UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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 September 30, 2006

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 000-49733

(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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

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

The Registrant had 8,159,942 shares of common stock outstanding on September 30, 2006.

 

 

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q

Index		Page
Part I. Financial Information
Item 1 — Financial Statements (unaudited)
Consolidated Balance Sheets September 30, 2006 and December 31, 2005			3
Consolidated Statements of Income Three and nine months ended September 30, 2006 and 2005			4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income Nine months ended September 30, 2006 and 2005			5
Consolidated Statements of Cash Flows Nine months ended September 30, 2006 and 2005			6
Notes to Unaudited Consolidated Financial Statements			8
Item 2 — Management’s Discussion and Analysis of Financial Condition And Results of Operations			16
Item 3 — Quantitative and Qualitative Disclosures about Market Risk			25
Item 4 — Controls and Procedures			25
Part II. Other Information
Item 1 — Legal Proceedings			25
Item 1A — Risk Factors			25
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 3 — Defaults Upon Senior Securities			26
Item 4 — Submission of Matters to a Vote of Security Holders			26
Item 5 — Other Information			26
Item 6 — Exhibits			26
Signatures			28
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)

		September 30,				December 31,
		2006				2005
Assets
Cash and due from banks		$	180,513				207,877
Federal funds sold			21,354				27,607
Interest bearing deposits in banks			5,360				5,493
Total cash and cash equivalents			207,227				240,977
Investment securities:
Available-for-sale			946,017				916,450
Held-to-maturity (estimated fair values of $106,088 as of September 30, 2006 and $104,305 as of December 31, 2005)			104,983				103,451
Total investment securities			1,051,000				1,019,901
Loans			3,288,470				3,034,354
Less allowance for loan losses			46,957				42,450
Net loans			3,241,513				2,991,904
Premises and equipment, net			119,796				120,438
Accrued interest receivable			34,046				26,104
Company-owned life insurance			64,071				62,547
Mortgage servicing rights, net of accumulated amortization and impairment reserve			23,708				22,116
Goodwill			37,380				37,390
Core deposit intangibles, net of accumulated amortization			473				1,204
Net deferred tax asset			6,199				3,285
Other assets			38,546				36,447
Total assets		$	4,823,959				4,562,313
Liabilities and Stockholders’ Equity
Deposits:
Noninterest bearing		$	869,366				864,128
Interest bearing			2,746,697				2,683,462
Total deposits			3,616,063				3,547,590
Federal funds purchased			63,830				1,500
Securities sold under repurchase agreements			634,581				518,718
Accrued interest payable			16,408				13,185
Accounts payable and accrued expenses			28,852				28,086
Other borrowed funds			5,941				7,495
Long-term debt			28,564				54,654
Subordinated debenture held by subsidiary trust			41,238				41,238
Total liabilities			4,435,477				4,212,466
Stockholders’ equity:
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued or outstanding as of September 30, 2006 or December 31, 2005			—				—
Common stock without par value; authorized 20,000,000 shares; issued and outstanding 8,159,942 shares as of September 30, 2006 and 8,098,933 shares as of December 31, 2005			46,707				43,569
Retained earnings			350,416				314,843
Unearned compensation — restricted stock			—				(330	)
Accumulated other comprehensive loss, net			(8,641	)			(8,235	)
Total stockholders’ equity			388,482				349,847
Total liabilities and stockholders’ equity		$	4,823,959				4,562,313

See accompanying notes to unaudited consolidated financial statements.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)

		For the three months								For the nine months
		ended September 30,								ended September 30,
		2006				2005				2006				2005
Interest income:
Interest and fees on loans		$	64,495				51,801				180,094				141,840
Interest and dividends on investment securities:
Taxable			10,423				7,693				29,691				21,616
Exempt from Federal taxes			1,106				1,098				3,311				3,286
Interest on Federal funds sold			336				772				1,620				1,829
Interest on deposits in banks			56				59				227				363
Total interest income			76,416				61,423				214,943				168,934
Interest expense:
Interest on deposits			19,540				12,039				51,655				31,681
Interest on Federal funds purchased			852				1				1,434				23
Interest on securities sold under repurchase agreements			6,705				3,380				17,874				8,401
Interest on other borrowed funds			279				37				662				83
Interest on long-term debt			322				640				1,362				1,954
Interest on subordinated debenture held by subsidiary trust			916				709				2,575				1,970
Total interest expense			28,614				16,806				75,562				44,112
Net interest income			47,802				44,617				139,381				124,822
Provision for loan losses			2,029				1,375				6,360				4,365
Net interest income after provision for loan losses			45,773				43,242				133,021				120,457
Noninterest income:
Other service charges, commissions and fees			5,724				4,993				16,259				14,713
Service charges on deposit accounts			4,547				4,595				13,004				12,993
Technology services revenues			4,066				3,349				11,638				9,979
Financial services revenues			2,592				2,236				7,857				6,704
Income from origination and sale of loans			2,836				2,675				6,952				6,465
Investment securities gains (losses), net			27				(1,811	)			23				(2,941	)
Other income			1,586				1,526				4,824				4,338
Total noninterest income			21,378				17,563				60,557				52,251
Noninterest expense:
Salaries, wages and employee benefits			22,142				20,453				64,991				59,188
Furniture and equipment			4,050				3,907				12,116				11,908
Occupancy, net			3,264				3,212				9,901				10,143
Mortgage servicing rights amortization			955				1,190				2,934				3,550
Professional fees			851				766				2,246				2,058
Outsourced technology services			877				625				2,132				1,703
Core deposit intangible amortization			244				253				731				760
Other expenses			8,917				6,837				23,160				21,871
Total noninterest expense			41,300				37,243				118,211				111,181
Income before income taxes			25,851				23,562				75,367				61,527
Income tax expense			9,105				8,288				26,350				21,414
Net income		$	16,746				15,274				49,017				40,113
Basic earnings per common share		$	2.07				1.91				6.05				5.03
Diluted earnings per common share		$	2.02				1.88				5.92				4.94

