First Interstate BancSystem, Inc. Reports Second Quarter 2012 Results

BILLINGS, Mont.--(BUSINESS WIRE)--First Interstate BancSystem, Inc. (NASDAQ:FIBK) reports second quarter 2012 net income available to common shareholders of $12.2 million, or $0.28 per diluted share, as compared to $11.4 million, or $0.26 per diluted share, for first quarter 2012 and $9.0 million, or $0.21 per diluted share, for second quarter 2011.

Significant financial statement items for the second quarter of 2012 include:

• Total revenues of $88.8 million during the three months ended June 30, 2012 represented a 2.1% increase over the prior quarter and a 5.6% increase over the same quarter of the prior year;
• Non-performing assets decreased $41.4 million to $226.2 million, or 3.10% of total assets, as of June 30, 2012, compared to 3.60% of total assets as of March 31, 2012 and 4.05% of total assets as of June 30, 2011;
• Provisions for loan losses were $12.0 million for the three months ended June 30, 2012, compared to $11.3 million for the three months ended March 31, 2012 and $15.4 million for the three months ended June 30, 2011;
• Net charge-offs were $25.1 million during the three months ended June 30, 2012, compared to $7.9 million during the three months ended March 31, 2012 and $15.3 million during the three months ended June 30, 2011; and
• The June 26, 2012 redemption of $41.2 million of 30-year floating rate junior subordinated deferrable interest debentures.

RESULTS SUMMARY
(Unaudited; $ in thousands, except per share data)
	As Of or For the Three Months Ended									Sequential Quarter % Change		Year Over Year % Change
	June 30, 2012			March 31, 2012			June 30, 2011
Net income available to common shareholders	$	12,157		$	11,361		$	9,001		7.0	%	35.1	%
Diluted earnings per common share	0.28			0.26			0.21			7.7	%	33.3	%
Dividends paid per common share	0.1200			0.1200			0.1125			0.0	%	6.7	%
Book value per common share	17.03			16.88			16.51			0.9	%	3.1	%
Tangible book value per common share*	12.63			12.47			12.05			1.3	%	4.8	%
Net tangible book value per common share*	14.03			13.87			13.45			1.2	%	4.3	%
Return on average common equity, annualized	6.69		%	6.32		%	5.23		%
Return on average assets, annualized	0.71		%	0.67		%	0.54		%

	For the Six Months Ended					Year Over Year % Change
	June 30, 2012			June 30, 2011
Net income available to common shareholders	$	23,518		17,663		33.1	%
Diluted earnings per common share	0.55			0.41		34.1	%
Dividends paid per common share	0.2400			0.2250		6.7	%
Return on average common equity, annualized	6.50		%	5.17	%
Return on average assets, annualized	0.69		%	0.53	%
* See Non-GAAP Financial Measures included herein for a discussion regarding tangible and net tangible book value per common share.

“We continue to generate strong year-over-year earnings growth, with our second quarter earnings per share increasing by 33% from the same period last year,” said Ed Garding, President and Chief Executive Officer of First Interstate BancSystem, Inc. “We are seeing stable to positive trends in most areas of the business, including an improving deposit mix, continued steady declines in our level of criticized loans and strong capital ratios. We are also starting to see a higher volume of resolutions to problem loans, which is resulting in an overall improvement in our asset quality,” Garding further noted.

REVENUE SUMMARY
(Unaudited; $ in thousands)
	For the Three Months Ended									Sequential Quarter % Change		Year Over Year % Change
	June 30, 2012			March 31, 2012			June 30, 2011
Interest income	$	69,067		$	69,057		$	73,551		0.0	%	-6.1	%
Interest expense	7,893			8,423			11,024			-6.3	%	-28.4	%
Net interest income	61,174			60,634			62,527			0.9	%	-2.2	%
Non-interest income:
Income from the origination and sale of loans	9,420			8,384			4,109			12.4	%	129.3	%
Other service charges, commissions and fees	8,254			8,424			7,768			-2.0	%	6.3	%
Service charges on deposit accounts	4,455			4,161			4,385			7.1	%	1.6	%
Wealth management revenues	3,815			3,283			3,689			16.2	%	3.4	%
Investment securities gains, net	198			31			16			538.7	%	1,137.5	%
Other income	1,520			2,099			1,624			-27.6	%	-6.4	%
Total non-interest income	27,662			26,382			21,591			4.9	%	28.1	%
Total revenues	$	88,836		$	87,016		$	84,118		2.1	%	5.6	%
Tax equivalent interest margin ratio	3.74		%	3.72		%	3.84		%

