Mick Blodnick - President and CEO Barry Johnston - Chief Credit Administrator.

Joe Morford - RBC Capital Markets Jeff Rulis - D.A. Davidson Brad Milsaps - Sandler O’Neill Daniel Cardenas - Raymond James Jackie Chimera - KBW Jennifer Demba - SunTrust Robinson.

Good day, ladies and gentlemen. And welcome to the Glacier Bancorp Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I’d now like to introduce your host for today’s conference, Mick Blodnick, President and CEO of Glacier Bancorp. Please go ahead..

Welcome and thank you for joining us today. With me this morning is Ron Copher, our Chief Financial Officer; Barry Johnston, our Chief Credit Administrator and Angela Dose, our Principal Accounting Officer. Yesterday, we reported earnings for the third quarter of 2014.

Net income for the quarter was a record $29.3 million, that’s an increase of 14% compared to the $25.6 million earned in last year’s quarter. Diluted earnings per share for the quarter were $0.40 compared to $0.35 in the prior year quarter, also a 14% increase.

We earned a return on average assets for the quarter of 1.46% and return on tangible equity of 13.23% as we again posted solid performance ratios.

On August 31st, we closed the First National or the FNBR Corporation and their main subsidiary, First National Bank of the Rockies transaction and are excited to have the bank and its staff as part of the company.

We believe this addition holds great promise and opens up new markets in Western Colorado that we have long wanted to add to our footprint. As always with any acquisition, some noise was created in both our balance sheet and income numbers.

For some of the more significant sectors of the financials, we have excluded the new bank in order to give a clear picture of our performance without the impact of FNBR. In the latest quarter, non-recurring expenses totaled $1.4 million primarily associated with the acquisition and one-time consulting and conversion costs.

However, offsetting a portion of those expenses were a one-time $680,000 bargain purchase gain also due to the latest acquisition. Looking back on the third quarter, we were able to produce good earnings by continuing to grow balance sheet.

In addition, we made further progress restructuring the mix of our earning assets and liabilities used to fund those assets. Our asset quality improved further and our credit costs are at some of the lowest levels we have experienced in quite some time.

Excluding the acquisition, for the second consecutive quarter, we produced double-digit annualized organic loan growth of 11%. And with one quarter still to go, we have already exceeded our 5% loan growth target for this year.

Although we don’t expect double-digit loan growth again this quarter, it’s encouraging to see the amount of momentum we’re carrying into the last three months of the year and are reasonably comfortable that we should achieve better than our targeted loan growth for the year.

This growth has also helped us maintain our net interest margin at 4% so far this year. Top-line revenue growth, primarily our net interest income had another positive move in the quarter, increasing 9% on a linked quarter basis while our assets grew by 3%.

The growth in interest income this past quarter came exclusively from our loan portfolio as investment income actually declined by $1.1 million. The increase in interest income during the quarter came predominantly from commercial loans which were up $2.1 million, a gain of 6%.

For the past 18 months, we have had success restructuring our balance sheet by replacing investment securities with higher yielding loans.

Over that time period, we reduced the size of our investment portfolio by $800 million which includes the three investment portfolios that were acquired in the three transactions to-date, and in its place added $1.1 million in loans.

We certainly hope that loan growth and M&A activity stay firm and allow us to continue this strategy until investments as a percentage of total assets reach a more normalized historical level. As I stated previously, for the second quarter in a row, we produced solid loan growth that exceeded our expectations.

Our goal for the year was to hopefully increase the size of our loan portfolio by 5%. Through the first nine months of this year, loans have already grown by 6%, excluding the loan portfolio we acquired from the new bank.

In the third quarter, we added $118 million in end of period new loans and saw a growth of a $131 million in the average balance of our loan portfolio. During the past 12 months, end of period loans grew by $321 million or 8%.

These figures exclude the addition of FNBR, which increased our loan portfolio by an additional $137 million in the third quarter. Most of the gain during the quarter in our loan portfolio again came from commercial loans.

The growth in loans also allowed us to significantly slow down security purchases, especially CMOs and notably shrink the overall size of the investment portfolio by a $162 million during the quarter. The few dollars of securities we did purchase were in municipals.

