First Interstate BancSystem, Inc. Reports Results for Third Quarter 2011

BILLINGS, Mont.--(BUSINESS WIRE)--First Interstate BancSystem, Inc. (NASDAQ: FIBK) reports third quarter 2011 net income available to common shareholders of $11.1 million, or $0.26 per diluted share, as compared to $9.0 million, or $0.21 per diluted share, for second quarter 2011 and $7.9 million, or $0.18 per diluted share, for third quarter 2010.

RESULTS SUMMARY
(Unaudited; $ in thousands, except per share data)
	Three Months Ended									Sequential		Year
	September 30,			June 30,			September 30,			Quarter		Over Year
	2011			2011			2010			% Change		% Change
Net income	$	11,921		$	9,854		$	8,729		21.0	%	36.6	%
Net income available to common shareholders		11,059			9,001			7,867		22.9	%	40.6	%
Diluted earnings per common share		0.26			0.21			0.18		23.8	%	44.4	%
Dividends per common share		0.1125			0.1125			0.1125		0.0	%	0.0	%
Book value per common share		16.70			16.51			16.23		1.2	%	2.9	%
Tangible book value per common share*		12.25			12.05			11.72		1.7	%	4.5	%
Net tangible book value per common share*		13.66			13.45			13.14		1.6	%	4.0	%
Return on average common equity		6.17	%		5.23	%		4.52	%
Return on average assets		0.65	%		0.54	%		0.48	%
Weighted average common shares outstanding		42,774,259			42,749,376			42,634,283
Weighted average common shares issuable upon exercise of stock options & non-vested stock awards		67,404			114,717			150,587
	Nine Months Ended						Year
	September 30,			September 30,			Over Year
	2011			2010			% Change
Net income	$	31,281		$	26,518			18.0	%
Net income available to common stockholders		28,722			23,959			19.9	%
Diluted earnings per common share		0.67			0.61			9.8	%
Dividends per common share		0.3375			0.3375			0.0	%
Return on average common equity		5.51	%		5.05	%
Return on average assets		0.57	%		0.49	%
Weighted average common shares outstanding		42,737,986			38,986,458
Weighted average common shares issuable upon exercise of stock options & non-vested stock awards		111,368			216,219
* See Non-GAAP Financial Measures included herein for a discussion regarding tangible and net tangible book value per common share.

“We were pleased to deliver a solid quarter that reflects stabilizing economic conditions in most of our markets and strong execution in all areas of the Bank,” said Lyle R. Knight, President and Chief Executive Officer for First Interstate BancSystem, Inc. “Compared to the second quarter of 2011, we generated higher revenue, improved operating efficiencies and higher returns on both equity and assets. Importantly, our loan portfolio is showing encouraging signs of improvement as we work down our level of problem loans, which is resulting in lower loan loss provision expense.”

REVENUE SUMMARY
(Unaudited; $ in thousands)
	Three Months Ended									Sequential		Year
	September 30,			June 30,			September 30,			Quarter		Over Year
	2011			2011			2010			% Change		% Change
Interest income	$	73,483		$	73,551		$	78,965		-0.1	%	-6.9	%
Interest expense		9,991			11,024			15,221		-9.4	%	-34.4	%
Net interest income		63,492			62,527			63,744		1.5	%	-0.4	%
Non-interest income:
Other service charges, commissions and fees		8,479			7,768			7,821		9.2	%	8.4	%
Service charges on deposit accounts		4,609			4,385			4,497		5.1	%	2.5	%
Income from the origination and sale of loans		5,512			4,109			7,355		34.1	%	-25.1	%
Wealth management revenues		3,202			3,483			3,091		-8.1	%	3.6	%
Investment securities gains, net		38			16			66		137.5	%	-42.4	%
Other income		1,285			1,830			2,025		-29.8	%	-36.5	%
Total non-interest income		23,125			21,591			24,855		7.1	%	-7.0	%
Total revenues	$	86,617		$	84,118		$	88,599		3.0	%	-2.2	%
Tax equivalent net interest margin ratio		3.84	%		3.84	%		3.89	%
	Nine Months Ended						Year
	September 30,			September 30,			Over Year
	2011			2010			% Change
Interest income	$	220,877		$	238,331			-7.3	%
Interest expense		33,060			49,742			-33.5	%
Net interest income		187,817			188,589			-0.4	%
Non-interest income:
Other service charges, commissions and fees		23,627			22,073			7.0	%
Service charges on deposit accounts		13,104			13,854			-5.4	%
Income from the origination and sale of loans		13,066			14,841			-12.0	%
Wealth management revenues		9,980			9,304			7.3	%
Investment securities gains, net		56			108			-48.1	%
Other income		5,042			5,220			-3.4	%
Total non-interest income		64,875			65,400			-0.8	%
Total revenues	$	252,692		$	253,989			-0.5	%
Tax equivalent net interest margin ratio		3.80	%		3.95	%

Net Interest Income

Net interest income increased during third quarter 2011, as compared to second quarter 2011, primarily due to one additional accrual day. Further reductions in funding costs, along with a continued shift from higher-costing time deposits to lower-costing demand deposits, were offset by decreased loan and investment yields resulting in a stable net interest margin of 3.84% during third quarter 2011 compared to second quarter 2011. Compression in the net interest margin ratio during the nine months ended September 30, 2011, compared to the same period in 2010, was attributable to lower yields earned on the Company's investment and loan portfolios and lower outstanding loan balances, the effects of which were partially offset by a 35 basis point reduction in funding costs.

