Good day, ladies and gentlemen, and welcome to the Glacier Bancorp’s Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference, Mr. Mick Blodnick, President and CEO. Sir, you may begin.

Thank you. Welcome and thank you for joining us today. With me this morning is Randy Chesler; Glacier Bank President; Ron Copher, our Chief Financial Officer; Barry Johnston, our Chief Credit Administrator; Don Chery, our Chief Administrative Officer; Angela Dose, our Principal Accounting Officer; and Don McCarthy, our Controller. Yesterday, we reported earnings for the second quarter and first half of 2016. For the quarter, our earnings were a record $30.5 million that was an increase of 4% compared to the $29.3 million earned in last year’s quarter. We produced diluted earnings per share for the quarter of $0.40 compared to $0.39 in the prior year’s quarter that was an increase of 3%. For the six-month period, we earned $59.1 million, which was also 4% above the $57 million earned in the first six months of last year. Year-to-date, we generated diluted earnings per share of $0.78, an increase of 3% compared to the $0.76 in the same period last year. The quarter’s results included $1 million of acquisition expense along with $1.3 million of expense associated with our core consolidation project and reassurance of debt cards to our customer base with the new chip technology. Through the second quarter, we have now converted 6 of the 13 bank divisions with 4 more slated for conversion the weekend of August 65, and the last 3 of our banks in early October. Our return on average assets for the quarter was strong 1.34%, return on average equity was 10.99%, and we delivered return on tangible equity of 12.96%, all consistent with what we’ve produced over the past couple of years. During the quarter, as previously discussed, we announced the acquisition of Treasure State Bank located in Missoula, Montana. With assets of $71 million, we’re excited to add Treasure State to our…

Thank you, Mick, and good morning to those on the phone. And, thank you for joining us. As part of the plan to prepare for Mick’s retirement at the end of this year; and as mentioned by Mick in his last earnings call, we decided as part of the transition process that I’ll cover the quarterly operating details in the earnings call today and going forward. On the transition, it continues to go very well. August 3rd will mark the end of my first year at Glacier. It’s been a lot of fun and interesting to learn about the unique culture of this great company. Over the first year, Mick and I transitioned pieces of business in order to allow me time to learn how things work and to give people in those areas time to get to know me. This began with having the 13 banks report to me when I started a year ago. At the end of June, given our comfort with how things are going, we completed the transition of all other parts of the business following the timetable we had planned on a year ago. So, I will now review some of the key operational developments in the second quarter and then open up the line for questions. So, our 13 divisions led by our bank presidents in each of our markets, once again did a great job across the number of fronts. Loan growth was surprisingly strong. We got off to a good start and things continued to get better throughout the quarter. Loans increased to $181 million or 3.5% over the prior quarter compared to 2.3% growth last quarter and 2.6% a year ago. The 14% annualized growth rate is way above plan. However, we remain comfortable with the credit and pricing dynamics…

[Operator Instructions] And our first question comes from the line of Matt Forgotson with Sandler O’Neill. Your line is now open.

I was wondering if you could just remind us, in light of the fall in the 10-year, it stands to reason that securities reinvestment yields are going to tighten. Can you give us a sense of the reinvestment yields that you’re seeing today and how we should factor that into our expectations for your margin?

You mean on just the reinvestment yields on the investment portfolio, the reinvestment yields on the investments portfolio?

Yes.

Ron, do you want to give him a handle on what we’re seeing?

Yes. So, when we do buy, which has been very limited, is in respect of 10-year yields going down is a great way look at it, just say 2.5%. But, we’re really trying not to buy. And I know the 10 years bounce back. But, we’ll see. But, we’re doing much better to put the yields into the loan book and that’s the principal reason the margin is lifting, as you would expect.

So, I think Matt, this is just one of those environments where like Ron said, we’re just not buying. We just can’t get comfortable with the opportunities we’re seeing out there, especially on the short end of the curve. So, we certainly hope that loan volume maintains, as said, a respectable pace through the second half of the year. So, as Randy said, we can move from 36% of assets to 34%, which we did this quarter and ideally, maybe even move to 32% or 31% by the end of the year or so.

