e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2011
OR
     
o   Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
COMMISSION FILE NUMBER 001-34653
First Interstate BancSystem, Inc.
(Exact name of registrant as specified in its charter)
     
Montana   81-0331430
     
(State or other jurisdiction of
incorporation or organization)
  (IRS Employer
Identification No.)
     
401 North 31st Street, Billings, MT   59116-0918
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: 406/255-5390
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ          No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Yes þ          No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting Company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o          No þ
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock:
         
June 30, 2011 — Class A common stock
    16,213,617  
June 30, 2011 — Class B common stock
    26,751,304  
 
 

 


 

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
         
Index   Page  
       
       
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    42  
 EX-31.1
 EX-31.2
 EX-32
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
                 
    June 30,     December 31,  
    2011     2010  
Assets
               
Cash and due from banks
  $ 130,413     $ 107,035  
Federal funds sold
    1,764       2,114  
Interest bearing deposits in banks
    283,314       576,469  
 
           
Total cash and cash equivalents
    415,491       685,618  
 
           
Investment securities:
               
Available-for-sale
    1,873,864       1,786,335  
Held-to-maturity (estimated fair values of $153,448 as of June 30, 2011 and $146,508 as of December 31, 2010)
    148,865       147,068  
 
           
Total investment securities
    2,022,729       1,933,403  
 
           
 
               
Loans
    4,281,260       4,367,909  
Less allowance for loan losses
    124,579       120,480  
 
           
Net loans
    4,156,681       4,247,429  
 
           
Premises and equipment, net of accumulated depreciation
    186,529       188,138  
Goodwill
    183,673       183,673  
Company-owned life insurance
    74,080       73,056  
Accrued interest receivable
    33,588       33,628  
Other real estate owned (“OREO”), net of write-downs
    28,323       33,632  
Mortgage servicing rights, net of accumulated amortization and impairment reserve
    13,218       13,191  
Deferred tax asset
    10,466       18,472  
Core deposit intangibles, net of accumulated amortization
    8,080       8,803  
Other assets
    69,933       81,927  
 
           
Total assets
  $ 7,202,791     $ 7,500,970  
 
           
 
               
Liabilities and Stockholders’ Equity
               
Deposits:
               
Non-interest bearing
  $ 1,109,905     $ 1,063,869  
Interest bearing
    4,684,760       4,861,844  
 
           
Total deposits
    5,794,665       5,925,713  
 
           
Securities sold under repurchase agreements
    435,039       620,154  
Accounts payable and accrued expenses
    35,395       38,915  
Accrued interest payable
    11,712       13,178  
Long-term debt
    37,480       37,502  
Other borrowed funds
    5,440       4,991  
Subordinated debentures held by subsidiary trusts
    123,715       123,715  
 
           
Total liabilities
    6,443,446       6,764,168  
 
           
 
               
Stockholders’ equity:
               
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; issued and outstanding 5,000 shares as of June 30, 2011 and December 31, 2010
    50,000       50,000  
Common stock
    265,639       264,174  
Retained earnings
    421,309       413,253  
Accumulated other comprehensive income, net
    22,397       9,375  
 
           
Total stockholders’ equity
    759,345       736,802  
 
           
Total liabilities and stockholders’ equity
  $ 7,202,791     $ 7,500,970  
 
           
See accompanying notes to unaudited consolidated financial statements.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
                                 
    For the three months     For the six months  
    ended June 30,     ended June 30,  
    2011     2010     2011     2010  
Interest income:
                               
Interest and fees on loans
  $ 61,475     $ 67,501     $ 123,866     $ 134,395  
Interest and dividends on investment securities:
                               
Taxable
    10,649       10,931       20,560       22,133  
Exempt from federal taxes
    1,194       1,173       2,365       2,339  
Interest on deposits in banks
    227       257       594       481  
Interest on federal funds sold
    6       5       9       18  
 
                       
Total interest income
    73,551       79,867       147,394       159,366  
 
                       
Interest expense:
                               
Interest on deposits
    8,903       14,496       18,774       29,774  
Interest on securities sold under repurchase agreements
    171       229       408       423  
Interest on other borrowed funds
          1             2  
Interest on long-term debt
    495       509       984       1,428  
Interest on subordinated debentures held by subsidiary trusts
    1,455       1,456       2,903       2,894  
 
                       
Total interest expense
    11,024       16,691       23,069       34,521  
 
                       
Net interest income
    62,527       63,176       124,325       124,845  
Provision for loan losses
    15,400       19,500       30,400       31,400  
 
                       
Net interest income after provision for loan losses
    47,127       43,676       93,925       93,445  
 
                       
Non-interest income:
                               
Other service charges, commissions and fees
    7,768       7,380       15,148       14,252  
Service charges on deposit accounts
    4,385       4,759       8,495       9,357  
Income from origination and sale of loans
    4,109       4,186       7,554       7,486  
Wealth managment revenues
    3,483       3,199       6,778       6,213  
Investment securities gains, net
    16       15       18       42  
Other income
    1,830       1,498       3,757       3,195  
 
                       
Total non-interest income
    21,591       21,037       41,750       40,545  
 
                       
Non-interest expense:
                               
Salaries, wages and employee benefits
    27,889       27,379       55,591       55,457  
Occupancy, net
    4,013       3,963       8,228       8,105  
Furniture and equipment
    3,129       3,356       6,349       6,697  
Outsourced technology services
    2,212       2,449       4,453       4,698  
FDIC insurance premiums
    1,629       2,667       4,095       5,123  
OREO expense, net of income
    2,042       2,980       3,753       3,521  
Mortgage servicing rights amortization
    671       1,115       1,478       2,248  
Mortgage servicing rights impairment (recovery)
    27       271       (320 )     221  
Core deposit intangibles amortization
    361       440       723       879  
Other expenses
    12,219       10,806       22,800       21,222  
 
                       
Total non-interest expense
    54,192       55,426       107,150       108,171  
 
                       
Income before income tax expense
    14,526       9,287       28,525       25,819  
Income tax expense
    4,672       2,628       9,165       8,030  
 
                       
Net income
    9,854       6,659       19,360       17,789  
Preferred stock dividends
    853       853       1,697       1,697  
 
                       
Net income available to common stockholders
  $ 9,001     $ 5,806     $ 17,663     $ 16,092  
 
                       
Basic earnings per common share
  $ 0.21     $ 0.14     $ 0.41     $ 0.43  
 
                       
Diluted earnings per common share
  $ 0.21     $ 0.14     $ 0.41     $ 0.43  
 
                       
See accompanying notes to unaudited consolidated financial statements.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share and per share data)
(Unaudited)
                                         
                            Accumulated        
                            other     Total  
    Preferred     Common     Retained     comprehensive     stockholders’  
    stock     stock     earnings     income     equity  
     
Balance at December 31, 2010
  $ 50,000     $ 264,174     $ 413,253     $ 9,375     $ 736,802  
Comprehensive income:
                                       
Net income
                19,360             19,360  
Other comprehensive income, net of tax
                      13,022       13,022  
 
                                     
Total comprehensive income
                                    32,382  
 
                                     
Common stock transactions:
                                       
14,112 common shares purchased and retired
          (193 )                 (193 )
14,692 common shares issued
          195                   195  
130,904 non-vested common shares issued
                             
17,544 non-vested common shares forfeited
          (89 )                 (89 )
Non-vested liability awards vesting during period
          195                   195  
50,287 stock options exercised, net of 106,185 shares tendered in payment of option price and income tax withholding amounts
          102                   102  
Tax benefit of stock-based compensation
          224                   224  
Stock-based compensation expense
          1,031                   1,031  
Cash dividends declared:
                                       
Common ($0.225 per share)
                (9,607 )           (9,607 )
Preferred (6.75% per share)
                (1,697 )           (1,697 )
     
Balance at June 30, 2011
  $ 50,000     $ 265,639     $ 421,309     $ 22,397     $ 759,345  
     
Balance at December 31, 2009
  $ 50,000     $ 112,135     $ 397,224     $ 15,075     $ 574,434  
Comprehensive income:
                                       
Net income
                17,789             17,789  
Other comprehensive income, net of tax
                      6,811       6,811  
 
                                     
Total comprehensive income
                                    24,600  
 
                                     
Common stock transactions:
                                       
246,596 common shares purchased and retired
          (3,699 )                 (3,699 )
11,506,503 common shares issued
          153,120                   153,120  
117,140 non-vested common shares issued
                             
3,548 non-vested common shares forfeited
          (14 )                 (14 )
80,262 stock options exercised, net of 67,110 shares tendered in payment of option price and income tax withholding amounts
          589                   589  
Tax benefit of stock-based compensation
          228                   228  
Stock-based compensation expense
          958                   958  
Cash dividends declared:
                                       
Common ($0.225 per share)
                (8,331 )           (8,331 )
Preferred (6.75% per share)
                (1,697 )           (1,697 )
     
Balance at June 30, 2010
  $ 50,000     $ 263,317     $ 404,985     $ 21,886     $ 740,188  
     
See accompanying notes to unaudited consolidated financial statements.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                 
    For the six months  
    ended June 30,  
    2011     2010  
Cash flows from operating activities:
               
Net income
  $ 19,360     $ 17,789  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    30,400       31,400  
Net loss on disposal of property and equipment
    3       306  
Depreciation and amortization
    8,677       9,986  
Net premium amortization on investment securities
    4,932       2,259  
Net gains on investment securities transactions
    (18 )     (42 )
Net gains on sales of loans held for sale
    (4,984 )     (4,553 )
Write-down of OREO and equipment pending disposal
    3,515       3,133  
Net (recovery) impairment on mortgage servicing rights
    (320 )     221  
Loss on early extinguishment of debt
          306  
Deferred income tax benefit
    (538 )     (1,223 )
Net increase in cash surrender value of company-owned life insurance policies
    (1,024 )     (1,021 )
Stock-based compensation expense
    1,116       988  
Tax benefits from stock-based compensation expense
    224       228  
Excess tax benefits from stock-based compensation
    (157 )     (220 )
Changes in operating assets and liabilities:
               
Decrease (increase) in loans held for sale
    21,709       (8,874 )
Decrease (increase) in interest receivable
    40       (1,306 )
Decrease in other assets
    11,461       3,927  
(Decrease) increase in accrued interest payable
    (1,466 )     2,857  
Decrease in accounts payable and accrued expenses
    (3,275 )     (8,439 )
 
           
Net cash provided by operating activities
    89,655       47,722  
 
           
 
               
Cash flows from investing activities:
               
Purchases of investment securities:
               
Held-to-maturity
    (7,434 )     (12,243 )
Available-for-sale
    (406,564 )     (529,379 )
Proceeds from maturities and paydowns of investment securities:
               
Held-to-maturity
    5,405       6,871  
Available-for-sale
    335,877       354,652  
Proceeds from sales of mortgage servicing rights, net of acquisitions
          597  
Extensions of credit to customers, net of repayments
    34,535       (57,943 )
Recoveries of loans charged-off
    2,140       1,403  
Proceeds from sales of OREO
    7,963       7,749  
Capital expenditures, net of sales
    (4,730 )     (4,843 )
 
           
Net cash used in investing activities
    (32,808 )     (233,136 )
 
           

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)

(In thousands)
(Unaudited)
                 
    For the six months  
    ended June 30,  
    2011     2010  
Cash flows from financing activities:
               
Net decrease in deposits
  $ (131,048 )   $ (21,734 )
Net decrease in repurchase agreements
    (185,115 )     (20,392 )
Net increase in short-term borrowings
    449       1,773  
Repayments of long-term debt
    (22 )     (35,330 )
Common stock issuance costs
          (13,733 )
Proceeds from issuance of common stock
    102       167,339  
Excess tax benefits from stock-based compensation
    157       220  
Purchase and retirement of common stock
    (193 )     (3,699 )
Dividends paid to common stockholders
    (9,607 )     (8,331 )
Dividends paid to preferred stockholders
    (1,697 )     (1,697 )
 
           
Net cash (used in) provided by financing activities
    (326,974 )     64,416  
 
           
Net decrease in cash and cash equivalents
    (270,127 )     (120,998 )
Cash and cash equivalents at beginning of period
    685,618       623,482  
 
           
Cash and cash equivalents at end of period
  $ 415,491     $ 502,484  
 
           
 
               
Supplemental disclosures of cash flow information:
               
Cash paid during the period for income taxes
  $ 8,730     $ 11,630  
Cash paid during the period for interest expense
  $ 24,535     $ 31,664  
 
           
See accompanying notes to unaudited consolidated financial statements.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(In thousands, except share and per share data)
(1)   Basis of Presentation
    In the opinion of management, the accompanying unaudited consolidated financial statements of First Interstate BancSystem, Inc. and subsidiaries (the “Company”) contain all adjustments (all of which are of a normal recurring nature) necessary to present fairly the financial position of the Company at June 30, 2011 and December 31, 2010, the results of operations for each of the three and six month periods ended June 30, 2011 and 2010, and cash flows for the six months ended June 30, 2011 and 2010, in conformity with U.S. generally accepted accounting principles. The balance sheet information at December 31, 2010 is derived from audited consolidated financial statements. Certain reclassifications, none of which were material, have been made to conform prior year financial statements to the June 30, 2011 presentation. These reclassifications did not change previously reported net income or stockholders’ equity.
 