	For the Six Months Ended						Year Over Year % Change
	June 30, 2012			June 30, 2011
Interest income	$	138,124		$	147,394		-6.3	%
Interest expense	16,316			23,069			-29.3	%
Net interest income	121,808			124,325			-2.0	%
Non-interest income:
Income from the origination and sale of loans	17,804			7,554			135.7	%
Other service charges, commissions and fees	16,678			15,148			10.1	%
Service charges on deposit accounts	8,616			8,495			1.4	%
Wealth management revenues	7,098			6,999			1.4	%
Investment securities gains, net	229			18			1,172.2	%
Other income	3,619			3,536			2.3	%
Total non-interest income	54,044			41,750			29.4	%
Total revenues	$	175,852		$	166,075		5.9	%
Tax equivalent interest margin ratio	3.73		%	3.78		%

Net Interest Income

The Company's net interest margin ratio increased to 3.74% during second quarter 2012, as compared to 3.72% during first quarter 2012, primarily due to the recovery of $766 thousand of previously charged-off interest. Exclusive of interest recoveries, the Company's net interest margin ratio would have been approximately 3.70% during second quarter 2012.

Decreases in net interest margin ratio during the three and six months ended June 30, 2012, as compared to the same periods in 2011, were due to lower outstanding loan balances and lower yields earned on the Company's loan and investment portfolios, which were partially offset by reductions in the cost of interest bearing liabilities combined with a shift from higher-costing savings and time deposits to lower-costing demand deposits.

Non-interest Income

Non-interest income increased during the three and six months ended June 30, 2012, as compared to the same periods in the prior year and the three months ended March 31, 2012, primarily due to increases in income from the origination and sale of residential mortgage loans. While refinancing activity represented 59% of the Company's residential loan origination activity during second quarter 2012, new loans for home purchases increased 68% over the prior quarter and 41% from second quarter 2011.

Other income decreased during second quarter 2012, as compared to first quarter 2012 and second quarter 2011, primarily due to fluctuations in earnings on securities held under deferred compensation plans. Decreases in earnings on securities held under deferred compensation plans were partially offset by a $581 thousand gain on the sale of a bank building during second quarter 2012.

NON-INTEREST EXPENSE
(Unaudited; $ in thousands)
	For the Three Months Ended							Sequential Quarter % Change		Year Over Year % Change
	June 30, 2012		March 31, 2012			June 30, 2011
Non-interest expense:
Salaries and wages	$	21,640	$	21,564		$	20,554	0.4	%	5.3	%
Employee benefits	6,819		8,966			7,335		-23.9	%	-7.0	%
Occupancy, net	4,037		3,988			4,013		1.2	%	0.6	%
Furniture and equipment	3,189		3,138			3,129		1.6	%	1.9	%
Outsourced technology services	2,179		2,266			2,212		-3.8	%	-1.5	%
Other real estate owned ("OREO") expense, net of income	1,806		1,105			2,042		63.4	%	-11.6	%
FDIC insurance premiums	1,601		1,595			1,629		0.4	%	-1.7	%
Professional fees	1,002		933			726		7.4	%	38.0	%
Mortgage servicing rights amortization	817		895			671		-8.7	%	21.8	%
Mortgage servicing rights impairment (recovery)	52		(868		)	27		106.0	%	92.6	%
Core deposit intangibles amortization	355		355			361		0.0	%	-1.7	%
Other expenses	13,802		13,503			11,493		2.2	%	20.1	%
Total non-interest expense	$	57,299	$	57,440		$	54,192	-0.2	%	5.7	%

	For the Six Months Ended						Year Over Year % Change
	June 30, 2012			June 30, 2011
Non-interest expense:
Salaries and wages	$	43,204		$	40,757		6.0	%
Employee benefits	15,785			14,834			6.4	%
Occupancy, net	8,025			8,228			-2.5	%
Furniture and equipment	6,327			6,349			-0.3	%
Outsourced technology services	4,445			4,453			-0.2	%
FDIC insurance premiums	3,196			4,095			-22.0	%
OREO expense, net of income	2,911			3,753			-22.4	%
Professional fees	1,935			1,505			28.6	%
Mortgage servicing rights amortization	1,712			1,478			15.8	%
Mortgage servicing rights impairment recovery	(816		)	(320		)	155.0	%
Core deposit intangibles amortization	710			723			-1.8	%
Other expenses	27,305			21,295			28.2	%
Total non-interest expense	$	114,739		$	107,150		7.1	%

Salaries and wages expense increased during the three and six months ended June 30, 2012, as compared to the same periods in the prior year primarily due to increases in incentive compensation paid in the form of commissions and overtime to the Company's real estate lenders and processors, higher incentive bonus accruals reflective of the Company's improved performance during the first half of 2012 and inflationary wage increases.