And can you remind us just how the securities portfolio is positioned, what the duration is and how much cash its throwing off roughly per quarter?

It throws off about $90 million a quarter in cash. Duration is just right in that three to four-year range. So, this year, like Randy said -- I mean this quarter, like Randy said, we didn’t really do much in the way of investing any of that cash flow back into the securities portfolio, and all went to fund loans. But, again, if there great environment stays the same as it did this quarter, and we’re certainly expecting that that $90 million is going to stay pretty consistent, that is certainly what we’ve seen for three or four quarters now, that it would be our hope that we would redeploy that $90 million back into loans again in the third quarter and fourth quarter.

Thank you. And our next question comes from the line of Matthew Clark with Piper Jaffray. Your line is now open.

First one, just in terms of the accretion in the quarter, can you give us that contribution to the margin?

The accretion from the first quarter was 13 bps versus 11, last quarter. So, we had 2 more basis points of increase. You’re talking about the purchase accounting accretion, right?

Yes.

Yes. So, the loan yield, it was 13 bps versus the 11 bps. Now, on the margin -- if you want to just talk about the margin?

Yes, on margin, I think it was 7 last quarter.

It was 8 this quarter.

And then, new money yield [ph] in the production that you put on this quarter, just curious what the weighted average rate was there.

New production?

Yields on new production, what the weighted average yield was?

I think I looked at those numbers last week. It seemed like, Matt, on the new production side, we were right in that 453 range down from 476 the quarter before.

And then, how should we think about the CCP expenses in the third and fourth quarter?

I think if you -- it is still fluid, but I think if you look at our expense in the first quarter and look at our expense in the second quarter, somewhere between those two bookends is probably good a estimate for the next two quarters.

And then, the loan growth you guys put on was obviously pretty impressive. I was hoping you could dig a little deeper and give us a sense for where it’s coming from; is it market share gains; is it just more business with existing customers; how much of that’s the municipal lending that you guys have started to do more of? And also, looks like you’ve been willing to get back into doing some land and other types of construction here.

As far as municipal loans, it was not a major contributor. We did have some in the second quarter but it wasn’t the number we saw in the first quarter of the year, Matthew. But, I think we’re teeing up some additional municipal loans in the third quarter and fourth quarter. So that we’re certainly hoping that that number is going to be a bigger number. When it comes to construction and land development, there was a little bit more in the way of land development loans this quarter versus last quarter, but some of the bigger drivers, really commercial construction. I mean commercial construction was up just about $40 million during the quarter. So, residential construction was up 10, but the bigger driver in that land line and other construction category by far was other construction, and that’s predominantly commercial.

And again, is this -- are you seeing this come from other banks, or is it market share gains…

You’re more -- you’re on top of [multiple speakers].

Just from a perspective, our second and third quarters are always are best quarters for loan growth. Traditionally, the first and last quarters, due to some seasonality aren’t as prevalent as the second and third quarters. So, what we’re seeing is draws on revolving lines of credit, lot of construction companies draws on agricultural operating lines of credit. And this quarter, we had a couple of extra ordinary items and we had a couple of large transactions that will not be reoccurring. And we also bought a portfolio from a competitor bank over $20 million that lot of FSA guaranteed loans that they no longer wanted to service. So, we have some noise in those numbers. So, that’s why we had such a strong quarter. Most of the other construction is new. It’s new construction. We aren’t taking it from a competitor for say, or we aren’t trying to refinancing a lot of competitor’s debt; it’s all new production. So, we’re feeling pretty comfortable with those numbers; in that, we aren’t pricing accordingly; we’re originating new.

Also had agriculture loans draw on their lines in this quarter, which is seasonal event, which will -- should be kind of way -- it is a onetime event that we’ll see that get repaid at the end of the year.

Okay. And then, just last one on the tax rate little higher, that expected this quarter. Should we expect that to drop back down 24, 24.5?

It’s Ron. I would go with the 25% for the rest of the year.

Okay, into next year as well?

