Good day and welcome to the First Interstate Bancsystem Fourth Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kenzie Lawson [ph]. Please go ahead.

Thanks, Chad. Good morning. Thank you for joining us for our fourth 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 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 Kevin Riley, our Chief Executive Officer and Marcy Mutch, our Chief Financial Officer, along with other members of our management team. At this time, I will turn the call over to Kevin Riley. Kevin?

Thanks, Kenzie and good morning and thanks to all of you for joining us on our call today. We had a good quarter. Yesterday, we reported fourth quarter earnings of $23.4 million or $0.51 per share, an increase of 3% over the same period last year. Excluding acquisition-related costs of $166,000, we had core earnings of $23.5 million or $0.52 per share. Our performance was primarily driven by another quarter of solid loan growth. After a slow start to the year, we saw loan demand steadily improved as we move through 2015. But for the full year, we had organic loan growth of approximately 6.5%, which is pretty healthy considering the range of growth we have had historically. As a result of the good loan growth, we saw a higher level net interest income and a 2 basis point increase in our net interest margin for the quarter. Our loan production for the fourth quarter was well-diversified, with solid growth in all of our non-ag related portfolios. And as we have stated before, the fourth quarter is a low point in the cycle for ag, as ranchers normally pay down their lines during this time of the year. The loan production was well balanced across our footprint. We saw 4% or better growth this quarter in our Billings, Gallatin Valley, Riverton, Rapid City, Sheridan, Badlands and Jackson markets. That’s pretty widespread. Marcy will cover a little more of detail around the growth in the various loan categories. Moving to credit quality, we saw good stability in our portfolio with slight increases in non-performing loans and a $23 million decline in our criticized loans. This decline was primarily driven by several large payoffs and some upgrades. Our net charge-offs for the quarter were just 6 basis points of average outstanding loans.…

Thanks, Kevin. Good morning, everyone. As I walk through our financial results, unless otherwise noted, all of the prior period comparisons will be with the third quarter of 2015. I will begin with our income statement. Net interest income increased $2.1 million on a linked quarter basis. The increase was a result of the loan growth we saw in the quarter along with an improvement in our net interest margin. Our reported net interest margin was 3.49%, up 2 basis points from last quarter. When you exclude the impact of accretion of the interest on early pay-offs of acquired loans, along with recoveries of charged off interest, our net interest margin remained stable quarter-over-quarter. Our non-interest income was up approximately $400,000 from last quarter. We had increases in deposit service charges as a result of our continued focus on our fee initiatives. Other income also increased this quarter mainly due to higher yields on deferred compensation plan assets. This increase is fully offset in the salary and benefit line and has no net impact to our earnings. These increases in non-interest income were partially offset by a decline in wealth management revenues. This revenue declined as a result of market volatility, leading to a reduction in reoccurring fees. There was also a decline in interest – in income from the origination sale of loans. This was attributable to the typical seasonality we see in mortgage production in the fourth quarter. While mortgage production was lower than last quarter, it was 17% higher than the fourth quarter of last year, which is reflective of the overall higher level of production we have been able to achieve throughout 2015. Refinance activity as a percentage of production saw a small increase this quarter with 34% of the production related to refinance compared to…

Thanks Marcy. Nice job. As we wrap up today, I want to talk about our expectations and priorities for 2016. We are expecting 2016 to be good year for profitable growth for the company. With the softening in the Wyoming market that we discussed, there is likelihood we will be able to repeat the loan growth we had last year. We are expecting loan growth to be closer to the mid single-digit levels that has been the norm for the bank. We think we are well-positioned to drive growth in all of our major fee generating areas. Our income from the sale of residential loans production this year was up 25% in 2015, partially due to the additional several new producers we added throughout the year that expanded our penetration in the various markets. We have a full year contribution from these folks, which should help us produce another good year of growth in this area, although they probably won’t be as robust as we saw last year. We think our net interest margin will remain relatively stable or perhaps increase a bit. Given the current trends in loan pricing, we are bringing on new loans at approximately the same interest rate as what’s rolled off. So, we feel pretty comfortable at the very least that we won’t see any compression in the margin this year. We also believe we might see a little bit of a benefit from the bump in Fed funds rates that occurred in December. We expect provisioning to probably run a little closer to 20 basis points of total loans this year, which should allow us to cover projected growth and provisioning for seasoned acquired loans. Our operating expenses should be relatively flat compared to 2015 as we continue to implement cost rationalization plans in…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.

Hi, good morning.

Good morning Jared.

Good morning.

If we can start with the provisioning, you said the $3.3 million in provision was for growth and primarily one CRE credit, was that credit already non-performing or what’s the status of that loan?

I will have Bob Cerkovnik answer that question for you.

Yes. Jared, this credit was a commercial real estate that relates our restaurant operation that the borrower was providing us fraudulent financial information right up to the point to where he dropped the keys off on the desk to us. So once we got the valuations on the real estate involved, we said to – it resulted in us having to put specific reserves on that particular credit.