Employee benefits expense decreased during second quarter 2012, as compared to first quarter 2012, primarily due to decreases in the market value of securities held under deferred compensation plans and lower payroll tax and group insurance expenses. During second quarter 2012, fluctuations in the market value of securities held under deferred compensation plans resulted in a decrease in employee benefits expense of $356 thousand, as compared to an increase in employee benefits expense of $474 thousand during first quarter 2012 and $197 thousand during second quarter 2011.

For the six months ended June 30, 2012, as compared to the same period in 2011, decreases in the market values of securities held under deferred compensation plans were more than offset by increases in stock-based compensation expense, higher profit sharing accruals reflective of improved performance and increases in group medical insurance costs.

Increases in OREO expense during second quarter 2012, as compared to first quarter of 2012, were attributable to additional carrying costs associated with properties foreclosed during the period. Second quarter 2012 OREO expense included net operating expenses of $1.3 million, compared with net operating expenses of $453 thousand during first quarter 2012. Decreases in OREO expense during the three and six months ended June 30, 2012, as compared to the same periods in the prior year, were primarily the result of write-downs in the estimated fair value of OREO properties. During the three and six months ended June 30, 2012, the Company wrote-down the estimated fair value of OREO properties by $580 thousand and $1.1 million, respectively, as compared to write-downs of $2.0 million and $3.5 million during the same respective periods in the prior year.

Included in other expenses for second quarter 2012, is $1.5 million of donation expense associated with the second quarter 2012 sale of a bank building to a charitable organization. In addition, unamortized issuance costs of $428 thousand associated with redeemed junior subordinated debentures were charged to other expense during second quarter 2012. Other expense increased during the six months ended June 30, 2012, as compared to the same period in 2011, primarily due to increased donations expense and the write-off of unamortized debt issuance costs discussed above, and the accrual of $3.0 million of estimated collection and settlement costs during the first quarter 2012.

ASSET QUALITY
(Unaudited; $ in thousands)
	For the Three Months Ended
	June 30, 2012			March 31, 2012			June 30, 2011
Allowance for loan losses - beginning of period	$	115,902		$	112,581		$	124,446
Charge-offs	(26,745		)	(9,087		)	(16,102		)
Recoveries	1,637			1,158			835
Provision	12,000			11,250			15,400
Allowance for loan losses - end of period	$	102,794		$	115,902		$	124,579
	June 30, 2012			March 31, 2012			June 30, 2011
Period end loans	$	4,169,963		$	4,158,616		$	4,281,260
Average loans	4,159,565			4,165,203			4,269,637
Non-performing loans:
Non-accrual loans	129,923			180,910			229,662
Accruing loans past due 90 days or more	6,451			5,017			2,194
Troubled debt restructurings	35,959			36,838			31,611
Total non-performing loans	172,333			222,765			263,467
Other real estate owned	53,817			44,756			28,323
Total non-performing assets	$	226,150		$	267,521		$	291,790
Net charge-offs to average loans, annualized	2.43		%	0.76		%	1.43		%
Provision for loan losses to average loans, annualized	1.16		%	1.08		%	1.45		%
Allowance for loan losses to period end loans	2.47		%	2.79		%	2.91		%
Allowance for loan losses to total non-performing loans	59.65		%	52.03		%	47.28		%
Non-performing loans to period end loans	4.13		%	5.36		%	6.15		%
Non-performing assets to period end loans and other real estate owned	5.35		%	6.36		%	6.77		%
Non-performing assets to total assets	3.10		%	3.60		%	4.05		%

As of June 30, 2012, total non-performing loans included $152 million of real estate loans, of which $53 million were construction loans and $80 million were commercial real estate loans. Non-performing construction loans as of June 30, 2012 were comprised of land acquisition and development loans of $39 million, commercial construction loans of $11 million and residential construction loans of $3 million.