No, let me get through the second half of the year. Please, I’ll encourage you to ask that question in the fourth quarter.

Thank you. And our next question comes from the line of Joe Morford with RBC Capital Markets. Your line is now open.

I understand the positive growth is an important focus internally and you still have a fair amount of liquidity. But, given how it’s lagged loan growth year to date, are you considering any more formal initiatives to spark that or should we just see it pick up seasonally here in the middle of the year?

I think it will pick up, it always does seasonally. We’re not really going to change our playbook too much in that respect, Joe. We continue to have great results on our initiatives through HPC. Growth in the number of accounts continues, both retail and business continues to be very strong. We do have obviously the remixing of our assets and it’s helping us to fund some of that loan growth that’s coming up a little bit short from just core deposit growth. But, the third quarter and into the early fourth quarter are also really good and historically, Joe, been good quarters for us for deposit. So, we’ll take a look at where we are at the end of the third quarter into the early fourth quarter, recalibrate if that trend line that you just mentioned continues, we’ll certainly address it. But, I’m hoping and guessing that with just the growth in the overall number of customers that that in and of itself is going to go a fairly long ways to helping to fund any future loan growth.

And then, the other question is just and you touched on some of this, but I guess to wrap up I’m curious as how sustainably you feel the margin is of 4% here and what is some of the main things you are focused on to defend it there?

We stay down lower for longer, it’s not going be an easy -- it’s not going to be easy to maintain that 4% target. And we’re still getting pressure on the loan portfolio. I mean, I look at what our legacy portfolio is at versus new production, and there’s still compression there. We did benefit this quarter slightly on our overall funding. So, that helps a little bit. But, I mean, the pressure is still there, Joe, and it’s not abating. If we can continue to remix which we’ve done the last two or three quarters now and if we can continue to move some of those lower yielding assets in the form of our investment portfolio off the balance sheet and replace them with some higher yielding loans, that certainly is going to go long-long ways for us to maintain that for. And we’re going to do everything we can. But, I can’t guarantee for long term if we stay down or God forbid, go lower like we did late last -- it just puts pressure. And we’re not the only ones to face that pressure. I mean, every bank in the country is struggling. In fact, I would say that we have absolutely managed through this better than most, whether it’s the markets we’re in; whether it’s shape and the scope of our balance sheet that’s allowed us to have some benefits in this area. But, we’re certainly pleased with where we’re at. Maintaining it over the long haul in this rate environment, it’s just going to be a challenge.

Thank you. And our next question comes from the line of Jeff Rulis with D.A. Davidson. Your line is now open.

Question on the non-interest income, obviously you cited that the mortgage revenue is pretty strong but the service charge and fees were up nicely. Any explanation for what drove the sequential a jump there?

Yes, just more accounts. I mean we are -- the banks are doing a terrific job, Jeff, of generating more and more accounts. And we got off to kind of a slow start in the first quarter and we were actually behind plan and behind our expectations, but boy in the second quarter, those numbers came roaring back. And what’s really impressive in my mind is that’s taking place under the backdrop of CCP. Because you’ve got a lot of individual in this Company that are impacted one way or another with this major internal project. Now granted that a lot of those people are not necessarily right out there in the frontline but even all of our frontline people have a part to play in this project. So, for us to really step it up and we really saw a step up in the second quarter as far as the number of customers that we generated. I think plain and simple that’s been the main reason, because it isn’t, Jeff, because we went in and raised fees in this line item or that line item. That just hasn’t really taken place. So, it’s more a function of just how many customers we’ve been able to attract. And we certainly hope these -- the second quarter, as I’ve said this for years-and-years, second and third quarter, we got to make hay while the sun shines and that’s when we do and that’s when we add the bulk of our new account customers. And so, we’ve got this quarter now to continue that pace and that trend line before we probably will see a slowdown in the fourth quarter, which we again traditionally do.

And Mick, you mentioned on the loan growth side that it was fairly widespread I guess geographically speaking. But was there any area that you’d point to that had particular strength and then maybe a follow-on to that would be -- how about the timing of the loan growth throughout the quarter, was it frontend loaded, backend pretty steady?