See accompanying notes to unaudited consolidated financial statements.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Income
(Dollars in thousands, except share and per share data)
(Unaudited)

														Unearned				Accumulated
		Common												compensation-				other				Total
		shares				Common				Retained				restricted				comprehensive				stockholders’
		outstanding				stock				earnings				stock				income (loss)				equity
Balance at December 31, 2005			8,098,933			$	43,569				314,843				(330	)			(8,235	)			349,847
Comprehensive income:
Net income							—				49,017				—				—				49,017
Unrealized losses on available-for-sale investment securities, net of income tax benefit of $254							—				—				—				(392	)			(392	)
Less reclassification adjustment for gains included in net income, net of income tax expense of $9							—				—				—				(14	)			(14	)
Other comprehensive income																							(406	)
Total comprehensive income																							48,611
Common stock transactions:
Common shares retired			(102,543	)			(7,495	)			—				—				—				(7,495	)
Common shares issued			76,140				5,829				—				—				—				5,829
Restricted shares issued			1,000				—				—				—				—				—
Stock options exercised, net of 30,326 shares tendered in payment of option price and income tax withholding amounts			86,412				2,909				—				—				—				2,909
Stock option tax benefit							1,218				—				—				—				1,218
Stock-based compensation expense:
Stock-based compensation expense							1,007				—				—				—				1,007
Reclassification of unearned compensation upon adoption of SFAS No. 123R							(330	)			—				330				—				—
Cash dividends declared:
Common ($1.66 per share)							—				(13,444	)			—				—				(13,444	)
Balance at September 30, 2006			8,159,942			$	46,707				350,416				—				(8,641	)			388,482
Balance at December 31, 2004			7,980,300			$	36,803				275,172				(425	)			(3,224	)			308,326
Comprehensive income:
Net income							—				40,113				—				—				40,113
Unrealized losses on available-for-sale investment securities, net of income tax benefit of $2,600							—				—				—				(4,009	)			(4,009	)
Less reclassification adjustment for losses included in net income, net of income tax benefit of $1,157							—				—				—				1,784				1,784
Other comprehensive income																							(2,225	)
Total comprehensive income																							37,888
Common stock transactions:
Common shares retired			(38,007	)			(2,354	)			—				—				—				(2,354	)
Common shares issued			100,152				6,496				—				—				—				6,496
Restricted shares issued			1,500				87				—				(87	)			—				—
Restricted shares cancelled			(1,000	)			(65	)			—				65				—				—
Stock options exercised, net of 10,447 shares tendered in payment of option price and income tax withholding amounts			54,545				2,110				—				—				—				2,110
Stock option tax benefit							517				—				—				—				517
Restricted stock remeasurement & amortization							101				—				79				—				180
Cash dividends declared:
Common ($1.38 per share)							—				(10,997	)			—				—				(10,997	)
Balance at September 30, 2005			8,097,490			$	43,695				304,288				(368	)			(5,449	)			342,166

See accompanying notes to unaudited consolidated financial statements.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

