Annual Report 2017 | First International Bank & Trust

2017 ANNUAL REPORT

a MESSAGE from the CEO

Our bank was founded in 1910 with inherent optimism for helping dreams come true one customer at a time. For four generations, my family has surrounded ourselves with a bank family of financial experts that hold the same strong values and compassion to help families, businesses and communities thrive.

To Live First is a way of life – a culture of understanding what matters most. It’s different for all of us. That’s why we offer full service banking, insurance and investment services to support people when they want to purchase their first home, grow or expand their business, plan for retirement, protect their legacy for generations or simply have convenient mobile banking options to manage a family’s finances on the go so that they don’t miss out on that baseball game.

As you read this annual report, you’ll learn about progress we made in expanding our footprint, additional products and services designed with our customers in mind, adjusting our business model so that our customers receive the best service and products that match their needs, our response to an ag community faced with drought and how our financial experts support business growth. And as a community bank, you’ll see a glimpse of what we’ve done to support our communities through financial support and volunteerism.

As CEO, I enjoy the opportunity to visit with customers all across North Dakota, Minnesota and Arizona. In 2017, there was renewed optimism. I heard customers who were relieved in the improvement of commodity prices for oil, grain and livestock. Conversations about the rebounding economy spurred ideas for business growth and expansion. I was proud to hear how our financial experts listened to their needs and were able to provide sound guidance to help solve challenges and position them for future success.

From Left to Right: Erik Stenehjem, Steve Stenehjem, Gretchen Stenehjem, Peter Stenehjem

As we start 2018, my optimism continues. I envision a better economy than 2017 with the passing of the tax bill and the positive effects it will have on small businesses and agribusinesses, in addition to the employees that work for them. This change may provide new options for business owners to choose how to best invest in their business for future growth. Specifically in western North Dakota, I anticipate the strengthening of the oil markets which will increase activity and improve demand for housing, services and retail.

For our bank, I am hopeful that our country’s administration will provide some regulatory relief to community banks like ours, which will allow us to focus more of our energy on our customers than back office red tape.

On behalf of the Stenehjem family, I want to say thank you to our customers who choose to do business with us. We appreciate your loyalty and will continue to work hard every day to earn your business.

Thank you to our employees who are dedicated to building and preserving long-term relationships with our customers and exemplify our Live First culture. And thank you to our Board of Directors for their strategic guidance and leadership in making our company successful.

And for those who are considering a relationship with our bank, I invite you to visit with our bankers and have a conversation with one of our executive leaders. I think you’ll be impressed with our style of banking.

Stephen L. Stenehjem CEO/Chairman

“ I want to say thank you to our customers who choose to do business with us. We appreciate your loyalty and will continue to work hard every day to earn your business. ”

-Stephen L. Stenehjem

Expanding Our Footprint

Grand Forks

In December, we opened our doors to our new branch in Grand Forks, ND. Operating as a loan and deposit production office for a few months leading up to this opening, allowed us to build a highly regarded team of bankers that built up excitement for our full service branch offerings. Found in a new business development, a short distance from the University of North Dakota campus, we are excited to serve customers and be a part of this strong and thriving community.

Bismarck

Construction continues on our state-of-the-art flagship location in Bismarck, ND. The impressive $40 million, six-story building is on track for a spring 2018 opening. Beyond the bank, the building will host a restaurant with outdoor and roof-top patios and have room for tenant space. With the long construction timeline, our bankers in Bismarck continue to operate in a temporary space next to the new site and have done a remarkable job in attracting new relationships and telling our story. We are finding people are drawn to our style of banking and are just as excited about our expansion as we are.

Rugby

True to our culture, we approached our entrance into the Rugby, ND community with respect and sensitivity. We purchased the land where a long-standing landmark resided and when constructing our facility, incorporated the landmark 16’ diameter HUB sign into our building design. We held a community celebration in October where we invited area residents to reconnect the past with the future. Our local bankers have done a great job in establishing solid relationships as we introduce our long-standing reputation of strength and stability and our style of banking that is focused on the customer.

You First Banking

In 2017, we launched a redesign of our personal checking accounts. Simplifying the offerings and enhancing the benefits for our customers was our priority. We took the opportunity to upgrade the accounts to make them more attractive to our existing customers so that we could reward them for using their account(s) and provide special benefits based on depth of relationships with our bank. At the same time, the accounts were more enticing for new personal relationships.

The transition for our customers was handled with specialized care as we focused on communicating with our customers months before the transition and offered online tools to make the best choices for their new account, such as an online account selector tool. The customer simply answered five questions to seek the best account for their lifestyle. Our personalized caring approach was well received as evidenced by our 1.8% attrition rate.