I can tell you about the frontend, backend loaded, it was not; it was pretty steady throughout the quarter. I mean, it was very, very consistent when we were looking at production numbers. Barry, what do you think regarding any of the banks that you saw and you’ve seen that over contributed or…

Outside of a couple of large transactions that we mentioned, it was just pretty evenly based throughout all the divisions.

Which just makes us feel good because that’s geographic distribution; there is a fair amount of economic. Our economies and our markets throughout these six states are different. So, it adds that level of diversification. So, I think we’re feeling pretty good. We’re not looking at one state or one bank that’s causing all of the growth or adding to all the growth. The 13 banks for the most part are all making a contribution.

Thank you. And our next question comes from the line of Jennifer Demba with SunTrust. Your line is now open. Due to no response, we will go to the next question. And our next question comes from the line of Jackie Chimera with KBW. Your line is now open.

I wondered if you could provide an update for us, I mean if there is any change to the interchange impact of what would happen when cross 10 billion? I know in the past, you said it’s roughly around the $1 million for every billion in assets.

Yes, and we’re still sticking with that analysis. Like Randy said, we’re going making plans of crossing over in ‘17. So, if we cross over in ‘17, this is going to be a July 1st of ‘18 issue unless we get some relief something we’re not holding our breath. But it’s still that million per billion in assets. And so pretax we’re talking and we’ve been pretty consistent as you know Jackie over the last couple years. Our best projections are for about $10 million pretax.

And then, I am assuming that the crossover would be as a result of some M&A that had yet to be announced. And so, maybe you could just provide an update on the discussions that you’re having and how you’re thinking about acquisitions in general?

M&A, it’s been fluid; I mean, there has been a lot of things to look at. We’ve been approached a number of times. Some of the things probably initially right off the bat didn’t make a lot of sense, but, there is other ones that we certainly think do. We’ve got the Treasure State Bank transaction scheduled to close at the end of next month. Any given quarter. Jackie, we’re looking at a couple of other opportunities. Some of these we certainly hope will pan out, some of them don’t for a myriad reasons. But sticking with our long-term plan of trying to acquire a couple of banks or at least announce a couple of acquisitions a year, we’re still hopeful that that’s going to take place in the ‘16. Certainly, we announced Treasure State this year. We will close Treasure State this year. It’s going to be the only -- it’ll be the only bank that we close in ‘16, because even if we’re fortunate enough Jackie to announce another transaction this year, we will not be closing it until ‘17. And let’s just say on worst case base, we didn’t even do another M&A and we certainly don’t believe that to be the case, but if we didn’t, Randy and myself have talked about this in the past that at $9.2 billion at the end of the second quarter and with Treasure State yet to come on, call it we’d be somewhere close to $9.3 billion is that $700 million enough runway without acquisitions to allow for organic loan growth through ‘17 where you don’t even cross over to ‘17, that could be the case. I would not argue that organically maybe you could do that especially if we remixed the balance sheet especially the earning assets. But I just don’t believe that’s going to be the case. I think the opportunities are there. I think that the states that we operate within which tends to be smaller banks, I think the pressures in that have not abated. And I just don’t see a scenario where we don’t get another deal or two done by the end of ‘17 for sure.

And realizing that the time period is a short one, have you noticed any change in the conversations that you’ve been having in post Brexit world?

No, not at all. I don’t think that piece has come up in any of the dialogs whatsoever.

I guess, what I am getting at, are people more concerned with the downfall in rates than they were maybe earlier in the year. Have spirits been dampened at all or are those that are struggling still struggling and there hasn’t really been a change?

Intuitively, I’d say that you’re spot on and those -- maybe those dialogs are going on and those discussions are going on around those four tables. But at the M&A level, it at least hasn’t been discussed or it hasn’t been a big thing. And maybe the whole reason for a reach out from one of these banks is because of exactly what you just said, but they certainly haven’t brought that up in any of the discussions.

Okay, maybe a more relevant discussion on next quarters call, and thanking for the added color, I appreciate it.

