Good day everyone and welcome to the First Interstate Second Quarter 2014 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 also note that today's event is being recorded. I would now like to turn the conference call over to Ms. Marcy Mutch, Investor Relations officer. Please go ahead.

Thanks Jamie. Good morning. Thank you for joining us for our second quarter earnings conference call. As we begin, I’d like to direct all listeners to the cautionary note regarding forward-looking statements and factors that could affect future results in our most recently filed forms 10-K and 10-Q. 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 Kevin Riley, our Chief Financial Officer, along with other members of our management team. At this time, I'll turn the call over to Ed Garding. Ed?

Thanks, Marcy. Good morning and thanks again to all of you for joining us on the call. Yesterday, we were pleased to report earnings of $21.1 million or $0.47 per share. This was another stable quarter of earnings, complemented by strong loan growth and continued improvement in asset quality. I'd like to start with loan growth. We indicated in April that we were beginning to see an increase in loan demand, so it was great to have that translate into loan growth in every major loan category this quarter. This quarter, total loans grew $142 million or 3.2% over last quarter, and total loans are up about 5% over June 30 of last year. The growth was spread across our footprint with the three strongest markets being Billings, Montana; Casper, Wyoming and Bozeman, Montana. Construction real estate grew 2% or $6 million from linked quarter. Within that portfolio, construction on commercial projects increased $11 million and land acquisition and development decreased by $5 million for the $6 million increase. We are still continuing to make new residential development loans, but as we've said before, one of our lessons learned during the last recession was to limit our focus to real estate developers with a strong proven track record. We've learned that you just have to respect the profession of real estate developer. First mortgage residential loans were up $26 million from the first quarter. We continue to retain 5-year to 15-year adjustable rate mortgages, 10-year conventional mortgages, along with a few jumbos. Indirect consumer loans grew $31 million or a 6.4% increase from the first quarter. We really need to give credit to our indirect lending team. This quarter represented the highest volume level in our history and exceeded the next highest quarter by 15%. This level of performance represents…

Thanks, Ed, and good morning everyone. I'd like to start off by reviewing the balance sheet. As Ed has indicated, loan growth was just over 3% for the quarter and almost 4% year-to-date. Deposits grew at approximately 1% for the quarter and also on a year-to-date basis. The primary driver of the increase was our non-interest-bearing deposits which were up about 5% for the quarter. This resulted in an improved deposit mix and a lower deposit cost. With loan growth outpacing deposit growth, we had a loan-deposit ratio of 72.9% as of June 30, a 210 basis point increase from that of last year. The investment portfolio declined slightly again this quarter but still represents 27% of our total assets. We've been very successful in continuing to shorten our duration in the portfolio which declined to 3.1 years this quarter from 3.4 years as of March 31. We continue to work at insulating our balance sheet to sensitivity from interest rate movements. We know at some point rates will eventually rise, and if and when this occurs we're positioning ourselves to be ready. To reiterate what we've said in the past, we think our customers are patiently waiting for opportunities to earn better rates on their money. When rates are moving, we believe they're going to demand higher interest rates, but for now the continued shift to short-term deposit has allowed our cost of funds to continue to decline slightly to 27 basis points. Capital remains strong with our tangible capital ratio increasing to 8.72% and total risk-based capital at 16.69%. As part of our capital management strategy, we continue to look for the right opportunity to repurchase our shares. This resulted in over 225,000 shares of stock being repurchased this quarter at an average price of around $24.91. Even…

Thanks Kevin. Kevin just mentioned the Mountain West acquisition and I'd like to wrap up by providing you with an update on that transaction. We received the necessary regulatory approvals and will close on July 31. Following that, as we indicated in a press release last week, we anticipate the bank merger will occur in mid-October. Because of the 100% market overlap and the proximity of the Mountain West locations to existing First Interstate branches, we'll be consolidating eight of their locations into our branches. So now our focus is on our combined customers. We are striving to ensure that our integration efforts don't have a negative impact on the banking experience of our customers in any way. We are excited about the possibilities created through the combination of our two companies and are honored to have Mountain West become part of the First Interstate organization. They've worked hard to create a strong franchise and are a recognized leader in our shared communities. We believe the combined organization will be stronger and will enable us to better serve all our customers. So with that, I'll open up for questions, but before I do that, I have found out that we had the wrong telephone number posted for this call. I'm not sure how that happened but some of you may have had to join late. So don't feel bad about asking me to go back to the beginning if there is something you want to know, and for those of you that did join us, thank you for persevering and figuring out what the phone number actually was. So, now do we have any questions out there?

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

Just a follow-up on your branch closure announcement. Any expected financial impact either near-term cost or long-term savings that you could quantify?

I think the best to say is that it will be a wash because we have appraised all of those buildings and there's a lot of interest from people who would like to buy them, and so it would appear that we're going to be able to sell those buildings very near if not above what we booked them for. And fortunately in most cases we will build to sell them to non-financial institutions so that we're not helping a competitor come into the market.