Non-performing loans decreased 23% as of June 30, 2012, as compared to March 31, 2012, primarily due to the movement of non-accrual loans out of the loan portfolio through charge-off or foreclosure.

Net charged-off loans increased during second quarter 2012, as compared to first quarter 2012 and second quarter 2011. Nine borrowers accounted for 73% of loans charged-off during second quarter 2012. Charge-offs during second quarter 2012 were primarily comprised of land development, commercial construction and commercial real estate loans.

During second quarter 2012, the Company recorded additions to OREO of $20 million. Approximately 75% of these additions were attributable to the loans of five borrowers. Second quarter 2012 OREO additions were partially offset by write downs of the fair value of OREO properties of $568 thousand and sales of OREO with a net book value of $10 million at a slight gain.

CREDIT QUALITY TRENDS
(Unaudited; $ in thousands)
	Provision for Loan Losses		Net Charge-offs		Allowance for Loan Losses		Accruing Loans 30-89 Days Past Due		Non-Performing Loans		Non-Performing 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
Q4 2011	13,751		21,473		112,581		75,603		241,470		278,922
Q1 2012	11,250		7,929		115,902		58,531		222,765		267,521
Q2 2012	12,000		25,108		102,794		55,074		172,333		226,150

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
Q4 2011	240,903		269,794		120,165		630,862
Q1 2012	242,071		276,165		93,596		611,832
Q2 2012	220,509		243,916		81,473		545,898

LOANS
(Unaudited; $ in thousands)
	June 30, 2012		March 31, 2012		June 30, 2011		Sequential Quarter % Change		Year Over Year % Change
Real estate:
Commercial	$	1,517,400	$	1,533,624	$	1,555,964	-1.1	%	-2.5	%
Construction:
Land acquisition & development	240,550		272,874		312,690		-11.8	%	-23.1	%
Residential	51,193		50,332		63,364		1.7	%	-19.2	%
Commercial	59,911		65,196		76,740		-8.1	%	-21.9	%
Total construction loans	351,654		388,402		452,794		-9.5	%	-22.3	%
Residential	572,018		562,588		578,739		1.7	%	-1.2	%
Agricultural	171,087		171,685		177,728		-0.3	%	-3.7	%
Total real estate loans	2,612,159		2,656,299		2,765,225		-1.7	%	-5.5	%
Consumer:
Indirect consumer loans	418,604		407,389		413,825		2.8	%	1.2	%
Other consumer loans	144,442		142,144		152,704		1.6	%	-5.4	%
Credit card loans	58,166		56,540		59,655		2.9	%	-2.5	%
Total consumer loans	621,212		606,073		626,184		2.5	%	-0.8	%
Commercial	720,010		708,397		724,158		1.6	%	-0.6	%
Agricultural	138,115		128,599		133,898		7.4	%	3.1	%
Other loans, including overdrafts	2,319		568		3,297		308.3	%	-29.7	%
Loans held for investment	4,093,815		4,099,936		4,252,762		-0.1	%	-3.7	%
Mortgage loans held for sale	76,148		58,680		28,498		29.8	%	167.2	%
Total loans	$	4,169,963	$	4,158,616	$	4,281,260	0.3	%	-2.6	%

Total loans increased as of June 30, 2012, compared to March 31, 2012, with all major categories of loans except real estate showing growth. Decreases in real estate loans as of June 30, 2012, as compared to March 31, 2012, are primarily attributable to the movement of lower quality loans out of the loan portfolio through charge-off or foreclosure combined with low loan demand. Growth in residential real estate loans as of June 30, 2012, compared to March 31, 2012, is attributable to the retention of some loan production that has typically been sold in the secondary market.

DEPOSITS
(Unaudited; $ in thousands)
	June 30, 2012		March 31, 2012		June 30, 2011		Sequential Quarter % Change		Year Over Year % Change
Non-interest bearing demand	$	1,337,777	$	1,284,823	$	1,109,905	4.1	%	20.5	%
Interest bearing:
Demand	1,586,962		1,618,174		1,233,039		-1.9	%	28.7	%
Savings	1,495,230		1,480,435		1,703,548		1.0	%	-12.2	%
Time, $100 and over	641,070		671,014		772,567		-4.5	%	-17.0	%
Time, other	840,340		856,388		975,606		-1.9	%	-13.9	%
Total interest bearing	4,563,602		4,626,011		4,684,760		-1.3	%	-2.6	%
Total deposits	$	5,901,379	$	5,910,834	$	5,794,665	-0.2	%	1.8	%

Total deposits remained stable as of June 30, 2012, as compared to March 31, 2012, and increased slightly compared to June 30, 2011. As a result of a regulatory change allowing businesses to receive interest on checking accounts, the Company discontinued its savings sweep product resulting in a shift of approximately $300 million from savings deposits into interest-bearing demand deposits during first quarter 2012. During second quarter 2012, the Company continued to experience a favorable shift in the composition of deposits away from higher-costing time deposits into non-interest bearing demand deposits.

REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES HELD BY SUBSIDIARY TRUSTS

On June 26, 2012, the Company redeemed $41.2 million of 30-year junior subordinated deferrable interest debentures issued by the Company to an unconsolidated subsidiary trust. Unamortized issuance costs of $428 thousand were charged to other expenses on the date of redemption. The redemption of the junior subordinated debentures caused a mandatory redemption of $40 million of 30-year floating rate mandatorily redeemable capital trust preferred securities issued by the unconsolidated subsidiary trust to third-party investors.

CAPITAL
(Unaudited, $ in thousands, except per share data)
	June 30, 2012		March 31, 2012		June 30, 2011		Sequential Quarter % Change		Year Over Year % Change
Preferred stockholders' equity	$	50,000	$	50,000	$	50,000	0.0	%	0.0	%
Common stockholders' equity	718,070		709,781		686,948		1.2	%	4.5	%
Accumulated other comprehensive income, net	18,265		19,494		22,397		-6.3	%	-18.4	%
Total stockholders' equity	$	786,335	$	779,275	$	759,345	0.9	%	3.6	%
Book value per common share	$	17.03	$	16.88	$	16.51	0.9	%	3.1	%
Tangible book value per common share*	$	12.63	$	12.47	$	12.05	1.3	%	4.8	%
Net tangible book value per common share *	$	14.03	$	13.87	$	13.45	1.2	%	4.3	%
Weighted average common shares outstanding for basic earnings per common share computation	42,966,926		42,783,769		42,781,894		0.4	%	0.4	%
Weighted average common shares outstanding for diluted earnings per common share computation	43,060,204		42,982,543		42,896,611		0.2	%	0.4	%
* See Non-GAAP Financial Measures included herein for a discussion of tangible and net tangible book value per common share.

CAPITAL RATIOS
(Unaudited)
	June 30, 2012			March 31, 2012		June 30, 2011
Tangible common stockholders' equity to tangible assets*	7.67	%		7.48	%	7.38	%
Net tangible common stockholders' equity to tangible assets*	8.52	%		8.32	%	8.24	%
Tier 1 common capital to total risk weighted assets	11.51	%	**	11.35	%	10.56	%
Leverage ratio	9.54	%	**	10.01	%	9.69	%
Tier 1 risk-based capital	14.22	%	**	14.90	%	14.03	%
Total risk-based capital	16.20	%	**	16.89	%	16.01	%
* 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.

The Company's leverage, tier 1 and total risk-based capital ratios declined as of June 30, 2012, compared to March 31, 2012, due to the mandatory redemption of $40 million of capital trust preferred securities issued by an unconsolidated subsidiary of the Company that qualified as tier 1 capital under current regulatory capital guidelines. As of June 30, 2012, the Company had capital levels that, in all cases, exceeded the “well capitalized” requirements under all regulatory capital guidelines.

Second Quarter 2012 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss second quarter 2012 results at 11:00 a.m. Eastern Time (9:00 a.m. MDT) on Tuesday, July 24, 2012. 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 July 24, 2012 through August 24, 2012 by dialing 1-877-344-7529 (using conference ID 10015558). 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 72 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; subordination of common stock to Company debt; uncertainties associated with introducing new products or lines of business; and, downgrade of the U.S. credit rating.

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, 2011, filed February 28, 2012. 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, 2011.