Non-interest Income

Other service charges, commissions and fees increased during third quarter 2011, as compared to second quarter 2011 and third quarter 2010, primarily due to higher service charge income from ATM transactions and higher interchange income from increased volumes of debit and credit card transactions.

Although regulations became effective on October 1, 2011, that reduced the maximum allowable debit card interchange fee per transaction for large issuers with over $10 billion in assets, the Company qualifies for the small-issuer exemption. Under this exemption the Company does not anticipate any immediate, significant impact to interchange revenues.

Income from the origination and sale of residential mortgage loans increased during third quarter 2011, as compared to second quarter 2011, primarily due to increased purchased home and refinancing activity brought on by a reduction in home mortgage rates. Purchased home loan originations accounted for approximately 47% of the Company's residential real estate loan originations during third quarter 2011, as compared to 61% during second quarter 2011 and 31% during third quarter 2010.

Wealth management revenues decreased during third quarter 2011, as compared to second quarter 2011 due to declines in the market values of assets under trust management. Wealth management revenues increased during the nine months ended September 30, 2011, as compared to the same period in 2010 primarily due to new business activity and increases in the market values of assets under trust management.

Fluctuations in other income during third quarter 2011, as compared to second quarter 2011 and third quarter 2010, were primarily due to fluctuations of values of securities held under deferred compensation plans.

NON-INTEREST EXPENSE
(Unaudited; $ in thousands)
	Three Months Ended							Sequential		Year
	September 30,		June 30,		September 30,			Quarter		Over Year
	2011		2011		2010			% Change		% Change
Non-interest expense:
Salaries, wages and employee benefits expense	$	26,888	$	27,889	$	27,994		-3.6	%	-4.0	%
Occupancy, net		4,180		4,013		3,939		4.2	%	6.1	%
Furniture and equipment		3,018		3,129		3,411		-3.5	%	-11.5	%
Outsourced technology services		2,235		2,212		2,402		1.0	%	-7.0	%
FDIC insurance premiums		1,631		1,629		2,337		0.1	%	-30.2	%
Other real estate owned expense, net of income		2,878		2,042		2,608		40.9	%	10.4	%
Mortgage servicing rights amortization		807		671		1,221		20.3	%	-33.9	%
Mortgage servicing rights impairment		1,168		27		1,991		4225.9	%	-41.3	%
Core deposit intangibles amortization		362		361		437		0.3	%	-17.2	%
Other expenses		11,874		12,219		11,670		-2.8	%	1.7	%
Total non-interest expense	$	55,041	$	54,192	$	58,010		1.6	%	-5.1	%
	Nine Months Ended				Year
	September 30,		September 30,		Over Year
	2011		2010		% Change
Non-interest expense:
Salaries, wages and employee benefits	$	82,479	$	83,451		-1.2	%
Occupancy, net		12,408		12,044		3.0	%
Furniture and equipment		9,367		10,108		-7.3	%
Outsourced technology services		6,688		7,100		-5.8	%
FDIC insurance premiums		5,726		7,460		-23.2	%
Other real estate owned expense, net of income		6,631		6,129		8.2	%
Mortgage servicing rights amortization		2,285		3,469		-34.1	%
Mortgage servicing rights impairment		848		2,212		-61.7	%
Core deposit intangibles amortization		1,085		1,316		-17.6	%
Other expenses		34,674		32,892		5.4	%
Total non-interest expense	$	162,191	$	166,181		-2.4	%

Salaries, wages and employee benefits decreased in third quarter 2011 from second quarter 2011 and from the same period a year ago largely due to reductions in FTE’s and fluctuations of values of securities held under deferred compensation plans.

In February 2011, the FDIC issued a final rule that, among other things, modified the definition of an institution's deposit insurance assessment base and revised assessment rate schedules. These changes, which became effective April 1, 2011, resulted in a reduction in the Company's FDIC insurance premiums.

Variations in net OREO expense between periods were primarily due to fluctuations in write-downs of the estimated fair value of OREO properties. Third quarter 2011 net OREO expense included $538 thousand of net operating expenses, $2.4 million of fair value write-downs and net gains of $113 thousand on the sale of OREO properties. Approximately 52% of write-downs recorded during the current quarter related to properties in our stressed markets, which include the Flathead, Gallatin Valley and Jackson market areas.

Fluctuations in the fair value of mortgage servicing rights were due to changes in assumptions regarding estimated prepayments of the underlying residential mortgage loans, which typically correspond with changes in market interest rates. Residential mortgage interest rates decreased during third quarter 2011, as compared to second quarter 2011, resulting in an impairment of mortgage servicing rights.

