, on December 18, 1996, acquired all of
the outstanding capital stock of Mountain Bank of Whitefish. The
acquisitions were accounted for using the purchase method of accounting.
Accordingly, the large increases in revenue and expenses for the three
month period ended March 31,1997 compared to the three month period ended
March 31, 1996 are due, in a large part, to the acquisitions. The increases
in consolidated earnings resulting from the acquisitions are partially
offset by higher interest expense resulting from funding of the
acquisition.
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13
As a percentage of consolidated averages for the quarter ended March 31,
1997, average interest earning assets and average interest bearing
liabilities of the banks acquired were approximately 31% and 32%,
respectively. Accordingly, there are material increases in most categories
of income and expense for the three month period ended March 31,1997 when
compared to the three months ended March 31, 1996. Significant variances
not directly attributable to the acquired banks are explained in the
discussions that follow.
Net Income. Net income increased from $5,236 to $5,757 for the three month
periods ended March 31, 1996 and 1997, respectively, an increase of $521.
While net earnings of the acquired banks aggregated approximately $1,935
for the quarter ended March 31, 1997, the increases were partially offset
by additional interest expense and other indirect costs at the parent
company.
Interest Income. Interest income increased from $26,271 for the three month
period ended March 31, 1996 to $39,161 for the three month period ended
March 31, 1997. Adjusted for interest income of the acquired banks,
interest income increased approximately $892 or 3.4% primarily due to
internal growth in loan volume. One of the Company's primary objectives is
to maintain steady growth in interest income by utilizing systems,
procedures, and products designed to manage and promote balance sheet
growth, maintain strong interest margins and provide competitive pricing.
Interest Expense. Interest expense increased from $11,374 to $16,392 for
the three month periods ended March 31,1996 and 1997, respectively, an
increase of $5,018. Interest expense of the acquired banks and additional
interest costs to fund the acquisitions aggregated approximately $4,600 in
1997. The remaining increase was principally the result of internal growth
in deposits.
Adjusted for acquisitions, average interest-bearing deposits for the first
quarter of 1997 were up $50,512 or 5.8% compared to averages for the first
three months of 1996.
Provision for Loan Losses. The provision for loan losses increased to
$1,223 from $491 for the first quarter of 1997 and 1996, respectively.
Increases in the provision of $566 are directly attributable to the
acquisitions. The remaining increases are associated with growth in loan
volumes and a slight deterioration in agricultural and consumer loans.
Management actively monitors the local economies for strengths and
diversity and unemployment levels, and evaluates its banking markets for
their effects on its loan portfolio. Although nonperforming and problem
assets have shown some increase, the fundamental economies within the
Company's markets have remained strong. Overall, the increases in the
provision for loan loss are reflective of management's evaluation of the
risks inherent in the loan portfolio and current economic conditions.
Should a significant shift in economic trends and/or increased volumes of
problem credits or charge-offs occur, such events would likely require
increased loan loss provisions in the future.
Non-Interest Income. Overall, non-interest income increased $1,080 from
$5,545 to $6,625 for the three month periods ended March 31, 1996 and 1997,
respectively. Exclusive of non-interest income of $1,369 attributable to
the acquisitions, non-interest income declined $289 or 5.2% in 1997.
Decreases in income from fiduciary activities ($139) and data processing
revenues ($300) as a result of non-recurring accrual adjustments made in
January 1996 were partially offset by increases in data processing income
resulting from increases in the number of customers and in the volume of
transactions processed.
Non-Interest Expenses. Non-interest expenses were $18,866 and $11,432 for
the three month periods ended March 31, 1997 and 1996, respectively, an
increase of $7,434. Non-interest expenses incurred directly by the acquired
banks aggregated approximately $4,570, however, there were also other
indirect increases in non-interest expenses related to the acquisitions
recorded by the parent company and other bank subsidiaries particularly in
the data division of the parent company and operations divisions of other
banking subsidiaries. In addition, during the first quarter of 1997, the
Company recorded compensation expense related to stock options of $1,000
for periods prior to 1997 as a result of restating the financial statements
to reflect variable plan accounting for awards made pursuant to the
Company's stock option plan. For additional information regarding the
restatement, see "Restatement Explanatory Note" included in Part I and
"Notes to Unaudited Consolidated Financial Statements-Restatement" included
in Part I, Item 1.
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Salaries and benefits expense increased $3,879 from $6,267 to $10,146 for
the three month periods ended March 31, 1996 and 1997, respectively. Of the
increase, $2,090 is the direct result of personnel costs related to
employees of the acquired banks. In addition, during the first quarter of
1997, the Company recorded compensation expense of $1,000 for periods prior
to 1997 as a result of the restatement discussed above. Approximately $163
of the remaining increase relates to the March 31, 1997 remeasurement of
compensation expense related to outstanding stock options. The remaining
increase of approximately $626, or 10.0%, is primarily due to increases in
staffing levels, particularly in the Company's operations center and data
division, necessary to support the Company's growth and inflationary
increases.
Occupancy, furniture and equipment expenses were $2,329 and $3,419 for the
three months ended March 31, 1996 and 1997, respectively. Increases of
approximately $399 or 17.1% not directly related to acquisitions are
primarily due to increased depreciation on data processing equipment
upgrades, and the continuing upgrades and expansion of the Company's micro
computer and ATM networks.
Other operating expenses were $5,384 and $2,923 for the three months ended
March 31, 1997 and 1996, respectively. Exclusive of increases directly
related to the acquired banks, other operating expenses increased
approximately $779 or 26.7%. Major components of the increase include
additional professional fees primarily due to revision and upgrade of the
Company's job evaluation system aggregating approximately $167, increases
in employee retirement accruals of approximately $70, increases in employee
education costs of approximately $75, and increases in charitable
contributions of approximately $127. Postage, supplies, and telephone
expenses also increased approximately $313 primarily due to additional
costs associated with growth in customer base.
A decrease in royalty fee expense of $89 resulting from termination of the
Company's franchise agreement with First Interstate Bancorp in May 1996
partially offset increases in other operating expenses.
Other variances in non-interest expenses for the first quarter of 1997 as
compared to the first quarter of 1996 are not individually significant.
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PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
Not applicable or not required
ITEM 6 EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits.
27. Financial Data Schedule.
(b) No reports of Form 8-K were filed for the quarter ended
March 31, 1997.
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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:
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC.
Date May 16, 2001 /s/ THOMAS W. SCOTT
------------------- --------------------------------------------
Thomas W. Scott
Chief Executive Officer
Date May 16, 2001 /s/ TERRILL R. MOORE
------------------- --------------------------------------------
Terrill R. Moore
Senior Vice President
and Chief Financial Officer
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