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)
	June 30, 2012		March 31, 2012		June 30, 2011
Assets
Cash and due from banks	$	146,577	$	128,341	$	130,413
Federal funds sold	2,854		304		1,764
Interest bearing deposits in banks	387,222		494,279		283,314
Total cash and cash equivalents	536,653		622,924		415,491
Investment securities:
Available-for-sale	1,913,983		1,955,436		1,873,864
Held-to-maturity (estimated fair values of $177,532, $166,932 and $153,448 at June 30, 2012, March 31, 2012 and June 30, 2011, respectively)	166,926		158,070		148,865
Total investment securities	2,080,909		2,113,506		2,022,729
Loans held for investment	4,093,815		4,099,936		4,252,762
Mortgage loans held for sale	76,148		58,680		28,498
Total loans	4,169,963		4,158,616		4,281,260
Less allowance for loan losses	102,794		115,902		124,579
Net loans	4,067,169		4,042,714		4,156,681
Premises and equipment, net of accumulated depreciation	187,367		185,230		186,529
Goodwill	183,673		183,673		183,673
Company-owned life insurance	75,849		75,342		74,080
Other real estate owned ("OREO"), net of write-downs	53,817		44,756		28,323
Accrued interest receivable	30,936		30,407		33,588
Mortgage servicing rights, net of accumulated amortization and impairment reserve	11,985		11,833		13,218
Core deposit intangibles, net of accumulated amortization	6,647		7,002		8,080
Deferred tax asset, net	5,017		9,571		10,466
Other assets	65,154		67,348		69,933
Total assets	$	7,305,176	$	7,394,306	$	7,202,791
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing	$	1,337,777	$	1,284,823	$	1,109,905
Interest bearing	4,563,602		4,626,011		4,684,760
Total deposits	5,901,379		5,910,834		5,794,665
Securities sold under repurchase agreements	455,993		491,058		435,039
Accounts payable and accrued expenses	33,589		43,972		35,395
Accrued interest payable	8,215		8,255		11,712
Long-term debt	37,181		37,191		37,480
Other borrowed funds	7		6		5,440
Subordinated debentures held by subsidiary trusts	82,477		123,715		123,715
Total liabilities	6,518,841		6,615,031		6,443,446
Stockholders’ equity:
Preferred stock	50,000		50,000		50,000
Common stock	269,698		268,411		265,639
Retained earnings	448,372		441,370		421,309
Accumulated other comprehensive income, net	18,265		19,494		22,397
Total stockholders’ equity	786,335		779,275		759,345
Total liabilities and stockholders’ equity	$	7,305,176	$	7,394,306	$	7,202,791

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, $ in thousands, except per share data)
	Three Months Ended
	June 30, 2012		March 31, 2012			June 30, 2011
Interest income:
Interest and fees on loans	$	58,084	$	57,910		$	61,475
Interest and dividends on investment securities:
Taxable	9,458		9,705			10,649
Exempt from federal taxes	1,240		1,204			1,194
Interest on deposits in banks	279		237			227
Interest on federal funds sold	6		1			6
Total interest income	69,067		69,057			73,551
Interest expense:
Interest on deposits	5,779		6,262			8,903
Interest on securities sold under repurchase agreements	152		156			171
Interest on long-term debt	495		498			495
Interest on subordinated debentures held by subsidiary trusts	1,467		1,507			1,455
Total interest expense	7,893		8,423			11,024
Net interest income	61,174		60,634			62,527
Provision for loan losses	12,000		11,250			15,400
Net interest income after provision for loan losses	49,174		49,384			47,127
Non-interest income:
Income from the origination and sale of loans	9,420		8,384			4,109
Other service charges, commissions and fees	8,254		8,424			7,768
Service charges on deposit accounts	4,455		4,161			4,385
Wealth management revenues	3,815		3,283			3,689
Investment securities gains, net	198		31			16
Other income	1,520		2,099			1,624
Total non-interest income	27,662		26,382			21,591
Non-interest expense:
Salaries and wages	21,640		21,564			20,554
Employee benefits	6,819		8,966			7,335
Occupancy, net	4,037		3,988			4,013
Furniture and equipment	3,189		3,138			3,129
Outsourced technology services	2,179		2,266			2,212
OREO expense, net of income	1,806		1,105			2,042
FDIC insurance premiums	1,601		1,595			1,629
Professional fees	1,002		933			726
Mortgage servicing rights amortization	817		895			671
Mortgage servicing rights impairment (recovery)	52		(868		)	27
Core deposit intangibles amortization	355		355			361
Other expenses	13,802		13,503			11,493
Total non-interest expense	57,299		57,440			54,192
Income before income tax expense	19,537		18,326			14,526
Income tax expense	6,527		6,112			4,672
Net income	13,010		12,214			9,854
Preferred stock dividends	853		853			853
Net income available to common shareholders	$	12,157	$	11,361		$	9,001
Basic earnings per common share	$	0.28	$	0.26		$	0.21
Diluted earnings per common share	$	0.28	$	0.26		$	0.21