ASSET QUALITY
(Unaudited; $ in thousands)
	Three Months Ended
	September 30,			June 30,			September 30,
	2011			2011			2010
Allowance for loan losses - beginning of period	$	124,579		$	124,446		$	114,328
Charge-offs		(20,405	)		(16,102	)		(12,789	)
Recoveries		2,129			835			697
Provision		14,000			15,400			18,000
Allowance for loan losses - end of period	$	120,303		$	124,579		$	120,236
	September 30,			June 30,			September 30,
	2011			2011			2010
Period end loans	$	4,275,717		$	4,281,260		$	4,452,387
Average loans		4,291,632			4,269,637			4,504,657
Non-performing loans:
Non-accrual loans		223,961			229,662			174,249
Accruing loans past due 90 days or more		3,001			2,194			1,129
Troubled debt restructurings		35,616			31,611			26,630
Total non-performing loans		262,578			263,467			202,008
Other real estate owned		25,080			28,323			35,296
Total non-performing assets	$	287,658		$	291,790		$	237,304
Net charge-offs to average loans (annualized)		1.69	%		1.43	%		1.06	%
Provision for loan losses to average loans (annualized)		1.29	%		1.45	%		1.59	%
Allowance for loan losses to period end loans		2.81	%		2.91	%		2.70	%
Allowance for loan losses to total non-performing loans		45.82	%		47.28	%		59.52	%
Non-performing loans to period end loans		6.14	%		6.15	%		4.54	%
Non-performing assets to period end loans and other real estate owned		6.69	%		6.77	%		5.29	%
Non-performing assets to total assets		3.94	%		4.05	%		3.24	%

The Company's loan portfolio continued to be adversely impacted by difficult economic conditions in certain of its market areas. The Flathead, Gallatin Valley and Jackson market areas, which are dependent upon resort and second home communities, accounted for approximately 43% of the Company's non-performing assets versus only 18% of the Company's total loans as of September 30, 2011.

Net charged-off loans increased during third quarter 2011, as compared to second quarter 2011 and third quarter 2010. Approximately 48% of the net charged-off loans during third quarter 2011 were located in the Flathead, Gallatin Valley and Jackson market areas. Additionally, approximately 73% of the loans charged-off during third quarter 2011 were related to three borrowers, including one commercial real estate and two land development borrowers.

As of September 30, 2011, total non-performing loans included $225 million of real estate loans, of which $101 million were construction loans and $91 million were commercial real estate loans. Non-performing construction loans as of September 30, 2011 were comprised of land acquisition and development loans of $65 million, commercial construction loans of $21 million and residential construction loans of $15 million.

Non-accrual loans decreased $6 million during third quarter 2011, as compared to second quarter 2011. Decreases to non-accrual loans due to charge-off, pay-off or foreclosure were largely offset by increases from two commercial and four real estate borrowers.

OREO decreased during third quarter 2011, as compared to second quarter 2011 and third quarter 2010. During third quarter 2011, the Company recorded additions to OREO of $3 million, wrote down the fair value of OREO properties by $2 million and sold OREO with a net book value of $4 million. As of September 30, 2011, approximately 68% of total OREO was comprised of properties located in the Flathead, Gallatin Valley and Jackson market areas.

Fluctuations in the provision for loan losses result from management’s assessment of the adequacy of the Company’s allowance for loan losses. Management expects quarterly provisions for loan losses to decline as credit quality improves.

Following is a summary of the Company’s credit quality trends since the start of 2009.

CREDIT QUALITY TRENDS
(Unaudited; $ in thousands)
	Provisions				Allowance		Loans
	for		Net		for		30 - 89 Days		Non-Performing		Non-Performing
	Loan Losses		Charge-offs		Loan Losses		Past Due		Loans		Assets
Q1 2009	$	9,600	$	4,693	$	92,223	$	98,980	$	103,653	$	122,300
Q2 2009		11,700		5,528		98,395		88,632		135,484		167,273
Q3 2009		10,500		7,147		101,748		91,956		125,083		156,958
Q4 2009		13,500		12,218		103,030		63,878		124,678		163,078
Q1 2010		11,900		8,581		106,349		62,675		133,042		177,022
Q2 2010		19,500		11,521		114,328		99,334		158,113		200,451
Q3 2010		18,000		12,092		120,236		47,966		202,008		237,304
Q4 2010		17,500		17,256		120,480		57,011		210,684		244,312
Q1 2011		15,000		11,034		124,446		68,021		249,878		281,873
Q2 2011		15,400		15,267		124,579		70,145		263,467		291,790
Q3 2011		14,000		18,276		120,303		62,165		262,578		287,658

Following is a summary of the Company's criticized loans since the start of 2009.

CRITICIZED LOANS
(Unaudited; $ in thousands)
	Other Assets
	Especially
	Mentioned		Substandard		Doubtful		Total
Q1 2009	$	163,402	$	231,861	$	40,356	$	435,619
Q2 2009		230,833		242,751		48,326		521,910
Q3 2009		239,320		271,487		60,725		571,532
Q4 2009		279,294		271,324		69,603		620,221
Q1 2010		312,441		311,866		64,113		688,420
Q2 2010		319,130		337,758		92,249		749,137
Q3 2010		340,075		340,973		116,003		797,051
Q4 2010		305,925		303,653		133,353		742,931
Q1 2011		293,899		299,072		135,862		728,833
Q2 2011		268,450		309,029		149,964		727,443
Q3 2011		261,501		305,145		134,367		701,013

“We’re pleased to see the continued downward trend in our criticized loans. While we don’t anticipate this level of charge-offs in future quarters, we do expect they will continue to be elevated for the foreseeable future and we’ll see volatility in this number as we continue to work through our problem loans,” said Lyle R. Knight, President and Chief Executive Officer for First Interstate BancSystem, Inc.