		For the nine months
		ended September 30,
		2006				2005
Cash flows from operating activities:
Net income		$	49,017				40,113
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of joint ventures			83				(418	)
Provision for loan losses			6,360				4,365
Depreciation			9,979				10,409
Amortization of core deposit intangibles			731				760
Amortization of mortgage servicing rights			2,934				3,550
Net premium amortization (discount accretion) on investment securities			(5,200	)			264
Net (gain) loss on sale of investment securities			(23	)			2,941
Net gain on sale of property and equipment			(45	)			(12	)
Net impairment charges (reversals) on mortgage servicing rights			266				(1,312	)
Net increase in cash surrender value of company-owned life insurance			(1,524	)			(1,330	)
Write-down of property assets pending sale/disposal			81				21
Stock-based compensation expense			1,007				227
Excess tax benefits from stock-based compensation			(1,218	)			(517	)
Deferred income taxes			(2,650	)			194
Changes in operating assets and liabilities:
Decrease (increase) in loans held for sale			(8,180	)			261
Increase in interest receivable			(7,944	)			(6,362	)
Increase in other assets			(2,829	)			(2,101	)
Increase in accrued interest payable			3,235				1,969
Increase in accounts payable and accrued expenses			1,984				10,572
Net cash provided by operating activities			46,064				63,594
Cash flows from investing activities:
Purchases of investment securities:
Held-to-maturity			(11,545	)			(9,281	)
Available-for-sale			(3,046,742	)			(1,056,907	)
Proceeds from maturities and paydowns of investment securities:
Held-to-maturity			9,857				4,934
Available-for-sale			3,011,747				835,670
Proceeds from sales of available-for-sale investment securities			10,132				197,935
Net decrease in cash equivalent mutual funds classified as available-for-sale investment securities			5				177
Purchases and originations of mortgage servicing rights			(4,806	)			(5,186	)
Extensions of credit to customers, net of repayments			(250,324	)			(248,705	)
Recoveries of loans charged-off			1,870				1,487
Proceeds from sales of other real estate			701				2,943
Capital contributions to joint ventures			—				(2,800	)
Net capital expenditures			(9,307	)			(6,099	)
Sale of banking office, net of cash			(2,547	)			—
Net cash used in investing activities			(290,959	)			(285,832	)

(Continued)

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
(Unaudited)

		For the nine months
		ended September 30,
		2006				2005
Cash flows from financing activities:
Net increase in deposits			71,550				155,434
Net increase in federal funds purchased			62,330				—
Net increase in repurchase agreements			115,863				45,570
Net decrease in other borrowed funds			(1,554	)			(1,560	)
Borrowings of long-term debt			3,100				11,500
Repayments of long-term debt			(29,190	)			(16,409	)
Net decrease in debt issuance costs			29				30
Proceeds from issuance of common stock			8,738				8,606
Excess tax benefits from stock-based compensation			1,218				517
Payments to retire common stock			(7,495	)			(2,354	)
Dividends paid on common stock			(13,444	)			(10,997	)
Net cash provided by financing activities			211,145				190,337
Net increase (decrease) in cash and cash equivalents			(33,750	)			(31,901	)
Cash and cash equivalents at beginning of period			240,977				355,908
Cash and cash equivalents at end of period		$	207,227				324,007

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements
(Dollars 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. (the “Parent Company” or “FIBS”) 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 September 30, 2006 and December 31, 2005 and the results of operations and cash flows for each of the three and nine month periods ended September 30, 2006 and 2005, in conformity with U.S. generally accepted accounting principles. The balance sheet information at December 31, 2005 is derived from audited consolidated financial statements; however, certain reclassifications, none of which were material, have been made to conform to the September 30, 2006 presentation.
		These 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, 2005. Operating results for the three and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.
(2)		Stock-Based Compensation
		General
		Effective January 1, 2006, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised), “Share-Based Payment” (“SFAS 123R”) using the modified prospective method of transition. Under the modified prospective method of transition, the provisions of SFAS 123R apply to new awards and to awards outstanding on January 1, 2006 and subsequently modified, repurchased or cancelled. Compensation expense recognized in 2006 includes compensation costs for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior periods were not restated to reflect the impact of adopting SFAS 123R.
		As a result of adopting SFAS 123R, the Company recorded compensation expense related to share-based payments of $232 and $1,007 during the three and nine months ended September 30, 2006, respectively, and recognized income tax benefits on share-based payments of $89 and $384 for the three and nine months ended September 30, 2006, respectively. At September 30, 2006, the Company had $1,096 of unrecognized compensation cost related to unvested share-based payments that is expected to be recognized over a weighted-average period of 0.8 years.
		The following table sets forth pro forma net income and earnings per share for the three and nine months ended September 30, 2005, assuming the adoption of SFAS 123R as of January 1, 2005, during which the fair value based method was not used to account for share-based compensation.

		Three Months Ended				Nine Months Ended
		September 30, 2005				September 30, 2005
Net income as reported		$	15,274				40,113
Deduct: total share-based employee compensation expense determined under a fair value method for all awards, net of taxes			(107	)			(332	)
Pro forma net income		$	15,167				39,781
Basic earnings per share		$	1.91				5.03
Pro forma basic earnings per share		$	1.90				4.99
Diluted earnings per share		$	1.88				4.94
Pro forma diluted earnings per share		$	1.86				4.90

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

Stock Options

In May 2006, the Company’s Board of Directors adopted and shareholders approved the 2006 Equity Compensation Plan (the “Plan”). The Plan consolidates into one plan the benefits available under existing formal and informal equity compensation plans including the 2001 Stock Option Plan, the 2004 Restricted Stock Benefit Plan, the Officer Stock Benefit Plan and the Director Stock Compensation Plan. Subsequent to April 2006, the Company ceased awarding benefits under all pre-existing share-based benefit plans. All share-based awards after April 2006 will be made pursuant to the Plan. At September 30, 2006, there were 738,404 shares available for future grant under the Plan.

