Marcy Mutch - IR Ed Garding - President and CEO Kevin Riley - EVP and CFO Bob Cerkovnik - SVP and Chief Credit Officer

Jeff Rulis - D.A. Davidson Brad Milsaps - Sandler O'Neill Jacquelynne Chimera - Keefe, Bruyette & Woods Tim Coffey - FIG Partners

Thanks Kate. Good morning.

Thank you for joining us for our third 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 our future results in our most recently filed form 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 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 reported earnings of $19.2 million or $0.42 per share. Included in our net income this quarter were acquisition costs and litigation related accruals of approximately $5.1 million.

With respect to the acquisition costs, we had anticipated total cost of $7.2 million. We feel confident we'll beat this estimate when all merger related expenses are accounted for by the end of the year.

Second, as most of you know we filed an 8-K earlier this quarter that disclosed a lender liability loss. So we also accrued a loss related to the potential outcome of that litigation.

Now back to the acquisition. We were excited to complete our merger with Mountain West Financial at the end of July and the merger of Mountain West Bank into First Interstate Bank on October 17th.

Since the end of July, we’ve been focused on bringing the two organizations together in a seamless manner as possible for both our new employees and our customers. As a result of the merger, we acquired $612 million in total assets, $360 million in loans and $515 million in deposits.

We were pleased that the attrition of both loans and deposits between our announcement date and closed, was less than we had modeled. We also recorded provisional goodwill of $21 million and core deposit intangibles of $11 million which was also a little less than we had anticipated.

As you all know, we had 100% market overlap with Mountain West. So I would call this a bolt-on type acquisition.

This opportunity was unique for us and allow us to have significant cost savings going forward. In several cases, Mountain West branches were located within less than one mile of First Interstate branches.

So at the time the banks were merged, eight of the Mountain West branches were immediately consolidated. Out of those eight branches we currently have agreements to sell four of the facilities and have terminated our lease agreement in a fifth location.

All five of these transactions are anticipated to close by the end of the year. Unfortunately, as a result of the market overlap, we were significantly overstepped in several areas and had to reduce our workforce.

Out of the original 207 Mountain West positions, we retained 79 employees. The remaining employees were offered generous severance packages and help without placement services if requested.

Fortunately, one of the benefits of living in Montana right now with our loan employment rate and robust economy, is the 54 of the displaced Mountain West employees found other opportunities before we merged the banks. The last day for most of the remaining employees was October 17th.

Overall we believe the majority of our cost savings will be realized by the end of the year and that the 35% projected savings will certainly be obtainable. I want to talk about loan growth next.

Apart from the $360 million of loans required for Mountain West Bank, our overall loan growth was flat. This was not what we expected heading into this quarter, but in total new inflows were matched by outflows.

Despite the flat organic growth there were a highlights, I would like to mention. Consumer loans grew organically about 4% this quarter.

The majority of this portfolio is in indirect lending which accounted for most of the growth. Indirect loans at the end of the quarter were $538 million.

As we mentioned over the past few quarters, the indirect lending portfolio has been a nice source of growth for us. With employment trends being favorable in our markets, there is good demand for vehicles.

Our indirect lending team has done a great job of servicing our network of auto and RV dealers that we work with, while also being very responsive to loan requests. As a result, we continue to grow this portfolio while also still maintaining an excellent level of credit quality.

Ag loans also grew organically about 3.5%. Although we anticipate this balance will decrease next quarter, due to the normal seasonal run-off and help by the high prices, our ranches are getting further cattle.

I'll give you a great example of why we’re sure we’ll see a decline in Ag loans next quarter. One of our ranch customers recently sold 700 calves or $1700 a [herd] (ph) with a total sale of over $1 million.

This equates to about $3 or pounds for steered calves. It was just four years ago in 2010, the price for steered calves was $1.15.

That’s a 260% increase. Heading into the fourth quarter, October has been promising and we still anticipate above 4% total loan growth for the year.

Credit quality continues to improve at a steady pace. Non-performing loans decreased another $7.4 million or 9.2% from last quarter.