ASSETS
(Unaudited; $ in thousands)
							Sequential		Year
	September 30,		June 30,		September 30,		Quarter		Over Year
	2011		2011		2010		% Change		% Change
Cash and cash equivalents	$	504,227	$	415,491	$	542,355	21.4	%	-7.0	%
Investment securities		2,045,796		2,022,729		1,829,424	1.1	%	11.8	%
Loans		4,275,717		4,281,260		4,452,387	-0.1	%	-4.0	%
Less allowance for loan losses		120,303		124,579		120,236	-3.4	%	0.1	%
Net loans		4,155,414		4,156,681		4,332,151	0.0	%	-4.1	%
Other assets		601,717		607,890		625,271	-1.0	%	-3.8	%
Total assets	$	7,307,154	$	7,202,791	$	7,329,201	1.4	%	-0.3	%

LOANS
(Unaudited; $ in thousands)
							Sequential		Year
	September 30,		June 30,		September 30,		Quarter		Over Year
	2011		2011		2010		% Change		% Change
Real estate loans:
Commercial	$	1,561,788	$	1,555,964	$	1,565,525	0.4	%	-0.2	%
Construction:
Land acquisition & development		296,407		312,690		360,890	-5.2	%	-17.9	%
Commercial		67,261		76,740		91,713	-12.4	%	-26.7	%
Residential		64,098		63,364		111,545	1.2	%	-42.5	%
Total construction loans		427,766		452,794		564,148	-5.5	%	-24.2	%
Residential		586,425		578,739		544,952	1.3	%	7.6	%
Agriculture		177,121		177,728		189,895	-0.3	%	-6.7	%
Total real estate loans		2,753,100		2,765,225		2,864,520	-0.4	%	-3.9	%
Consumer:
Indirect consumer loans		415,245		413,825		432,869	0.3	%	-4.1	%
Other consumer loans		151,611		152,704		165,725	-0.7	%	-8.5	%
Credit card loans		60,283		59,655		59,222	1.1	%	1.8	%
Total consumer loans		627,139		626,184		657,816	0.2	%	-4.7	%
Commercial		703,010		724,158		739,151	-2.9	%	-4.9	%
Agricultural		136,728		133,898		134,689	2.1	%	1.5	%
Other loans, including overdrafts		3,252		3,297		2,489	-1.4	%	30.7	%
Total loans held for investment		4,223,229		4,252,762		4,398,665	-0.7	%	-4.0	%
Mortgage loans held for sale		52,488		28,498		53,722	84.2	%	-2.3	%
Total loans	$	4,275,717	$	4,281,260	$	4,452,387	-0.1	%	-4.0	%

As of September 30, 2011, total loans decreased, as compared to June 30, 2011 and September 30, 2010, primarily due to sluggish commercial and consumer growth amid economic uncertainty as well as the movement of lower quality loans out of the loan portfolio through charge-off, pay-off or foreclosure.

LIABILITIES
(Unaudited; $ in thousands)
							Sequential		Year
	September 30,		June 30,		September 30,		Quarter		Over Year
	2011		2011		2010		% Change		% Change
Deposits	$	5,851,319	$	5,794,665	$	5,902,181	1.0	%	-0.9	%
Securities sold under repurchase agreements		475,522		435,039		455,861	9.3	%	4.3	%
Accounts payable and accrued expenses		37,266		35,395		44,313	5.3	%	-15.9	%
Accrued interest payable		8,786		11,712		15,241	-25.0	%	-42.4	%
Long-term debt		37,469		37,480		37,513	0.0	%	-0.1	%
Other borrowed funds		5,122		5,440		5,674	-5.8	%	-9.7	%
Subordinated debentures held by subsidiary trusts		123,715		123,715		123,715	0.0	%	0.0	%
Total liabilities	$	6,539,199	$	6,443,446	$	6,584,498	1.5	%	-0.7	%

DEPOSITS
(Unaudited; $ in thousands)
							Sequential		Year
	September 30,		June 30,		September 30,		Quarter		Over Year
	2011		2011		2010		% Change		% Change
Non-interest bearing demand	$	1,243,703	$	1,109,905	$	1,098,375	12.1	%	13.2	%
Interest bearing:
Demand		1,308,122		1,233,039		1,144,415	6.1	%	14.3	%
Savings		1,662,602		1,703,548		1,599,774	-2.4	%	3.9	%
Time, $100 and over		704,518		772,567		981,941	-8.8	%	-28.3	%
Time, other		932,374		975,606		1,077,676	-4.4	%	-13.5	%
Total interest bearing		4,607,616		4,684,760		4,803,806	-1.6	%	-4.1	%
Total deposits	$	5,851,319	$	5,794,665	$	5,902,181	1.0	%	-0.9	%

Deposits increased slightly as of September 30, 2011, as compared to June 30, 2011 and decreased slightly compared to September 30, 2010. During third quarter 2011, the Company continued to experience a shift in the mix of deposits away from higher-costing time deposits to lower-costing demand deposits.

