First Interstate BancSystem, Inc. Reports Fourth Quarter Earnings; Increases Dividend by 25%; Sets Annual Meeting Date

First Interstate BancSystem, Inc. (NASDAQ: FIBK) reports fourth quarter 2014 net income of $22.8 million, or $0.49 per share, a 19% increase over third quarter 2014 net income of $19.2 million, or $0.42 per share. Included in fourth quarter net income were non-core expenses related to the acquisition of Mountain West Financial Corp of $2.4 million. Exclusive of non-core items, the Company's fourth quarter 2014 core net income was $24.3 million, or $0.53 per share, as compared to core net income of $22.3 million, or $0.49 per share, for third quarter 2014.

For the year ended December 31, 2014, the Company reported net income of $84.4 million, or $1.87 per share, compared to $86.1 million, or $1.96 per share in 2013. Exclusive of non-core items, which included acquisition costs and litigation accruals, the Company's 2014 core net income was $89.3 million, or $1.98 per share, as compared to core net income of $86.1 million, or $1.96 per share, in 2013.

FOURTH QUARTER HIGHLIGHTS

• Successful integration of Mountain West Bank operations into First Interstate Bank
• Continued improvement in asset quality with non-performing assets decreasing $13.4 million to 0.91% of total assets as of December 31, 2014.
• Net loan charge-offs of $149 thousand, or 0.01% of average loans, annualized
• 12.7% loan growth year-over-year, of which 4.4% was organic
• 14.2% deposit growth year-over-year, of which 5.8% was organic

“We delivered another solid quarter of earnings growth driven by positive trends in revenues, improved efficiencies, and improving credit quality,” said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “These positive trends have helped us to offset the pressure we are seeing on our net interest margin due to the continued low interest rate environment,” Mr. Garding continued. “We are pleased with the smooth integration of Mountain West's banking operations, and we are seeing the positive impact from this acquisition that we anticipated,” said Mr. Garding.

“Our improving earnings power has enabled us to increase our quarterly dividend another 25% to $0.20 per common share. We are pleased to be able to generate this strong return for our shareholders and we look forward to delivering another positive year in 2015,” said Mr. Garding.

DIVIDEND DECLARATION

On January 22, 2015, the Company's board of directors declared a dividend of $0.20 per common share payable on February 13, 2015 to owners of record as of February 2, 2015. This dividend equates to a 2.9% annual yield based on the $27.85 average closing price of the Company's common stock during fourth quarter 2014, and reflects a 25% increase from dividends paid during third quarter 2014 of $0.16 per common share.

ANNUAL MEETING DATE SET

On January 22, 2015, the Company's Board of Directors voted that the Annual Meeting of Shareholders be held on May 20, 2015, at the First Interstate Bank Operations Center, 1800 Sixth Avenue North, Billings, Montana at 4:00 p.m. Mountain Daylight Time. The record date for determination of shareholders entitled to notice of, and to vote at, the Annual Meeting is March 16, 2015.

RESULTS OF OPERATIONS

Net Interest Income. Deposit growth combined with corresponding increases in interest earning assets resulted in an increase in net interest income on a fully taxable equivalent basis. Net interest income increased $456 thousand to $66.6 million during fourth quarter 2014, as compared to $66.1 million during third quarter 2014, and increased $11.3 million to $252.8 million in 2014, as compared to $241.5 million in 2013. Interest accretion related to the fair valuation of acquired loans contributed $1.1 million of interest income during fourth quarter 2014, as compared to $1.3 million during third quarter 2014.

Despite increases in net interest income, the Company's net interest margin ratio decreased 17 basis points to 3.38% during fourth quarter 2014, as compared to 3.55% during the third quarter 2014. Exclusive of the accelerated interest accretion related to early payoffs of acquired loans and the impact of recoveries of charged-off interest, the Company's net interest margin ratio declined 14 basis points to 3.32% during fourth quarter 2014, as compared to 3.46% during third quarter 2014. During fourth quarter 2014, growth in average deposits outpaced growth in average loans. Excess liquidity was invested in lower yielding interest bearing deposits in banks and investment securities, which caused the Company's net interest margin ratio to decline by approximately 10 basis points compared to third quarter 2014. The remaining 4 basis point compression in net interest margin ratio was primarily due to lower yields on average outstanding loans and a change in loan mix.