Again, one of our goals for past year and half has been to reposition our balance sheet and reduce our dependence on the investment portfolio. I think we’ve done a good job so far in this area, as investments in the latest quarter or latest quarter end, made up just 36% of our assets versus 41% in last year’s third quarter and 48% 18 months ago.

Our goal is to further decrease securities as a percentage of assets and over time move that percentage to something closer to 20% of total assets. Non-interest bearing deposits increased $51 million or 3% during the quarter. Again, excluding the addition of FNBR.

We not only had another quarter of good growth in the balances of these accounts, but the number of new checking account relationships also exceeded our expectations during the quarter.

All of our banks this past summer have focused a great deal of time and resources in generating and maintaining these core account relationships and that effort shows up in these results.

In addition, as we analyze the growth in our non-interest income the past couple of quarters, much of the credit could be directed or directly attributed to the greater number of transaction accounts we’ve generated and the fee income they have produced.

Interest bearing deposits excluding the wholesale deposits and the addition of First National Bank of the Rockies were unchanged from the prior quarter. The increase we did see in the quarter came exclusively from the acquisition where we brought over $230 million in interest-bearing deposits at a very attractive funding cost of 28 basis points.

If we include the non-interest bearing deposits that were brought over with First National Bank of the Rockies, the total cost of their funding base was 20 basis points. We made some positive strides again this quarter with regards to credit quality including non-performing assets, net charge-offs and early stage delinquencies.

If we exclude the addition of FNBR this past month, the improvement was even more noteworthy. We certainly hope these trends lines continue to move in the right direction through the end of the year. NPAs decreased again this quarter to $98 million, of which $5.7 million came with the acquisition.

We should now achieve the goal we established at the beginning of the year of reducing our non-performing assets below $90 million in 2014. NPAs are now down to 1.21% of assets and we expect to see further reductions in NPAs in the fourth quarter.

Net charge-offs were negligible for the second quarter in a row at $364 million and year-to-date totaled only $1.4 million or 3 basis points of total loans and substantially less than the $5.2 million of net charge-offs through the first nine months of last year.

If we could maintain this percentage through the end of the year, it will represent one of the best years ever for net charge-offs and far below our expectations for the year. Other real estate owned expense has for three consecutive quarters been at some of the lowest levels reported by us since the credit crisis begun.

So far this year, OREO expense has totaled $1.7 million. That’s a 66% decrease from the $4.9 million reported last year. Our stronger real estate market has limited the charges and expenses required to move some of the bank-owned properties this year and as valuations have strengthened buyer interest has increased.

However, with $28 million of OREO properties still to disposal, we have more work yet to do in this area. Early stage delinquencies ended the quarter at $17.6 million, a slight improvement from $18.6 million in the prior quarter.

Most of the decrease in delinquencies came from the legacy banks since the new bank actually added $800,000 of delinquencies to the total. Including the new bank however, delinquencies are still 33% lower than same quarter last year. We don’t expect noticeable improvement from these levels.

In fact as we entered the winter months, it would not be surprising to see delinquencies rise in the next two quarters as seasonal workers and weather factors, slow employment unusually cause past dues to increase. Our allowance for loan and lease loss ended the quarter at 2.93%, a reduction from the prior quarter’s 3.11%.

Again, excluding the acquisition, which does not allow the loan loss reserve from FNBR to be carried forward after the transaction closes, our ALLL would have ended the quarter at 3.02%. In the most recent quarter we provisioned $360,000, the amount of our net charge-offs this quarter.

This compares to a loan loss provision of $239,000, the prior quarter and $1.9 million in the prior year quarter. If current credit quality trends stay constant, we should see loan loss provisions remain at these low levels through the rest of 2014 and into 2015. This quarter, we were pleased to sustain our net interest margin at its present level.

For the quarter, the net interest margin held steady at 3.99%, the same as the prior quarter. Although the yield on our earning assets decreased by 2 basis points, we offset that with a 2 basis-point reduction in the cost of our funding. Year-to-date, our margin has held at 4%, a noticeable improvement over last year’s 3.34%.

Although in this rate environment, we don’t expect the margin to expand from its current level, we hope to be able to maintain it at or near 4% through the final quarter of this year.