STOCKHOLDERS' EQUITY
(Unaudited, $ in thousands, except per share data)
							Sequential		Year
	September 30,		June 30,		September 30,		Quarter		Over Year
	2011		2011		2010		% Change		% Change
Preferred stockholders' equity	$	50,000	$	50,000	$	50,000	0.0	%	0.0	%
Common stockholders' equity		693,873		686,948		671,755	1.0	%	3.3	%
Accumulated other comprehensive income, net		24,082		22,397		22,948	7.5	%	4.9	%
Total stockholders' equity	$	767,955	$	759,345	$	744,703	1.1	%	3.1	%
Book value per common share	$	16.70	$	16.51	$	16.23	1.2	%	2.9	%
Tangible book value per common share*	$	12.25	$	12.05	$	11.72	1.7	%	4.5	%
Net tangible book value per common share*	$	13.66	$	13.45	$	13.14	1.6	%	4.0	%
*See Non-GAAP Financial Measures included herein for a discussion of tangible and net tangible book value per common share.

On September 23, 2011, the Company declared a quarterly dividend to common shareholders of $0.1125 per share. This dividend was paid on October 17, 2011 to shareholders of record as of October 3, 2011.

CAPITAL RATIOS
(Unaudited)
	September 30,	June 30,	September 30,
	2011	2011	2010
Tangible common stockholders' equity to tangible assets*	7.40%	7.38%	7.03%
Net tangible common stockholders' equity to tangible assets*	8.25%	8.24%	7.88%
Tier 1 common capital to total risk weighted assets	10.78%	10.56%	9.85%
Leverage ratio	9.77%**	9.69%	9.38%
Tier 1 risk-based capital	14.28%**	14.03%	13.22%
Total risk-based capital	16.26%**	16.01%	15.18%
*See Non-GAAP Financial Measures included herein for a discussion of tangible and net tangible common stockholders' equity to tangible assets.
**Preliminary estimate - may be subject to change.

As of September 30, 2011, the Company had capital levels that, in all cases, exceeded the “well capitalized” requirements under all regulatory capital guidelines.

Third Quarter 2011 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss third quarter 2011 results at 11:00 a.m. Eastern Time (9:00 a.m. MDT) on Tuesday, October 25, 2011. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-877-317-6789 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. MDT) on October 25, 2011 through November 28, 2011 by dialing 1-877-344-7529 (using conference ID 10004691). 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 71 banking offices in 42 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 Statement

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are covered by the safe harbor provisions of such sections. These statements include statements about decreased levels of criticized loans, stabilization of the loan portfolio, the Company’s level of allowance for loan losses, manageability of credit costs and levels of profitability. Therefore, the Company’s actual results, performance or achievements may differ materially from those expressed in or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions.

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 release:

• credit losses;
• concentrations of real estate loans;
• economic and market developments, including inflation;
• commercial loan risk;
• adequacy of the allowance for loan losses;
• impairment of goodwill;
• changes in interest rates;
• access to low-cost funding sources;
• increases in deposit insurance premiums;
• inability to grow business;
• adverse economic conditions affecting Montana, Wyoming and western South Dakota;
• governmental regulation and changes in regulatory, tax and accounting rules and interpretations;
• sweeping changes in regulation of financial institutions due to passage of the Dodd-Frank Act;
• changes in or noncompliance with governmental regulations;
• effects of recent legislative and regulatory efforts to stabilize financial markets;
• dependence on the Company’s management team;
• ability to attract and retain qualified employees;
• failure of technology;
• reliance on external vendors;
• disruption of vital infrastructure and other business interruptions;
• illiquidity in the credit markets;
• inability to meet liquidity requirements;
• lack of acquisition candidates;
• failure to manage growth;
• competition;
• inability to manage risks in turbulent and dynamic market conditions;
• ineffective internal operational controls;
• environmental remediation and other costs;
• failure to effectively implement technology-driven products and services;
• litigation pertaining to fiduciary responsibilities;
• capital required to support the Company’s bank subsidiary;
• soundness of other financial institutions;
• impact of Basel III capital standards and forthcoming new capital rules proposed for U.S. banks;
• inability of our bank subsidiary to pay dividends;
• change in dividend policy;
• lack of public market for our Class A common stock;
• volatility of Class A common stock;
• voting control of Class B stockholders;
• 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;
• anti-takeover provisions;
• controlled company status; and
• subordination of common stock to Company debt.

A more detailed discussion of each of the foregoing risks is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed February 28, 2011. These factors and the other risk factors described in the Company’s periodic and current reports filed with the Securities and Exchange Commission from time to time, however, are not necessarily all of the important factors that could cause the Company’s actual results, performance or achievements to differ materially from those expressed in or implied by any of the Company’s forward-looking statements. Other unknown or unpredictable factors also could harm the Company’s results. Investors and others are encouraged to read the more detailed discussion of the Company’s risks contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

All forward-looking statements attributable to the Company or persons acting on the Company’s 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 the Company does 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 the Company updates one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements.

