Good morning and welcome to First Interstate Bancsystem, Inc., Second Quarter 2013 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Allison Johnston. Please go ahead.

Thanks John. Good morning. Thank you for joining us for our second quarter earnings conference call. As we begin, I would like to direct all listeners to the cautionary note regarding forward-looking statements and factors that could affect future results and our most recently filed Form’s 10-Q and 10-K. Relevant factors that would cause actual results to differ materially from any forward-looking statements are listed in the earnings release and in our SEC filings. The company does not intend to correct or update any of the forward-looking statements made today. Joining us from management this morning are Ed Garding, our Chief Executive Officer and Terrill Moore, our Chief Financial Officer. At this time I will turn the call over to Ed Garding. Ed?

Thanks, Allison. Good morning and thanks again to all of you for joining us on the call. Yesterday we were pleased to report improved second quarter earnings of $21.5 million or $0.49 per share. This represents our sixth consecutive quarter of improved earnings which is reflective continued improvement and our credit quality. Earnings improvement was directly and significantly impacted by reduced credit related costs, both provision expense and other real estate expense. So while we indicated in April, we would not expect another quarter with provision expense of $500,000, we were correct that this quarter is even lower with provision expense of $75,000. I will give you a sense of some of the puts and takes affecting our level of provisioning. First, overall loan growth is modest. So we aren't having much provision related to loan growth. Second, net charge-offs have been very low for three consecutive quarters and we're getting further away from the quarters in which we experienced our most significant credit losses. We have also had almost $10 million in recoveries of charged off loans this year. Also the historical loss experience component of our allowance methodology is coming down from historical highs. Third, we've seen a steady decline in our level of criticized loans which continued again this quarter. And finally, we're seeing improving economic conditions locally with some increases in collateral valuations in our markets. This is most clearly demonstrated through the consistent gains we're getting upon disposition of our other real estate and the reduced level of additions through other real estate. Just in case you missed the numbers on that were in our written report, our other real estate peaked out at $52 million and today it's down to 10 million. So it's gone down substantially. In aggregate, these factors indicate that we're…

Thanks Ed. It’s great to report such a strong quarterly earnings of 21.5 million and $0.49 earnings per share on my final call. As Ed indicated, our improved results are due to a number of factors, but obviously reduced credit costs were the primary drivers. Since we talked in detail last quarter about the factors impacting provision expense, I won’t repeat that conversation but will be glad to address any questions you might have at the end of the call. It was encouraging to see the net interest margin improved one basis point quarter-over-quarter to 3.56% for this latest quarter, exclusive of recoveries of charged off interest we saw a four basis point improvement in net interest margin from Q1. The improvement in margin was a result of an increase in average loan balances outstanding along with the reduction of cash balances that we’re earning only 25 basis points. It was further aided by a further reduction in cost abundance of three basis points. The yield on earning assets declined just two basis points from last quarter to 3.87%. Our investment strategy has remained unchanged. However, the increase in the yield curve passed an unexpected extension in the duration of our investment portfolio; of about one year, from 2.7 years last quarter to 3.6 years at the end of June. A gradual upward movement in the yield curve should help us, and could help mitigate some of the decline we would otherwise expect in the net interest margin. If we look out over the next year, we have over $300 million of our investment portfolio that will roll on, which we hope to redeploy and part in the loan portfolio. However, even if the loan growth is limited we should be able to reinvest at a higher rate in the…

I’ll wrap up the financial part by saying, it was a great quarter. While our earnings have improved substantially over the last year, we do have our challenges ahead of us. (Inaudible) working hard to make loans and as always we have our eye on ways to increase non-interest income. We have a long history of controlling expenses and won’t let up on that focus either. But back to Terry’s retirement for a minute, though I did mention briefly that he had announced his retirement, he actually announced over a year ago and gave us lots of time to plan and he is going to stay with us for almost another year so that we have a very smooth transition and we are happy about that and Terry has (inaudible) that he will find the balance between being available and not looking over Kevin’s shoulder and I think that we will have good transition and I wanted to mention more about Terry’s retirement because he and I literally grew up together in this company. When we started, we were young men in our twenties who didn’t know the first think about banking and now we are mature men in our sixties, who don’t know the first thing about banking. But we are still here nevertheless. And then finally, we are excited to welcome Kevin Reilly who is in the room with us this morning and if you’ve read the release, you have realized that Kevin is well qualified to take on the role of CFO, 27 years of banking experience with several different companies, actually it’s not several just a few but that does make him well qualified and another thing I would mention about Kevin is that he started at the beginning of last week and we spent the week just allowing him to get to know us and the surprising thing is that he came back this week and so we were pleased to see that. So with that I will open up for questions.