During 2014, the Company's net interest margin ratio decreased to 3.49%, from 3.54% in 2013. Declines in yields earned on the Company's loan and investment portfolios were partially offset by increases in average outstanding loans, reductions in funding costs and lower average outstanding time deposits. Exclusive of the accelerated interest accretion related to early payoffs of acquired loans and the impact of recoveries of charged-off interest, the Company's net interest margin ratio was 3.43% during 2014 and 3.52% during 2013.

Non-Interest Income. Non-interest income increased $2.0 million to $31.4 million during fourth quarter 2014, as compared to $29.4 million during third quarter 2014. During fourth quarter 2014, the Company recognized gains aggregating $1.2 million on the sale of two bank buildings, received an insurance death benefit of $823 thousand and recorded a volume bonus of $616 thousand from its card payment network. Also contributing to the increase in non-interest income during fourth quarter 2014, as compared to third quarter 2014, were increases of $1.2 million in debit card interchange fees resulting from higher transaction volumes. Partially offsetting these increases was a $1.8 million seasonal decline in income from the origination and sale of mortgage loans.

Non-interest income decreased slightly to $111.4 million in 2014, as compared to $111.7 million in 2013. Decreases in income for the origination and sale of loans in 2014, as compared to 2013, were largely offset by increases in debit and credit card interchange fees, life insurance income, gains on the sale of two bank buildings and increases in wealth management revenues.

Income from the origination and sale of loans decreased $1.8 million to $5.6 million during fourth quarter 2014, as compared to $7.3 million during third quarter 2014, due to the combined impact of lower home purchase loan production and increased retention of select mortgage loan production in the Company's residential real estate loan portfolio. Overall mortgage loan production decreased 11% during fourth quarter 2014, as compared to third quarter 2014. Loans originated for home purchases accounted for approximately 71% of the Company's mortgage loan production during fourth quarter 2014, as compared to 81% during third quarter 2014. Income from the origination and sale of loans decreased 30% to $23.9 million for the twelve months ended December 31, 2014, as compared to $34.3 million in 2013, with production volume decreasing 18% year-over-year.

Non-Interest Expense. Non-interest expense decreased $3.3 million to $61.7 million during fourth quarter 2014, as compared to $65.0 million during third quarter 2014. Third and fourth quarter 2014 non-interest expense includes $5.0 million and $2.4 million, respectively, of acquisition and pending litigation expenses which the Company considers non-core. Exclusive of these non-core expenses, non-interest expense decreased $621 thousand to $59.3 million during fourth quarter 2014, compared to $59.9 million during third quarter 2014. During fourth quarter 2014, increases in advertising, business meals, entertainment and furniture and equipment expenses were more than offset by lower incentive bonus accruals and decreases in group health insurance costs.

Non-interest expense increased $14.8 million to $236.9 million in 2014, as compared to $222.1 million in 2013. Exclusive of non-core expenses, non-interest expense increased $6.8 million, or 3%, to $228.9 million in 2014, compared to $222.1 million in 2013. Year-over-year increases in non-interest expense are primarily attributable to the additional operating costs of Mountain West Financial Corp, which was acquired on July 31, 2014, and costs associated with software upgrades.

Salaries and wages expense decreased $2.2 million to $23.7 million during fourth quarter 2014, as compared to $25.9 million during third quarter 2014, primarily due to lower incentive bonus accruals and decreases in commissioned pay. Salaries and wages expense increased $2.4 million to $96.5 million in 2014, as compared to $94.2 million in 2013 due to the personnel costs associated with the acquisition of Mountain West Financial Corp and inflationary wage increases. These increases were partially offset by lower incentive bonus accruals.

Employee benefits expense decreased $1.0 million to $6.8 million during fourth quarter 2014, as compared to $7.8 million during third quarter 2014, primarily due to the reversal of previously accrued health insurance expense reflective of favorable claims experienced during 2014. Employee benefits expense for the year ended December 31, 2014 decreased $208 thousand, or less than 1%, to $30.1 million, as compared to $30.3 million in 2013.