Our bankers were the reason for the successful migration. The time taken to have conversations with our customers and reconnect on their goals and dreams, allowed us to best structure their accounts so that they receive the best benefits.

Another great offering for our personal banking customers was the addition of instant issue debit cards. Nearly 75% of our checking customers utilize a debit card for their everyday purchases. With heavy usage comes wear and tear and misplacements which creates the demand for getting a new or replacement card immediately. Adding this service further demonstrates our drive to put the customer first.

Providing sound and prudent advice for our customers when they make one of the largest single purchases – a home – is something our Mortgage team takes personally. They understand the emotions behind buying a home and will take every measure possible to ensure it is an enjoyable experience. Over the years, we heard from our customers that keeping their mortgage local was very important.

In 2017, we took the steps needed to bring the servicing of our mortgage loans in-house. Customers who choose First International Bank & Trust for a fixed rate mortgage will be able to keep coming back to us for making their payments and addressing any questions they may have after the closing of their loan. Our Mortgage Loan Officers are pleased to be able to keep building their relationships with their customers beyond the closing. 9.2%

14.8%

We realize our customer base demands both a convenient branch location to connect with a banker to discuss important financial matters and online/digital services to conduct banking while on the go. In 2017, we added additional offerings and enhanced services while focusing on educating customers about our robust offerings. As a result, we experienced significant increases in adoption of those services.

Upgraded personal online banking and mobile banking app to improve the customer experience, simplify and personalize the options, and Touch ID® access for added convenience.

Added Live chat for customers through personal online banking and bank website.

Added CardValet® –allowing debit and credit card customers to determine when, where and how payment cards are used and set up security alerts.

Added Samsung Pay and Android Pay to our Mobile Wallet offerings.

Market Advancements

2017 was a tough year for our agribusiness customers in the northern plains. The drought in the central and particularly the western part of North Dakota was extremely challenging for farmers and ranchers as it had harsh effects on crops and livestock. Experts have called it the worst that state has seen since the 1980s as over 45% of the state was in an extreme or exceptional drought in late July. Fortunately, there were “million dollar rains” in which much needed rain supplemented crops to boost production. As 2017 came to an end, cattle prices along with wheat and soybean prices were getting stronger to help support the vitality of this critical industry in our region.

Our bankers, many of whom are also ag producers, saw the need to provide support for our communities. In July, we sponsored a Drought Condition Discussion event for farmers and ranchers so that community members could come together with local experts to share information and support one another.

The oil industry in western North Dakota has seen a nice rebound with rising oil prices, and has had a positive effect on our communities as it relates to increased demand for housing, services and retail.

As we look to the business sector for 2017, we saw a greater concentration on commercial and industrial loans and operating lines. While still being involved in commercial real estate, we saw demand for financing hotel projects as well as large single-to-multiple home complexes in the eastern North Dakota and Arizona markets.

Beyond lending needs, we provide a full array of cash management services that help our customers best manage cash flow and protect their income streams.

Our customers appreciate the time we invest to truly understand their business and value the insight we can provide on the economy. Ultimately, it is the care and compassion we show in providing excellent service that separates us from the competition.

positioned for growth

Planning Your Future

Being a family owned company, four generations strong, we understand the importance of planning for your future and leaving a legacy you can be proud of for future generations. Our Trust Department serves a vital and much needed role for many individuals, families and businesses. In 2017, we added new experienced team members in our Arizona region to advance our market presence. In the northern plains, we are known as trusted advisors and continue to deepen relationships and gain the trust of new clients and referral sources. An upgrade to a new accounting software platform brought welcomed efficiencies internally.

Unique to financial institutions, but a stronghold for First International Bank & Trust, is our Mineral & Land Services division. Due to the oil boom in western North Dakota, we responded to the needs of our customers and have five Certified Mineral Managers on staff. Clients appreciate having a local expert to guide them through a complex industry that has seen many highs and lows. We are excited to launch an enhanced online tool in early 2018 that will help our clients have oil production and well information at their fingertips.

Insurance

As an independent insurance agency, we work with individuals, families and businesses to seek the best coverage for the best value. It’s another way we put our customers first and look out for their best interests.

As Baby Boomers near or cross the age of 65, they will need to consider all options as it relates to their health insurance and Medicare. First International Insurance recognized this opportunity and began offering Medigap insurance from our Medicare Certified Agents, who are experts to help customers understand all of their options. Today, our agents stand ready to help customers as they enter this new phase of their life.