All options granted under the Company’s stock option plans have an exercise price equal to the minority appraised value of the Company’s common stock at the date of grant, and are subject to vesting and exercise periods as determined by the Company’s Board of Directors or Compensation Committee. Stock issued upon exercise of options is subject to a shareholder agreement prohibiting transfer of the stock for a period of six months following the exercise. In addition, the shareholder agreement grants the Company a right of first refusal to repurchase the stock and provides the Company a right to call some or all of the stock under certain conditions.

Compensation expense related to stock option awards of $163 and $810 was included in salaries, wages and benefits expense on the Company’s consolidated income statements for the three and nine month periods ended September 30, 2006, respectively. Compensation expense related to stock option awards of $70 was included in salaries, wages and benefits expense on the Company’s consolidated income statements for the nine months ended September 30, 2005. No compensation expense related to stock option awards was recorded during third quarter 2005.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards. The following table presents the weighted average fair values and related assumptions used in the option pricing model for the periods indicated.

		Three months ended September 30,								Nine months ended September 30,
		2006				2005				2006				2005
Expected dividend yield			3.16	%			2.90	%			3.01	%			3.05	%
Expected volatility			5.20	%			8.40	%			5.87	%			8.40	%
Risk-free interest rate			4.75	%			4.13	%			4.51	%			4.19	%
Expected life of options (in years)			6.20				8.50				6.20				8.50
Weighted-average grant date fair value		$	6.52			$	7.38			$	5.94			$	6.06

Expected dividend yield is based on the Company’s annualized expected dividends per share divided by the average common stock price. Risk-free interest rate is based on U.S. treasury constant maturity yield at grant date for treasury securities with maturities approximating the expected life of options granted. The Company has elected to use the “simplified” method to estimate expected life until its analysis of historical exercise and post-vesting employment termination behaviors is refined. Expected volatility is based on the historical volatility of the Company’s common stock calculated using the quarterly appraised value of a minority interest over the expected life of options in 2006 and the contractual option term in 2005.

The following table summarizes all activity with respect to stock options granted under the Company’s stock option plans for the nine months ended September 30, 2006:

										Weighted-Average
		Number of				Weighted-Average				Remaining
		Shares				Exercise Price				Contract Life
Outstanding options, beginning of period			837,145			$	45.95
Granted			141,951				68.28
Exercised			(116,738	)			43.20
Forfeited			(8,899	)			59.32
Outstanding options, end of period			853,459			$	49.91			6.12 years
Outstanding options exercisable, end of period			672,310			$	46.83			5.43 years

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

The total intrinsic value of options exercised was $556 and $3,186 during the three and nine months ended September 30, 2006, respectively; and, $651 and $1,351 during the three and nine months ended September 30 2005, respectively. The actual tax benefit realized for the tax deduction from option exercises totaled $212 and $1,218 for the three and nine months ended September 30, 2006. The tax benefit is reflected in financing activities in the accompanying Consolidated Statement of Cash Flows. Cash received from stock option exercises during the three and nine months ended September 30, 2006 was $602 and $2,909, respectively.

The following table summarizes the Company’s nonvested stock option activity for the nine months ended September 30, 2006:

		Number of				Weighted-Average
		Shares				Grant-Date Fair Value
Nonvested stock options, beginning of period			186,141			$	5.50
Granted			98,516				5.84
Vested			(94,609	)			5.39
Forfeited			(8,899	)			5.63
Nonvested stock options, end of period			181,149			$	5.75

The total fair value of stock options vested during the three and nine months ended September 30, 2006 was $7 and $512, respectively; and, $1 and $444 for the three and nine months ended September 30, 2005, respectively.

Restricted Stock

Common stock issued under the Company’s restricted stock plans may not be sold or otherwise transferred until restrictions have lapsed or performance objectives have been obtained. During the vesting period, participants have voting rights and receive dividends on the restricted shares. Upon termination of employment, common shares upon which restrictions have not lapsed must be returned to the Company. The unearned share-based compensation related to these awards is amortized to compensation expense over the period the restrictions lapse (generally three years). As of September 30, 2006, unearned share-based compensation of $207 associated with these awards was included in common stock on the Company’s consolidated financial statements. Compensation expense related to restricted stock awards of $69 and $197 was included in salaries, wages and benefits expense on the Company’s consolidated income statements for the three and nine month periods ended September 30, 2006, respectively. Compensation expense related to restricted stock awards of $63 and $180 was included in salaries, wages and benefits expense on the Company’s consolidated income statements for the three and nine month periods ended September 30, 2005, respectively.