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, $ in thousands, except per share data)
	Six Months Ended
	June 30, 2012			June 30, 2011
Interest income:
Interest and fees on loans	$	115,994		$	123,866
Interest and dividends on investment securities:
Taxable	19,163			20,560
Exempt from federal taxes	2,444			2,365
Interest on deposits in banks	516			594
Interest on federal funds sold	7			9
Total interest income	138,124			147,394
Interest expense:
Interest on deposits	12,041			18,774
Interest on securities sold under repurchase agreements	308			408
Interest on long-term debt	993			984
Interest on subordinated debentures held by subsidiary trusts	2,974			2,903
Total interest expense	16,316			23,069
Net interest income:	121,808			124,325
Provision for loan losses	23,250			30,400
Net interest income after provision for loan losses	98,558			93,925
Non-interest income:
Income from the origination and sale of loans	17,804			7,554
Other service charges, commissions and fees	16,678			15,148
Service charges on deposit accounts	8,616			8,495
Wealth management revenues	7,098			6,999
Investment securities gains, net	229			18
Other income	3,619			3,536
Total non-interest income	54,044			41,750
Non-interest expense:
Salaries and wages	43,204			40,757
Employee benefits	15,785			14,834
Occupancy, net	8,025			8,228
Furniture and equipment	6,327			6,349
Outsourced technology services	4,445			4,453
FDIC insurance premiums	3,196			4,095
OREO expense, net of income	2,911			3,753
Professional fees	1,935			1,505
Mortgage servicing rights amortization	1,712			1,478
Mortgage servicing rights impairment recovery	(816		)	(320		)
Core deposit intangibles amortization	710			723
Other expenses	27,305			21,295
Total non-interest expense	114,739			107,150
Income before income tax expense	37,863			28,525
Income tax expense	12,639			9,165
Net income	25,224			19,360
Preferred stock dividends	1,706			1,697
Net income available to common shareholders	$	23,518		$	17,663
Basic earnings per common share	$	0.55		$	0.41
Diluted earnings per common share	$	0.55		$	0.41

AVERAGE BALANCE SHEETS
(Unaudited, $ in thousands)
	Three Months Ended
	June 30, 2012							March 31, 2012							June 30, 2011
	Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate
Interest earning assets:
Loans (1) (2)	$	4,159,565	$	58,564		5.66	%	$	4,165,203	$	58,374		5.64	%	$	4,269,637	$	61,926		5.82	%
Investment securities (2)	2,094,148		11,414			2.19		2,143,438		11,604			2.18		2,019,187		12,533			2.49
Interest bearing deposits in banks	442,698		279			0.25		374,899		237			0.25		359,446		227			0.25
Federal funds sold	3,668		6			0.66		609		1			0.66		3,871		6			0.62
Total interest earnings assets	6,700,079		70,263			4.22		6,684,149		70,216			4.23		6,652,141		74,692			4.50
Non-earning assets	633,454							619,137							617,221
Total assets	$	7,333,533						$	7,303,286						$	7,269,362
Interest bearing liabilities:
Demand deposits	$	1,596,076	$	606		0.15	%	$	1,582,805	$	646		0.16	%	$	1,263,466	$	847		0.27	%
Savings deposits	1,482,986		934			0.25		1,449,239		1,015			0.28		1,711,210		1,753			0.41
Time deposits	1,496,597		4,239			1.14		1,540,789		4,601			1.20		1,780,542		6,303			1.42
Repurchase agreements	493,450		152			0.12		513,407		156			0.12		469,459		171			0.15
Other borrowed funds	33		—			—		35		—			—		5,459		—			—
Long-term debt	37,184		495			5.35		37,194		498			5.39		37,485		495			5.30
Subordinated debentures held by subsidiary trusts	120,996		1,467			4.88		123,715		1,507			4.90		123,715		1,455			4.72
Total interest bearing liabilities	5,227,322		7,893			0.61		5,247,184		8,423			0.65		5,391,336		11,024			0.82
Non-interest bearing deposits	1,277,091							1,232,874							1,089,909
Other non-interest bearing liabilities	47,781							50,071							47,791
Stockholders’ equity	781,339							773,157							740,326
Total liabilities and stockholders’ equity	$	7,333,533						$	7,303,286						$	7,269,362
Net FTE interest income			$	62,370						$	61,793						$	63,668
Less FTE adjustments (2)			(1,196		)					(1,159		)					(1,141		)
Net interest income from consolidated statements of income			$	61,174						$	60,634						$	62,527
Interest rate spread						3.61	%						3.58	%						3.68	%
Net FTE interest margin (3)						3.74	%						3.72	%						3.85	%
Cost of funds, including non-interest bearing demand deposits (4)						0.49	%						0.52	%						0.68	%
(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 annualized interest income on interest earning assets and the annualized interest expense on interest bearing liabilities, divided by average interest earning assets for the period.
(4) Calculated by dividing total annualized interest on interest bearing liabilities by the sum of total interest bearing liabilities plus non-interest bearing deposits.

