Glacier Bancorp Inc (GBCI) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's teleconference. Currently, all sites are on the conference line in a listen-only mode. Please note this call may be recorded. I will now turn the call over to Mr. Mick Blodnick. Please go ahead.

Thank you. Welcome, and thanks to all of you for joining us this morning. With me this morning is Jim Strosahl, our Executive Vice President and CFO, and Ron Copher, our Senior Vice President. Ron will be replacing Jim upon his retirement. So they're both joining me this morning.

As many of you by now know, last night we reported earnings for the fourth quarter and the full year, 2006. Those were both record quarter and full year earnings for us. On a diluted earnings per share basis for the quarter we reported $0.32 a share. That was an increase of 10% over the prior year's quarter. And for the full year, we reported $1.21, which was an 11% increase over 2005 for the year. Again, excluding the impact of SFAS 123R, which we did not have in 2005, the earnings for the quarter were up 14% and the earnings for the full year were up 15%.

Our ROA for the quarter came in at 1.51% and our ROE for the fourth quarter was 15%. That compares to the full-year return on assets of 1.52 and the full year return on equity of 16%. So we felt it was another strong, consistent year, much the same as what we have been able to achieve over the last 5, 10, 15 years, or even actually going back to when we first became public. So we are pleased with the results from 2006.

A couple of points I want to make, and then I'm going to turn this over for your questions. First of all, as far as asset quality, our asset quality remained basically unchanged during the quarter. We saw a reduction in our non-performing assets down to what may be one of the all-time lows of 0.19% of assets. That was down even slightly from the third quarter where we came in at 0.22% of assets and down from last year's number of 0.26% of assets.

Our net charge-offs were 0.02% for the year. That is the exact same as they were last year. Although the bulk of the net charge-offs came in the fourth quarter of this year, prior to the fourth quarter, we virtually had no charge-offs. And really what happened in the fourth quarter is we finally resolved some credits that we had been working on for the better part of the year and settled all them out. And thus for the year we ended up with NCOs of again, 0.02%.

Our loan loss reserve at the end of the year was 1.53. That is an increase over the prior quarter which came in at 1.51, but it is a decrease from last year, where last year at the end of the year, our loan loss reserves stood at 1.59%.

Maybe the biggest surprise, both to us, and even us internally, was the net interest margin. Our net interest margin in the fourth quarter increased by 12 basis points to 4.40%. And if you take into consideration the full year, our full-year net interest margin came in at 4.35, which was a 15 basis point increase over the full year number of 2005. So needless to say, in this environment and the yield curve that we are operating within, we were very, very thrilled with both of those numbers.

I believe that when you look at the net interest margin and especially the increase in the fourth quarter, part of that can be attributed to the continual shift to higher-yielding assets that we continue to achieve as we work down our investment and security portfolio. And then of course, probably the bigger reason was the addition of Citizens Development Company in the quarter, which -- that bank maintained a very nice net interest margin. It was higher than what we had prior to the acquisition.

Speaking of the Citizens Development Company, we did complete that acquisition. It was effective October 1st. With the acquisition, we added $457 million in assets.

In addition to adding them in the quarter, I am happy to report that as of last weekend, three of the five CDC banks were successfully converted to our data system and integrated. And what we did is we integrated those CDC banks into three of our existing banks. So of the five, the three that were integrated -- you always worry when you take on a project of that magnitude over one weekend. But my hat's off -- those banks and their staffs did a tremendous job this past weekend. And the integrations went nearly flawless. So we are really, really thrilled to have the three banks fully integrated with two more scheduled for June.

Loan growth in the fourth quarter slowed from the pace we had experienced in the prior two quarters. But by historical standards, it was still a strong quarter for us. With the seasonality that we usually do experience up here in this part of the country, it's really too early to tell if our loan volume is slowing down or it's more just seasonal factors taking place.

Production numbers were actually very similar to what we produced in the fourth quarter of last year. And for the entire year, our loan portfolio increased by 32%. And if we exclude the acquisitions of First National Bank of Morgan and the Citizens Development Company acquisitions, we grew our loans internally by 18% for the year.

One pleasant surprise for us was the fact that our banks originated more dollars in one-to-four-family residential loans in 2006 than we did in 2005. For the first time in the Company's history, we exceeded $1 billion in real estate originations, although the actual number of loans that we originated was down slightly.