The following table presents information on the Company’s restricted shares as of September 30, 2006 and December 31, 2005:

		September 30,				December 31,
		2006				2005
Restricted stock, beginning of period			10,500				11,000
Granted during the period ended			1,000				500
Forfeited during the period ended			—				(1,000	)
Outstanding, end of period			11,500				10,500

(3)		Computation of Earnings per Share
		Basic earnings per common share (EPS) 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.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars 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 nine month periods ended September 30, 2006 and 2005:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2006				2005				2006				2005
Net income basic and diluted		$	16,746				15,274				49,017				40,113
Average outstanding shares-basic			8,093,287				7,981,356				8,102,093				7,971,921
Add: effect of dilutive stock options			198,792				153,525				182,429				143,625
Average outstanding shares-diluted			8,292,079				8,134,881				8,284,522				8,115,546
Basic earnings per share		$	2.07				1.91				6.05				5.03
Diluted earnings per share		$	2.02				1.88				5.92				4.94

(4)		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 September 30, 2006, commitments to extend credit to existing and new borrowers approximated $1,026,583, including $295,568 on unused credit card lines and $284,750 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 September 30, 2006, the Company had outstanding standby letters of credit of $86,456. 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.
(5)		Supplemental Disclosures to Consolidated Statement of Cash Flows
		The Company paid cash of $72,339 and $42,143 for interest during the nine months ended September 30, 2006 and 2005, respectively. The Company paid cash for income taxes of $30,132 and $17,597 during the nine months ended September 30, 2006 and 2005, respectively.
(6)		Segment Reporting
		The Company has two operating segments, Community Banking and Technology Services. Community Banking encompasses commercial and consumer banking services offered to individuals, businesses and municipalities. Technology Services encompasses technology services provided to affiliated and non-affiliated financial institutions.
		The Other category includes the net funding cost and other expenses of the Parent Company, the operational results of non-bank subsidiaries (except the Company’s technology services subsidiary) and intercompany eliminations.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

Selected segment information for the three and nine month periods ended September 30, 2006 and 2005 follows:

		Three Months Ended September 30, 2006
		Community				Technology
		Banking				Services				Other				Total
Net interest income (expense)		$	48,775				47				(1,020	)			47,802
Provision for loan losses			2,029				—				—				2,029
Net interest income (expense) after provision			46,746				47				(1,020	)			45,773
Noninterest income:
External sources			17,138				4,105				135				21,378
Internal sources			—				3,157				(3,157	)			—
Total noninterest income			17,138				7,262				(3,022	)			21,378
Noninterest expense			36,581				6,036				(1,317	)			41,300
Income (loss) before income taxes			27,303				1,273				(2,725	)			25,851
Income tax expense (benefit)			9,718				504				(1,117	)			9,105
Net income (loss)		$	17,585				769				(1,608	)			16,746
Depreciation and core deposit intangibles amortization		$	3,524				—				62				3,586

		Three Months Ended September 30, 2005
		Community				Technology
		Banking				Services				Other				Total
Net interest income (expense)		$	45,532				29				(944	)			44,617
Provision for loan losses			1,375				—				—				1,375
Net interest income (expense) after provision			44,157				29				(944	)			43,242
Noninterest income:
External sources			13,933				3,350				280				17,563
Internal sources			—				3,460				(3,460	)			—
Total noninterest income			13,933				6,810				(3,180	)			17,563
Noninterest expense			33,652				4,949				(1,358	)			37,243
Income (loss) before income taxes			24,438				1,890				(2,766	)			23,562
Income tax expense (benefit)			8,689				744				(1,145	)			8,288
Net income (loss)		$	15,749				1,146				(1,621	)			15,274
Depreciation and core deposit intangibles amortization		$	3,502				—				61				3,563

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

		Nine Months Ended September 30, 2006
		Community				Technology
		Banking				Services				Other				Total
Net interest income (expense)		$	142,162				118				(2,899	)			139,381
Provision for loan losses			6,360				—				—				6,360
Net interest income (expense) after provision			135,802				118				(2,899	)			133,021
Noninterest income:
External sources			48,501				11,638				418				60,557
Internal sources			—				10,069				(10,069	)			—
Total noninterest income			48,501				21,707				(9,651	)			60,557
Noninterest expense			105,993				16,787				(4,569	)			118,211
Income (loss) before income taxes			78,310				5,038				(7,981	)			75,367
Income tax expense (benefit)			27,638				1,992				(3,280	)			26,350
Net income (loss)		$	50,672				3,046				(4,701	)			49,017
Depreciation and core deposit intangibles amortization		$	10,526				—				184				10,710