CONSOLIDATED BALANCE SHEETS
(Unaudited, $ in thousands)
	September 30,		June 30,		September 30,
	2011		2011		2010
Assets
Cash and due from banks	$	135,229	$	130,413	$	124,933
Federal funds sold		2,119		1,764		774
Interest bearing deposits in banks		366,879		283,314		416,648
Total cash and cash equivalents		504,227		415,491		542,355
Investment securities:
Available-for-sale		1,896,385		1,873,864		1,692,426
Held-to-maturity (estimated fair values of $157,639, $153,448 and $141,543 as of September 30, 2011, June 30, 2011 and September 30, 2010, respectively)		149,411		148,865		136,998
Total investment securities		2,045,796		2,022,729		1,829,424
Loans held for investment		4,223,229		4,252,762		4,398,665
Mortgage loans held for sale		52,488		28,498		53,722
Total loans		4,275,717		4,281,260		4,452,387
Less allowance for loan losses		120,303		124,579		120,236
Net loans		4,155,414		4,156,681		4,332,151
Premises and equipment, net of accumulated depreciation		185,742		186,529		192,021
Goodwill		183,673		183,673		183,673
Company-owned life insurance		74,362		74,080		72,867
Accrued interest receivable		34,994		33,588		35,296
Other real estate owned, net of write-downs		25,080		28,323		37,251
Mortgage servicing rights, net of accumulated amortization and impairment reserve		11,909		13,218		14,505
Deferred tax asset		8,393		10,466		-
Core deposit intangibles, net of accumulated amortization		7,719		8,080		9,235
Other assets		69,845		69,933		80,423
Total assets	$	7,307,154	$	7,202,791	$	7,329,201
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing	$	1,243,703	$	1,109,905	$	1,098,375
Interest bearing		4,607,616		4,684,760		4,803,806
Total deposits		5,851,319		5,794,665		5,902,181
Securities sold under repurchase agreements		475,522		435,039		455,861
Accounts payable and accrued expenses		37,266		35,395		44,313
Accrued interest payable		8,786		11,712		15,241
Long-term debt		37,469		37,480		37,513
Other borrowed funds		5,122		5,440		5,674
Subordinated debentures held by subsidiary trusts		123,715		123,715		123,715
Total liabilities		6,539,199		6,443,446		6,584,498
Stockholders' equity:
Preferred stock		50,000		50,000		50,000
Common stock		266,317		265,639		263,719
Retained earnings		427,556		421,309		408,036
Accumulated other comprehensive income, net		24,082		22,397		22,948
Total stockholders' equity		767,955		759,345		744,703
Total liabilities and stockholders' equity	$	7,307,154	$	7,202,791	$	7,329,201

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, $ in thousands, except per share data)
	Three Months ended
	September 30,		June 30,		September 30,
	2011		2011		2010
Interest income:
Interest and fees on loans	$	61,372	$	61,475	$	67,033
Interest and dividends on investment securities:
Taxable		10,721		10,649		10,540
Exempt from federal taxes		1,188		1,194		1,137
Interest on deposits in banks		200		227		252
Interest on federal funds sold		2		6		3
Total interest income		73,483		73,551		78,965
Interest expense:
Interest on deposits		7,905		8,903		12,973
Interest on securities sold under repurchase agreements		137		171		209
Interest on other borrowed funds		-		-		1
Interest on long-term debt		498		495		512
Interest on subordinated debentures held by subsidiary trusts		1,451		1,455		1,526
Total interest expense		9,991		11,024		15,221
Net interest income		63,492		62,527		63,744
Provision for loan losses		14,000		15,400		18,000
Net interest income after provision for loan losses		49,492		47,127		45,744
Non-interest income:
Other service charges, commissions and fees		8,479		7,768		7,821
Service charges on deposit accounts		4,609		4,385		4,497
Income from the origination and sale of loans		5,512		4,109		7,355
Wealth management revenues		3,202		3,483		3,091
Investment securities gains, net		38		16		66
Other income		1,285		1,830		2,025
Total non-interest income		23,125		21,591		24,855
Non-interest expense:
Salaries, wages and employee benefits		26,888		27,889		27,994
Occupancy, net		4,180		4,013		3,939
Furniture and equipment		3,018		3,129		3,411
Outsourced technology services		2,235		2,212		2,402
FDIC insurance premiums		1,631		1,629		2,337
Other real estate owned expense, net of income		2,878		2,042		2,608
Mortgage servicing rights amortization		807		671		1,221
Mortgage servicing rights impairment		1,168		27		1,991
Core deposit intangibles amortization		362		361		437
Other expenses		11,874		12,219		11,670
Total non-interest expense		55,041		54,192		58,010
Income before income tax expense		17,576		14,526		12,589
Income tax expense		5,655		4,672		3,860
Net income		11,921		9,854		8,729
Preferred stock dividends		862		853		862
Net income available to common shareholders	$	11,059	$	9,001	$	7,867
Basic earnings per common share	$	0.26	$	0.21	$	0.18
Diluted earnings per common share	$	0.26	$	0.21	$	0.18