    These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
(2)   Investment Securities
    The amortized cost and approximate fair values of investment securities are summarized as follows:
                                 
Available-for-Sale           Gross     Gross     Estimated  
  Amortized     Unrealized     Unrealized     Fair  
June 30, 2011   Cost     Gains     Losses     Value  
 
Obligations of U.S. government agencies
  $ 1,005,986     $ 6,667     $ (25 )   $ 1,012,628  
U.S. agency residential mortgage-backed securities
    828,427       32,176       (230 )     860,373  
Private residential mortgage-backed securities
    872       10       (19 )     863  
         
Total
  $ 1,835,285     $ 38,853     $ (274 )   $ 1,873,864  
         
                                 
Held-to-Maturity           Gross     Gross     Estimated  
    Amortized     Unrealized     Unrealized     Fair  
June 30, 2011   Cost     Gains     Losses     Value  
 
State, county and municipal securities
  $ 148,674     $ 4,780     $ (197 )   $ 153,257  
Other securities
    191                   191  
         
Total
  $ 148,865     $ 4,780     $ (197 )   $ 153,448  
         
                                 
Available-for-Sale           Gross     Gross     Estimated  
    Amortized     Unrealized     Unrealized     Fair  
December 31, 2010   Cost     Gains     Losses     Value  
 
Obligations of U.S. government agencies
  $ 956,017     $ 3,337     $ (5,934 )   $ 953,420  
U.S. agency residential mortgage-backed securities
    812,372       24,107       (4,619 )     831,860  
Private residential mortgage-backed securities
    1,057       10       (12 )     1,055  
         
Total
  $ 1,769,446     $ 27,454     $ (10,565 )   $ 1,786,335  
         
                                 
Held-to-Maturity           Gross     Gross     Estimated  
    Amortized     Unrealized     Unrealized     Fair  
December 31, 2010   Cost     Gains     Losses     Value  
 
State, county and municipal securities
  $ 146,850     $ 1,375     $ (1,935 )   $ 146,290  
Other securities
    218                   218  
         
Total
  $ 147,068     $ 1,375     $ (1,935 )   $ 146,508  
         
    Gross gains of $16 and $15 were realized on the disposition of available-for-sale investment securities during the three months ended June 30, 2011 and 2010, respectively. Gross gains of $18 and $42 were realized on the disposition of available-for-sale investment securities during the six months ended June 30, 2011 and 2010, respectively. No gross losses were realized on the disposition of available-for-sale investment securities during the three and six months ended June 30, 2011 or 2010.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
    The following table shows the gross unrealized losses and fair values of investment securities, aggregated by investment category, and the length of time individual investment securities have been in a continuous unrealized loss position, as of June 30, 2011 and December 31, 2010.
                                                 
    Less than 12 Months     12 Months or More     Total  
            Gross             Gross             Gross  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
June 30, 2011   Value     Losses     Value     Losses     Value     Losses  
                 
Available-for-Sale
                                               
Obligations of U.S. government agencies
  $ 53,363     $ (25 )   $     $     $ 53,363     $ (25 )
U.S. agency residential mortgage-backed securities
    48,403       (230 )                 48,403       (230 )
Private residential mortgage-backed securities
    539       (8 )     205       (11 )     744       (19 )
                 
Total
  $ 102,305     $ (263 )   $ 205     $ (11 )   $ 102,510     $ (274 )
                 
                                                 
    Less than 12 Months     12 Months or More     Total  
            Gross             Gross             Gross  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
June 30, 2011   Value     Losses     Value     Losses     Value     Losses  
                 
Held-to-Maturity
                                               
State, county and municipal securities
  $ 6,503     $ (117 )   $ 3,014     $ (80 )   $ 9,517     $ (197 )
                 
                                                 
    Less than 12 Months     12 Months or More     Total  
            Gross             Gross             Gross  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
December 31, 2010   Value     Losses     Value     Losses     Value     Losses  
                 
Available-for-Sale
                                               
Obligations of U.S. government agencies
  $ 498,344     $ (5,934 )   $     $     $ 498,344     $ (5,934 )
U.S. agency residential mortgage-backed securities
    160,161       (4,619 )                 160,161       (4,619 )
Private residential mortgage-backed securities
                249       (12 )     249       (12 )
                 
Total
  $ 658,505     $ (10,553 )   $ 249     $ (12 )   $ 658,754     $ (10,565 )
                 
                                                 
    Less than 12 Months     12 Months or More     Total  
            Gross             Gross             Gross  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
December 31, 2010   Value     Losses     Value     Losses     Value     Losses  
                 
Held-to-Maturity
                                               
State, county and municipal securities
  $ 42,178     $ (1,814 )   $ 3,023     $ (121 )   $ 45,201     $ (1,935 )
                 
    The investment portfolio is evaluated quarterly for other-than-temporary declines in the market value of each individual investment security. The Company had 27 and 128 individual investment securities that were in an unrealized loss position as of June 30, 2011 and December 31, 2010, respectively. Unrealized losses as of June 30, 2011 and December 31, 2010 related primarily to fluctuations in the current interest rates. The Company does not have the intent to sell any of the available-for-sale securities in the above table and it is more likely than not that the Company will not be required to sell any such securities before a recovery of cost. No impairment losses were recorded during the three or six months ended June 30, 2011 or 2010.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
    Maturities of investment securities at June 30, 2011 are shown below. Maturities of mortgage-backed securities have been adjusted to reflect shorter maturities based upon estimated prepayments of principal. All other investment securities maturities are shown at contractual maturity dates.
                                 
    Available-for-Sale     Held-to-Maturity  
    Amortized     Estimated     Amortized     Estimated  
June 30, 2011   Cost     Fair Value     Cost     Fair Value  
         
Within one year
  $ 309,476     $ 316,854     $ 6,245     $ 5,963  
After one year but within five years
    1,206,374       1,225,273       23,235       23,769  
After five years but within ten years
    177,136       183,958       58,708       61,237  
After ten years
    142,299       147,779       60,486       62,288  
         
Total
    1,835,285       1,873,864       148,674       153,257  
Investments with no stated maturity
                191       191  
         
Total
  $ 1,835,285     $ 1,873,864     $ 148,865     $ 153,448  
         
(3)   Loans
    The following table presents loans by class as of the dates indicated.
                 
    June 30,     December 31,  
    2011     2010  
 
Real estate loans:
               
Commercial
  $ 1,555,964     $ 1,565,665  
Construction:
               
Land acquisition & development
    312,690       329,720  
Residential
    63,364       99,196  
Commercial
    76,740       98,542  
     
Total construction loans
    452,794       527,458  
     
Residential
    578,739       549,604  
Agricultural
    177,728       182,794  
Mortgage loans originated for sale
    28,498       46,408  
     
Total real estate loans
    2,793,723       2,871,929  
     
Consumer loans:
               
Indirect consumer loans
    413,825       423,552  
Other consumer loans
    152,704       162,137  
Credit card loans
    59,655       60,891  
     
Total consumer loans
    626,184       646,580  
     
Commercial
    724,158       730,471  
Agricultural
    133,898       116,546  
Other loans, including overdrafts
    3,297       2,383  
     
Total loans
  $ 4,281,260     $ 4,367,909  
 
    Commercial real estate includes loans aggregating $866,352 and $867,510 as of June 30, 2011 and December 31, 2010, respectively, that are owner occupied.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
    Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following tables present the contractual aging of the Company’s recorded investment in past due loans by class as of the dates indicated.
                                                         
                                    Total              
    Accruing Loans     Nonaccruing Loans     Loans 30              
    30 - 89             30 - 89             or More              
    Days Past     Past Due     Days Past     Past Due     Days Past     Current     Total  
As of June 30, 2011   Due     > 90 Days     Due     > 90 Days     Due     Loans     Loans  
               
Real estate
                                                       
Commercial
  $ 35,604     $ 1,733     $ 8,647     $ 24,920     $ 70,904     $ 1,485,060     $ 1,555,964  
Construction:
                                                       
Land acquisition & development
    7,684       169       1,166       18,346       27,365       285,325       312,690  
Residential
    1,491                   3,059       4,550       58,814       63,364  
Commercial
                79       6,072       6,151       70,589       76,740  
 
Total construction loans
    9,175       169       1,245       27,477       38,066       414,728       452,794  
               
Residential
    3,291       49             614       3,954       574,785       578,739  
Agricultural
    3,578       104             1,044       4,726       173,002       177,728  
Mortgage loans originated for sale
                                  28,498       28,498  
 
Total real estate loans
    51,648       2,055       9,892       54,055       117,650       2,676,073       2,793,723  
               
Consumer:
                                                       
Indirect consumer loans
    2,958       24       42       170       3,194       410,631       413,825  
Other consumer loans
    1,451       64       118       55       1,688       151,016       152,704  
Credit card loans
    764       538                   1,302       58,353       59,655  
 
Total consumer loans
    5,173       626       160       225       6,184       620,000       626,184  
               
Commercial
    11,265       444       3,695       8,288       23,692       700,466       724,158  
Agricultural
    2,059       80       62       21       2,222       131,676       133,898  
Other loans, including overdrafts
                                  3,297       3,297  
 
Total
  $ 70,145     $ 3,205     $ 13,809     $ 62,589     $ 149,748     $ 4,131,512     $ 4,281,260  
               
                                                         
                                    Total              
    Accruing Loans     Nonaccruing Loans     Loans 30              
    30 - 89             30 - 89             or More              
    Days Past     Past Due     Days Past     Past Due     Days Past     Current     Total  
As of December 31, 2010   Due     > 90 Days     Due     > 90 Days     Due     Loans     Loans  
               
Real estate
                                                       
Commercial
  $ 17,959     $     $ 7,582     $ 13,047     $ 38,588     $ 1,527,077     $ 1,565,665  
Construction:
                                                       
Land acquisition & development
  9,608             1,559       7,462       18,629       311,091       329,720  
Residential
    3,022             359       992       4,373       94,823       99,196  
Commercial
    2,794             1,213       3,376       7,383       91,159       98,542  
 
Total construction loans
  15,424             3,131       11,830       30,385       497,073       527,458  
               
Residential
    2,192             160       359       2,711       546,893       549,604  
Agricultural
    4,856             406       392       5,654       177,140       182,794  
Mortgage loans originated for sale
                                  46,408       46,408  
 
Total real estate loans
    40,431             11,279       25,628       77,338       2,794,591       2,871,929  
               
Consumer:
                                                       
Indirect consumer loans
    3,717             81       63       3,861       419,691       423,552  
Other consumer loans
    1,552       15       87       568       2,222       159,915       162,137  
Credit card loans
    1,005       759                   1,764       59,127       60,891  
 
Total consumer loans
    6,274       774       168       631       7,847       638,733       646,580  
               
Commercial
    8,069       957       744       8,707       18,477       711,994       730,471  
Agricultural
    2,114       117             25       2,256       114,290       116,546  
Other loans, including overdrafts
  123       4                   127       2,256       2,383  
 
Total
  $ 57,011     $ 1,852     $ 12,191     $ 34,991     $ 106,045     $ 4,261,864     $ 4,367,909  
               
    Included in current loans in the table above are loans aggregating $153,264 and $148,160 that were on nonaccrual status as of June 30, 2011 and December 31, 2010, respectively.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
The following table presents the Company’s recorded investment in nonaccrual loans by class as of the dates indicated:
                 
    June 30,     December 31,  
    2011     2010  
 
Real estate
               
Commercial
  $ 75,505     $ 68,948  
Construction:
               
Land acquisition & development
    65,420       41,547  
Residential
    15,167       16,679  
Commercial
    23,650       16,589  
     
Total construction loans
    104,237       74,815  
     
Residential
    12,274       15,222  
Agricultural
    4,583       2,497  
     
Total real estate loans
    196,599       161,482  
     
Consumer:
               
Indirect consumer loans
    617       564  
Other consumer loans
    1,049       1,337  
Credit card loans
    28       30  
     
Total consumer loans
    1,694       1,931  
     
Commercial
    30,445       30,953  
Agricultural
    924       976  
     
Total
  $ 229,662     $ 195,342  
     
    The Company considers impaired loans to include non-consumer loans placed on nonaccrual and renegotiated in troubled debt restructurings. The following table presents information on the Company’s recorded investment in impaired loans as of dates indicated:
                                         
    As of June 30, 2011  
    Unpaid     Recorded     Recorded              
    Total     Investment     Investment     Total        
    Principal     With No     With     Recorded     Related  
    Balance     Allowance     Allowance     Investment     Allowance  
 
Real estate:
                                       
Commercial
  $ 92,806     $ 52,871     $ 32,166     $ 85,037     $ 7,823  
Construction:
                                       
Land acquisition & development
    75,417       12,259       56,501       68,760       17,512  
Residential
    20,173       7,721       9,972       17,693       2,041  
Commercial
    25,547       16,146       7,504       23,650       1,921  
 
Total construction loans
    121,137       36,126       73,977       110,103       21,474  
           
Residential
    6,745       528       6,127       6,655       529  
Agricultural
    7,237       5,699       991       6,690       77  
 
Total real estate loans
    227,925       95,224       113,261       208,485       29,903  
           
Commercial
    39,205       8,461       24,148       32,609       13,740  
Agricultural
    924       558       365       923       249  
 
Total
  $ 268,054     $ 104,243     $ 137,774     $ 242,017     $ 43,892  
           

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
                                         
    As of December 31, 2010  
    Unpaid     Recorded     Recorded              
    Total     Investment     Investment     Total        
    Principal     With No     With     Recorded     Related  
    Balance     Allowance     Allowance     Investment     Allowance  
 
Real estate:
                                       