(Operator Instructions) Our first quarter comes today from Jeff Rulis with D.A. Davidson. Please go ahead.

Thanks, good morning. Ed, I just wanted to clarify that I missed the loan growth number you said for the rest, it was a 2-3% for the full year or the remainder of the year, what's that figure?

That would be for the full year.

And then, more on the capital side, I guess as you've got, you've received some clarity on Basel and continue growing earnings I guess questions on capital deployment, you know, whether alternative uses on the dividend front and/or if you could give us an update on any potential sort of M&A discussions if that in general has picked up in your view.

Well as you know I have to be very general on that, and so, certainly we'll continue to pay dividends and certainly we continue to be open to acquisition. We're not visiting seriously with anyone at the moment, we still think that we would like to spend time identifying the locations we'd like to be in and who we'd like to partner up with in those locations and we're also open to reactive type acquisitions if someone contacted us, but there isn't anything going on today.

Our next question comes from Brad Milsaps with Sandler O'Neill.

Terry, just a question about the balance sheet I know you guys have benefited the last three quarters from reducing the securities portfolio and more importantly the FED funds position, just your thoughts on how much more room you have to reduce FED funds there and I appreciate the color on 2% to 3% loan growth. I guess if you had to subdivide that by category I know most of it has come out of the residential real estate bucket. What would your outlook say for you know, for may be more asset sensitive commercial type loan growth.

Yes, on the FED fund, Brad, we would see, we have reduced that level down to in the mid $200 million range and we would see that as kind of a normal operating run rate and are comfortable with that particularly at this season of the year which would typically be when we would see the tightest amount of liquidity. So we'd see that more comfortable and more sustainable than the FED fund levels that we operated in over the last 2 to 3 years, in more uncertain times and changing times so I think that might, where we're at today would be more typical. You want to cover the loan side?

You're asking for categories and we're optimistic about commercial and commercial real estate and when I say commercial real estate really more specific to construction because we are seeing the home builders gearing up again in literally all of our territory and so we think that we'll see a little growth on that side. We know that we'll continue to see a little growth in that indirect portfolio because we've opened up with some new dealers that we weren't purchasing contracts from before, and as I said earlier we think that that residential piece will probably level off.

Just kind of a small follow up question, Terry you mentioned some insurance proceeds during the quarter, I assume that's not necessarily repeatable but just curious kind of what the size of those proceeds were that helped you out in the second quarter.

It was a little over 600,000 Brad, and we are also hopeful that it would be non-occurring again next quarter.

Our next question comes from Brett Rabatin with Sterne Agee.

I wanted to ask about the margin and just kind of thinking about loan pricing and just until the short end of the curve lifts, maybe if you guys could talk a little about if the margin from here might be under some pressure just kind of given the loan yields continuing to abate and I know you’re still thinking about the cost of funds but we would assume that if margin drifts down can you give any additional color on that maybe for the next few quarters?

We can and I am going to ask Terry Moore to address that.

Yeah Brett just really the color hasn’t changed too much from where we’ve been there has been margin compression in the last several years with this near zero interest rate. And I think the outlook will still continue to be some compression it might be mitigated a little bit to the extent that the yield curve is steeper going forward than it has been in the last couple of years. I might make a brief comment certainly there is pressure on loan pricing from a competitive perspective which continues. And we are no different than any other bank in that regard when you look at linked quarter and we look like we are down about 17 basis points on the loan portfolio some of that is the growth of residential which was less than the average portfolio yield but some of it was that charged-off’s interest in perhaps upwards of about a third of that decline is just attributable to the timing differences of when we collect interest on charged-off loans.