		Nine Months Ended September 30, 2005
		Community				Technology
		Banking				Services				Other				Total
Net interest income (expense)		$	127,454				69				(2,701	)			124,822
Provision for loan losses			4,365				—				—				4,365
Net interest income (expense) after provision			123,089				69				(2,701	)			120,457
Noninterest income:
External sources			41,682				9,980				589				52,251
Internal sources			1				10,354				(10,355	)			—
Total noninterest income			41,683				20,334				(9,766	)			52,251
Noninterest expense			100,889				14,751				(4,459	)			111,181
Income (loss) before income taxes			63,883				5,652				(8,008	)			61,527
Income tax expense (benefit)			22,503				2,235				(3,324	)			21,414
Net income (loss)		$	41,380				3,417				(4,684	)			40,113
Depreciation and core deposit intangibles amortization		$	10,986				—				183				11,169

(7)		Recent Accounting Pronouncements
		During February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140.” SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and, amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after December 31, 2006. The Company is currently evaluating the financial statement impact of adoption of SFAS No. 155.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140.” SFAS No. 156 requires recognition of servicing assets or servicing liabilities each time an entity undertakes an obligation to service a financial asset; requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; and, permits an entity to choose either to (1) amortize servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income or net servicing loss and assess servicing assets or servicing liabilities for impairment or increased obligation based on fair value at each reporting date; or, (2) measure servicing assets or servicing liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur. At its initial adoption, SFAS No. 156 permits a one-time reclassification of available-for-sale securities to trading securities provided that the available-for-sale securities are identified in some manner as offsetting exposure to changes in fair value of servicing assets or servicing liabilities subsequently being measured at fair value. SFAS No. 156 requires separate financial statement presentation of servicing assets and servicing liabilities subsequently measured at fair value and requires additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for the Company on January 1, 2007. The Company does not expect adoption to have a significant impact on the consolidated financial statements, results of operations or liquidity of the Company.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (an interpretation of SFAS No. 109)” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN48 requires the Company to recognize in the financial statements the impact of a tax position if that position is more likely than not of being sustained on audit based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective for the Company on January 1, 2007 with earlier adoption encouraged. The Company is currently evaluating the financial statement impact of adoption of FIN 48.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but applies under other existing accounting pronouncements that require or permit fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement and, therefore, should be determined based on the assumptions that market participants would use in pricing that asset or liability. SFAS No. 157 also establishes a fair value hierarchy that distinguishes between market participant assumptions developed based on market data obtained from independent sources and the Company’s own assumptions about market participant assumptions based on the best information available. SFAS No. 157 is effective for the Company on January 1, 2008 with earlier adoption permitted. The Company does not expect adoption to have a significant impact on the consolidated financial statements, results of operations or liquidity of the Company.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R).” SFAS No. 158 requires employers to recognize the overfunded or underfunded status of defined benefit postretirement plans, other than multiemployer plans, as assets or liabilities on the balance sheet and to recognize changes in the funded status in the year in which the changes occur through comprehensive income. The recognition and disclosure provisions of SFAS No. 158 are effective for the Company as of December 31, 2007, with earlier adoption encouraged. The Company does not expect adoption of SFAS No. 158 on December 31, 2007, to have a significant impact on the consolidated financial statements, results of operations or liquidity of the Company.

In September 2006, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue No. 06-4 (“EITF 06-4”), “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” EITF 06-4 requires employers to recognize a liability for future benefits provided through endorsement split-dollar life insurance arrangements that extend into postretirement periods in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” or APB Opinion No. 12, “Omnibus Opinion — 1967.” The provisions of EITF 06-4 are effective for the Company on January 1, 2007 and are to be applied as a change in accounting principle either through a cumulative-effect adjustment to retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption; or through retrospective application to all prior periods. The Company is currently evaluating the financial statement impact of adoption of EITF 06-4.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