Commercial
  $ 79,193     $ 31,925     $ 41,703     $ 73,628     $ 10,315  
Construction:
                                       
Land acquisition & development
    48,371       24,120       20,440       44,560       8,064  
Residential
    18,632       2,993       13,721       16,714       3,431  
Commercial
    17,458       2,976       13,578       16,554       3,877  
 
Total construction loans
    84,461       30,089       47,739       77,828       15,372  
           
Residential
    8,951       1,741       7,110       8,851       1,266  
Agricultural
    3,045       1,065       1,432       2,497       128  
 
Total real estate loans
    175,650       64,820       97,984       162,804       27,081  
           
Commercial
    36,251       11,354       24,168       35,522       14,892  
Agricultural
    976       498       478       976       253  
 
Total
  $ 212,877     $ 76,672     $ 122,630     $ 199,302     $ 42,226  
           
    The following table presents the average recorded investment in and income recognized on impaired loans for the periods indicated:
                                         
    Three months ended     Six months ended     Year Ended  
    June 30, 2011     June 30, 2011     December 31,  
    Average             Average             Average  
    Recorded     Income     Recorded     Income     Recorded  
    Investment     Recognized     Investment     Recognized     Investment  
 
Real estate:
                                       
Commercial
  $ 90,625     $ 110     $ 81,429     $ 202     $ 49,713  
Construction:
                                       
Land acquisition & development
    54,500       42       49,444       87       34,871  
Residential
    18,841       18       17,697       37       15,097  
Commercial
    18,306             18,811             21,086  
 
Total construction loans
    91,647       60       85,952       124       71,054  
           
Residential
    23,085       97       19,415       97       10,889  
Agricultural
    6,086       40       5,094       42       1,737  
 
Total real estate loans
    211,443       307       191,890       465       133,393  
           
Commercial
    29,626       23       31,505       65       22,017  
Agricultural
    1,003             945             974  
 
Total
  $ 242,072     $ 330     $ 224,340     $ 530     $ 156,384  
           
    If interest on impaired loans had been accrued, interest income on impaired loans during the three and six months ended June 30, 2011 would have been approximately $3,512 and $6,530, respectively. If interest on impaired loans had been accrued, interest income on impaired loans during the three and six months ended June 30, 2010 would have been approximately $2,117 and $4,008, respectively. At June 30, 2011, there were no material commitments to lend additional funds to borrowers whose existing loans have been renegotiated or are classified as nonaccrual.
 
    The Company had loans renegotiated in troubled debt restructurings of $101,994 as of June 30, 2011, of which $70,383 were included in nonaccrual loans and $31,611 were on accrual status, including loans aggregating $1,011 that were more than 90 days past due and still accruing interest. The Company had loans renegotiated in troubled debt restructurings of $53,700 as of December 31, 2010, of which $40,210 were included in nonaccrual loans and $13,490 were on accrual status.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
    As part of the on-going and continuous monitoring of the credit quality of the Company’s loan portfolio, management tracks internally assigned risk classifications of loans. The Company adheres to a Uniform Classification System developed jointly by the various bank regulatory agencies to internally risk rate loans. The Uniform Classification System defines three broad categories of criticized assets, which the Company uses as credit quality indicators:
 
    Other Assets Especially Mentioned - includes loans that exhibit weaknesses in financial condition, loan structure or documentation, which if not promptly corrected, may lead to the development of abnormal risk elements.
 
    Substandard - includes loans that are inadequately protected by the current sound worth and paying capacity of the borrower. Although the primary source of repayment for a Substandard is not currently sufficient; collateral or other sources of repayment are sufficient to satisfy the debt. Continuance of a Substandard loan is not warranted unless positive steps are taken to improve the worthiness of the credit.
 
    Doubtful - includes loans that exhibit pronounced weaknesses to a point where collection or liquidation in full, on the basis of currently existing facts, conditions and values, is highly questionable and improbable. Doubtful loans are required to be placed on nonaccrual status and are assigned specific loss exposure.
 
    The following table presents the Company’s recorded investment in criticized loans by class and credit quality indicator based on the most recent analyses performed as of the dates indicated.
                                 
    Other Assets                     Total  
    Especially                     Criticized  
As of June 30, 2011   Mentioned     Substandard     Doubtful     Loans  
         
Real estate:
                               
Commercial
  $ 141,294     $ 155,847     $ 33,228     $ 330,369  
Construction:
                               
Land acquisition & development
    47,504       25,045       56,757       129,306  
Residential
    4,693       7,548       12,634       24,875  
Commercial
          23,783       8,706       32,489  
         
Total construction loans
    52,197       56,376       78,097       186,670  
         
Residential
    12,675       28,365       8,940       49,980  
Agricultural
    13,546       20,028       991       34,565  
         
Total real estate loans
    219,712       260,616       121,256       601,584  
         
Consumer:
                               
Indirect consumer loans
    808       1,907       389       3,104  
Other consumer loans
    744       1,501       745       2,990  
Credit card loans
          467       2,859       3,326  
         
Total consumer loans
    1,552       3,875       3,993       9,420  
         
Commercial
    40,331       38,392       24,350       103,073  
Agricultural
    6,855       6,146       365       13,366  
         
Total
  $ 268,450     $ 309,029     $ 149,964     $ 727,443  
         

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
                                 
    Other Assets                     Total  
    Especially                     Criticized  
As of December 31, 2010   Mentioned     Substandard     Doubtful     Loans  
         
Real estate:
                               
Commercial
  $ 133,700     $ 149,604     $ 41,662     $ 324,966  
Construction:
                               
Land acquisition & development
    73,151       36,552       21,795       131,498  
Residential
    9,083       9,842       13,721       32,646  
Commercial
    9,025       18,611       13,598       41,234  
         
Total construction loans
    91,259       65,005       49,114       205,378  
         
Residential
    13,889       18,725       11,474       44,088  
Agricultural
    12,683       20,885       1,432       35,000  
         
Total real estate loans
    251,531       254,219       103,682       609,432  
         
Consumer:
                               
Indirect consumer loans
    768       1,964       315       3,047  
Other consumer loans
    903       1,499       1,131       3,533  
Credit card loans
          571       3,467       4,038  
         
Total consumer loans
    1,671       4,034       4,913       10,618  
         
Commercial
    47,307       39,145       24,280       110,732  
Agricultural
    5,416       6,255       478       12,149  
         
Total
  $ 305,925     $ 303,653     $ 133,353     $ 742,931  
         
    The Company maintains an independent credit review function to assess assigned internal risk classifications and monitor compliance with internal lending policies and procedures. Written action plans with firm target dates for resolution of identified problems are maintained and reviewed on a quarterly basis for all criticized loans.
(4)   Allowance For Loan Losses
    The following tables present a summary of changes in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2011.
                                                 
Three months ended June 30, 2011   Real Estate     Consumer     Commercial     Agriculture     Other     Total  
             
Allowance for loan losses:
                                               
Beginning balance
  $ 92,350     $ 8,992     $ 21,790     $ 1,314     $     $ 124,446  
Provision charged to operating expense
    10,941       563       3,798       98             15,400  
Less loans charged-off
    (13,157 )     (1,499 )     (1,407 )     (39 )           (16,102 )
Add back recoveries of loans previously charged-off
    109       470       253       3             835  
             
Ending balance
  $ 90,243     $ 8,526     $ 24,434     $ 1,376     $     $ 124,579  
             
                                                 
Six months ended June 30, 2011   Real Estate     Consumer     Commercial     Agriculture     Other     Total  
 
Allowance for loan losses:
                                               
Beginning balance
  $ 84,181     $ 9,332     $ 25,354     $ 1,613     $     $ 120,480  
Provision charged to operating expense
    23,096       1,251       6,255       (202 )           30,400  
Less loans charged-off
    (17,388 )     (2,959 )     (8,049 )     (45 )           (28,441 )
Add back recoveries of loans previously charged-off
    354       902       874       10             2,140  
             
Ending balance
  $ 90,243     $ 8,526     $ 24,434     $ 1,376     $     $ 124,579  
             

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
                                                 
As of June 30, 2011   Real Estate     Consumer     Commercial     Agriculture     Other     Total  
 
Individually evaluated for impairment
  $ 29,903     $     $ 13,740     $ 249     $     $ 43,892  
Collectively evaluated for impairment
    60,340       8,526       10,694       1,127             80,687  
 
Ending balance
  $ 90,243     $ 8,526     $ 24,434     $ 1,376     $     $ 124,579  
 
Individually evaluated for impairment
  $ 208,485     $     $ 32,609     $ 923     $     $ 242,017  
Collectively evaluated for impairment
    2,585,238       626,184       691,549       132,975       3,297       4,039,243  
 
Total loans
  $ 2,793,723     $ 626,184     $ 724,158     $ 133,898     $ 3,297     $ 4,281,260  
 
In determining the allowance for loan losses, the Company estimates losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.
The allowance for loan losses consists of three elements: (1) specific valuation allowances based on probable losses on impaired loans; (2) historical valuation allowances based on loan loss experience for similar loans with similar characteristics and trends; and (3) general valuation allowances determined based on general economic conditions and other qualitative risk factors both internal and external to us.
Specific allowances are established for loans where management has determined that probability of a loss exists by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies and any relevant qualitative or environmental factors impacting the loan. Historical valuation allowances are determined by applying percentage loss factors to the credit exposures from outstanding loans. For commercial, agricultural and real estate loans, loss factors are applied based on the internal risk classifications of these loans. For consumer loans, loss factors are applied on a portfolio basis. For commercial, agriculture and real estate loans, loss factor percentages are based on a migration analysis of our historical loss experience, designed to account for credit deterioration. For consumer loans, loss factor percentages are based on a one-year loss history. General valuation allowances are determined by evaluating, on a quarterly basis, changes in the nature and volume of the loan portfolio, overall portfolio quality, industry concentrations, current economic and regulatory factors and the estimated impact of current economic, environmental and regulatory conditions on historical loss rates.
The following table presents a summary of changes in the allowance for loan losses for the three and six months ended June 30, 2010:
                 
    Three months ended     Six months ended  
    June 30, 2010     June 30, 2010  
 
Beginning balance
  $ 106,349     $ 103,030  
Provision charged to operating expense
    19,500       31,400  
Less loans charged-off
    (12,107 )     (21,505 )
Add back recoveries of loans previously charged-off
    586       1,403  
 
Ending balance
  $ 114,328     $ 114,328  
 
(5) Common Stock
The Company had 16,213,617 and 15,598,632 shares of Class A common stock outstanding as of June 30, 2011 and December 31, 2010, respectively.
The Company had 26,751,304 and 27,202,062 shares of Class B common stock outstanding as of June 30, 2011 and December 31, 2010, respectively.
(6) Earnings per Common Share
Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period presented. Diluted earnings per common share is calculated by dividing net income by the weighted average number of common shares and potential common shares outstanding during the period.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
The following table sets forth the computation of basic and diluted earnings per share for the three and six month periods ended June 30, 2011 and 2010.
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2011     2010     2011     2010  
 
Net income
  $ 9,854     $ 6,659     $ 19,360     $ 17,789  
Less preferred stock dividends
    853       853       1,697       1,697  
 
Net income available to common stockholders, basic and diluted
  $ 9,001     $ 5,806     $ 17,663     $ 16,092  
 
Weighted average common shares outstanding
    42,781,894       42,620,563       42,735,897       37,133,376  
Weighted average common shares issuable upon exercise of stock options and non-vested stock awards
    114,717       283,433       138,031       269,087  
 
Weighted average common and common equivalent shares outstanding
    42,896,611       42,903,996       42,873,928       37,402,463  
 
Basic earnings per common share
  $ 0.21     $ 0.14     $ 0.41     $ 0.43  
 
Diluted earnings per common share
  $ 0.21     $ 0.14     $ 0.41     $ 0.43  
 
The Company had 2,960,016 and 2,623,276 stock options outstanding for the three and six months ended June 30, 2011, respectively, that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive. The Company had outstanding options to purchase 2,325,441 and 2,380,371 shares of common stock for the three and six months ended June 30, 2010, respectively, that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive.
(7) Regulatory Capital
The Company is subject to the regulatory capital requirements administered by federal banking regulators and the Federal Reserve. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets, as defined in the regulations. As of June 30, 2011 and December 31, 2010, the Company exceeded all capital adequacy requirements to which it is subject.
Actual capital amounts and ratios and selected minimum regulatory thresholds for the Company and its bank subsidiary, First Interstate Bank (“FIB”), as of June 30, 2011 and December 31, 2010 are presented in the following table:
                                                 
    Actual     Adequately Capitalized     Well Capitalized  
As of June 30, 2011:   Amount     Ratio     Amount     Ratio     Amount     Ratio  
 
Total risk-based capital:
                                               
Consolidated
  $ 784,392       16.0 %   $ 391,954       8.0 %   NA   NA
FIB
    646,830       13.3       389,883       8.0     $ 487,354       10.0 %
Tier 1 risk-based capital:
                                               
Consolidated
    687,367       14.0       195,977       4.0     NA   NA
FIB
    570,125       11.7       194,942       4.0     $ 292,412       6.0  
Leverage capital ratio:
                                               
Consolidated
    687,367       9.7       283,852       4.0     NA   NA
FIB
    570,125       8.1       282,948       4.0     $ 353,685       5.0  
 

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
                                                 
    Actual     Adequately Capitalized     Well Capitalized  
As of December 31, 2010:   Amount     Ratio     Amount     Ratio     Amount     Ratio  
 