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, $ in thousands, except per share data)
	Nine Months ended
	September 30,		September 30,
	2011		2010
Interest income:
Interest and fees on loans	$	185,238	$	201,428
Interest and dividends on investment securities:
Taxable		31,281		32,673
Exempt from federal taxes		3,553		3,476
Interest on deposits in banks		794		733
Interest on federal funds sold		11		21
Total interest income		220,877		238,331
Interest expense:
Interest on deposits		26,679		42,747
Interest on securities sold under repurchase agreements		545		632
Interest on other borrowed funds		-		3
Interest on long-term debt		1,482		1,940
Interest on subordinated debentures held by subsidiary trusts		4,354		4,420
Total interest expense		33,060		49,742
Net interest income		187,817		188,589
Provision for loan losses		44,400		49,400
Net interest income after provision for loan losses		143,417		139,189
Non-interest income:
Other service charges, commissions and fees		23,627		22,073
Service charges on deposit accounts		13,104		13,854
Income from the origination and sale of loans		13,066		14,841
Wealth management revenues		9,980		9,304
Investment securities gains, net		56		108
Other income		5,042		5,220
Total non-interest income		64,875		65,400
Non-interest expense:
Salaries, wages and employee benefits		82,479		83,451
Occupancy, net		12,408		12,044
Furniture and equipment		9,367		10,108
Outsourced technology services		6,688		7,100
FDIC insurance premiums		5,726		7,460
Other real estate owned expense, net of income		6,631		6,129
Mortgage servicing rights amortization		2,285		3,469
Mortgage servicing rights impairment		848		2,212
Core deposit intangibles amortization		1,085		1,316
Other expenses		34,674		32,892
Total non-interest expense		162,191		166,181
Income before income tax expense		46,101		38,408
Income tax expense		14,820		11,890
Net income		31,281		26,518
Preferred stock dividends		2,559		2,559
Net income available to common shareholders	$	28,722	$	23,959
Basic earnings per common share	$	0.67	$	0.61
Diluted earnings per common share	$	0.67	$	0.61

AVERAGE BALANCE SHEETS
(Unaudited, $ in thousands)
	For the three months ended
	September 30, 2011							June 30, 2011							September 30, 2010
	Average					Average		Average					Average		Average					Average
	Balance		Interest			Rate		Balance		Interest			Rate		Balance		Interest			Rate
Interest earning assets:
Loans (1) (2)	$	4,291,632	$	61,801		5.71	%	$	4,269,637	$	61,926		5.82	%	$	4,504,657	$	67,473		5.94	%
Investment securities (2)		2,064,019		12,594		2.42			2,019,187		12,533		2.49			1,720,925		12,333		2.84
Interest bearing deposits in banks		311,768		200		0.25			359,446		227		0.25			392,149		252		0.25
Federal funds sold		1,858		2		0.43			3,871		6		0.62			2,299		3		0.52
Total interest earnings assets		6,669,277		74,597		4.44			6,652,141		74,692		4.50			6,620,030		80,061		4.80
Non-earning assets		615,472							617,221							658,680
Total assets	$	7,284,749						$	7,269,362						$	7,278,710
Interest bearing liabilities:
Demand deposits	$	1,265,339	$	775		0.24		$	1,263,466	$	847		0.27		$	1,127,006	$	842		0.30
Savings deposits		1,712,739		1,478		0.34			1,711,210		1,753		0.41			1,555,510		2,199		0.56
Time deposits		1,699,633		5,652		1.32			1,780,542		6,303		1.42			2,119,083		9,931		1.86
Repurchase agreements		477,612		137		0.11			469,459		171		0.15			464,655		209		0.18
Other borrowed funds		5,584		-		-			5,459		-		-			5,256		1		0.08
Long-term debt		37,473		498		5.27			37,485		495		5.30			37,658		512		5.39
Subordinated debentures held by subsidiary trusts		123,715		1,451		4.65			123,715		1,455		4.72			123,715		1,526		4.89
Total interest bearing liabilities		5,322,095		9,991		0.74			5,391,336		11,024		0.82			5,432,883		15,220		1.11
Non-interest bearing deposits		1,153,800							1,089,909							1,046,112
Other non-interest bearing liabilities		47,412							47,791							59,515
Stockholders' equity		761,442							740,326							740,200
Total liabilities and stockholders' equity	$	7,284,749						$	7,269,362						$	7,278,710
Net FTE interest income			$	64,606						$	63,668						$	64,841
Less FTE adjustments (2)				(1,114	)						(1,141	)						(1,097	)
Net interest income from consolidated statements of income			$	63,492						$	62,527						$	63,744
Interest rate spread						3.70	%						3.68	%						3.69	%
Net FTE interest margin (3)						3.84	%						3.84	%						3.89	%
Cost of funds, including non-interest bearing demand deposits (4)						0.61	%						0.68	%						0.93	%
(1) Average loan balances include non-accrual loans. Interest income on loans includes amortization of deferred loan fees net of deferred loan costs, which is not material.
(2) Interest income and average rates for tax exempt loans and securities are presented on a FTE basis.
(3) Net FTE interest margin during the period equals the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by average interest earning assets for the period.
(4) Calculated by dividing total interest on total interest bearing liabilities by the sum of total interest bearing liabilities plus non-interest bearing deposits.