Okay. And do you have updated balances on the loan and deposit balances from Mountain West as of June 30?

Yes, and I think I'll ask Bob Cerkovnik to give us the ballpark numbers. Would you, Bob?

In our earnings release, we've talked about there's roughly about $623 million in total assets and loans are right around $380 million and deposits are about $520 million.

$520 million, okay. And then just one last one I guess on, Ed, you talked about your loan growth goal and it sounds pretty positive in terms of the loan pipeline I guess coupling together what you're seeing from or hearing from Mountain West but also just the legacy business, maybe if you could remind us what that goal was or quantify what you see for the year?

I'm going to say between 4% and 5%. We're all looking at each other and saying, what was our goal, and I think that the stretched goal would've been in the 5% range and I'd say the stretched goal that was in January and now we're feeling pretty optimistic about hitting that number.

Great. Okay, I'll step back, thank you.

Our next question comes from Brett Rabatin from Sterne Agee. Please go ahead with your question.

Wanted to first ask, just there's been a whole a commentary this quarter from banks bigger than you guys about regulatory cost and I know you're not going to be $10 billion post Mountain West, but was just curious on efficiency I guess one is are there going to be any new do you think levels of investment you'll have to make as you approach $10 billion, and then just secondly, you've gotten a lot of issues over the past year, should we see anything else aside from Mountain West potentially having a positive impact on the efficiency ratio?

I'm taking a minute to think about how to answer all of that, Brett, but I think I would start with the $10 billion subject, and there's just no question that there are increased regulatory and reporting costs when you approach and exceed that threshold and the cost is enormous. But that said, we also think that with that growth you move your non-interest and your interest income up to the point where you achieve critical mass, and so in a sense that will net out. We have experienced a higher cost of doing business because of some of the provisions of Dodd-Frank becoming active over the last year. The best example I could give you is that in mortgage lending, it just flat takes more people to do the same amount of volume as you previously did to stay up with the regulatory requirements, but that's just the nature of the game. But again, if you continue to grow, I think you can grow into that. In regards to efficiencies with Mountain West, with that acquisition, this is the first in-market acquisition we've ever done. We've always gone outside of our market even if it's just a little bit outside. So this is our first in-market acquisition and we think that we are going to create some tremendous efficiencies by gaining a lot of new customers without adding a lot of new expense.

Okay, thanks for the color around that. The other thing I guess I was curious about was just thinking about your loan generation in terms of rate compared to the present portfolio, any thoughts around what new generation is coming in at and sort of thinking about the margin going forward? Aside from Mountain West, any changes in interest rates?

I'm not sure I'm understanding the question, but in general new loans are going on the books at an average of around 5%. As we stated, we saw a 2 basis point increase in the net margin and that was driven not just by loan growth or loan interest rate, it was driven somewhat by interest recoveries from previous losses too, but nevertheless we're gratified to see that that margin is holding and we don't see that dropping off significantly in future quarters. Does that answer your question?

Yes, that's exactly what I was looking for. Thanks for all the color.

Our next question comes from Jackie Chimera from KBW. Please go ahead with your question. Jacquelynne Chimera - Keefe, Bruyette & Woods: Looking to the loan growth, and you had really good loan growth in the quarter, was part of that related to loans that may have been delayed from first quarter just due to the weather and everything?

Yes, definitely. The construction industry, whether it was commercial highway even or mostly the homebuilders, they were very stagnant during that tough winter weather and that's not always the case. These days they have the technology to build 12 months a year but this was a tougher winter than we had experienced in some time and you could just feel it and see it open up as springtime came around. So I'd have to say, yes. Now that said, we don't think it's a one-time event because we're seeing development in both residential and commercial ramp up, and so we're feeling pretty good about third quarter loan growth too. Jacquelynne Chimera - Keefe, Bruyette & Woods: So to make sure that I heard you correctly in the prepared remarks, did you say that the average size of new bookings in the commercial portfolio was around $100,000?

No, just the average size of new commercial loans, that does not include commercial real estate. Jacquelynne Chimera - Keefe, Bruyette & Woods: So just the straight commercial portfolio?

Correct. Jacquelynne Chimera - Keefe, Bruyette & Woods: Okay. So did you take on a lot more customers this quarter then, because just looking at it, with $100,000 versus the substantial quirk you had in the quarter, that's kind of where I'm going with that, am I thinking about it properly?

I wish I could say a whole lot of new customers, but no, a modest number of new customers and an awful lot of business owners with renewed confidence in the future that are either expanding or building inventory and those kinds of things. Jacquelynne Chimera - Keefe, Bruyette & Woods: Okay, so it sounds like increasing line utilization, consumer confidence is building, that sort of thing.

That is correct. Jacquelynne Chimera - Keefe, Bruyette & Woods: Okay. And then just one last quick one. Given that you've had some nice interest recoveries over the past couple of quarters, is there still a sizable pool for that left?

Bob Cerkovnik, would you address that?