In the quarter, the yield on the loan portfolio decreased by 2 basis points to 4.84%, of which 4.77% was the actual yield on loans and 7 basis points was the adjustment for purchase accounting.

As we stated last quarter, our expectations were that the reduction in loan yields would continue but at slower pace, as we believe we’re hitting an inflection point in terms of loans amortizing and paying off versus new production. However, with that said, the competition for good quality loans remains formidable.

And the current interest environment is placing further pressure on loan yields, and we don’t expect that to change much in the foreseeable future. The margin also benefited from a 2 basis-point decline in funding cost during the quarter.

At quarter end, our cost on total paying liabilities was 37 basis points compared to 39 basis points the prior quarter. Clearly, we benefited some this quarter with the addition of FNBR and our low cost deposit base, but that impact is now baked into our funding cost and probably won’t lower our cost much more.

One of the main highlights of the quarter was the further improvement in net interest income. For the quarter, we generated net interest income of $69.3 million, that’s an increase of $1.8 million or 3% from the previous quarter and $6.9 million or 11% from the prior year’s quarter.

Once again combination of loan growth and lower funding costs were the primary contributors to the increase in net interest income. Interest income from commercial loans was up $2.1 million and accounted for most of the gain, if not all of the gain.

As I previously mentioned, interest income on investments this quarter actually decreased as we continue to reduce the size of this portfolio. Non-interest income also had a nice gain, increasing by $1.9 million or 9% on a linked quarter basis to $24.4 million and was up $600,000 from the same quarter last year.

Services charges and mortgage origination fees increased 772,000 and $1.2 million or 6% and 26%, respectively during the quarter and were the main contributors to the improvement in fee income. We had a nice bounce back this quarter in fees on sold loans and certainly hope we can maintain that momentum through the fourth quarter.

With recent drop in rates, our activity level has been good as we continue to experience a noticeable shift in the type of mortgage loans we’re originating. Purchases this last quarter accounted for 74% of the total dollar value of our mortgage volume and 78% of the actual number of loans originated.

Last year purchase volume accounted for 64% of the mortgage dollars originated. Even though we had a stronger than expected quarter for mortgage originations, we were still down $1 million or 15% in fee income from the same period last year.

The increase in service charge fee income continues to be very encouraging and demonstrates the value we received from an expanding customer base. In addition, the third quarter is traditionally our best quarter to generate service charge income as we benefit from tourist visiting our markets, as well as more activity among our own customer base.

We continue to do a good job of controlling our non-interest expense. Our expenses increased by $1.6 million from the prior quarter and $3.9 million from the prior year quarter with compensation and benefits as a result of the acquisitions accounting for a majority of the increase.

Our efficiency ratio of 54% was an improvement from last quarter’s 55% ratio and the same as the 54% efficiency ratio we produced in last year’s third quarter. Our bank divisions continue to focus on creating positive operating leverage and reducing their efficiency ratio.

I believe this focus and effort on their part continues to pay off and allows us to maintain these very respectable efficiency levels. In summary, with one quarter left in 2014, we have been very pleased with what has been accomplished so far this year and hope this level of performance can continue into 2015.

We have now closed and are in the process of integrating First National Bank of the Rockies into the Bank of the San Juans with a conversion date that is now being moved up to December 12. Last week, we also very successfully completed the data conversion for North Cascades Bank.

The last two conversions have led incredibly smooth, which is a testament to the staff at both First State Bank and North Cascades Bank along with the individuals of the holding company who all committed a significant amount of hours and hard work to assure that level of execution.

I have no doubt that the upcoming First National Bank of the Rockies conversion and integration will go equally smooth and contribute further to the future success of Glacier Bancorp. It was great to see another quarter of surprisingly strong loan production and the pipeline for this time of year remains encouraging.

We keep expanding our customer base and footprint both organically and through mergers and acquisitions which gives us the opportunity to offer and sell products and services to more customers both in these new, as well as our existing communities.

Overall, it was a very good quarter from just about every perspective and all our people should be very proud of what they have achieve both this past quarter and so far this year. And that ends my formal remarks and we’ll now open up the lines for questions..

Thank you. (Operator Instructions). Our first question comes from the line of Joe Morford with RBC Capital Markets. Your line is open..