First Interstate's other real estate actually declined $1 million but Mountain West Bank added $3 million for a net increase of $2 million in other real estate as of the end of the third quarter. Total criticized loans increased $7 million for the quarter.

This net increase was a result of a $38 million decline in First Interstate criticized loans and the addition of $45 million in Mountain West Bank criticized loans. So with the addition of Mountain West assets to the balance sheet, non-performing assets to total assets are at 1.08% as of September 30th, and we are close to achieving our 2014 goal of 1%.

We continue to enjoy strong healthy economies across our footprint. Unemployment rates are still below 5%.

Hailstorm in Glacier National Park visits are up through September and so tourism is experiencing a good year. Our regional housing markets remain healthy.

Commodity prices for wheat, coal and oil have fallen off but calorie prices were still strong. I usually leave all the talk about non-interest expenses for Kevin, but I do want to address one area and that's fraud losses related to debit and credit card activity.

This quarter our fraud losses related to card activity were close to $500,000. All of this loss is essentially due to data compromises at the local and national retail level.

On top of the fraud loss we also incur card re-issuance expense. Again, none of these losses are compensated by the retailers that incurred the cyber attack.

I just want to make a point here both for us and the banking industry in general. Banks are eating a lot of the loss that's been incurred, when a retailer gets hit with the security breach.

I think it needs to be clear about who is picking up the cost of these attacks. So with that commentary, I’d like to turn this over to Kevin for a little more detail behind the numbers.

Go ahead Kevin.

Thanks, Ed, and good morning everyone. We are pleased with our third quarter results which reported core earnings per share at $0.49.

This was up from $0.48 per share reported in the second quarter. GAAP earnings for the quarter were $0.42 per share and non core expenses reported in the quarter were approximately $5.1 million.

As Ed had stated, this represented accruals associated with the potential loss of pending litigation that we disclosed earlier in the quarter as well as merger related expenses. Excluding non-core expenses, our pre-tax pre-provision income increased $3.6 million over the prior quarter or 11.5%.

$2 million of this increase was due to two months of earnings from Mountain West Bank. As with any acquisition, it resets the baselines for revenue and expenses.

So, I would try to do my best to make the organic trends in our financial results as transparent as possible. Let's start with the balance sheet.

Overall loans grew by $348 million as compared to the second quarter. And as Ed indicated, all this growth was a result of the acquisition.

I’ll have to say, this result was disappointing. But as you look into the fourth quarter, our pipeline appears solid.

So, we’re anticipating our gain in growth this quarter which we believe will outpace our normal run-off. Our investments increased $76 million over the prior quarter to $2.2 billion and currently represents 26% of total assets.

The duration of portfolio remains unchanged from the prior quarter at 3.1 years. As we will continue to keep the duration short in our invested portfolio in order to insulate our balance sheet to the sensitivity of an interest rate movement.

If and when this may occur, we position ourselves to be ready. Deposits continue to show tremendous growth.

Deposits for the quarter were up $780 million to $7 billion. $512 million of the increase was due to the acquisition and $268 million was a result of organic growth.

The organic growth represented a 4% increase over the prior quarter. Our mix of deposits continue to shift away from higher cost deposits into non-interest bearing deposits which organically grew by 7% this quarter.

The $20 million of trusts which we acquired as part of Mountain West transaction will be paid off by the end of the year. Looking at equity, we issued about $1.4 million additional shares or $36 million worth of common stock.

As we anticipated, our tangible book value per share decreased slightly, and at the end of the third quarter, tangible book value was $14.61 per share, a $0.10 share decrease. Stronger operating results post acquisition will help us rebuild this rather quickly.

Let's turn to income statement. Our net interest income increased by $5.4 million over the prior quarter, $4.5 million of the increase was due to Mountain West.

Our net interest margin for the quarter increased to 3.55%, up from 3.54% last quarter. The yield on earning assets remain flat at 3.8%, while our cost for funds for the quarter decreased by one basis points to 26 basis points.