Good question, Jackie. We don't see a significant pool out there but it comes, we are working hard on collecting that interest on those non-performing loans as our non-performing loan balance comes down. We will see some of it, but to that level I really can't give you a real strong answer in that regard. Jacquelynne Chimera - Keefe, Bruyette & Woods: Okay, so it will just continue to fluctuate over the next couple of quarters?

Yes. Jacquelynne Chimera - Keefe, Bruyette & Woods: Okay. Great. Thank you all for the color.

Our next question comes from Brad Milsaps from Sandler O'Neill. Please go ahead with your question.

Kevin, sorry if I missed this, but just curious, what drove the decision to be maybe a little more aggressive with the buyback this quarter relative to other quarters and how do you kind of feel about that going forward maybe weighted against pursuing other acquisition opportunities that might be out there?

We really probably highlighted the reason why we bought back is our stock price dropped to a level we believe that it's a good return to the shareholders at that price. We have a kind of a price target and we are onto that price target. So we acquired shares during that time.

Got it, okay. And then in terms of M&A going forward, can you guys just talk about that maybe once you get Mountain West closed and converted, I mean is there something you would maybe begin to pursue again in early 2015 or what are you thinking there?

Mostly I'm thinking that we wanted to do a good job of integration with the Mountain West people and the Mountain West customers before we think seriously about the next acquisition. And so I certainly wouldn't expect to do any hunting in the next couple of quarters.

Okay, great, fair enough. Thank you.

We do have a follow-up question from Brett Rabatin from Sterne Agee. Please go ahead with your question.

I just wanted to ask about capital pro forma correlated to the share repurchase question and if you're not going to be maybe not doing an acquisition until next year, and you focus on the Mountain West integration, where do you guys focus on at this point in terms of the most important capital ratio, now the regulators have been all done, but what's your primary capital ratio? And then kind of maybe if you can just give us an idea of a target ratio or a number you wouldn't go below?

I'm going to have Kevin give you the specifics, but I would say that our thoughts along capital are to have a little more than the regulators want us to have and a little less than the investment community thinks we should have. There's a fine line there. But Kevin, would you be more specific than that?

Bret, you know there's a number of ways to look at capital. So the biggest thing of the driver, we're trying to look at our capital management as one. I agree with Ed, we want to keep substantial amount of capital around most ratios, but I think what we're trying to focus on is keeping our tangible book value per share increasing, and return on equity I think that we want to continue to drive a higher return on total equity and we do have aspirations of increasing from where we're at. So we're trying to manage capital appropriately, one to keep the tangible book value per share growing as well as return on equity, and again, with that also drive earnings per share growth. So we're always going to keep adequate capital ratios but we're trying to drive that return with good capital to our shareholders.

Okay, I appreciate the color.

And we do have another follow-up question from Jeff Rulis from D.A. Davidson.

Kevin, you mentioned some noise on the margin with Mountain West. What in specifics does that mean, I guess up or down, is the expectation?

We had a regional model when we did the regional marks on the various loans, deposits as well as investments and borrowings in account with the margin. The final numbers when we go through purchase accounting will post that mortgage. So we will say noise is that as you know in purchase accounting you amortize some of your marks in, you re-price your investment portfolio and deposits. So we believe it might have a slight positive aspect, but at this juncture, since we haven't gone through all purchase accounting, we don't know what that impact might be.

Great, thank you. And then just one quick one on mortgage sale gains, I guess what have you seen so far in Q3 and what do you expect the trend on the fee income line from mortgage?

We think the third quarter is going to be very similar to second quarter in total volume.

And then perhaps it taper into Q4.

Yes.

Okay, fair enough. Thanks.

Gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over for any closing remarks.

I would make a closing remark which is just kind of an anecdote about the economy because I didn't mention anything about the Bakken oil field and that still is having an impact especially on Eastern Montana but in many cases all across our footprint over in northern South Dakota and even Casper, Wyoming where there's a lot of oil industry people. But the story I would tell is here in Billings where we're very bullish about the economy in Billings. We did have a hailstorm early this summer that did about $900 million dollars worth of damage to homes and buildings here in Billings which is causing a lot of rebuilding so to speak, and one of our leading house builders in town who has been very busy is building a house right next to me and it has sat idle for quite a while. I know the house is sold, because I know the buyer and I asked the builder when I saw him in the bank, what's going on, why don't you get that finished, and he said, I can't find roofers. He said, I cannot get the roof completed because I can't find the roofers. And interestingly, I said I could talk my son into trying to help you out but it would have to be just at certain times because he's making a fortune driving a gravel truck over in the Bakken in North Dakota and he's parked his roofing tools in my garage. But that type of story you hear a lot, kind of a combination of a lot of building going on and people taking the opportunity to make money over in that oilfield. With that, I think we'll conclude. Thank you everyone for joining us.

Ladies and gentlemen, that does conclude today's conference call with you. Thank you for attending. You may now disconnect your telephone lines.