Good morning, Mick..

Hi, Joe..

I guess a couple of questions.

First, I was curious if you could expand on a comment you made about -- you felt you were at an inflection point where it sounds like the pay downs were slowing and the production was picking up, and I guess - what could that mean for loan growth say going into next year relative to like your 5% target this year?.

I actually think that we’re in the process of setting that target. I won’t disclose that, Joe, probably until the first part of the year.

But in our initial planning and analysis, I’m guessing that right now with what we’re seeing, our expectations would be that goal for next year would be about where it is right now or probably a little higher than where -- the goal we set for ourselves in 2014..

Okay.

So, it just sounds like you’d have kind of less running the stand in place and more of that production would result in actual net growth in outstandings?.

Yes. I mean I think that at a minimum we would probably center on that 5% but my expectation is that our goal for next year would probably be a little bit higher than that..

Right. And then I guess the other question was thinking about the continued remixing of the balance sheet and you obviously had a bit more of an opportunity this quarter to take the securities down to 36% of asset, talk about a longer term goal of 20%.

Kind of over what period of time do you see that playing out?.

My guess is provided that M&A stays good and organic loan growth stays good, Joe, my guess would be that we would get there may be in three years..

Okay. Thanks so much..

Joe, that kind of coincides with our growth path too as far as, again we talked last quarter about being very cognizant of the $10 billion threshold level of assets. So we feel that probably we would not cross over $10 billion with much more than a 20% investment portfolio.

So, I think staying in line with that, I think that we’re looking at about three years is what it would take to continue to reduce that..

Right. Okay, that makes sense. Thank so much Mick..

You bet Joe..

Our next question comes from the line of Jeff Rulis with D.A. Davidson. Your line is open..

Thanks. Good morning Mick..

Hi Jeff..

On the operating expense front, just to try to get to a good run rate here, I guess if you back out the 1.4 million, would that be a good starting base or you’ve got to take FNBR on the books for full quarter plus you’re layering in this, now the conversion in the quarter, any thoughts on the operating expense?.

Yes, I think you’re absolutely right, Jeff. If you take out the 1.4 and you’ve got to add -- I don’t have those numbers in front of me, Jeff, but you have to add some additional expense for the additional two months that we didn’t have First National Bank of the Rockies on the as part of the company.

Now there will be adjustments, we’ll have some more -- well even this quarter, we probably have some more conversion, one-time conversion expenses, because just like I said, just last weekend we converted North Cascades Bank.

In this quarter, we’re actually the way I laid down and our opportunity to move FNBR up into that December time slot we’ll have two conversions this quarter. So yes, there will definitely be some expenses associated with both of those that will be reflected this quarter.

I don’t have those figures right now, Jeff, but so it’s a little more difficult to lay out just what our operating expenses would be. But there will be those two events that will have some additional one-time non-recurring expenses and then we’ll have a full quarter with the FNBR expenses..

I guess, absent FNBR and conversion, so I guess the legacy sort of Glacier is that at a base where you just naturally see just a bit of creep higher as you grow?.

Yes, I mean we’ll have, starting in the first quarter we’ll have increases, merit increases for staff and things like that. But what percentage that’s going to be, I can’t give you; we haven’t made the determination yet.

But yes, there would just be that normalized creep, but I don’t see anything out there that’s going to impact those numbers dramatically one way or another..

And then maybe one last one on the strength of the loan growth, any particular region or -- I’m speaking geographically, I guess within the footprint any areas that are driving above average growth?.

If we look at all the divisions, there is a couple of divisions and I’ll let Barry comment, there is a couple of divisions that have probably contributed more. I mean Southeast Idaho, down in the Pocatello, Idaho Falls area, Citizens Community Bank has had a really, really nice run so far this year as far as loan growth.

But outside of that one outlier, I’d say that most of the other banks have all contributed. It’s been pretty well spread, Jeff, across the 13 banks, again with maybe that one bank being somewhat of an outlier and having above average growth.

Barry, can you -- I mean do you see anything different than that?.

No, and at that one bank we had the good fortune of bringing on a couple of large commercial relationships. So….

Yes, they have done a really nice job down there of generating some very, very good quality credits and they’ve been in some - a couple of larger ones. So, but outside of that Jeff, no, I don’t think so.

