Exhibit 99
2010 Letter to the Shareholders
For First Interstate, 2010 was a milestone year, marked by extraordinary achievements, as well
as the ever-present challenges caused by our nations three-year economic downturn.
While the national recession weighed heavily on the entire financial services industry, we are
proud to have remained profitable throughout this downturn and throughout 2010. Our values, core
earnings and disciplined credit culture, coupled with the underlying economic strength of Montana,
Wyoming and South Dakota, have been instrumental in supporting our success this year. Once again,
we were proud to be recognized by US Banker magazine, for the third year in a row, as one of
Americas top performing banking organizations.
Welcoming New Shareholders
One of our most significant achievements, over the past year, was the successful completion of our
initial public offering (IPO). We decided it was time to invite outside shareholders to join the
success of this 42-year family business. We are grateful for the combined efforts of Barclays
Capital, D.A. Davidson & Co, Keefe, Bruyette & Woods and Sandler ONeill + Partners, L.P.
for their expertise, advice and energy in assisting First interstate BancSystem, Inc. (FIBK)
in completing the first successful bank IPO since 2007.
The Company received net proceeds of $153 million from the offering, after deducting underwriting
discounts, commissions and other offering costs. Our capital position is excellent, as evidenced
by a total risk-based capital ratio of 15.5% as of December 31, 2010, well in excess of the
regulatory standard for a well capitalized financial institution.
Our capital position provides us with the means to be prepared when the marketplace presents
opportunities for profitable growth, either organically or through strategic acquisitions. We
continue to command dominant market share wherever the First Interstate brand is found and have
experienced another year of deposit and asset growth. We are excited about our new facility in
Helena, Montana that is currently under construction and scheduled to open early next year. This
location will serve as our headquarters in the Helena community which is also the Montana state
capital.
Within the first year of successfully completing our IPO, First Interstate was included in the
Russell 3000Ò Index and the ABA NASDAQ Community Bank Index (ABAQ). Inclusion in
these financial indexes is an important achievement as it demonstrates the growing visibility of
our company within the investment community.
Additionally, during a year when many banks announced dividend reductions or eliminations, our
quarterly dividend held steady at $0.1125 per share. We have a long history of paying quarterly
dividends. We have paid an uninterrupted cash dividend for more than 18 years.
Managing Financial Performance
2010 also marked our 23rd consecutive year of profitability with net income available to
common shareholders of $33.9 million. However, the slow economic recovery, coupled with regulatory
changes and historically low interest rates, put significant pressure on earnings. Credit quality
deteriorated, causing increases in both our provision for loan losses, as well as the companion
allowance for loan losses. During 2010, we recorded provisions for loan losses of $66.9 million
and net charge-offs of $49.5 million, as compared to provisions of $45.3 million and net
charge-offs of $29.6 million in 2009. Additionally, weak loan demand and steady deposit growth
resulted in a shift in the mix of earning assets from higher-yielding loans to lower-yielding
investment securities, negatively impacting our net interest margin ratio which fell 16 basis points during
the year to 3.89%.
While our communities are stronger and healthier than most around the nation, we have experienced
challenges in some of the resort communities throughout our footprint. Our resort communities,
which include Jackson, Wyoming and the Flathead and Gallatin Valley areas of Montana, are
influenced by second home buyers. These second home buyers generally live outside of our markets
and are subject to the national economic climate. As a result of the national economic challenges,
these three areas have been more negatively impacted than our other markets. While these areas
account for only 21% of our total loans, they represent 52% of our total non-performing loans.
During 2010, we saw a 4% reduction in our total loans, which ended the year at $4.4 billion.
Residential and land development construction loans decreased during the year, primarily due to
general declines in demand for housing, particularly in the three markets mentioned above. The
movement of lower quality loans out of the loan portfolio through charge-offs, pay-offs or
foreclosures also contributed to the decline. At the same time, deposits increased 2% to $5.9
billion, the result of organic growth.
Giving Back
Our commitment to community has not wavered during these challenging times. In 2010, First
Interstate, including its directors and employees and the First Interstate BancSystem Foundation,
donated in excess of $3 million to many worthwhile organizations and causes in our communities
across Montana, Wyoming and South Dakota. Additionally, our employees donated more than 8,000
volunteer hours to help make our communities a better place to live and work. We are proud of the
difference we make through community leadership, philanthropy and our ongoing investment in the
future of the communities we serve.
Looking Forward
We look forward to 2011 with cautious optimism as our company, our communities and our nation make
their way toward economic recovery. While regulatory changes, including those pursuant to the
Dodd-Frank legislation, will put new pressures on our financial performance, we believe the impact,
while negative, is manageable. Our focus in 2011 remains on improving credit quality, proactively
addressing problem loans and other real estate owned. We are also focused on improving our net
interest margin and our cost structure so that we may continue to provide high quality products and
services to our customers more efficiently. We will continue to execute our successful business
model, always remembering that we remain a family business, whose culture is driven by strong
family and corporate values. We remain committed to providing our customers with exemplary
customer service and banking products, as well as supporting, with leadership and resources, the
communities we serve.
To our new shareholders, we extend a warm welcome. We thank our employees, our customers and all of
our shareholders for your confidence in our company and for your ongoing support. We celebrate
with you the milestones and achievements of the past year and look forward to continued success in
2011.
Sincerely,
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/s/ THOMAS W. SCOTT
Thomas W. Scott
Chairman of the Board
First Interstate BancSystem, Inc.
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/s/ LYLE R. KNIGHT
Lyle R. Knight
President and CEO
First Interstate BancSystem, Inc. |