Furniture and equipment expense increased $782 thousand to $4.1 million during fourth quarter 2014, compared to $3.3 million during third quarter 2014, due to software costs associated with the implementation of new software systems including software to assist in accounting for acquired credit impaired loans, process mortgage loans and automate certain reconciliation functions. Furniture and equipment expense increased $1.3 million to $13.8 million in 2014, as compared to $12.6 million in 2013 due to the addition of facilities in conjunction with the acquisition of Mountain West Financial Corp and costs associated with software upgrades.

Other expenses increased $1.3 million to $16.6 million during fourth quarter 2014, as compared to $15.3 million during third quarter 2014, primarily due to increases in advertising, business meals and entertainment expenses that typically occur during the fourth quarter of each year. Other expenses increased $3.5 million to $59.2 million in 2014, as compared to $55.7 million in 2013 primarily due to additional costs associated with the acquisition of Mountain West Financial Corp.

BALANCE SHEET

Total loans increased $43 million, or less than 1%, to $4.9 billion as of December 31, 2014, as compared to September 30, 2014. Increases in residential real estate and consumer loans were partially offset by seasonal declines in agricultural loans.

Residential real estate loans grew $43 million to $1.0 billion as of December 31, 2014, from $957 million as of September 30, 2014, due to retention of 1-4 family residential real estate loans that are primarily five to fifteen year adjustable rate and conventional mortgages.

Consumer loans increased $17 million to $762 million as of December 31, 2014, from $745 million as of September 30, 2014, primarily due to increases in indirect consumer loans. Indirect consumer loans grew organically $15 million to $553 million as of December 31, 2014, from $538 million as of September 30, 2014, due to continued expansion of the Company's indirect lending program within existing markets.

Agricultural loans decreased $12 million to $125 million as of December 31, 2014, from $137 million as of September 30, 2014, due to seasonal reductions in operating lines that typically occur during the fourth quarter of each year.

Commercial real estate loans decreased $47 million to $1.6 billion as of December 31, 2014, from $1.7 billion as of September 30, 2014, and construction loans increased $51 million to $418 million as of December 31, 2014, from $367 million as of September 30, 2014. These fluctuations were due to the fourth quarter 2014 reclassification of certain commercial construction and land acquisition and development loans acquired from Mountain West Financial Corp from the commercial real estate category into the construction loan category consistent with the Company's current loan classification structure.

Premises and equipment decreased $12 million to $195 million as of December 31, 2014, from $207 million as of September 30, 2014, primarily due to the sale of vacated Mountain West Financial Corp property and equipment at its carrying value of $8 million. In addition, during fourth quarter 2014, the Company sold two bank buildings with carrying values totaling $2 million at a net gain of $1.2 million.

Other real estate owned, or OREO, decreased $5 million to $13 million as of December 31, 2014, from $18 million as of September 30, 2014. During fourth quarter 2014, the Company sold OREO properties with carrying values of $5 million at a net gain of $532 thousand. As of December 31, 2014, the composition of OREO properties was 43% land acquisition and development, 34% commercial, 20% residential, 2% agricultural and 1% construction.

Total deposits increased $47 million, or less than 1.0%, to $7.0 billion as of December 31, 2014, as compared to September 30, 2014. During fourth quarter 2014, the Company experienced a shift in the mix of deposits away from interest bearing demand deposits to non-interest bearing demand deposits. As of December 31, 2014, the mix of total deposits was 26% non-interest bearing demand, 30% interest bearing demand, 26% savings and 18% time. This compares to 24% non-interest bearing demand, 32% interest bearing demand, 26% savings and 18% time as of September 30, 2014.

Subordinated debentures held by subsidiary trusts decreased $20 million, to $82 million as of December 31, 2014, from $102 million as of September 30, 2014. During December 2014, the Company repaid $20 million of subordinated debentures acquired as part of the Mountain West Financial Corp acquisition.

ASSET QUALITY

Asset quality continued to improve during fourth quarter 2014 with non-performing assets ending the year at $78 million, or 0.91% of total assets. This compares to $92 million, or 1.08% of total assets, as of September 30, 2014. Additionally, criticized loans remained stable at $353 million as of December 31, 2014, and net loan charge-offs declined to $149 thousand during fourth quarter 2014, as compared to $4 million during third quarter 2014.

The Company recorded a $118 thousand provision for loan losses during fourth quarter 2014, compared to $261 thousand during third quarter 2014. The allowance for loan losses as a percentage of period end loans remained stable at 1.52% as of December 31, 2014, compared to 1.53% as of September 30, 2014. During the year ended December 31, 2014, the Company reversed provisions for loan losses of $6.6 million, as compared to a provision reversals of $6.1 million in 2013. Provision reversals are reflective of continued improvement and stabilization of credit quality.