I think we’ve been very pleased with the growth, because last year in 2013 we did have a couple of very large credits that came from two of the divisions that they really made up a big part of the net growth, now granted these loans are -- you got to look at the gross number too coming out.

But it was a little bit different in 2013 than 2014 and the fact that we did have a couple of banks be major contributors that hasn’t happened this year, it’s been a real nice balance among the ‘13..

Sounds good. Thanks..

You bet, Jeff..

Our next question comes from the line of Brad Milsaps with Sandler O’Neill. Your line is open..

Hey Mick..

Hi Brad..

Hey, just to follow-up on the margin, I know you guys have done a great job producing the securities portfolio.

With this last dip in different rate, I was just curious -- I know you haven’t bought a lot of bonds in the taxable book, but if we do see refis pick up, is there any premium there to be worried about that would amortize more quickly kind of the issue running into last year or maybe it’s just a non-issue to the extent the loan growth stays strong and you can continue to swap out of loans or swap out of investments and into loans?.

Yes, you’re exactly right. I mean number one that book that security book that CMO mortgage bank security book has decreased significantly perhaps over the last two years. So number one, it’s just not as even big of a piece of the pie as it was 24 months ago.

And then the other side, we’ve just talked about this very subject you’re bringing up over here this week. And we just are not seeing even though rates dripped back down, we saw a spike nationally in the refinance index. We just don’t believe that it’s going to have much of an impact of premium amortization.

We just don’t believe that four to six weeks from now, we’re going to see a spike up there. And it’s mostly to do with how we have changed the overall structure of our investment portfolio. So, I mean it could have some blip up, I’m sure it will, but we just don’t believe it’s going to be material..

Got it. That’s helpful. And just to follow-up sort of on the wholesale piece of your funding, you continue to reduce the Federal Home Loan Bank advance is now down to a pretty small number.

Do you continue to take that lower? I’m assuming the mix of those a little bit longer term which caused the blip up in the cost there just because of what you got left.

Is that fair?.

That is exactly right. I mean we just had such good success in generating deposits, when you pick up deposits like we did specifically with First National Bank of the Rockies I mean one of the reasons we were, there are lot of reasons we are attracted to the franchise, but they had a terrific cost of funding. And it was all core deposit.

Well that allowed us, along with the work we’re doing on the asset side as you alluded to already. I mean that’s really allowed us to pay down a lot of wholesale deposits. But you’re absolutely right also Brad in the wholesale deposits that are in left and the borrowings that are left and they’re termed out and they are a higher cost.

Many of those were -- borrowings we put on three, four, five years ago to fund some long-dated assets and at a very nice spread back then. But clearly, they’re much higher than what you could get in today’s market especially if they were shorter borrowings.

So, that’s you just hit the nail on the head, that’s exactly what caused the increase in the overall yield on borrowings. It hasn’t been so much amount what we’re changing it’s what we’re left with..

Got it. Very helpful. Thanks Mick..

You bet, Brad..

Our next question comes from the line of Daniel Cardenas with Raymond James. Your line is open..

Good morning guys..

Hi Dan..

Just a quick question on the margin.

What contribution if any did yield accretion play in this quarter’s margin?.

Yield accretion was 7 basis points.

You mean the accretion on the discount due to the acquisitions?.

Yes..

Yes. It was about 7 basis points, Dan and that was up from last quarter’s 4 basis points. So, we picked up an additional 3 basis points primarily -- I mean not again say exactly, but I kind of assuming it’s the latest acquisition that probably contributed.

But you never know, I mean because you never know what kind of pay-offs and what you’re seeing from the other acquisitions that we did..

Do you see that level slowing down in the coming quarters, just given….

Quite hard. It’s really hard to say. We picked up 3 basis points from second quarter to third quarter that went from 4 to 7. It’s hard to say. I would -- this is just speculation on my part, Dan. I would say that we’re probably going to be there. The discount accretion on FNBR was a little bit higher than the other banks.

So, we’ve got more dollars to creep back. So that could actually move it up a notch or two but I don’t see it Dan going from 7 to 20 or anything like that..

And then maybe some color on M&A, is there a pickup in discussion over the last quarter?.