Total risk-based capital:
                                               
Consolidated
  $ 772,337       15.5 %   $ 398,720       8.0 %   NA   NA
FIB
    634,976       12.8       396,754       8.0     $ 495,943       10.0 %
Tier 1 risk-based capital:
                                               
Consolidated
    674,319       13.5       199,360       4.0     NA   NA
FIB
    557,261       11.2       198,377       4.0     $ 297,566       6.0  
Leverage capital ratio:
                                               
Consolidated
    674,319       9.3       291,023       4.0     NA   NA
FIB
    557,261       7.7       290,071       4.0     $ 362,589       5.0  
 
(8) Commitments and Contingencies
In the normal course of business, the Company is involved in various claims and litigation. In the opinion of management, following consultation with legal counsel, the ultimate liability or disposition thereof is not expected to have a material adverse effect on the consolidated financial condition, results of operations, or liquidity of the Company.
The Company had commitments under construction contracts of $4,876 as of June 30, 2011.
The Company had commitments to purchase held-to-maturity municipal investment securities of $513 as of June 30, 2011.
(9) Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At June 30, 2011, commitments to extend credit to existing and new borrowers approximated $993,610, which includes $274,694 on unused credit card lines and $238,580 with commitment maturities beyond one year.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. At June 30, 2011, the Company had outstanding standby letters of credit of $71,966. The estimated fair value of the obligation undertaken by the Company in issuing the standby letters of credit is included in other liabilities in the Company’s consolidated balance sheet.
(10) Supplemental Disclosures to Consolidated Statement of Cash Flows
The Company transferred loans of $5,763 and $14,202 to OREO during the six months ended June 30, 2011 and 2010, respectively.
The Company transferred equipment pending disposal of $1,513 to other assets during the six months ended June 30, 2010.
The Company transferred accrued liabilities of $195 and $59 to common stock in conjunction with the vesting of liability-classified non-vested stock awards during the six months ended June 30, 2011 and 2010, respectively.
The Company transferred internally originated mortgage servicing rights of $1,185 and $1,379 from loans to mortgage servicing assets during the six months ended June 30, 2011 and 2010, respectively.
(11) Other Comprehensive Income
Total other comprehensive income for the six months ended June 30, 2011 and 2010 is reported in the accompanying statements of changes in stockholders’ equity. Total other comprehensive income for the three months ended June 30, 2011 and 2010 was $22,603 and $12,334, respectively.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
Information related to net other comprehensive income is as follows:
                 
For the six months ended June 30,   2011     2010  
 
Other comprehensive income:
               
Investment securities available-for-sale:
               
Change in net unrealized gain during the period
  $ 21,419     $ 11,223  
Reclassification adjustment for gains included in income
    (18 )     (42 )
Change in the net actuarial loss on defined benefit post-retirement benefit plans
    69       49  
 
Total other comprehensive income
    21,470       11,230  
Deferred tax expense
    8,448       4,419  
 
Net other comprehensive income
  $ 13,022     $ 6,811  
 
The components of accumulated other comprehensive income, net of income taxes, are as follows:
                 
    June 30,     December 31,  
    2011     2010  
 
Net unrealized gain on investment securities available-for-sale
  $ 23,939     $ 10,959  
Net actuarial loss on defined benefit post-retirement benefit plans
    (1,542 )     (1,584 )
 
Net accumulated other comprehensive income
  $ 22,397     $ 9,375  
 
(12) Fair Value Measurements
Financial assets and financial liabilities measured at fair value on a recurring basis are as follows:
                                 
    Fair Value Measurements at Reporting Date Using  
            Quoted Prices in     Significant Other     Significant  
    Balance     Active Markets for     Observable     Unobservable  
    as of     Identical Assets     Inputs     Inputs  
As of June 30, 2011   6/30/2011     (Level 1)     (Level 2)     (Level 3)  
 
Investment securities available-for-sale:
                               
Obligations of U.S. government agencies
  $ 1,012,628     $     $ 1,012,628     $  
U.S. agency residential mortgage-backed securities
    860,373             860,373        
Private residential mortgage-backed securities
    863             863        
Mortgage servicing rights
    14,607             14,607        
Derivative liability contract
    122                   122  
 
                                 
    Fair Value Measurements at Reporting Date Using  
            Quoted Prices in     Significant Other     Significant  
    Balance     Active Markets for     Observable     Unobservable  
    as of     Identical Assets     Inputs     Inputs  
As of December 31, 2010   12/31/2010     (Level 1)     (Level 2)     (Level 3)  
 
Investment securities available-for-sale:
                               
Obligations of U.S. government agencies
  $ 953,420     $     $ 953,420     $  
U.S. agency residential mortgage-backed securities
    831,860             831,860        
Private residential mortgage-backed securities
    1,055             1,055        
Mortgage servicing rights
    13,694             13,694        
Derivative liability contract
    86                   86  
 

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
The following table reconciles the beginning and ending balances of the derivative liability contract measured at fair value on a recurring basis using significant unobservable (Level 3) inputs during the six months ended June 30, 2011 and 2010:
                 
For the Six Months Ended June 30,   2011     2010  
 
Balance, beginning of period
  $ 86     $ 245  
Accruals during the period
    164        
Cash payments during the period
    (128 )     (118 )
 
Balance, end of period
  $ 122     $ 127  
 
The following methods were used to estimate the fair value of each class of financial instrument above:
Investment Securities Available-for-Sale. The Company obtains fair value measurements for investment securities available-for-sale from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the investment’s terms and conditions, among other things.
Mortgage Servicing Rights. Mortgage servicing rights are initially recorded at fair value based on comparable market quotes and are amortized in proportion to and over the period of estimated net servicing income. Mortgage servicing rights are evaluated quarterly for impairment using an independent valuation service. The valuation service utilizes discounted cash flow modeling techniques, which consider observable data that includes market consensus prepayment speeds and the predominant risk characteristics of the underlying loans including loan type, note rate and loan term. Management believes the significant inputs utilized in the valuation model are observable in the market.
Derivative Liability Contract. In conjunction with the sale of all of its Class B shares of Visa, Inc. (“Visa”) common stock in 2009, the Company entered into a derivative liability contract with the purchaser whereby the Company will make or receive cash payments based on subsequent changes in the conversion rate of the Class B shares into Class A shares of Visa. The conversion rate is dependent upon the resolution of certain litigation involving Visa U.S.A. Inc. card association or its affiliates. The value of the derivative liability contract is estimated based on the Company’s expectations regarding the ultimate resolution of that litigation, which involves a high degree of judgment and subjectivity. On April 6, 2011, Visa disclosed it had provided additional funding to its litigation escrow account thereby reducing the conversion rate of the Class B shares into Class A shares. During the three months ended June 30, 2011, the Company made cash payments to the purchaser of $102 due to changes in conversion rates and $26 to extend the derivative liability contract until all litigation is settled. In addition, during 2011 the Company revised its estimate of Visa’s future litigation funding and increased its derivative liability contract by $164.
Additionally, from time to time, certain assets are measured at fair value on a non-recurring basis. Adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment.
The following table presents information about the Company’s assets and liabilities measured at fair value on a non-recurring basis.
                                 
    Fair Value Measurements at Reporting Date Using  
            Quoted Prices     Significant        
            in Active     Other     Significant  
            Markets for     Observable     Unobservable  
            Identical Assets     Inputs     Inputs  
As of June 30, 2011   Total     (Level 1)     (Level 2)     (Level 3)  
 
Impaired loans
  $ 119,940     $     $     $ 119,940  
Other real estate owned
    18,648                   18,648  
 

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
                                 
    Fair Value Measurements at Reporting Date Using  
            Quoted Prices     Significant        
            in Active     Other     Significant  
            Markets for     Observable     Unobservable  
            Identical Assets     Inputs     Inputs  
As of December 31, 2010   Total     (Level 1)     (Level 2)     (Level 3)  
 
Impaired loans
  $ 97,574     $     $     $ 97,574  
Other real estate owned
    23,727                   23,727  
 
Impaired Loans. Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. The impaired loans are reported at fair value through specific valuation allowance allocations. In addition, when it is determined that the fair value of an impaired loan is less than the recorded investment in the loan, the carrying value of the loan is adjusted to fair value through a charge to the allowance for loan losses. Collateral values are estimated using inputs based upon observable market data and customized discounting criteria.
OREO. The fair values of OREO are determined by independent appraisals or are estimated using observable market data in combination with customized discounting criteria. Upon initial recognition, write-downs based on the foreclosed asset’s fair value at foreclosure are reported through charges to the allowance for loan losses. Periodically, the fair value of foreclosed assets is remeasured with any subsequent write-downs charged to OREO expense in the period in which they are identified.
Long-lived Assets to be Disposed of by Sale. Long-lived assets to be disposed of by sale are carried at the lower of carrying value or fair value less estimated costs to sell. The fair values of long-lived assets to be disposed of by sale are based upon observable market data and customized discounting criteria. As of June 30, 2011 and December 31, 2010, the Company had one long-lived asset to be disposed of by sale carried at its cost of $1,513.
In addition, mortgage loans held for sale are required to be measured at the lower of cost or fair value. The fair value of mortgage loans held for sale is based upon binding contracts or quotes or bids from third party investors. As of June 30, 2011 and December 31, 2010, all mortgage loans held for sale were recorded at cost.
The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. The methodologies for estimating the fair value of financial instruments that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for estimating the fair value of other financial instruments are discussed below. For financial instruments bearing a variable interest rate where no credit risk exists, it is presumed that recorded book values are reasonable estimates of fair value.
Financial Assets. Carrying values of cash, cash equivalents and accrued interest receivable approximate fair values due to the liquid and/or short-term nature of these instruments. Fair values for investment securities held-to-maturity are obtained from an independent pricing service, which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the investment’s terms and conditions, among other things. Fair values of fixed rate loans and variable rate loans that reprice on an infrequent basis are estimated by discounting future cash flows using current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality. Carrying values of variable rate loans that reprice frequently, and with no change in credit risk, approximate the fair values of these instruments.
Financial Liabilities. The fair values of demand deposits, savings accounts, securities sold under repurchase agreements and accrued interest payable are the amounts payable on demand at the reporting date. The fair values of fixed-maturity certificates of deposit are estimated using external market rates currently offered for deposits with similar remaining maturities. The carrying values of the interest bearing demand notes to the United States Treasury are deemed an approximation of fair values due to the frequent repayment and repricing at market rates. The fair value of the derivative liability contract was estimated by discounting cash flows using assumptions regarding the expected outcome of related litigation. The floating rate term notes, floating rate subordinated debentures, floating rate subordinated term loan and unsecured demand notes bear interest at floating market rates and, as such, carrying amounts are deemed to approximate fair values. The fair values of notes payable to the FHLB, fixed rate subordinated term debt and capital lease obligation are estimated by discounting future cash flows using current rates for advances with similar characteristics.
Commitments to Extend Credit and Standby Letters of Credit. The fair value of commitments to extend credit and standby letters of credit, based on fees currently charged to enter into similar agreements, is not significant.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
A summary of the estimated fair values of financial instruments follows:
                                 
    June 30, 2011     December 31, 2010  
    Carrying     Estimated     Carrying     Estimated  
    Amount     Fair Value     Amount     Fair Value  
 
Financial assets:
                               
Cash and cash equivalents
  $ 415,491     $ 415,491     $ 685,618     $ 685,618  
Investment securities available-for-sale
    1,873,864       1,873,864       1,786,335       1,786,335  
Investment securities held-to-maturity
    148,865       153,448       147,068       146,508  
Net loans
    4,156,681       4,141,877       4,247,429       4,222,984  
Accrued interest receivable
    33,588       33,588       33,628       33,628  
Mortgage servicing rights, net
    13,218       14,607       13,191       13,694  
 
Total financial assets
  $ 6,641,707     $ 6,632,875     $ 6,913,269     $ 6,888,767  
 
Financial liabilities:
                               
Total deposits, excluding time deposits
  $ 4,046,492     $ 4,046,492     $ 4,000,468     $ 4,000,468  
Time deposits
    1,748,173       1,758,786       1,925,245       1,936,011  
Securities sold under repurchase agreements
    435,039       435,039       620,154       620,154  
Derivative contract
    122       122       86       86  
Accrued interest payable
    11,712       11,712       13,178       13,178  
Other borrowed funds
    5,440       5,440       4,991       4,991  
Long-term debt
    37,480       40,541       37,502       40,031  
Subordinated debentures held by subsidiary trusts
    123,715       129,094       123,715       128,954  
 
Total financial liabilities
  $ 6,408,173     $ 6,427,226     $ 6,725,339     $ 6,743,873  
 
(13) Recent Authoritative Accounting Guidance
FASB ASC Topic 220, “Comprehensive Income.” The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05 under Accounting Standards Codification (“ASC”) Topic 220, “Comprehensive Income.” ASU No. 2011-05 allows an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in separate but consecutive statements. ASU No. 2011-05 is effective for the Company on January 1, 2012, and is to be applied retrospectively to all periods presented. Management does not expect the adoption of ASU No. 2011-05 will have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity.
FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” New authoritative accounting guidance, ASU No. 2011-04, under ASC Topic 820 represents the converged guidance of the FASB and the International Accounting Standards Board (collectively, the “Boards”) on fair value measurement. The collective efforts of the Boards and their staffs have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” ASU No. 2011-04 is effective for the Company on January 1, 2012. Management does not expect the adoption of ASU No. 2011-04 will have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity.
FASB ASC Topic 860, “Transfers and Servicing.” New authoritative accounting guidance, ASU No. 2011-03, under ASC Topic 860, “Transfers and Servicing,” is intended to improve financial reporting or repurchase agreements and other agreement that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU No. 2011-03 removes from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in ASU No. 2011-03 are effective for the Company on January 1, 2012. Management does not expect the adoption of ASU No. 2011-03 will have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(In thousands, except share and per share data)
FASB ASC Topic 310, “Receivables.” New authoritative accounting guidance, ASU No. 2011-02, under Topic 310, “Receivables,” requires significant new disclosures about the nature, extent and financial impact of troubled debt restructurings presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. ASU No. 2011-02 also provides additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. ASU No. 2011-02 is effective for the Company on July 1, 2011, and is to be applied retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Management does not expect the adoption of ASU 2011-02 will have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity.
FASB ASC Topic 350, “Intangibles — Goodwill and Other.” New authoritative accounting guidance under ASC Topic 350, “Intangibles — Goodwill and Other,” amends prior guidance. Under this amended guidance, an entity is required to perform Step 2 of the goodwill impairment test if the reporting unit has a zero or negative carrying amount and if it is more likely than not that impairment exists. This guidance, which became effective for the Company on January 1, 2011, did not impact the Company’s consolidated financial statements, results of operations or liquidity.
(14) Subsequent Events
Subsequent events have been evaluated for potential recognition and disclosure through the date financial statements were filed with the Securities and Exchange Commission. No events requiring disclosure were identified.