The purchase loan discounts related to early payoffs of acquired loans and recovery – charge of interest had impact on our net interest margin. When you strip away the effects of the purchase accounting due to early loan payoffs and recovery of charge off interest, our net interest margin for the quarter was 3.47% as compared to 3.46% last quarter, again, an increase of one basis point.

For the first time since the second quarter of 2013, we had a provision for loan losses. We recorded $261,000 for the quarter, which was up in the prior quarter's negative provision of $2 million.

Our net charge-offs were up for the quarter at 36 basis points annualized. EBITDA or net charge-offs were elevated for the quarter.

We do not believe this is indicative of an upward trend. As Ed discussed earlier, asset quality continues to improve nicely.

And we anticipate continued improvement going forward. Our third quarter non-interest income was 31% of total revenues.

And our non-interest income growth was strong with an increase of $2.8 million or approximately 11% growth from the second quarter. About $500,000 of this increase was associated with the Mountain West acquisition.

The good news is that we saw organic growth in every major category. Our origination and sale of mortgage loans posted largest increase over the prior quarter of around $1 million.

Strong home purchase volume filled this growth representing 81% of the production. Due to this revenue being somewhat seasonal, we do believe it could decrease some in the fourth quarter but currently our pipeline looks very good.

All other non-interest income revenue streams should continue to grow looking forward. Our core non-interest expense increased by $4.6 million over the second quarter, approximately $3 million of that was due to adding Mountain West.

Ever since adding Mountain West, the largest expense increase was $400,000 in commission expenses relating to the growth in our mortgage loan income. Other increases isolating out the impact of Mountain West was spread across several expense category, one of which was four losses which Ed has already discussed.

As Ed mentioned, merger related cost savings are underway. So, we’ll be able to guide you with a little more guidance on the new run rates at the end of the year.

I’d like to wrap up by talking about capital. As a result of the merger, our capital ratios declined but still remained strong.

Total risk base capital was 16.58%, an 11 basis point decline from the last quarter. Our tangible capital ratio decreased to 8.07%, a 65 basis point decline, and as we discussed, we repurchased 37,000 common shares this quarter.

And we will continue to look for opportunities to repurchase our shares but we will continue to be conservative in executing our stock repurchase program. To wrap it up, we have a strong franchise that we expect will continue to grow.

We’re excited about generating higher returns and realizing more efficiency as a result of fully integrating Mountain West Bank. So, with that, we’ll open it up for questions.

Thanks, good morning.

Good morning, Jeff.

Ed, you mentioned – you talked about maybe merger cost coming in below budget I guess in Q4, would that put it under $1.5 million in Q4, is that the idea?

No. They will come in below, but not under a $1.5 million, I think under $2 million would be more accurate.

Okay. And the systems convergent is set for when?

That was completed on October 17.

The back office, okay.

Yeah, the core processing, back office, everything completed and up and running on Monday, October 20th, and went very well for us.

Okay. And, Kevin you alluded to - maybe given us a run rate on expenses next quarter, but I guess as you budgeted kind of looking at the - maybe the post, cost saves, efficiency ratio kind of range, is there - you should infer kind of low 60%, is there anything you’re comfortable putting out there?

Well, originally when we modeled, we thought that the efficiency ratio should improve with the integration of Mountain West about 200 basis points from our kind of run rate.

Okay. And then just one last one on the, I guess anything on the litigation settlement or the appeal process, is there any update as far as recovery?

No. First and foremost, we don’t want to comment much on ongoing litigation.

But secondly, you used the word recovery and certainly we wouldn't look for anything like that.

Okay. All right, thanks.

Thank you, Jeff.

Hey, good morning.

Hi, Brad.

Just a follow up on Jeff’s question on the litigation accrual you made. Maybe when you initially spoke, you thought you might accrue for the entire amount, and I know you may not be able to comment, just kind of curious, what changed to result and maybe the lesser accrual versus when you filed the 8-K?