Thank you. And our next question comes from the line of Daniel Cardenas with Raymond James. Your line is now open.

Just a couple of follow-up questions here or quick questions here, as it relates to CCP, you said you’ve done about six of your institutions. Are these the larger ones? I mean are you going by size from biggest to smallest, and is there a difference in cost to conversion based on the size of the institution?

No. I think Dan, we mix them, so there we haven’t done in terms of largest and onwards. So, it’s been a good mix, just to load balance the conversations.

And then, I missed the number of banks you plan to convert this quarter, your initial comments; can you give that to me again, please?

Well, we have seven more to go. We expect to do four in this quarter and then three in the fourth quarter.

Okay, perfect. And then, just kind of jumping over to the loan portfolio, maybe if you could give me a quick update as to what line utilizations look like at quarter-end and maybe how that compared to the end of last year.

I don’t have those numbers.

Yes. We’d be guessing, Dan. We could certainly get to those, but we have that data -- we don’t have it here with us, but if you we want to call Barry offline or something we can probably get you the number.

Okay, just general sense; I mean, do you think that number is a little bit higher than it was six months ago?

Yes, because certainly all the ag lines, if nothing else, I can guarantee you that ag lines are more advanced upon than they were six months ago. Regarding other C&I, just traditional, C&I credits, I don’t really have a feel; Barry would have more of a feel for if other businesses in that are drawing, about the only one but I know obviously f is the ag credits.

That’s a tough number to always get our arms around. And the only numbers that we have, Angela gave me, is our unfunded commitments stand at about 1.1 billion versus 944 million last year. So, how much they’re actually drawn on the overall revolving lines, it’s just a tough number to originate.

And then, may be just a quick update on how the tourist season is going right now for your markets?

They are still at record levels at Yellowstone. But, we’ve got to be at record levels up here at Glacier. We got an earlier start to the year than we have the last six or seven years, now that measure road construction project is completed. So, the park opened up earlier. Knock on wood, we’ve had a much cooler summer ever since June and July rolled around, the summer’s been just completely the opposite of last year. And I knock on wood because we certainly don’t need the ravaging forest fires that we saw in July, August and September of last year. So far, it’s looking pretty good around here, I mean a couple of fires down -- actually, you mentioned the question, a couple of fires actually around Yellowstone Park as we speak, Dan, but nothing major, nothing massive, nothing that I don’t think it’s going to be totally running out of control like in the last year. And that’s critical for us because believe me, once the word gets out that there is forest fires in the area, the tourists, they do shut it down and a lot of them just don’t come. They don’t want to fight the smoke and they don’t want to fight where they can’t see in there. So, we’ve been very, very fortunate. And as a result, I think that we’re going to continue with very strong tourist dollars coming into our markets.

Hey Dan, I think from Durango, all the way up to Kalispell and over to Coeur d’Alene, I think low gas prices continue to help us quite a bit. And I think the world events, people being a little maybe a little more cautious about travel also helps. Just folks can get in the car and got to a lot of great places. So, I think those things really helped as well.

Thank you. And we do have a question from the line of Jennifer Demba with SunTrust. Your line is now open.

Just wondering, this is actually a question on the management transition. Just wondering, you said that kind of -- it sounds like the transition is substantially complete now; Randy, wondering what has surprised you in the 12 months you’ve been in place, either to the positive or negative, since you’ve gotten up to Montana?

I think the biggest surprise really has been the quality, the deep quality of the team. I mean, I think throughout the 13 divisions, I’ve been out to all 13 divisions a number of times. And we not only have a really good team of strong folks here as a holding Company but if you go into each of those 13 banks and in addition to the presidents and their staffs, very-very solid. So, that was unexpected but a great, pleasant -- very pleasant surprise.

Thank you. And we have a follow-up question from the line of Matt Forgotson with Sandler O’Neill. Your line is now open.

Just on the loan growth, I know heading into the year, we were thinking 5% annualized growth. You’ve blown through that in the first quarter and in the second quarter. And I know we are going to slow from here. But just in terms of the market dynamic, was this -- is the outsized growth -- does that reflect an opening that you guys saw and are capitalizing as some of the others fell back or was that just a favorable winter and having some of that production pull forward? So, what accounts for the deviation relative to the initial view of where we are today?