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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010, including the audited financial statements contained therein, filed with the SEC.
     When we refer to “we,” “our,” and “us” in this report, we mean First Interstate BancSystem, Inc. and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, First Interstate BancSystem, Inc.
Cautionary Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results
     This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. Any statements about our plans, objectives, expectations, strategies, beliefs, or future performance or events constitute forward-looking statements. Such statements are identified as those that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “may” or similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other important factors that could cause actual results to differ materially from any results, performance or events expressed or implied by such forward-looking statements. 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 report:
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;

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    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 our Annual Report on Form 10-K for the year ended December 31, 2010, filed February 28, 2011. These factors and other risk factors described in our periodic and current reports filed with the Securities and Exchange Commission from time to time, however, are not necessarily all of the factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results.
     All forward-looking statements attributable to us or persons acting on our 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 we do 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 we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Executive Overview
     We are a financial and bank holding company headquartered in Billings, Montana. As of June 30, 2011, we had consolidated assets of $7,203 million, deposits of $5,795 million, loans of $4,281 million and total stockholders’ equity of $759 million. We currently operate 71 banking offices in 42 communities located in Montana, Wyoming and western South Dakota. Through our bank subsidiary, First Interstate Bank, or the Bank, we deliver a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities throughout our market areas. Our customers participate in a wide variety of industries, including energy, healthcare and professional services, education and governmental services, construction, mining, agriculture, retail and wholesale trade.
Our Business
     Our principal business activity is lending to and accepting deposits from individuals, businesses, municipalities and other entities. We derive our income principally from interest charged on loans and, to a lesser extent, from interest and dividends earned on investments. We also derive income from non-interest sources such as fees received in connection with various lending and deposit services; trust, employee benefit, investment and insurance services; mortgage loan originations, sales and servicing; merchant and electronic banking services; and from time to time, gains on sales of assets. Our principal expenses include interest expense on deposits and borrowings, operating expenses, provisions for loan losses and income tax expense.
     Our loan portfolio consists of a mix of real estate, consumer, commercial, agricultural and other loans, including fixed and variable rate loans. Our real estate loans comprise commercial real estate, construction (including residential, commercial and land development loans), residential, agricultural and other real estate loans. Fluctuations in the loan portfolio are directly related to the economies of the communities we serve. While each loan originated generally must meet minimum underwriting standards established in our credit policies, lending officers are granted discretion within pre-approved limits in approving and pricing loans to assure that the banking offices are responsive to competitive issues and community needs in each market area. We fund our loan portfolio primarily with the core deposits from our customers, generally without utilizing brokered deposits and with minimal reliance on wholesale funding sources.

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Recent Trends and Developments
     On July 15, 2011, the Board of Governors of the Federal Reserve System, or FRB, and the Federal Deposit Insurance Corporation, or FDIC, issued separate final rules to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, which mandated repeal of the prohibition against paying interest on demand deposits. These rules became effective on July 21, 2011. Management does not expect this change will have a significant impact on the Company’s interest expense, consolidated financial statements, results of operations or liquidity.
     On June 29, 2011, the FRB issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. This rule, Regulation II — Debit Card Interchange Fees and Routing, implements provisions of the Dodd-Frank Act. Regulation II reduces the maximum allowable interchange fee per transaction to $0.21 plus a fraud allowance of five basis points on the transaction value and provides for an additional $0.01 fraud prevention on to the interchange fee for issuers that meet certain fraud prevention requirements. The debit card interchange fee limitations and fraud prevention adjustment provisions of Regulation II become effective October 1, 2011. Issuers with less than $10 billion in assets, like us, are exempt from the debit card interchange fee limitations set by Regulation II, although the payment card networks could make other fee adjustments for smaller issuers. The Company recorded debit card interchange fees of $2.9 million and $5.7 million during the three and six months ended June 30, 2011, respectively.
     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. The final rule changes the deposit insurance assessment base to an institution’s average total assets less its average tangible equity, with adjustments for brokered deposits, unsecured debt and for custodial banks and banks that primarily provide services to other banks. These changes, which became effective April 1, 2011, resulted in a reduction in the Company’s FDIC insurance premiums.
     Our success is highly dependent on economic conditions and market interest rates. Because we operate in Montana, Wyoming and western South Dakota, the local economic conditions in each of these areas are particularly important. Our local economies entered the recession later than many areas of the United States and are now just beginning to show some signs of recovery. Although the continuing impact of the national recession and related real estate and financial market conditions is uncertain, these factors affect our business and could have a material negative effect on our cash flows, results of operations, financial condition and prospects.
     Asset Quality
     Difficult economic conditions and depressed real estate values and sales activity continued to negatively impact businesses and consumers in our market areas, especially in the Flathead, Gallatin Valley and Jackson market areas with economies dependent upon resort and second home communities. Our non-performing assets increased to $292 million, or 6.77% of total loans and OREO, as of June 30, 2011, from $244 million, or 5.55% of total loans and OREO, as of December 31, 2010. Approximately 46% of our non-performing assets were attributable to the Flathead, Gallatin Valley and Jackson market areas. Loan charge-offs, net of recoveries, totaled $15 million during the second quarter of 2011, as compared to $12 million during second quarter 2010. Approximately 78% of second quarter 2011 net charge-offs were attributable to the Flathead, Gallatin Valley and Jackson market areas. Net charge-offs are expected to remain elevated in future quarters as previously identified problem loans continue to work through the credit cycle. During second quarter 2011, we recorded provisions for loan losses of $15.4 million, as compared to $19.5 million during second quarter 2010. Management expects provisions for loan losses to decline as credit quality improves.
Primary Factors Used in Evaluating Our Business
     As a banking institution, we manage and evaluate various aspects of both our financial condition and our results of operations. We monitor our financial condition and performance on a monthly basis at our holding company, at the Bank and at each banking office. We evaluate the levels and trends of the line items included in our balance sheet and statements of income, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against both our own historical levels and the financial condition and performance of comparable banking institutions in our region and nationally.

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     Results of Operations
     Principal factors used in managing and evaluating our results of operations include net interest income, non-interest income, non-interest expense and net income.
     Net interest income. Net interest income, the largest source of our operating income, is derived from interest, dividends and fees received on interest earning assets, less interest expense incurred on interest bearing liabilities. Interest earning assets primarily include loans and investment securities. Interest bearing liabilities include deposits and various forms of indebtedness. Net interest income is affected by the level of interest rates, changes in interest rates and changes in the composition of interest earning assets and interest bearing liabilities. The most significant impact on our net interest income between periods is derived from the interaction of changes in the rates earned or paid on interest earning assets and interest bearing liabilities, which we refer to as interest rate spread. The volume of loans, investment securities and other interest earning assets, compared to the volume of interest bearing deposits and indebtedness, combined with the interest rate spread, produces changes in our net interest income between periods. Non-interest bearing sources of funds, such as demand deposits and stockholders’ equity, also support earning assets. The impact of free funding sources is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Given the interest free nature of free funding sources, the net interest margin is generally higher than the interest rate spread. We seek to increase our net interest income over time, and we evaluate our net interest income on factors that include the yields on our loans and other earning assets, the costs of our deposits and other funding sources, the levels of our net interest spread and net interest margin and the provisions for loan losses required to maintain our allowance for loan losses at an adequate level.
     Non-interest income. Our principal sources of non-interest income include (1) income from the origination and sale of loans, (2) other service charges, commissions and fees, (3) service charges on deposit accounts, (4) wealth management revenues and (5) other income. Income from the origination and sale of loans includes origination and processing fees on residential real estate loans held for sale and gains on residential real estate loans sold to third parties. Other service charges, commissions and fees primarily include debit and credit card interchange income, mortgage servicing fees, insurance and other commissions and ATM service charge revenues. Wealth management revenues principally comprise fees earned for management of trust assets and investment services revenues. Fees earned for management of trust assets are generally based on the market value of assets managed. Other income primarily includes company-owned life insurance revenues, check printing income, agency stock dividends and gains on sales of miscellaneous assets. We seek to increase our non-interest income over time, and we evaluate our non-interest income relative to the trends of the individual types of non-interest income in view of prevailing market conditions.
     Non-interest expense. Non-interest expenses include (1) salaries, wages and employee benefits expense, (2) occupancy expense, (3) furniture and equipment expense, (4) FDIC insurance premiums, (5) outsourced technology services expense, (6) amortization and impairment of mortgage servicing rights, (7) OREO expense, net of income, (8) core deposit intangibles amortization and (9) other expenses, which primarily includes professional fees; advertising and public relations costs; office supply, postage, freight, telephone and travel expenses; donations expense; debit and credit card expenses; board of director fees; and other losses. OREO expense is recorded net of OREO income. Variations in net OREO expense between periods is primarily due to write-downs of the estimated fair value of OREO properties, fluctuations in gains and losses recorded on sales of OREO properties, and fluctuations in the carrying costs and/or operating expenses associated with OREO properties. We seek to manage our non-interest expenses in consideration of the growth of our business and our community banking model that emphasizes customer service and responsiveness. We evaluate our non-interest expense on factors that include our non-interest expense relative to our average assets, our efficiency ratio and the trends of the individual categories of non-interest expense.
     Net Income. We seek to increase our net income and provide favorable stockholder returns over time, and we evaluate our net income relative to the performance of other banks and bank holding companies on factors that include return on average assets, return on average equity and consistency and rates of growth in our earnings.
     Financial Condition
     Principal areas of focus in managing and evaluating our financial condition include liquidity, the diversification and quality of our loans, the adequacy of our allowance for loan losses, the diversification and terms of our deposits and other funding sources, the re-pricing characteristics and maturities of our assets and liabilities, including potential interest rate exposure and the adequacy of our capital levels. We seek to maintain sufficient levels of cash and investment securities to meet potential payment and funding obligations, and we evaluate our liquidity on factors that include the levels of cash and highly liquid assets relative to our liabilities, the quality and maturities of our investment securities, our ratio of loans to deposits and our reliance on brokered certificates of deposit or other wholesale funding sources.

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     We seek to maintain a diverse and high quality loan portfolio. We evaluate our asset quality on factors that include the allocation of our loans among loan types, credit exposure to any single borrower or industry type, non-performing assets as a percentage of total loans and OREO, and loan charge-offs as a percentage of average loans. We seek to maintain our allowance for loan losses at a level adequate to absorb potential losses inherent in our loan portfolio at each balance sheet date, and we evaluate the level of our allowance for loan losses relative to our overall loan portfolio and the level of non-performing loans and potential charge-offs.
     We seek to fund our assets primarily using core customer deposits spread among various deposit categories, and we evaluate our deposit and funding mix on factors that include the allocation of our deposits among deposit types, the level of our non-interest bearing deposits, the ratio of our core deposits (i.e. excluding time deposits above $100,000) to our total deposits and our reliance on brokered deposits or other wholesale funding sources, such as borrowings from other banks or agencies. We seek to manage the mix, maturities and re-pricing characteristics of our assets and liabilities to maintain relative stability of our net interest rate margin in a changing interest rate environment, and we evaluate our asset-liability management using complex models to evaluate the changes to our net interest income under different interest rate scenarios.
     Finally, we seek to maintain adequate capital levels to absorb unforeseen operating losses and to help support the growth of our balance sheet. We evaluate our capital adequacy using regulatory and financial capital ratios including leverage capital ratio, tier 1 risk-based capital ratio, total risk-based capital ratio, tangible common equity to tangible assets and tier 1 common capital to total risk-weighted assets.
Critical Accounting Estimates and Significant Accounting Policies
     Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow general practices within the industries in which we operate. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant accounting policies we follow are presented in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010.
     Our critical accounting estimates are summarized below. Management considers an accounting estimate to be critical if: (1) the accounting estimate requires management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and (2) changes in the estimate that are reasonably likely to occur from period to period, or the use of different estimates that management could have reasonably used in the current period, would have a material impact on our consolidated financial statements, results of operations or liquidity.
     Allowance for Loan Losses
     The provision for loan losses creates an allowance for loan losses known and inherent in the loan portfolio at each balance sheet date. The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio.
     We perform a quarterly assessment of the risks inherent in our loan portfolio, as well as a detailed review of each significant loan with identified weaknesses. Based on this analysis, we record a provision for loan losses in order to maintain the allowance for loan losses at appropriate levels. In determining the allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of subjective measurements, including management’s assessment of the internal risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends and the impact of current local, regional and national economic factors on the quality of the loan portfolio. Changes in these estimates and assumptions are possible and may have a material impact on our allowance, and therefore our consolidated financial statements, liquidity or results of operations. The allowance for loan losses is maintained at an amount we believe is sufficient to provide for estimated losses inherent in our loan portfolio at each balance sheet date, and fluctuations in the provision for loan losses result from management’s assessment of the adequacy of the allowance for loan losses. Management monitors qualitative and quantitative trends in the loan portfolio, including changes in the levels of past due, internally classified and non-performing loans. Note 1 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010 describes the methodology used to determine the allowance for loan losses. A discussion of the factors driving changes in the amount of the allowance for loan losses is included herein under the heading “Asset Quality.”