In September 2006, the EITF reached a final consensus on Issue No. 06-5 (“EITF 06-5”), “Accounting for Purchase of Life Insurance—Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin No. 85-4”. EITF 06-5 requires that the cash surrender value and any amounts provided by the contractual terms of an insurance policy that are realizable at the balance sheet date be considered in determining the amount that could be realized under Technical Bulletin No. 85-4. The provisions of EITF 06-5 require (1) consideration of the effect of contractual restrictions that limit amounts that could be realized, (2) exclusion from the amount that could be realized of amounts recoverable at the discretion of the insurance company, (3) amounts that are recoverable by the policyholder in periods beyond one year from the surrender of the policy be discounted, and (4) an assumption that policies will be surrendered on an individual life—by—individual life basis. The provisions of EITF 06-5 are effective for the Company on January 1, 2007 and are to be applied as a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company is currently evaluating the financial statement impact of adoption of EITF 06-5.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”) providing guidance for considering the effects of prior year misstatements when quantifying misstatements in current year financial statements. Under the provisions of SAB 108, a company is required to quantify the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, using both a “rollover” and “iron curtain” approach. The rollover approach quantifies a misstatement based on the amount of the error originating in the current year income statement, ignoring the effects of correcting the portion of the current year balance sheet misstatement that originated in prior years. The iron curtain approach quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, irrespective of the misstatement’s year of origination. If either method results in quantifying a misstatement that is material, after considering all relevant quantitative and qualitative factors, the financial statements must be adjusted. SAB 108 is effective for financial statements for fiscal years ending after November 15, 2006 with earlier application encouraged. Prior period financial statements may be restated when first applying the guidance in SAB 108; however, restatement is not required if either the rollover or iron curtain approach was properly applied during prior periods. If prior periods are not restated, the cumulative effect of the initial application of SAB 108 should be reported in the carrying amounts of assets and liabilities as of the beginning of the fiscal year with an offsetting adjustment to the opening balance of retained earnings. The nature and amount of each individual error being corrected in the cumulative adjustment should be disclosed. The Company does not expect application of SAB 108 to have a significant impact on the consolidated financial statements, results of operations or liquidity of the Company.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, including the audited financial statements contained therein, filed with the Securities and Exchange Commission.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     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, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. Any statements about the Company’s 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. All forward-looking statements are qualified in their entirety by reference to risk factors discussed in Item 1A of the Company’s Annual Report of Form 10-K for the year ended December 31, 2005, including, among others: (i) credit risk; (ii) credit concentration and economic conditions in Montana and Wyoming; (iii) declines in real estate values; (iv) changes in interest rates; (v) inability to meet liquidity requirements; (vi) availability of capital; (vii) competition; (viii) dependence on technology; (ix) ineffective internal operational controls; (x) difficulties in execution of business strategy; (xi) disruption of vital infrastructure; (xii) changes in or noncompliance with governmental regulations; (xiii) restrictions on dividends and stock redemptions; (xiv) capital required to support the Company’s bank subsidiary (the “Bank”); and (xv) investment risks affecting holders of common stock. Because the foregoing factors could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements, undue reliance should not be placed on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of future events or developments.

CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT ACCOUNTING POLICIES

     The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and follow general practices within the industries in which it operates. 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. Actual results could differ significantly from those estimates.

     The Company’s accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. The most significant accounting policies followed by the Company are presented in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

     The Company’s 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 the Company’s consolidated financial statements, results of operations or liquidity.

Allowance for Loan Losses

     The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. 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, changes in the nature of the loan portfolio, industry concentrations and the impact of current local, regional and national economic factors on the quality of the loan portfolio. The allowance for loan losses is maintained at an amount the Company believes is sufficient to provide for estimated losses inherent in its loan portfolio at each balance sheet date. Management believes the process for determining the allowance for loan losses takes into account all of the significant potential factors that could result in credit losses. However, the process includes judgmental and quantitative elements that may be subject to significant change. To the extent actual outcomes differ from the Company’s estimates, additional provision for loan losses could be required, which could adversely affect earnings or financial performance in future periods. Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 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, Provision/Allowance for Loan Losses.”

Valuation of Mortgage Servicing Rights

     The Company recognizes as assets the rights to service mortgage loans for others, whether acquired or internally originated. Mortgage servicing rights are initially recorded at fair value and are amortized over the period of estimated servicing income. Mortgage servicing rights are carried on the consolidated balance sheet at the lower of amortized cost or fair value. The Company utilizes the expertise of a third-party consultant to estimate the fair value of its 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, costs to service, 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. Imprecision in estimating these factors can impact the amount of revenue or loss recorded in the Company’s financial statements. Notes 1 and 7 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, describe the methodology used to determine fair value of mortgage servicing rights.

EXECUTIVE OVERVIEW

     During 2006, the Company has remained focused on improving operating efficiency and identifying opportunities to generate additional noninterest income. This strategy has resulted in increased earnings during the three and nine months ended September 30, 2006. Net income increased $1.5 million, or 9.6%, to $16.7 million, or $2.02 per diluted share, for the quarter ended September 30, 2006, as compared to $15.3 million, or $1.88 per diluted share, for the same period in 2005. During the nine months ended September 30, 2006, net income increased $8.9 million, or 22.2%, to $49.0 million, or $5.92 per diluted share, as compared to $40.1 million, or $4.94 per diluted share, for the same period in the prior year. Quarter-to-date and year-to-date net interest income, on a fully taxable-equivalent basis, increased 7.3% and 11.7%, respectively, as compared to the same periods in 2005, primarily due to growth in average earning assets. Average earning assets grew 10.2% and 11.1% and comprised a larger percentage of total assets during the three and nine months ended September 30, 2006, respectively, as compared to the same periods in 2005. In addition, interest-free funding sources, including noninterest-bearing deposits, other liabilities and common equity, contributed an additional $98 million and $126 million during the three and nine months ended September 30, 2006, as compared to the same periods in 2005, allowing the Company to be slightly less reliant on higher costing funding sources in 2006. Also contributing to quarter-to-date and year-to-date improvements in net income during 2006, as compared to 2005, were reductions in expenses associated with discontinuation of operations at Wal-Mart in-store banking offices described below; decreases in net losses on sales of investment securities; increases in fee income from higher debit and credit card transaction volumes; and, increases in revenues from technology and financial services. Improvements in current year net income as compared to prior year were partially offset by higher provisions for loan losses; inflationary increases in salaries, wages and employee benefit expenses; increases in share-based compensation expenses; and, recognition of impairment of capitalized mortgage servicing rights.