Investments

In November, First International Investments migrated to LPL Financial from Investment Centers of America. This move brought a new level of support, regulatory experience and oversight and a wider array of investment platforms and tools to provide tailored investment options for our customers.

Our investment representatives also offer a great service in creating quality financial plans using Money Guide Pro® that helps forecast investment needs for a successful retirement. Engaging in conversations that touch on goals, retirement expectations and concerns, along with “what if” scenarios helps to create a plan with confidence and peace of mind.

Recognition/Awards

As financial advisors to our customers, we understand the trust placed in our hands to properly manage payments within compliance regulations. Our Bank took the steps necessary to become the first TPPPA (Third Party Payment Processors Association) bank member in the nation to be CMS certified. TPPPA is a national not-for-profit industry association representing and promoting the interests of payment processors, their financial institutions and their merchants. The hallmark of TPPPA is promoting compliance as the road to achieve payments integrity and excellence.

Prairie Business Magazine

50 Best Places to Work in 2017

For the fourth year in a row, First International Bank & Trust was recognized by Prairie Business Magazine as one of the 50 Best Places to Work in 2017.

ODIN AWARD

Since its founding in 2012, we have awarded one employee each year with the Odin Award, an honor given to those who best exemplify the Mission, Vision and Values of First International Bank & Trust. Along with the award, recipients receive a $5,000 donation to a charity of their choice.

Named after Steve Stenehjem’s grandfather, this award is highly respected and sought-after. We recently named Heather Gillihan, SVP/Director of Compliance & Audit, the 2017 recipient of the Odin Award. Heather has been with our company for 21 years.

THE READER’S CHOICE AWARDS

Minot Daily News

The Reader’s Choice Awards for 2017

Best MORTGAGE Best INSURANCE Best CUSTOMER SERVICE

HONORED EMPLOYEES

We are proud of the involvement our employees have in their communities and the leadership they provide both inside and outside of our bank walls.

Naomi Keney

VP/DIRECTOR OF CREDIT RISK

Named to Prairie Business Magazine’s 40 Under 40 list of top business professionals in the northern plains.

Greg Eckes

COMMERCIAL

LOAN OFFICER

Recipient of the Ambassador of the Year Award from the Bismarck-Mandan Chamber of Commerce.

Dean Zaderaka TRUST REGIONAL MANAGER

Recipient of the Minot Area Community Foundation Door Opener Award.

Community Support

McKenzie County Healthcare Systems

In Watford City, ND, our largest donation to date was given to the McKenzie County Healthcare System. While banking has been in the Stenehjen family for four generations, the medical industry has also been a key part of the family’s history. Previous generations started the McKenzie County Healthcare System because they saw the importance of having a local hospital. The donations were from the Stenehjem Family Foundation ($150,000) and First International Bank & Trust ($500,000).

Zamboni Donations

This year, we donated money to the West Fargo Public Schools District as well as the Minot Park District for new Zamboni’s. Each community had a need for their newly expanded ice arenas and we were happy to support their organizations that impact many families.

Phoenix Zoo

We were proud to sponsor a new “Dinosaurs in the Desert” self-guided traveling

Living United

Across our footprint, our organization gives money to United Way. We hold fundraisers internally as well as give corporately and are able to support many great organizations.

Live First Community Grants

Each year, we hold a social media campaign for our Live First Community Grants. In 2017, we received our highest participation to date with 45 community organizations that entered and nearly 21,000 votes online. Due to the overwhelming response, we increased the number of grants awarded.

Farm Rescue

We also support the ag community through Farm Rescue – who provides planting, harvesting and haying assistance to farm families that have experienced major illness, injury or natural disaster. Their mission is to help family farmers bridge crisis so they have an opportunity to continue viable operations.

STATEMENT OF CONDITION

YEAR-END TOTAL ASSETS

“ First International Bank & Trust is consistently recognized as a high performing bank in the top of our peer group, with quality assets and high earnings.”

-Stephen L. Stenehjem

Dennis Walsh Chief Credit Officer

Michael Toy Chief Operating & Strategy Officer

Blaine DesLauriers Vice Chairman

Peter Stenehjem President

Anita Quale Chief Financial Officer

Stephen L. Stenehjem CEO/Chairman

Helping dreams come true, one customer at a time.

VISION

Be a growing, relationship driven bank providing complete financial solutions to our customers as a “one-stop-shop” and delivering those solutions in true community bank fashion.

Uphold our reputation for strength and stability achieved through more than 100 years of service.

Be a high-performing bank recognized in the top tier of our peer group with high quality assets and high earnings.

Be active in the communities we serve through ongoing community involvement helping our customers and communities grow.