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     Goodwill
     The excess purchase price over the fair value of net assets from acquisitions, or goodwill, is evaluated for impairment at least annually and on an interim basis if an event or circumstance indicates that it is likely an impairment has occurred. In testing for impairment, the fair value of net assets is estimated based on an analysis of our market value. Determining the fair value of goodwill is considered a critical accounting estimate because of its sensitivity to market-based trading of our Class A common stock. In addition, any allocation of the fair value of goodwill to assets and liabilities requires significant management judgment and the use of subjective measurements. Variability in the market and changes in assumptions or subjective measurements used to allocate fair value are reasonably possible and may have a material impact on our consolidated financial statements, liquidity or results of operations. Note 1 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010 describes our accounting policy with regard to goodwill.
     Valuation of Mortgage Servicing Rights
     We recognize as assets the rights to service mortgage loans for others, whether acquired or internally originated. Mortgage servicing rights are carried on the consolidated balance sheet at the lower of amortized cost or fair value. We utilize the expertise of a third-party consultant to estimate the fair value of our mortgage servicing rights quarterly. In evaluating the mortgage servicing rights, the consultant uses discounted cash flow modeling techniques, which require estimates regarding the amount and timing of expected future cash flows, including assumptions about loan repayment rates based on current industry expectations, costs to service and predominant risk characteristics of the underlying loans as well as interest rate assumptions that contemplate the risk involved. Management believes the valuation techniques and assumptions used by the consultant are reasonable.
     Determining the fair value of mortgage servicing rights is considered a critical accounting estimate because of the assets’ sensitivity to changes in estimates and assumptions used, particularly loan prepayment speeds and discount rates. Changes in these estimates and assumptions are reasonably possible and may have a material impact on our consolidated financial statements, liquidity or results of operations. Notes 1 and 8 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010 describe the methodology we use to determine fair value of mortgage servicing rights.
     Other Real Estate Owned
     Real estate acquired in satisfaction of loans is initially carried at current fair value less estimated selling costs. The carrying amount of the underlying loan is written down to the fair value of the real estate acquired by charge to the allowance for loan losses, if necessary. Subsequent declines in fair value less estimated selling costs are included in OREO expense. Subsequent increases in fair value less estimated selling costs are recorded as a reduction in OREO expense to the extent of recognized losses. Determining the fair value of OREO is considered a critical accounting estimate due to the assets’ sensitivity to changes in estimates and assumptions used. Changes in these estimates and assumptions are reasonably possible and may have a material impact on our consolidated financial statements, liquidity or results of operations. Note 1 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010 describes our accounting policy with regard to OREO.
Results of Operations
     The following discussion and analysis is intended to provide greater details of the results of our operations and financial condition.
     Net Interest Income. During second quarter 2011, our net interest income on a fully taxable equivalent, or FTE, basis, decreased $647 thousand, or 1.0%, to $63.7 million, as compared to $64.3 million during the same period in 2010, and our net FTE interest margin ratio decreased 12 basis points to 3.84%, as compared to 3.96% during the same period in 2010. For the six months ended June 30, 2011, our net FTE interest income decreased $537 thousand, or less than 1.0%, to $126.6 million, as compared to $127.1 million during the same period in 2010, and our net FTE interest margin ratio decreased 20 basis points to 3.78%, as compared to 3.98% during the same period in 2010. Although net FTE interest income remained stable, our net FTE interest margin ratio decreased during the three and six months ended June 30, 2011, as compared to the same periods in the prior year. Compression in the net FTE interest margin ratio was primarily due to diminished loan demand combined with lower interest rates earned on loans and investment securities, the effects of which were partially offset by decreases in average time deposits outstanding, overall reductions in the cost of funds and increases in interest free funding sources as a percentage of the funding base.

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     The following table presents, for the periods indicated, condensed average balance sheet information, together with interest income and yields earned on average interest earning assets and interest expense and rates paid on average interest bearing liabilities.
Average Balance Sheets, Yields and Rates
(Dollars in thousands)
                                                 
    Three Months Ended June 30,  
    2011     2010  
    Average             Average     Average             Average  
    Balance     Interest     Rate     Balance     Interest     Rate  
 
Interest earning assets:
                                               
Loans (1)(2)
  $ 4,269,637     $ 61,926       5.82 %   $ 4,520,119     $ 67,964       6.03 %
Investment securities (2)
    2,019,187       12,533       2.49       1,586,080       12,780       3.23  
Interest bearing deposits in banks
    359,446       227       0.25       407,656       257       0.25  
Federal funds sold
    3,871       6       0.62       4,408       5       0.45  
 
 
                                               
Total interest earning assets
    6,652,141       74,692       4.50 %     6,518,263       81,006       4.98 %
 
                                               
Non earning assets
    617,221                       679,514                  
 
 
                                               
Total assets
  $ 7,269,362                     $ 7,197,777                  
 
 
                                               
Interest bearing liabilities:
                                               
Demand deposits
  $ 1,263,466     $ 847       0.27 %   $ 1,116,216     $ 870       0.31 %
Savings deposits
    1,711,210       1,753       0.41       1,465,527       2,327       0.64  
Time deposits
    1,780,542       6,303       1.42       2,209,155       11,299       2.05  
Repurchase agreements
    469,459       171       0.15       465,573       229       0.20  
Other borrowed funds
    5,459                   5,562       1       0.07  
Long-term debt
    37,485       495       5.30       38,170       509       5.35  
Subordinated debentures held by subsidiary trusts
    123,715       1,455       4.72       123,715       1,456       4.72  
 
 
                                               
Total interest bearing liabilities
    5,391,336       11,024       0.82 %     5,423,918       16,691       1.23 %
 
 
                                               
Non-interest bearing deposits
    1,089,909                       982,053                  
Other non-interest bearing liabilities
    47,791                       60,457                  
Stockholders’ equity
    740,326                       731,349                  
 
 
                                               
Total liabilities and stockholders’ equity
  $ 7,269,362                     $ 7,197,777                  
 
 
                                               
Net FTE interest income
          $ 63,668                     $ 64,315          
Less FTE adjustments (2)
            (1,141 )                     (1,139 )        
 
 
                                               
Net interest income from consolidated statements of income
          $ 62,527                     $ 63,176          
 
 
                                               
Interest rate spread
                    3.68 %                     3.75 %
 
 
                                               
Net FTE interest margin (3)
                    3.84 %                     3.96 %
 
 
                                               
Cost of funds, including non-interest bearing demand deposits (4)
                    0.68 %                     1.05 %
 
 
(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 an FTE basis.
 
(3)   Net FTE interest margin during the period equals (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) 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.

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Average Balance Sheets, Yields and Rates
(Dollars in thousands)
                                                 
    Six Months Ended June 30,  
    2011     2010  
    Average             Average     Average             Average  
    Balance     Interest     Rate     Balance     Interest     Rate  
 
Interest earning assets:
                                               
Loans (1)(2)
  $ 4,286,512     $ 124,762       5.87 %   $ 4,511,518     $ 135,324       6.05 %
Investment securities (2)
    1,984,000       24,291       2.47       1,539,216       25,822       3.38  
Interest bearing deposits in banks
    472,994       594       0.25       381,312       481       0.25  
Federal funds sold
    3,061       9       0.59       10,796       18       0.34  
 
 
                                               
Total interest earning assets
    6,746,567       149,656       4.47 %     6,442,842       161,645       5.06 %
 
                                               
Non earning assets
    619,837                       683,664                  
 
 
                                               
Total assets
  $ 7,366,404                     $ 7,126,506                  
 
 
                                               
Interest bearing liabilities:
                                               
Demand deposits
  $ 1,256,414     $ 1,681       0.27 %   $ 1,114,857     $ 1,709       0.31 %
Savings deposits
    1,727,886       3,753       0.44       1,443,953       4,643       0.65  
Time deposits
    1,827,269       13,340       1.47       2,233,631       23,422       2.11  
Repurchase agreements
    519,392       408       0.16       460,125       423       0.19  
Other borrowed funds
    5,577                   6,016       2       0.07  
Long-term debt
    37,490       984       5.29       54,606       1,428       5.27  
Subordinated debentures held by subsidiary trusts
    123,715       2,903       4.73       123,715       2,894       4.72  
 
 
                                               
Total interest bearing liabilities
    5,497,743       23,069       0.85 %     5,436,903       34,521       1.28 %
 
 
                                               
Non-interest bearing deposits
    1,080,379                       970,966                  
Other non-interest bearing liabilities
    49,395                       61,964                  
Stockholders’ equity
    738,887                       656,673                  
 
 
                                               
Total liabilities and stockholders’ equity
  $ 7,366,404                     $ 7,126,506                  
 
 
                                               
Net FTE interest income
          $ 126,587                     $ 127,124          
Less FTE adjustments (2)
            (2,262 )                     (2,279 )        
 
 
                                               
Net interest income from consolidated statements of income
          $ 124,325                     $ 124,845          
 
 
                                               
Interest rate spread
                    3.62 %                     3.78 %
 
 
                                               
Net FTE interest margin (3)
                    3.78 %                     3.98 %
 
 
                                               
Cost of funds, including non-interest bearing demand deposits (4)
                    0.71 %                     1.09 %
 
 
(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 an FTE basis.
 
(3)   Net FTE interest margin during the period equals (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) 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.

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     The table below sets forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from estimated changes in average asset and liability balances (volume) and estimated changes in average interest rates (rate). Changes which are not due solely to volume or rate have been allocated to these categories based on the respective percent changes in average volume and average rate as they compare to each other.
Analysis of Interest Changes Due To Volume and Rates
(Dollars in thousands)
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2011 Compared with 2010     2011 Compared with 2010  
    Volume     Rate     Net     Volume     Rate     Net  
 
Interest earning assets:
                                               
Loans (1)
  $ (3,766 )   $ (2,272 )   $ (6,038 )   $ (6,749 )   $ (3,813 )   $ (10,562 )
Investment securities (1)
    3,490       (3,737 )     (247 )     7,462       (8,993 )     (1,531 )
Interest bearing deposits in banks
    (30 )           (30 )     116       (3 )     113  
Federal funds sold
    (1 )     2       1       (13 )     4       (9 )
 
 
                                               
Total change
    (307 )     (6,007 )     (6,314 )     816       (12,805 )     (11,989 )
 
 
                                               
Interest bearing liabilites:
                                               
Demand deposits
    115       (138 )     (23 )     217       (245 )     (28 )
Savings deposits
    390       (964 )     (574 )     913       (1,803 )     (890 )
Time deposits
    (2,192 )     (2,804 )     (4,996 )     (4,261 )     (5,821 )     (10,082 )
Repurchase agreements
    2       (60 )     (58 )     54       (69 )     (15 )
Other borrowed funds
          (1 )     (1 )           (2 )     (2 )
Long-term debt
    (9 )     (5 )     (14 )     (448 )     4       (444 )
Subordinated debentures
          (1 )     (1 )           9       9  
 
 
                                               
Total change
    (1,694 )     (3,973 )     (5,667 )     (3,525 )     (7,927 )     (11,452 )
 
 
                                               
Increase in FTE net interest income
  $ 1,387     $ (2,034 )   $ (647 )   $ 4,341     $ (4,878 )   $ (537 )
 
 
(1)   Interest income for tax exempt loans and securities are presented on a FTE basis.
     Provision for Loan Losses. The provision for loan losses decreased $4.1 million, or 21.0%, to $15.4 million for second quarter 2011, as compared $19.5 million for second quarter 2010. The provision for loan losses decreased $1.0 million, or 3.2%, to $30.4 million for the six months ended June 30, 2011, compared to $31.4 million for the same period in 2010. Fluctuations in provisions for loan losses reflect management’s estimate of the estimated effects of current economic conditions on our loan portfolio. Management expects quarterly provisions for loan losses to remain at current levels until non-performing loans level-off or begin to decline. For information regarding our non-performing loans, see “Non-Performing Assets” included herein.
     Non-interest Income. Our principal sources of non-interest income include other service charges, commissions and fees, service charges on deposit accounts, income from the origination and sale of loans, and revenues from wealth management. Non-interest income increased $554 thousand, or 2.6%, to $21.6 million for the three months ended June 30, 2011, as compared to $21.0 million for the same period in 2010. Non-interest income increased $1.2 million, or 3.0%, to $41.8 million for the six months ended June 30, 2011, as compared to $40.5 million for the same period in 2010. Significant components of changes in non-interest income are discussed below.
     Other service charges, commissions and fees primarily include debit and credit card interchange income, mortgage servicing fees, insurance and other commissions and ATM service charge revenues. Other service charges, commissions and fees increased $388 thousand, or 5.3%, to $7.8 million during the three months ended June 30, 2011, as compared to $7.4 million during the same period in 2010, and $896 thousand, or 6.3%, to $15.1 million for the six months ended June 30, 2011, as compared to $14.3 million for the same period in 2010. These increases were primarily attributable to higher interchange income resulting from higher volumes of debit and credit card transactions. During the three and six months ended June 30, 2011, we recorded debit card interchange fee income of $2.9 million and $5.7 million, respectively, as compared to $2.5 million and $4.8 million, respectively, during the same periods in 2010. For additional information regarding recent regulations affecting future debit card interchange fee income, see “Recent Trends and Developments” included herein.