STOCK REPURCHASE PROGRAM

On January 23, 2015, the Company's board of directors approved the repurchase of up to 1,000,000 shares of the Company's outstanding Class A common stock from time to time through open market or privately negotiated transactions, as market and business conditions permit. Share repurchases will be conducted in a manner intended to comply with the safe harbor provisions of Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. Repurchased shares will be returned to authorized but unissued shares of Class A common stock in accordance with Montana law.

Fourth Quarter 2014 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss fourth quarter 2014 results at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Wednesday, January 28, 2015. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-877-507-0356 or by logging on to www.FIBK.com. The call will be recorded and made available for replay after 1:00 p.m. Eastern Time (11:00 a.m. Mountain Time) on January 28, 2015 through 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) on February 28, 2015, by dialing 1-877-344-7529 (using conference ID 10057253). The call will also be archived on our website, www.FIBK.com, for one year.

About First Interstate BancSystem, Inc.

First Interstate BancSystem, Inc. is a financial and bank holding company incorporated in 1971 and headquartered in Billings, Montana. The Company operates 79 banking offices, including detached drive-up facilities, in 41 communities in Montana, Wyoming and western South Dakota. Through First Interstate Bank, the Company delivers a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities throughout the Company's market areas.

Cautionary Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. Any statements about our plans, objectives, expectations, strategies, beliefs, or future performance or events constitute forward-looking statements. Such statements are identified as those that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “may” or similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other important factors that could cause actual results to differ materially from any results, performance or events expressed or implied by such forward-looking statements. The following factors, among others, may cause actual results to differ materially from current expectations in the forward-looking statements, including those set forth in this report: continuing or worsening business and economic conditions, adverse economic conditions affecting Montana, Wyoming and western South Dakota, credit losses, lending risk, adequacy of the allowance for loan losses, impairment of goodwill, changes in interest rates, access to low-cost funding sources, dependence on the Company’s management team, ability to attract and retain qualified employees, governmental regulation and changes in regulatory, tax and accounting rules and interpretations, failure of technology, inability to meet liquidity requirements, failure to manage growth, competition, ineffective internal operational controls, environmental remediation and other costs, reliance on external vendors, litigation pertaining to fiduciary responsibilities, failure to effectively implement technology-driven products and services, soundness of other financial institutions, inability of our bank subsidiary to pay dividends, implementation of new lines of business or new product or service offerings, change in dividend policy, volatility of Class A common stock, decline in market price of Class A common stock, dilution as a result of future equity issuances, uninsured nature of any investment in Class A common stock, voting control of Class B stockholders, anti-takeover provisions, controlled company status, and subordination of common stock to Company debt.

These factors are not necessarily all of the factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made and we do not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

*Preliminary estimate - may be subject to change.

**See Non-GAAP Financial Measures included herein for a discussion regarding core net income, tangible book value per common share, core return on average assets, core return on average common equity, return on average tangible common equity and tangible common stockholders' equity to tangible assets.

Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles in the United States of America, or GAAP, this release contains certain non-GAAP financial measures that management uses to provide supplemental perspectives on capital adequacy, operating results, performance trends and financial condition. 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. As a result, the usefulness of these measures to investors may be limited, and they should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP.

The Company adjusts certain capital adequacy measures to exclude intangible assets except mortgage servicing rights. Management believes these non-GAAP financial measures, which are intended to complement the capital ratios defined by banking regulators, are useful to investors in evaluating the Company's performance due to the importance that analysts place on these ratios and also allow investors to compare certain aspects of the Company's capitalization to other companies.

The Company also adjusts earnings and certain performance ratios to exclude non-core revenues and expenses, including investment securities net gains or losses, acquisition expenses consisting primarily of travel expenses and professional fees, and nonrecurring litigation expenses. Management believes these non-GAAP financial measures are useful to investors in evaluating operating trends by excluding amounts which the Company views as unrelated to its normalized operations. These non-core income and expense adjustments are presented net of estimated income tax expense.

The following table reconciles the above described non-GAAP financial measures to their most directly comparable GAAP financial measures as of the dates indicated.