Okay. And then just going back to the loan growth question and the guidance that you gave 2% to 3% for the year, I mean that kind of implies that back half is pretty flattish and I guess I am just, I know you’re talking about mortgage not being as strong in the back half of the year. But just trying to kind of figure out, the back half of the years is that a function of pay-offs maybe happening to offset some of the growth you’re seeing or why kind of the flattish back half outlook?

We’re basing our prediction on what we’re seeing in regards to loan requests. And again we’re not seeing enough requests to offset the payment stream that just continues to come in we’re very happy that that payment stream comes in but you have to make a lot of loans to stay ahead of that and then secondly we are a bit of a seasonal company because of the geography we’re in and so agriculture at this time of the year tends to grow. And then in the fall obviously with the sale of crops and live stock it comes back down and in some ways the retailers do that too that’s somewhat of a summer time season for many of our retailers.

Okay, fair enough good color and then maybe just one last quick one was just thinking about ORE and you mentioned pricing getting better I was just kind of curious if you thought you might have some additional gains in some of the properties that you are trying to market?

Well as long as you brought that up first I want to mention that I had said that our other real-estate peaked out at 52 million and is now down to 10 and I miss spoke there, what I meant to say is it’s down another 10 million to a total of 23 but our Chief Credit Officer, Bob Cerkovnik is here with us so I am going to ask him to speak to is there some gains to be had in that remaining 23 million.

We don’t expect to see that larger gains in the future and it just goes to as we look across our portfolio overall we are realizing some smaller gains on that but anything that’s significant that we just experienced is we don’t expect that but we do feel we have everything written down to the for what we considered realizable value.

Okay, fair enough thanks for all the color.

Our next question comes from Matthew Keating with Barclays.

I will add my congratulations there I think just for you, I guess just going back to NIM though briefly I think last quarter you talked about securities purchases with an average yield of about 1.26% during the quarter. Hoping you could provide an update on how that kind of trended in Q2? Thanks.

Matthew we acquired about 200 million of additional securities in the second quarter had a comparable yield around one in a quarter and estimating on that but, so we would anticipate, what was that?

So some benefit but not that much if compared to this quarter given is been moved along into the (quarter).

That is correct.

Separately on expenses, it sounds to me as well mortgage banking trends maybe accelerate a bit in the second half of the year. I know you typically run a pretty meaning operating in terms of your mortgage banking operation but are there any offsets on the expense side there to the extent that revenues in our business do decline. Thanks.

Yes. That’s the short answer. We have, I’m guessing here about 70 mortgage originators across the company and most of them are paid impart based on the volume of what they are doing. And so that I think we classify this commission income even though it’s not all actually commission, anyway that that would go down correspondingly with the volume.

Okay. That’s helpful. I think, rest of my questions are been addressed already. Thanks very much.

(Operator Instructions). Our next question comes from Jackie Chimera with KBW.

I just wanted to clarify a number that purchase volume, was that 43% or 53% in the quarter?

53% for the quarter, so we were pretty happy to see that.

And then for the extension, you spoke about for the indirect audio portfolio, is the growth in that fairly due to the extension or is part of that tends up demand from a better performing economy?

I think it’s a little of both. I mean there is no question that we picked up some dealers that we haven’t been doing business with before but we also have some dealers especially in Eastern Montana with that those volume, is reached all time highest.

And then how is the economy varying in some of the resort town, is that expected to be a good season this year.

Yes. From the standpoint of tourism numbers they’re looking for need of record number of people. One thing we’ve seen in the last few years those is the while they’re showing up they may not be spending as much as they use to while they are in town, so to speak. But we’re pretty optimistic about another season is shaping up and of course we’re halfway through it right now. So, we’ve got a little bit data to prove that this season is going to be a good one.

And so hotel occupancy is looking good maybe up a little bit year-on-year.

No. Looking good not up year-over-year because they were pretty good last year.

Okay. So, kind of its continuation of the trend and more...

Yes.

(Operator Instructions). We do have another question from James West with UBS. Go ahead.

I just want to compliment Terry on hell of a job well done.

Thank you.

There proves to be no further questions at this time. So, I’d like to turn the conference back over to management for any closing remarks.

Thank you and thanks for your interest in First Interstate today as always you can contact us through investor relations on our website and we’ll be glad to respond to any follow-up questions. Thanks for your time and goodbye.

Thank you very much. The conference is now concluded. Thank you for attending. You may now disconnect.