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     Service charges on deposit accounts decreased $374 thousand, or 7.9%, to $4.4 million during the three months ended June 30, 2011, as compared to $4.8 million during the same period in 2010, and $862 thousand, or 9.2%, to $8.5 million during the six months ended June 30, 2011, as compared to $9.4 million during the same period in 2010. Quarter-to-date and year-to-date decreases in service charges on deposit accounts are primarily due to a reduction in overdraft fees assessed due to changes in customer utilization.
     Income from the origination and sale of loans includes origination and processing fees on residential real estate loans held for sale and gains on residential real estate loans sold to third parties. Income from the origination and sale of loans increased $664 thousand, or 19.3%, to $4.1 million during the second quarter of 2011, as compared to $3.4 million during the first quarter of 2011, primarily due to seasonal fluctuations in new home purchases. Income from the origination and sale of loans decreased $77 thousand, or 1.8%, to $4.1 million for the three months ended June 30, 2011, as compared to $4.2 million for the same period in 2010, and increased $68 thousand, or less than 1.0%, to $7.6 million for the six months ended June 30, 2011, as compared to $7.5 million for the same period in 2010.
     Wealth management revenues are comprised principally of fees earned for management of trust assets and investment services revenues. Fees earned for management of trust assets are generally based on the market value of assets managed. Wealth management revenues increased $284 thousand, or 8.9%, to $3.5 million for the three months ended June 30, 2011, as compared to $3.2 million for the same period in 2010, and $565 thousand, or 9.1%, to $6.8 million for the six months ended June 30, 2011, as compared to $6.2 million for the same period in 2010. These increases were primarily due to new business activity and increases in the market values of assets under trust management.
     Other income increased $332 thousand, or 22.2%, to $1.8 million for the three months ended June 30, 2011, compared to $1.5 million for the same period in 2010, and increased $562 thousand, or 17.6%, to $3.8 million for the six months ended June 30, 2011, compared to $3.2 million for the same period in 2010. Quarter and year-to-date increases are primarily due to fluctuations in earnings on securities held under deferred compensation plans.
     Non-interest Expense. Non-interest expense decreased $1.2 million, or 2.2%, to $54.2 million for the three months ended June 30, 2011, as compared to $55.4 million for the same period in 2010, and decreased $1.0 million, or less than 1.0%, to $107.2 million for the six months ended June 30, 2011, as compared to $108.2 million for the same period in 2010. Significant components of the changes in non-interest expense are discussed below.
     FDIC insurance premiums decreased $1.0 million, or 38.9%, to $1.6 million for the three months ended June 30, 2011, as compared to $2.7 million for the same period in 2010, and $1.0 million, or 20.1%, to $4.1 million for the six months ended June 30, 2011, as compared to $5.1 million for the same period in 2010. 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, reduced the Company’s FDIC insurance premiums. For additional information regarding FDIC insurance, see “Recent Trends and Developments” included herein.
     OREO expense is recorded net of OREO income. Variations in net OREO expense between periods are primarily due to write-downs of the estimated fair value of OREO properties, fluctuations in gains and losses recorded on sales of OREO properties and fluctuations in the carrying costs and/or operating expenses associated with OREO properties. OREO expense decreased $938 thousand, or 31.5%, to $2.0 million during second quarter 2011, as compared to $3.0 million for the same period in 2010. OREO expenses increased $232 thousand, or 6.6%, to $3.8 million for the six months ended June 30, 2011, as compared to $3.5 million for the same period in 2010.
     Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income. Changes in estimated servicing period and growth in the serviced loan portfolio cause amortization expense to vary between periods. The period of estimated net servicing income is significantly influenced by market interest rates. We project our amortization of mortgage servicing rights based on prepayment assumptions on the first day of each quarter. Mortgage servicing rights amortization decreased $444 thousand, or 39.8%, to $671 thousand for the three months ended June 30, 2011, as compared to $1.1 million for the same period in 2010, and decreased $770 thousand, or 34.3%, to $1.5 million for the six months ended June 30, 2011, as compared to $2.2 million for the same period in 2010. These decreases were primarily due to the sale of mortgage servicing rights during fourth quarter 2010 and changes in the estimated duration of the loans underlying the Company’s capitalized mortgage servicing rights.

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     Mortgage servicing rights are evaluated quarterly for impairment based on the fair value of the mortgage servicing rights. The fair value of mortgage servicing rights is estimated by discounting the expected future cash flows, taking into consideration the estimated level of prepayments based on current industry expectations and the predominant risk characteristics of the underlying loans. Impairment adjustments are recorded through a valuation allowance. The valuation allowance is adjusted for changes in impairment through a charge to current period earnings. Fluctuations in the fair value of mortgage servicing rights are primarily due to changes in assumptions regarding prepayments of the underlying mortgage loans, which typically correspond with changes in market interest rates. During the second quarter of 2011 we recorded additional impairment of $27 thousand, as compared to additional impairment of $271 thousand during second quarter 2010. During the six months ended June 30, 2011, we reversed previously recorded impairment of $320 thousand, as compared to recording additional impairment of $221 thousand during the same period in 2010.
     Other expenses primarily include professional fees; advertising and public relations costs; office supply, postage freight, telephone and travel expenses; donations expense; debit and credit card expenses; board of directors fees; and other losses. Other expenses increased $1.4 million, or 13.1%, to $12.2 million for the three months ended June 30, 2011, as compared to $10.8 million for the three months ended June 30, 2010, and increased $1.6 million, or 7.4%, to $22.8 million for the six months ended June 30, 2011, as compared to $21.2 million during the same period in 2010. The increases were primarily due to fluctuations in the timing of expenses, most significantly advertising and legal expenses.
     Income Tax Expense. Our effective federal income tax rate was 27.5% for the six months ended June 30, 2011 and 26.8% for the six months ended June 30, 2010. State income tax applies primarily to pretax earnings generated within Montana and South Dakota. Our effective state tax rate was 4.6% for the six months ended June 30, 2011, and 4.3% for the six months ended June 30, 2010. Changes in effective federal and state income tax rates are primarily fluctuations in tax exempt interest income as a percentage of total income.
     Financial Condition
     Total assets decreased $298 million, or 4.0%, to $7,203 million as of June 30, 2011, from $7,501 million as of December 31, 2010.
     Loans. Fluctuations in the loan portfolio are directly related to the economies of the communities we serve. Total loans decreased $87 million, or 2.0%, to $4,281 million as of June 30, 2011 from $4,368 million as of December 31, 2010, with all major categories of loans showing decreases except residential real estate loans. Management attributes decreases in loans to a general decline in new home construction in our market areas, particularly in markets dependent upon resort and second home communities including the Flathead, Gallatin Valley and Jackson market areas, sluggish consumer growth amid economic uncertainty, and to a lesser extent, the movement of lower quality loans out of the loan portfolio through charge-off, pay-off or foreclosure.
     Residential real estate loans increased $29 million, or 5.3%, to $579 million as of June 30, 2011, from $550 million as of December 31, 2010. We typically sell a significant portion of our residential real estate loan production to secondary investors. In mid-2010, we began to retain more of our residential real estate loan production. Residential real estate loans retained are typically secured by first liens on the financed property and generally mature in less than fifteen years.
     Non-performing Assets. Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual loans, loans renegotiated in troubled debt restructurings and OREO. Restructured loans are loans on which we have granted a concession on the interest rate or original repayment terms due to financial difficulties of the borrower that we would not otherwise consider. OREO consists of real property acquired through foreclosure on the collateral underlying defaulted loans. We initially record OREO at fair value less estimated costs to sell by a charge against the allowance for loan losses, if necessary. Estimated losses that result from the ongoing periodic valuation of these properties are charged to earnings in the period in which they are identified.
     We generally place loans on nonaccrual when they become 90 days past due, unless they are well secured and in the process of collection. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed from income.

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     The following table sets forth information regarding non-performing assets as of the dates indicated:
Non-Performing Assets
(Dollars in thousands)
                                         
                                       
    June 30,     March 31,     December 31,     September 30,     June 30,  
    2011     2011     2010     2010     2010  
 
Non-performing loans:
                                       
Non-accrual loans
  $ 229,662       212,394     $ 195,342     $ 174,249     $ 139,975  
Accruing loans past due 90 days or more
    2,194       4,140       1,852       1,129       7,550  
Restructured loans
    31,611       33,344       13,490       26,630       10,588  
 
 
                                       
Total non-performing loans
    263,467       249,878       210,684       202,008       158,113  
OREO
    28,323       31,995       33,632       35,296       42,338  
 
 
                                       
Total non-performing assets
  $ 291,790       281,873     $ 244,316     $ 237,304     $ 200,451  
 
 
                                       
Non-performing loans to total loans
    6.15 %     5.86 %     4.82 %     4.54 %     3.47 %
Non-performing assets to total loans and OREO
    6.77 %     6.56 %     5.55 %     5.29 %     4.35 %
Non-performing assets to total assets
    4.05 %     3.79 %     3.26 %     3.24 %     2.77 %
 
     Non-performing assets increased $47 million, or 19.4%, to $292 million, or 6.77% of total loans and OREO, as of June 30, 2011, from $244 million, or 5.55% of total loans and OREO, as of December 31, 2010. During the first half of 2011, difficult economic conditions continued to negatively impact businesses and consumers in certain of our market areas.
     Total non-performing loans increased $53 million, or 25.0%, to $263 million as of June 30, 2011, from $211 million as of December 31, 2010, primarily due to increases in restructured and non-accrual loans. Nonaccrual loans increased $34 million, or 17.6%, to $230 million as of June 30, 2011, from $195 million as of December 31, 2010. During second quarter 2011, we placed loans of one land development borrower aggregating $15 million on non-accrual status. The remaining increase was primarily due to loans of one land development, one commercial construction and two commercial real estate borrowers aggregating $25 million that were placed on nonaccrual during first quarter 2011. These additions were partially offset by a $5 million pay-off of the loans of one commercial real estate borrower and a $6 million charge-off of the loans of one commercial borrower. As of June 30, 2011, approximately 67% of our non-accrual loans were current with regard to principal.
     Restructured loans increased $18 million, or 134.3% to $32 million as of June 30, 2011, from $13 million as of December 31, 2010. Approximately 73% of the increase in restructured loans was due to the loans of one residential real estate and one commercial real estate borrower restructured during first quarter 2011. As of June 30, 2011, approximately 96% of restructured loans were performing in accordance with their modified terms.
     OREO consists of real property acquired through foreclosure on the related collateral underlying defaulted loans. We record OREO at the lower of carrying value or fair value less estimated costs to sell. Estimated losses that result from the ongoing periodic valuation of these properties are charged to earnings in the period in which they are identified. OREO decreased $6 million, or 15.8%, to $28 million as of June 30, 2011, from $34 million as of December 31, 2010. During the first half of 2011, the Company recorded additions to OREO of $6 million, wrote down the fair value of OREO properties by $4 million and sold OREO with a book value of $8 million. As of June 30, 2011, approximately 71% of total OREO was comprised of properties located in the Flathead, Gallatin Valley and Jackson market areas.

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     The following table sets forth the allocation of our non-performing loans among our various loan categories as of the dates indicated:
Non-Performing Loans by Loan Type
(Dollars in thousands)
                                 
    June 30,     Percent     December 31,     Percent  
    2011     of Total     2010     of Total  
 
Real estate:
                               
Commerical
  $ 86,188       32.7 %   $ 73,449       34.9 %
Construction:
                               
Land acquisition and development
    68,520       26.0 %     44,546       21.1 %
Residential
    17,693       6.7 %     16,679       7.9 %
Commercial
    23,650       9.0 %     16,589       7.9 %
 
 
                               
Total construction
    109,863       41.7 %     77,814       36.9 %
 
Residential
    22,162       8.4 %     15,222       7.2 %
Agricultural
    6,617       2.5 %     3,476       1.6 %
 
 
                               
Total real estate
    224,830       85.3 %     169,961       80.7 %
 
Consumer
    3,960       1.5 %     2,720       1.3 %
Commercial
    31,567       12.0 %     36,906       17.5 %
Agricultural
    3,110       1.2 %     1,093       0.5 %
Other
          0.0 %     4       0.0 %
 
 
                               
Total non-performing loans
  $ 263,467       100.0 %   $ 210,684       100.0 %
 
     Allowance for Loan Losses. In determining the allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.