I would say two things Brad, number one is that, we're using the term accrual because we’re not certain that if we use the term expense that would sound like it was all settled. And so, that would number one.

But, number two, our attorneys have looked at case law and have said based on past case law that we’ve seen, we think this is the number that would be prudent.

Got it. That's fair.

Okay, and then just to follow up on loan growth, Ed I know you talked some about pay downs effecting growth, but you continue to make the comment that, the economy continues to recover low unemployment. In your mind, is it still underwriting standards that just aren't up the part before you guys want pricing, I guess, your comments around the economy might lead you to believe that we'd translate into more loan growth but just not seeing it as of yet, just any additional color there would be very helpful.

I will say that, we don't see ourselves losing customers. We do see ourselves losing new deals that were essentially bidding on.

And, we're okay with that because we’re just not going to compromise our quality, standards in the interest of loan growth. We have chased price occasionally on very high quality deals.

But as I said, we're not going to compromise quality in the interest of growth, and so we have lost out on some potential new transactions. But we don’t see ourselves losing customers.

And many of our customers are still very liquid and they're just doing well enough, they just don’t need to borrow but they’re not doing so well that they've decided to jump out and expand.

Great. Thank you, guys.

Our next question comes from Jared Shaw from Wells Fargo. Please go ahead.

Hi, good morning.

Welcome Jared.

Thank you. On the cost saves, the 35% target for cost saves on the deals, is that still a good target to use?

And how long do you think it would take to fully implement that?

I am going to have Kevin answer that for us.

The 35% is definitely doable. We should probably do better than that because I think Ed went over the saves regards to employees and as you went over also about the branches being pretty much taking care of most of it that we closed by year end.

We believe that most of the expense saves will be baked into our numbers by the end of 2014.

Okay. Great, thanks.

And then, on the $5.1 million charge this quarter, can you provide the breakout between the litigation reserve and the deal costs in that $5.1 million?

We'd rather not. Again, because we just don't want to comment publicly on ongoing litigation.

We’re still in the appeal process.

Okay. I understand that.

Thank you.

Shifting gears a little bit, looking at the assets under management, could you show – can you let us know what the growth was this quarter and then over that sequential growth on the fee side? What was due to new business versus market appreciation?

What was the question?

I assume you’re talking in regards to wealth management, and, we'll have more specific breakout in the 10-Q. And, I am going to try to answer your question as best as I can, but the growth revenue from the increase in assets under management and from a price increase jumped a little over $500,000 for the quarter - $500,000 more than we had budgeted.

And the actual assets under management growth I think was about $200 million.

Okay. Great.

Thank you very much.

Hi, good morning everyone.

Good morning, Jackie.

Question on the accretion that was deal related. So, I understand that the $745,000 was due to an early payoffs.

The $1.3 million number that was quoted in the press release, is the delta between those two just the general amortization that will happen as we move through?

Yes, Kevin.

Yes.

So, outside of large payoffs the delta between those two should be fairly steady on going forward?

Right. And it's kind of what we are going to see on our month-by-month basis if you just divide it by 2.

Okay. And then, the comment – I am sorry if this already discussed and I just missed it, but the comment also in the press release on the change in your fee schedule on July 1st and then some admin fees.

What portion of that income generated in the quarter would be the admin fees that will be ongoing?

I'll let Kevin answer that one.

300,000 was due to the price increase and about 200,000 was admin fees. But the admin fees, they continue, there are fees that we earn on the settlement of Interstate or some.

So there are just not a consistent month-to-month fee but they come in periodically as we do services for our wealth management of customers. It's just not assets under management.

So, that had nothing to do with the price increase? It was just something that fluctuates on a quarterly basis?

Yeah, that's correct.

Okay. And then just lastly, you did a really nice job of talking about the organic growth that the loan portfolio had in the quarter?

What were the portfolios that contracted?

Well Cerkovnik, would you answer that.

Primarily in our commercial portfolio is where the contraction saw and somewhat to a lesser degree in our commercial real estate portfolio.