AVERAGE BALANCE SHEETS
(Unaudited, $ in thousands)
	Six Months Ended
	June 30, 2012							June 30, 2011
	Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate
Interest earning assets:
Loans (1) (2)	$	4,162,384	$	116,938		5.65	%	$	4,286,512	$	124,762		5.87	%
Investment securities (2)	2,118,793		23,018			2.18		1,984,000		24,291			2.47
Interest bearing deposits in banks	408,799		516			0.25		472,994		594			0.25
Federal funds sold	2,139		7			0.66		3,061		9			0.59
Total interest earnings assets	6,692,115		140,479			4.22		6,746,567		149,656			4.47
Non-earning assets	626,295							619,837
Total assets	$	7,318,410						$	7,366,404
Interest bearing liabilities:
Demand deposits	$	1,589,440	$	1,253		0.16	%	$	1,256,414	$	1,681		0.27	%
Savings deposits	1,466,113		1,948			0.27		1,727,886		3,753			0.44
Time deposits	1,518,693		8,840			1.17		1,827,269		13,340			1.47
Repurchase agreements	503,428		308			0.12		519,392		408			0.16
Other borrowed funds	34		—			—		5,577		—			—
Long-term debt	37,189		993			5.37		37,490		984			5.29
Subordinated debentures held by subsidiary trusts	122,356		2,974			4.89		123,715		2,903			4.73
Total interest bearing liabilities	5,237,253		16,316			0.63		5,497,743		23,069			0.85
Non-interest bearing deposits	1,254,983							1,080,379
Other non-interest bearing liabilities	48,926							49,395
Stockholders’ equity	777,248							738,887
Total liabilities and stockholders’ equity	$	7,318,410						$	7,366,404
Net FTE interest income			$	124,163						$	126,587
Less FTE adjustments (2)			(2,355		)					(2,262		)
Net interest income from consolidated statements of income			$	121,808						$	124,325
Interest rate spread						3.59	%						3.62	%
Net FTE interest margin (3)						3.73	%						3.78	%
Cost of funds, including non-interest bearing demand deposits (4)						0.51	%						0.71	%
(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 annualized interest income on interest earning assets and the annualized interest expense on interest bearing liabilities, divided by average interest earning assets for the period.
(4) Calculated by dividing total annualized interest on 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 June 30, 2012 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)
	June 30, 2012			March 31, 2012			June 30, 2011
Total stockholders’ equity (GAAP)	786,335			779,275			759,345
Less goodwill and other intangible assets (excluding mortgage servicing rights)	190,351			190,708			191,792
Less preferred stock	50,000			50,000			50,000
Tangible common stockholders’ equity (Non-GAAP)	$	545,984		$	538,567		$	517,553
Add deferred tax liability for deductible goodwill	60,499			60,499			60,499
Net tangible common stockholders’ equity (Non-GAAP)	$	606,483		$	599,066		$	578,052
Total assets (GAAP)	7,305,176			7,394,306			7,202,791
Less goodwill and other intangible assets (excluding mortgage servicing rights)	190,351			190,708			191,792
Tangible assets (Non-GAAP)	7,114,825			7,203,598			7,010,999
Common shares outstanding	43,228,750			43,190,975			42,964,921
Book value per common share	$	17.03		$	16.88		$	16.51
Tangible book value per common share	$	12.63		$	12.47		$	12.05
Net tangible book value per common share	$	14.03		$	13.87		$	13.45
Tangible common stockholders’ equity to tangible assets (Non-GAAP)	7.67		%	7.48		%	7.38		%
Net tangible common stockholders’ equity to tangible assets (Non-GAAP)	8.52		%	8.32		%	8.24		%