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     The following table sets forth information regarding our allowance for loan losses as of and for the periods indicated.
Allowance for Loan Losses
(Dollars in thousands)
                                         
  Three Months Ended
    June 30,     March 31,     December 31,     September 30,     June 30,  
    2011     2011     2010     2010     2010  
 
Balance at beginning of period
  $ 124,446       120,480     $ 120,236     $ 114,328     $ 106,349  
Provision charged to operating expense
    15,400       15,000       17,500       18,000       19,500  
Charge offs:
                                       
Real estate
                                       
Commercial
    5,005       1,186       2,835       2,082       3,469  
Construction
    7,404       1,546       6,025       5,121       5,940  
Residential
    748       1,499       2,269       788       262  
Agricultural
                2,218       20        
Consumer
    1,500       1,460       1,966       2,056       1,699  
Commerical
    1,407       6,642       2,713       2,720       737  
Agricultural
    38       6       19       2        
 
Total charge-offs
    16,102       12,339       18,045       12,789       12,107  
 
Recoveries:
                                       
Real estate
                                       
Commercial
    11       125       20       3       2  
Construction
    50       92       18       45       6  
Residential
    48       28       105       5       13  
Agricultural
                             
Consumer
    470       432       479       505       471  
Commerical
    253       621       153       137       91  
Agricultural
    3       7       14       2       3  
 
Total recoveries
    835       1,305       789       697       586  
 
Net charge-offs
    15,267       11,034       17,256       12,092       11,521  
 
Balance at end of period
  $ 124,579       124,446     $ 120,480       120,236       114,328  
 
Period end loans
  $ 4,281,260       4,263,764     $ 4,367,909       4,452,387       4,562,288  
Average loans
    4,269,637       4,303,575       4,402,141       4,504,657       4,520,119  
Annualized net loans charged off to average loans
    1.43 %     1.04 %     1.56 %     1.06 %     1.02 %
Allowance to period end loans
    2.91 %     2.92 %     2.76 %     2.70 %     2.51 %
 
     Although we believe that we have established our allowance for loan losses in accordance with accounting principles generally accepted in the United States and that the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times, future provisions will be subject to on-going evaluations of the risks in the loan portfolio. If the economy declines or asset quality deteriorates, material additional provisions could be required.
     Investment Securities. We manage our investment portfolio to obtain the highest yield possible, while meeting our risk tolerance and liquidity guidelines and satisfying the pledging requirements for deposits of state and political subdivisions and securities sold under repurchase agreements. Investment securities increased $89 million, or 4.6%, to $2,023 million, or 28.1% of total assets, as of June 30, 2011, from $1,933 million, or 25.8% of total assets, as of December 31, 2010. During the first half of 2011, excess liquidity was used to purchase primarily available-for-sale U.S. government agency investment securities.
     We evaluate our investment portfolio quarterly for other-than-temporary declines in the market value of individual investment securities. This evaluation includes monitoring credit ratings; market, industry and corporate news; volatility in market prices; and, determining whether the market value of a security has been below its cost for an extended period of time. As of June 30, 2011, we had investment securities with fair values of $3 million that had been in a continuous loss position more than twelve months. Gross unrealized losses on these securities totaled $91 thousand as of June 30, 2011, and were primarily attributable to changes in interest rates. No impairment losses were recorded during the three or six months ended June 30, 2011 or 2010.

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     Deposits. Our deposits consist of non-interest bearing and interest bearing demand, savings, individual retirement and time deposit accounts. Total deposits decreased $131 million, or 2.2%, to $5,795 million as of June 30, 2011, from $5,926 million as of December 31, 2010, with a shift in the mix of deposits away from higher-costing time deposits to lower-costing savings, interest bearing demand and non-interest bearing demand deposits. The following table summarizes our deposits as of the dates indicated:
Deposits
(Dollars in thousands)
                                 
    June 30,     Percent     December 31,     Percent  
    2011     of Total     2010     of Total  
 
Non-interest bearing demand
  $ 1,109,905       19.2 %   $ 1,063,869       18.0 %
 
Interest bearing:
                               
Demand
    1,233,039       21.3       1,218,078       20.6  
Savings
    1,703,548       29.4       1,718,521       28.9  
Time, $100 and over
    772,567       13.3       908,044       15.3  
Time, other (1)
    975,606       16.8       1,017,201       17.2  
 
Total interest bearing
    4,684,760       80.8       4,861,844       82.0  
 
Total deposits
  $ 5,794,665       100.0 %   $ 5,925,713       100.0 %
 
 
(1)   Included in Time, other are Certificate of Deposit Account Registry Service, or CDAR, deposits of $144 million as of June 30, 2011 and $139 million as of December 31, 2010.
     Repurchase Agreements. In addition to deposits, repurchase agreements with commercial depositors provide an additional source of funds. Under repurchase agreements, deposit balances are invested in short-term U.S. government agency residential securities overnight and are then repurchased the following day. All outstanding repurchase agreements are due in one day. Repurchase agreements decreased $185 million, or 29.8%, to $435 million as of June 30, 2011, from $620 million as of December 31, 2010, due to fluctuations in the liquidity of our customers.
Capital Resources and Liquidity Management
     Stockholders’ equity is influenced primarily by earnings, dividends, changes in the unrealized holding gains or losses, net of taxes, on available-for-sale investment securities and sales and redemptions of common stock. Stockholders’ equity increased $22 million, or 3.1% to $759 million as of June 30, 2011, from $737 million as of December 31, 2010, primarily due to increases in unrealized holding gains on available-for-sale investment securities and the retention of earnings.
     On June 13, 2011, we declared a quarterly dividend to common stockholders of $0.1125 per share to be paid on July 15, 2011 to shareholders of record as of July 1, 2011. During the first half of 2011, we paid aggregate cash dividends of $9.6 million, or $0.225 per share, to common stockholders, as compared to aggregate cash dividends of $8.3 million, or $0.225 per share, to common shareholders during the same period in 2010. In addition, we paid dividends of$1.7 million to preferred stockholders during each of the six month periods ended June 30, 2011 and 2010.
     Pursuant to the Federal Deposit Insurance Corporation Improvement Act, the Federal Reserve and FDIC have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. As of June 30, 2011 and December 31, 2010, the Bank had capital levels that, in all cases, exceeded the well-capitalized guidelines. As of June 30, 2011, we had consolidated leverage, tier 1 and total risk-based capital ratios of 9.69%, 14.01% and 16.01%, respectively, as compared to 9.27%, 13.53% and 15.50%, respectively, as of December 31, 2010.
     Liquidity. Liquidity measures our ability to meet current and future cash flow needs on a timely basis and at a reasonable cost. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders. Our liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest bearing deposits in banks, federal funds sold, available-for-sale investment securities and maturing or prepaying balances in our held-to-maturity investment and loan portfolios. Liquid liabilities include core deposits, federal funds purchased, securities sold under repurchase agreements and borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional national market, non-core deposits, the issuance of additional collateralized borrowings such as FHLB advances, the issuance of debt securities, additional borrowings through the Federal Reserve’s discount window and the issuance of preferred or common securities.

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     Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, debt financing and increases in customer deposits. For additional information regarding our operating, investing and financing cash flows, see the unaudited “Consolidated Statements of Cash Flows,” included in Part I, Item 1.
     As a holding company, we are a corporation separate and apart from the Bank and, therefore, we provide for our own liquidity. Our main sources of funding include management fees and dividends declared and paid by the Bank and access to capital markets. There are statutory, regulatory and debt covenant limitations that affect the ability of our subsidiary bank to pay dividends to us. Management believes that such limitations will not impact our ability to meet our ongoing short-term cash obligations.
     Management continuously monitors our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Our management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, our management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on us.
Recent Accounting Pronouncements
     See “Note 13 — Authoritative Accounting Guidance” in the accompanying “Notes to Unaudited Consolidated Financial Statements” included in this report for details of recently issued accounting pronouncements and their expected impact on our financial statements.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
     As of June 30, 2011, there have been no material changes in the quantitative and qualitative information about market risk provided pursuant to Item 305 of Regulation S-K as presented in our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
     Our management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act. As of June 30, 2011, an evaluation was performed, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 2011, were effective in ensuring that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods required by the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
     There were no changes in our internal control over financial reporting for the quarter ended June 30, 2011, that have materially affected, or are reasonably likely to materially affect, such control.

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Limitations on Controls and Procedures
     The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, any system of disclosure controls and procedures or internal control over financial reporting may not be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
     There have been no material changes in legal proceedings as described in our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 1A. Risk Factors
     There have been no material changes in risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 2. Sales of Equity Securities and Use of Proceeds
  (a)   There were no unregistered sales of equity securities during the six months ended June 30, 2011.
 
  (b)   Not applicable.
 
  (c)   The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common stock during the three months ended June 30, 2011.
                                 
                    Total Number of     Maximum Number  
                    Shares Purchased     of Shares that  
    Total Number     Average     as Part of Publicy     May Yet Be  
    of Shares     Price Paid     Announced Plans     Purchased Under the  
Period   Purchased (1)     Per Share     or Programs     Plans or Programs  
 
April 2011
        $       0     Not Applicable
May 2011
    1,079       13.25       0     Not Applicable
June 2011
                0     Not Applicable
 
Total
    1,079     $ 13.25       0     Not Applicable
 
 
(1)   Represents shares purchased by the Company in satisfaction of minimum required income tax withholding requirements pursuant to the vesting of restricted stock.
Item 3. Defaults upon Senior Securities
          None.
Item 4. (Removed and Reserved)
Item 5. Other Information
          Not applicable or required.
Item 6. Exhibits
     
2.1
  Stock Purchase Agreement dated as of September 18, 2007, by and between First Interstate BancSystem, Inc. and First Western Bancorp, Inc. (incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on September 19, 2007)
 
   
2.2
  First Amendment to Stock Purchase Agreement dated as of January 10, 2008, between First Interstate BancSystem, Inc. and Christen Group, Inc. formerly known as First Western Bancorp, Inc. (incorporated herein by reference to Exhibit 10.20 of the Company’s Current Report on Form 8-K filed on January 16, 2008)
 
   
3.1
  Amended and Restated Articles of Incorporation dated March 5, 2010 (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K/A filed on March 10, 2010)

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3.2
  Second Amended and Restated Bylaws dated January 27, 2011 (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K/A filed on February 3, 2011)
 
   
4.1
  Specimen of Series A preferred stock certificate of First Interstate BancSystem, Inc. (incorporated herein by reference to Exhibit 4.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007)
 
   
10.1
  Credit Agreement Re: Subordinated Term Note dated as of January 10, 2008, between First Interstate BancSystem, Inc. and First Midwest Bank (incorporated herein by reference to Exhibit 10.24 of the Company’s Current Report on Form 8-K filed on January 16, 2008)
 
   
10.2
  Lease Agreement between Billings 401 Joint Venture and First Interstate Bank Montana dated September 20, 1985 and addendum thereto (incorporated herein by reference to Exhibit 10.4 of the Company’s Post-Effective Amendment No. 3 to Registration Statement on Form S-1, No. 033-84540, filed on September 29, 1994)
 
   
10.3†
  First Interstate BancSystem’s Deferred Compensation Plan dated December 1, 2006 (incorporated herein by reference to Exhibit 10.9 of the Company’s Pre-Effective Amendment No. 3 to Registration Statement on Form S-1, No. 333-164380, filed on March 23, 2010)
 
   
10.4†
  First Amendment to the First Interstate BancSystem’s Deferred Compensation Plan dated October 24, 2008 (incorporated herein by reference to Exhibit 10.10 of the Company’s Pre-Effective Amendment No. 3 to Registration Statement on Form S-1, No. 333-164380, filed on March 23, 2010)
 
   
10.5†
  2001 Stock Option Plan (incorporated herein by reference to Exhibit 4.12 of the Company’s Registration Statement on Form S-8, No. 333-106495, filed on June 25, 2003)
 
   
10.6†
  Second Amendment to 2001 Stock Option Plan (incorporated herein by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010)
 
   
10.7†
  First Interstate BancSystem, Inc. 2006 Equity Compensation Plan (incorporated herein by reference to Appendix A of the Company’s 2006 Definitive Proxy Statement of Schedule 14A)
 
   
10.8†
  Amendment to First Interstate BancSystem, Inc. 2006 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on March 22, 2010)
 
   
10.9†
  Second Amendment to First Interstate BancSystem, Inc. 2006 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.9 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010)
 
   
10.10†
  Form of First Interstate BancSystem, Inc. 2006 Equity Compensation Plan Restricted Stock Agreement (Time) for Certain Executive Officers (incorporated herein by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008)
 
   
10.11
  Form of First Interstate BancSystem, Inc. 2006 Equity Compensation Plan Restricted Stock Agreement (Performance) for Certain Executive Officers (incorporated herein by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008)
 
   
10.12
  Trademark License Agreements between Wells Fargo & Company and First Interstate BancSystem, Inc. (incorporated herein by reference to Exhibit 10.11 of the Company’s Registration Statement on Form S-1, No. 333-25633 filed on April 22, 1997)
 
   
31.1*
  Certification of Quarterly Report on Form 10-Q pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer
 
   
31.2*
  Certification of Quarterly Report on Form 10-Q pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer
 
   
32*
  Certification of Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
101**
  Interactive data file
 
  Management contract or compensatory arrangement.
 
*   Filed herewith.
 
**   As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  FIRST INTERSTATE BANCSYSTEM, INC.

 
Date August 5, 2011  /s/ LYLE R. KNIGHT    
  Lyle R. Knight   
  President and Chief Executive Officer   
 
         
     
Date August 5, 2011  /s/ TERRILL R. MOORE    
  Terrill R. Moore   
  Executive Vice President and
Chief Financial Officer 
 

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