And was is it just general payoffs or was there anything unusual?

In the commercial side we saw about $21 million in larger, just reduction in people lines, the credit they just paid down their lines, which we thought was pretty unusual for this time of the year. But again as Ed spoke about the economies doing fairly well but we expect the people to start growing back up on those lines.

Okay. Just the normal seasonality of it?

Yes.

And how does the rest of the pipeline look as we head into the fourth quarter?

It looks good. We typically see a decline in the fourth quarter in our loan volume but we saw a lot of deals that got pushed back into – will probably get push back into the fourth quarter.

So we are optimistic about loan growth in the fourth quarter. And as we talked about, we expect to exceed that 4% growth for the year.

Great. That's very helpful.

Thank you everyone.

Thank you, Jackie.

Thank you. Good morning, gentlemen.

Hi, Tim.

Ed question on the legacy deposit growth in the quarter. How much of that came from new customers versus existing customers?

Kevin Riley, have you got that?

Yeah, well I’ll tell you the thing, Tim, we’ve seen a tremendous amount of new customer counts throughout the year. So, it seems like the balance increases have finally filed a lot of the new customer account growth that we have seen this year.

So, its like you can't tie it to discuss from a net increase, but it's - we just believe it's – we’ve increased a lot of accounts and the balance are just increasing in those accounts.

Okay. That’s helpful.

And, Kevin do you have a near term target for securities as a percentage of assets or as percentage of asset?

I think the percentage share we are currently at right now will probably be what you’ll see going forward. Again, we’re trying to keep the balance sheet as fluid as possible in case rates do arise.

But right now we do have a lot of cash sitting idle overnight. So, you might look at it – but I would say you not the same percentage that we're currently at.

Okay. Do you think like – loan growth because I'm sure is preferable, do you see some of that cash going into securities in next couple of quarters.

We have some of the excess cash that we have will go into loan growth. Yes.

Okay. All right, and, then the $500,000 expense on the data bridge, does that cover the data bridge that you know about right now or do you anticipate initial expense in fourth quarter?

That covers what we know about, but that said, we’re pretty quick to shutdown the cards and so – and reissue. And, so we think we've got that faucet shut off.

We did reissue 39,000 debit cards and about 10,000 credit cards, but when you reissue, then as I said that shuts off the ability of the criminals to use those numbers.

Okay. All right, thanks.

Those were all my questions.

Thank you, Tim.

Thank you. And I’ll close by talking for a minute about the Bakken oil field because it would be – we missed not to mention that since it's such a big part of the economy over here in our region.

Just a couple of comments, first, I am sure you're all following the price oil and yesterday I think for a while it was down to $79 and then finally closed at $81 and that's down from $100 a few months ago. And so there's been a lot of talk about that.

All of the people that we talked to in the industry still say that it is profitable to extract oil over there in the Bakken even at the $80 price range and even at less than $80. They're like other industries, technology has made them more efficient and thus the cost of extracting is going down.

One example is that, it used to be, if you put together a drilling pad site to drill one well, and now over there in the Bakken, the way they’re drilling, they often do four or five wells off of one pad, which just makes them more efficient. So, we still think that that economy is going to continue to boom.

Now, all of that said, as you know we don’t have a lot of money loaned out for oil exploration. We have about $100 million loaned out and about $150 million committed to oil and gas exploration.

But we do have customers who are involved in the services industry in many different ways over there, just another story. We have a customer who – they build and then operate motels in Williston and we loan them the money to further construction and then to get up and running.

And then typically a year later or so, their operating numbers are so good that the motel appraises for more than the original cost. And so they sell it and take the profit and build another one.

And we've seen their income statement just recently and believe me they’re doing very well with that business model. So, just some stories to tell you that the things are still going well in the Bakken.

I think I’ll wrap it up there. As always we welcome calls from our investors and analysts throughout the quarter.

So, call us any time if you have any follow-up questions and I would just close by saying, I'm Ed Garding and I approve this message. And if you like me, I promise to do nothing.

Thank you and good bye.