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Bull of the Day

Investors looking for strong total return potential should take a look at First Interstate BancSystem, Inc. (FIBK - Snapshot Report). The company is growing earnings at a healthy clip thanks to strong non-interest income and improving credit quality.

It recently delivered a positive earnings surprise for the fourth quarter, sending earnings estimates meaningfully higher for both 2013 and 2014. It is a Zacks Rank #1 (Strong Buy) stock.

Shares look attractive at just 1.0x book value, especially when you factor in a juicy 3.0% dividend yield.

Company Description

First Interstate BancSystem is a bank holding company headquartered in Billings, Montana. The company operates 72 banking offices in 42 communities in Montana, Wyoming and western South Dakota. It was incorporated in 1971 and has a market cap of $747 million.

Fourth Quarter Results

First Interstate delivered better-than-expected Q4 results on January 28. Earnings per share came in at 37 cents, beating the Zacks Consensus Estimate by 2 cents. It was a 28% increase over the same quarter last year.

Net interest income was essentially flat with Q3 as the net interest margin declined 8 basis points. But this was more than offset by an increase in non-interest income, particularly from higher income from the origination and sales of loans and higher wealth management revenues. Total loans increased 1% from Q3, driven by strong increases in residential loans.

Meanwhile, credit quality continued to improve. Non-performing assets declined to their lowest level since 2009, and this led to a lower provision for loan losses, which also boosted EPS.

Estimates Rising

Looking ahead to 2013, CEO Ed Garding said that the company expects "to deliver another year of strong profitability. Although modest loan demand and continued compression in our net interest margin will present challenges for growing our net interest income, we believe we can offset these pressures through further increases in our non-interest income, continued improvement in operating efficiencies, and a reduction in credit costs resulting from continued improvement in asset quality."

Analysts revised their estimates higher for both 2013 and 2014 following the solid Q4 report, sending the stock to a Zacks Rank #1 (Strong Buy). The 2013 Zacks Consensus Estimate increased from $1.37 before the report to $1.44 after it. And the 2014 consensus increased from $1.46 to $1.54.

You can see First Interstate's strong earnings momentum in its Price & Consensus chart:

Reasonable Valuation, Solid Yield

Despite a rising stock price, the valuation picture for First Interstate still looks very reasonable with shares trading at just 1.0x book and 1.2x tangible book value.

In addition, the company pays a dividend that yields a solid 3.0%, or about 100 basis points more than the current yield on a 10-year U.S. Treasury note.

The Bottom Line

With solid earnings growth, improving credit quality, strong earnings momentum, a nice yield and very reasonable valuation, First Interstate BancSystem offers a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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