I think that first and foremost as usual, I think we try to take a conservative approach. When we’re putting plans in place, we don’t’ want to shoot for the moon and then just be totally disappointed. So, as you know, Matt, we’ve backed off of what our expectations were for 2015. We’ve backed those things off even more. I mean, but you’ve got to remember, we were making these assessments back in October, September or October of the prior year going into the year. And if you remember last September, October, we were facing energy plays and energy that was collapsing. You were facing economy that some people were speculating for ‘16 which was not going to be that terrific. We always did feel that residential construction and housing was going to be one of the bright spots, and I think that’s certainly played out in our minds and in reality. But, you’re right, we had a great winter, we really didn’t have much of a winter throughout the Rockies. And that certainly, like you said, helped to get us off to a very, very, very good start. Then that momentum continued into the second quarter. But like Barry said and like Randy said in his remarks, some of those were couple of large deals that we’ve been working on for a long time, and you might work on some of these. I think of one credit we’ve been working on for a little over year, and it just so happens that in the second quarter that deal closed. Don’t necessarily see a lot of that in the third and fourth quarter. Barry also mentioned that we got a huge lift this quarter on the ag side, not just from the normal advancing on the operating lines but from…

And Matt just to give you a little more just context on that, I think Mick, Barry and I started off the year being very clear to the lenders that this was not the time to get out over your skis. So that’s I said the growth was a little surprising because our message at the beginning was hey, we think where the cycle is, let’s not get out over our skis this year, let’s make good loans. And so, we still think we’re sticking to that but with all the things that Mick has laid out that feels a lot of good quality growth.

Randy, while I have you, just you’re now a year into this, you are familiar with life above the $10 billion mark. What do you think the Company needs once CCP is digested? What else do you need to put in place to be able to cross with confidence?

Well, let’s start with there is a lot of very good things in place here already. So, one of the critical areas needed as you go over 10 is a very robust enterprise risk management function. And I think T.J. who leads that for us is very, very strong and he’s got a very good department. So, I think that a lot of -- the pieces of that particular infrastructure are in place, which will be very helpful. Probably the areas we have -- area we have the most work to do is around treasury and [indiscernible] where we’ve outsourced some of those services in the past and most banks, the majority, if not all of the larger banks have those functions in-sourced. So, you need to think of stress testing and the requirements around DFAST past really being at the end of the day creating a balance sheet, new income statement that demonstrates -- that shows the effects of the stress testing and the ability to explain how you’ve got there. That’s probably the area we’re focusing on to close. The point I made in the comments about taking advantage of the time, as I really think as Mick pointed out will be over some time in ‘17 but we won’t really be required to submit DFAST results until ‘19 if that’s the timing. So, we’re taking advantage of that and planning and really looking at things, so we do this in a most efficient manner possible. And also recognize, this Company is very different than other companies. So, I think we have a very straight forward business model. So, I think the way we’re approaching it, in conjunction with the regulators, we’ve had a lot of discussions with them and we’re working -- we want to work closely with them. We think we’ll take advantage of the time and do this in the most efficient manner possible.

Thank you. And I am not showing any further questions at this time. I’d now like to hand the call back to Mick Blodnick for closing remarks.

Well, thank you all very much for being with us today. Once again, we thought we delivered a very, very solid strong quarter on a number of fronts that we’ve discussed this morning. We certainly are excited about the prospects and the momentum that we’re carrying into the third quarter. We certainly hope that that momentum continues; if it does, like I said earlier, I think we’re in for a good second half of the year. And you can be assured the entire 2,300 people are going to do working very, very hard to make sure that that happens. So, with that, I hope everybody on the call has great weekend. We’ve got a Chamber of Commerce weekend planned for Northwest Madonna; weather is going to be terrific up here. And we’re looking forward to the weekend and hope all of you have a great weekend also. So, thank you for joining us this morning. And, we’ll talk soon. Bye now.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone, have a great day.