I wouldn’t say that. No, I’d say that it’s been steady, steady at a higher level. Let’s put it that way, Dan, still lots of interesting things being presented. I’ll tell you though fair number of opportunities or things that were brought to our attention for one reason or another we chose to pass on this last quarter.

But there is still a fair amount of other things that are very interesting too. But as far as a more recent ramp up, no I’d say that it’s still being very good, but not much different than three months ago..

Are you seeing any change in seller expectations?.

I’m not; granted some of these discussions didn’t get very far, I mean because we just really didn’t have an interest and it was either the location or -- I mean a lot of reasons. I don’t want to get into all the reasons as to why we chose not pursue specific deal.

But no, it’s the ones that we are having more interest in; I haven’t seen that as being a major issue yet, at least not for us. .

Okay, great. Thanks guys. Good quarter..

Thanks Dan..

Our next question comes from the line of Jackie Chimera with KBW. Your line is open..

Hi. Good morning, Mick..

Hi Jackie..

Looking back on the margin and I’m looking at the movement in securities rates between, the delta between 1Q and 2Q and then delta between 2Q and 3Q since balances have been trending downward this year.

Is it just a mix that drove rates lower this quarter versus, I mean the risk didn’t come down quite as much last quarter or is there something else that happened in the quarter?.

No, no. I think you nailed it right on the head; it was primarily the mix..

So, as securities continue to come down, do you see that yield coming down as well as balances?.

It’s a good question, Jackie. I would think that as the balances come down, the yield would hold fairly well because in the change of the mix, I think over time, because just of the maturities of some of the new needs and that, they’re going to stay on our books longer, Jackie..

Okay..

And those of course have higher yields, higher tax equivalent yields. So, I would suspect that -- no I don’t think we’re going to see a dramatic drop off in that respect. I think some of the lower yield, the investment assets are in the ways -- they’re coming from the corporate bond book and the mortgage-backed security book.

And I would suspect that we would actually be able to maintain yields going forward as that investment book shrinks..

So this quarter was a bit of an anomaly?.

It was, yes..

Okay. And then secondly, if you could just on -- first of all, congratulations on your pending requirement.

And if you could just give to the extent you can, any color on the succession process? I know it’s early in your search but how that’s going and kind of some of the different avenues you’re looking at, if you’re opening it at the internal candidates that type of thing?.

Yes, I’ll -- kind of further benefit of all those on the call today. We did issue an 8-K the first part of October and that search is being conducted both internally and externally. It’s going very well. I think we chose a great partner to help us with this process.

And so, we have never done it at this particular position and didn’t hear since the beginning of time. So we haven’t done it very much. We have never done it for this particular slot. But I am excited that I think we did a very nice job. The board has been very, very focused on this for a number of years now and this has been pretty well planned out.

They’ve been very engaged and I think the work they did to find the firm that we’re using was very thoughtful and mindful how they did that. And we’re thrilled that who we have working with us and we think the outcome is going to be a very good one. I think the interest level early on has been very, very good. So that didn’t surprise me.

I mean I think we have a tremendous company here and I thought that that would be a position that would be very, very appealing to a lot of people. So we’ll see where it goes. As we said in the press release and we hope to have a person chosen by the end of the second quarter next year. And I think that will absolutely happen.

I think we’re well on the way to making sure that we hit that deadline..

Great. Thank you for the color. Those were all my questions..

Thanks Jackie..

(Operator Instructions). Our next question comes from the line of Jennifer Demba with SunTrust Robinson. Your line is open..

You just covered my questions. Thank you very much..

Thanks Jennifer..

And I am not showing any further questions from the phone lines at this time. I’d like to turn the call back over to management for closing remarks..

Well, once again, thank you all this morning for joining us on what I thought was a very good quarter. I can’t thank the 2,000 staff enough for what they do each and every quarter to deliver these types of results.

I think for all of you shareholders on the call, you can be assured that we’re going to do everything in our power and work exceedingly hard to make sure we finish the year very, very strongly. We’ve got three quarters in the books, three record setting quarters and we certainly would love to make it four in a row.

So with that I’d like to wish everybody a very good weekend and we’ll talk again next quarter. Thanks now. Bye..

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