     On January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payments,” which requires all share-based payments to be recognized in the financial statements based on the fair value of the award at the date of grant. Adoption of SFAS No. 123R resulted in the recognition of compensation expense related to stock option and restricted stock awards, net of related income tax benefits, of $143 thousand and $623 thousand during the three and nine months ended September 30, 2006, respectively.

     The Company has held a minority equity interest in an unconsolidated joint venture entity since 2001. The entity is currently exploring an acquisition transaction that, should it occur, could result in a substantial gain to the Company. There can be no assurance, however, that the entity will receive an acceptable proposal or that an acquisition or similar transaction will be effected.

     The Company acts as transfer agent solely for its own common stock. In August 2006, the Company received an examination report on its transfer agent function from the Federal Reserve Bank noting certain operating deficiencies. Additionally, in October 2006, the Securities and Exchange Commission commenced an examination of the Company’s transfer agent function and indicated that a deficiency letter will be issued in the near future. Company management has corrected or is in the process of correcting the deficiencies identified by the Federal Reserve Bank and will correct any additional deficiencies identified by the Securities and Exchange Commission promptly upon notification.

     During first quarter 2005, the Company made a strategic decision to discontinue the operation of nine banking offices located inside Wal-Mart stores. During 2005, operations at five of the nine Wal-Mart in-store banking offices were discontinued and customer loan and deposit accounts were transferred to existing banking offices located in the same communities. During January 2006, operations were discontinued and customers’ accounts were transferred at three of the four remaining Wal-Mart in-store banking offices and the final Wal-Mart in-store banking office was sold. The Company recorded expenses directly related to the discontinuation of operations of $23 thousand and $952 thousand during the nine months ended September 30, 2006 and 2005, respectively.

RESULTS OF OPERATIONS

     Net Interest Income. Net interest income, the Company’s largest source of operating income, is derived from interest, dividends and fees received on interest earning assets, less interest expense incurred on interest bearing liabilities. The most significant impact on the Company’s net interest income between periods is derived from the interaction of changes in the volume of and rates earned or paid on interest earning assets and interest bearing liabilities (“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 spread, produces changes in the net interest income between periods. Interest-free funding sources, such as demand deposits and stockholders’ equity, also support earning assets. The impact of interest-free funding sources is captured in the net interest margin, which is calculated as net interest income divided by average earning assets.

     The following tables present, for the periods indicated, condensed average balance sheet information for the Company, 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 September 30,
		2006												2005
		Average								Average				Average								Average
		Balance				Interest				Rate				Balance				Interest				Rate
Interest earning assets:
Loans (1)		$	3,272,203				64,845				7.86	%		$	2,929,238				52,021				7.05	%
Investment securities (1)			1,015,254				12,126				4.74				894,369				9,382				4.16
Federal funds sold			23,588				336				5.65				85,949				772				3.56
Interest bearing deposits in banks			5,288				56				4.20				7,623				59				3.07
Total interest earning assets			4,316,333				77,363				7.11	%			3,917,179				62,234				6.30	%
Noninterest earning assets			451,266												452,542
Total assets		$	4,767,599											$	4,369,721
Interest bearing liabilities:
Demand deposits		$	852,222				4,384				2.04	%			671,064				1,284				0.76	%
Savings deposits			836,409				4,570				2.17				903,279				2,999				1.32
Time deposits			1,017,549				10,586				4.13				1,016,270				7,756				3.03
Federal funds purchased			63,727				852				5.30				70				1				3.29
Borrowings (2)			662,144				6,984				4.18				508,627				3,417				2.67
Long-term debt			29,247				322				4.37				62,124				640				4.09
Subordinated debenture			41,238				916				8.81				41,238				709				6.82
Total interest bearing liabilities			3,502,536				28,614				3.24	%			3,202,672				16,806				2.08	%
Noninterest bearing deposits			852,144												800,332
Other noninterest bearing liabilities			43,939												35,543
Stockholders’ equity			368,980												331,174
Total liabilities and stockholders’ equity		$	4,767,599											$	4,369,721
Net FTE interest						$	48,749											$	45,428
Less FTE adjustments							(947	)											(811	)
Net interest income from consolidated statements of income						$	47,802											$	44,617
Interest rate spread											3.87	%											4.22	%
Net FTE yield on interest earning assets (3)											4.48	%											4.60	%