AVERAGE BALANCE SHEETS
(Unaudited, $ in thousands)
	For the nine months ended September 30,
	2011							2010
	Average					Average		Average					Average
	Balance		Interest			Rate		Balance		Interest			Rate
Interest earning assets:
Loans (1) (2)	$	4,288,237	$	186,564		5.82	%	$	4,509,206	$	202,797		6.01	%
Investment securities (2)		2,010,966		36,885		2.45			1,600,451		38,155		3.19
Interest bearing deposits in banks		418,661		794		0.25			384,964		733		0.25
Federal funds sold		2,656		11		0.55			7,933		21		0.35
Total interest earnings assets		6,720,520		224,254		4.46			6,502,554		241,706		4.97
Non-earning assets		618,367							675,244
Total assets	$	7,338,887						$	7,177,798
Interest bearing liabilities:
Demand deposits		1,259,421		2,456		0.26	%		1,118,951		2,551		0.30	%
Savings deposits		1,722,782		5,231		0.41			1,481,547		6,842		0.62
Time deposits		1,784,256		18,992		1.42			2,195,029		33,353		2.03
Repurchase agreements		505,313		545		0.14			461,652		632		0.18
Other borrowed funds		5,579		-		-			5,760		3		0.07
Long-term debt		37,485		1,482		5.29			48,895		1,940		5.30
Subordinated debentures held by subsidiary trusts		123,715		4,354		4.71			123,715		4,420		4.78
Total interest bearing liabilities		5,438,551		33,060		0.81			5,435,549		49,741		1.22
Non-interest bearing deposits		1,105,122							996,290
Other non-interest bearing liabilities		48,726							61,138
Stockholders' equity		746,488							684,821
Total liabilities and stockholders' equity	$	7,338,887						$	7,177,798
Net FTE interest income			$	191,194						$	191,965
Less FTE adjustments (2)				(3,377	)						(3,376	)
Net interest income from consolidated statements of income			$	187,817						$	188,589
Interest rate spread						3.65	%						3.75	%
Net FTE interest margin (3)						3.80	%						3.95	%
Cost of funds, including non-interest bearing demand deposits (4)						0.68	%						1.03	%
(1) Average loan balances include non-accrual loans. Interest income on loans includes amortization of deferred loan fees net of deferred loan costs, which is not material.
(2) Interest income and average rates for tax exempt loans and securities are presented on a FTE basis.
(3) Net FTE interest margin during the period equals the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by average interest earning assets for the period.
(4) Calculated by dividing total interest on total interest bearing liabilities by the sum of total interest bearing liabilities plus non-interest bearing deposits.

Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principals in the United States of America, or GAAP, this release contains the following non-GAAP financial measures that management uses to evaluate capital adequacy: (i) tangible book value per common share; (ii) net tangible book value per common share; (iii) tangible common stockholders’ equity to tangible assets; (iv) net tangible common stockholders’ equity to tangible assets; and (v) tangible assets.

For purposes of computing tangible book value per common share, tangible book value equals common stockholders’ equity less goodwill and other intangible assets (except mortgage servicing rights). Tangible book value per common share is calculated as tangible common stockholders’ equity divided by shares of common stock outstanding.

For purposes of computing net tangible book value per common share, net tangible book value equals common stockholders’ equity less goodwill (adjusted for associated deferred tax liability) and other intangible assets (except mortgage servicing rights). Net tangible book value per common share is calculated as net tangible common stockholders’ equity divided by shares of common stock outstanding. The Company’s goodwill as of September 30, 2011 was $184 million, of which approximately $159 million is deductible for income tax purposes over an original period of 15 years. The calculation of net tangible book value takes into account the full amount of tax benefit of approximately $60 million associated with deductible goodwill assuming the Company will continue to have income sufficient to allow it to recognize this benefit in future periods.

For purposes of computing tangible common stockholders’ equity to tangible assets, tangible assets equals total assets less goodwill and other intangible assets (except mortgage servicing rights). Tangible common stockholders’ equity to tangible assets is calculated as tangible common stockholders’ equity divided by tangible assets.

For purposes of computing net tangible common stockholders’ equity to tangible assets, net tangible common stockholders’ equity equals common stockholders’ equity less goodwill (adjusted for associated deferred tax liability) and other intangible assets (except mortgage servicing rights). Net tangible common stockholders’ equity to tangible assets is calculated as net tangible common stockholders’ equity divided by tangible assets.

Management believes that these non-GAAP financial measures are valuable indicators of a financial institution’s capital strength since they eliminate intangible assets from stockholders’ equity and retain the effect of unrealized losses on securities and other components of accumulated other comprehensive income (loss) in stockholders’ equity. Management also believes that such 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 our capitalization to other companies. These non-GAAP financial measures, however, 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 following table reconciles the above described non-GAAP financial measures to their most directly comparable GAAP financial measures as of the dates indicated.

NON-GAAP FINANCIAL MEASURES
(Unaudited; $ in thousands except share and per share data)
	September 30,			June 30,			September 30,
	2011			2011			2010
Total stockholders' equity (GAAP)	$	767,955		$	759,345		$	744,703
Less goodwill and other intangible assets (excluding mortgage servicing rights)		191,428			191,792			192,952
Less preferred stock		50,000			50,000			50,000
Tangible common stockholders' equity (Non-GAAP)	$	526,527		$	517,553		$	501,751
Add deferred tax liability for deductible goodwill		60,499			60,499			60,499
Net tangible common stockholders' equity (Non-GAAP)	$	587,026		$	578,052		$	562,250
Common shares outstanding		42,979,732			42,964,921			42,798,040
Book value per common share	$	16.70		$	16.51		$	16.23
Tangible book value per common share	$	12.25		$	12.05		$	11.72
Net tangible book value per common share	$	13.66		$	13.45		$	13.14
Total assets (GAAP)	$	7,307,154		$	7,202,791		$	7,329,201
Less goodwill and other intangible assets (excluding mortgage servicing rights)		191,428			191,792			192,952
Tangible assets (Non-GAAP)	$	7,115,726		$	7,010,999		$	7,136,249
Tangible common stockholders' equity to tangible assets (Non-GAAP)		7.40	%		7.38	%		7.03	%
Net tangible common stockholders' equity to tangible assets (Non-GAAP)		8.25	%		8.24	%		7.88	%