Was that already a non-performer before you moved the specific reserves?

No, it was actually current.

Okay. So right from current to non-performing with – and did you charge-off any of that or not yet?

Not yet. We are still evaluating that credit, but we took a comfortable specific reserve on it.

Okay. And then could you remind us or illustrate on what the specific reserve on the $75 million of energy-related loans are and how that breaks out between the E&P and the services?

Yes. Bob will answer that question again. And again it’s really only one credit and we have talked about the same credit in the past quarters. So Bob is just going to give you an update on that one credit.

Yes. That’s the credit done for Casper office. It’s an oil and gas production credit that we had to increase the allowance on that specific reserve because of the decline in prices and looking at the production. And going forward we thought we need additional reserves on that. Just primarily because of the collateral base that we have setup with the borrowing base that we have setup and resulted in that decline.

What about the reserve though on the overall energy book, not necessarily that specific loan?

Yes. I am sorry, that – roughly there is $4 million related to specific reserves and then we have general reserves about $1.8 million.

Okay. Thanks. And Kevin could you give us a little update on the M&A opportunity set as you see it here and given that you do want to focus on operations this year, should we expect that M&A is more of a back burner or would we – should we think that you are still actively looking at opportunities?

Jared, you know me, so we are still looking at opportunities. But the thing is, is that even though we are focused on operations, we are laser focused. We are only doing certain projects in order to keep the capability of an acquisition integration during 2016. So we are being more focused and delivered on exactly what we are doing in the operations area not to be having too many things going on, so that limits our ability.

And how does M&A, with the stock here, how does M&A fit into the calculus of capital management with buybacks or where does buybacks fit into that with where we are here with the stock?

Our priorities are always the same. We want to use our capital through organic loan growth, good or profitable organic loan growth and then a good strategic M&A deal and then the stock buybacks closer to that and then dividends. And so we still have our same priorities. All you have to do is look at our past history on stock buybacks and make your own assumptions. And then acquisitions will play a part in the game. And we have increased our dividends as we announced 10% starting 2016.

Great. Thank you very much.

The next question comes from Matthew Clark with Piper Jaffray.

Good morning, guys.

Hey, Matt.

In terms of the new money yields, can you just give us the specific weighted average rate in the quarter? I know you said they are relatively stable, just curious if they were.

Marcy, you want to take that?

Yes. The weighted average rate was about 4.82%. Loans going on that’s what you are talking about?

Yes.

Yes.

Yes, okay. And then operating expenses is expected to remain relatively flat in 2016, just want to make sure that we are using the same basis. Is that coming off of the fourth quarter run-rate or is that the full year in ‘15 as roughly $243 million?

It should – Matt, it should run somewhere between $61 million and $62 million a quarter.

Okay, okay. And share repurchase in the quarter did you do any or no?

Not in the fourth quarter. Our stock was fairly valued.

Okay. And then I think the last question relates to – I will hop back in the queue, give me a second.

Okay.

Thank you. Our next question comes from Matthew Forgotson with Sandler O’Neill.

Hi, good morning.

Good morning, Matt.

Wondering about the purchase accounting accretion just as opposed to the margin, how much longer should you all continue to benefit from that tailwind?

It’s kind of a long tailwind. Our amortization period on the Mountain West deal was approximately 7 years on average. So Mountain West was only last year, so we still have kind of a long legacy on that one.

Okay.

That will taper off over the years, but it goes off quite a ways.

And in terms of crossing the $10 billion threshold, can you just give us a sense of kind of where that is? Where the company stands, I know you have the task force working on it do you have the ability to crossover now and your thoughts on potentially taking that next step?

We are not fully capable right now to crossover, but we are – it’s in our work plan to have the capabilities all in place by the end of 2016.

Thank you very much.

[Operator Instructions] The next question comes from Jeff Rulis with D.A. Davidson.

This is actually Matt Yamamoto covering for Jeff, but I just had a quick question. I thought that you guys had higher returns from the deferred compensation plan asset. How much did that add to fee income?

It added about yes.

$900,000.

Yes.

$900,000.

Yes. And again that fully offset it. So, it really has no impact to our net income.

Okay, thank you.

The next question is a follow-up question from Matthew Clark with Piper Jaffray.

Hey, thanks. I want to ask you about the timing of the repayment of that sub-debt and just trying to sensitize that benefit here coming into the first quarter?

Well, the sub-debt was about $15 million and there is about a little over 2%, 2.19% rate. And we paid off quite frankly, because it’s old sub-debt that was running out of capital usage. We are down to the 20% capital usage that we just prepaid, because it really had no benefit to us.

Okay, $15 million, I thought you said $50 million. Okay, thank you.

Yes, $15 million.

Right.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Riley for any closing remarks.

As always, we welcome calls for our investors and analysts. Please reach out to us if you have any follow-up questions. And thanks again to everybody for tuning in today. Have a good day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.