Another focus of all of our banks continues to be the non-interest deposit accounts. And with that, last year we grew our DDAs by $162 million or 24%. However, excluding the acquisitions -- if you exclude the acquisitions, our DDAs grew at more of a 7 to 8% growth rate. Now this organic growth, or growth minus the acquisitions, was less than what we achieved the prior two years. But again, considering the rate environment that we have been operating in, we felt very, very good about being able to grow our DDAs at that level. And so that was probably one of the other reasons why our net interest margin saw some benefit throughout the year is, again, our continued focus on doing everything we can to generate low-cost deposits.

And then finally, during the quarter, we did announce a 3-for-2 stock split. That stock split was paid on December 14. In addition, we also increased our cash dividend during the year by 12.5%.

So overall we thought it was a solid year. It was a solid quarter. I guess from an operating perspective, we really felt good in the fact that there was really in the fourth quarter -- I mean, of course, you have always got the acquisition and some noise in the numbers based on any quarter when you close an acquisition. But even with the acquisition, if you drill down into the numbers, there was really no non-recurring or exceptional income or expense items in the quarter.

And really, for the entire year for 2006, when you have got no really gain on sale of securities to speak of, I don't think our tax situation changed much at all during the course of the year. And I guess in the third quarter we did have a payout on a BOLI contract with the unfortunate death of an individual. And really, excluding that one non-recurring item, it was a very nice year -- one that we like; not a lot of noise in the numbers.

And so that is kind of where we stand. I guess at this point in time, I'd be more than happy to open up the lines and answer any questions. And I am sure that Jim will have some comments possibly too, or if anybody has any questions for Jim. This is unfortunately going to be his last conference call. So I guess we should have a few things for him to expound on.

With that, I will open up the lines for questions.

(OPERATOR INSTRUCTIONS). Jim Bradshaw.

What was the margin in the month of December, if you have that number? Or if you don't, just generally, if you thought it was higher or lower than the 4.40 figure for the whole quarter?

The number in December was higher (multiple speakers) 4.40.

That is an impressive margin expansion this quarter. Jim, you have made some nice progress in getting the bond portfolio down, even with all the deals. What is the monthly cash flow, now that that $800 million or so is generating -- or spinning off through maturities and paydowns and things?

It is running in the 10 to $12 million range each month.

And you're still not adding anything to that -- is that a correct statement?

That's correct. We have because of some budgeting requirements where we have had some big public money flow into the Company, in a couple of banks we have done some real short-term match off. But there aren't any increases in the portfolio. And in the current yield curve environment, we don't anticipate adding anymore.

Sure. Ignoring the impact from the acquisitions, Mick, can you talk about the loan and deposit activity geographically? Are you seeing that the Idaho market -- still be pretty strong for you? Or maybe you can just give us some color on Montana, Wyoming, etc.

You bet. And that's a great question, because I have been looking at where we were this quarter versus where we were in the fourth quarter last year. There is no doubt that we have had a more traditional winter this year. The weather has been a lot colder. We have had more winter than we did in '05 and in '04. But the numbers seem to be tracking pretty closely to the same level that we did last year.

Now again, we had a slow down in the fourth quarter of '05, but that picked right up in early '06. And as I mentioned earlier, even if you exclude the acquisitions, we had a very good year for loan originations.

I do think that -- psychologically, I think that as more and more people read more and more headlines and more and more media coverage of this slowdown, I don't know if it has an affect on their psyche. I don't know if that in and of itself causes the repercussions of a slowdown. But the economies -- I can just tell you, the economies in Montana, Wyoming, Idaho, and Utah -- and I will get to Utah in a second -- those four states, the economies may never have been better before. I mean, these are some very, very good economies. Commodity prices, energy issues, are all I think attributing to the tremendous strength in both the Montana and Wyoming economies. And then I just think Idaho is just a good, good economy overall. There's just a lot of things going on.

Utah is somewhat unique in the fact that Utah was one of the -- I think it was number two in the nation last year for real estate production and volume. So they were a little late -- according to some of the people we've talked to, they were a little late to the party earlier in '03 and '04. But '05 and '06 have been very good years down in the Utah area. Now we don't have a huge presence down there. But it is an area that really is showing a lot of promise.

So as we come into '07, from the economies that we're dealing with, we feel really good about the economies.

Now, is housing still going to be impacted? Are we going to get some spill off from some of the other national markets? I think it's too early to tell you, Jim. But so far, we are kind of seeing the same kind of volume and growth that we saw in the fourth quarter last year, which obviously led to a very, very good 2006. So I think time will tell whether 2007 has the same thing in store.

I appreciate it. And Jim, enjoy your time. We sure will miss you along the way. So try to keep in touch if you have any time.

You bet. Thank you very much for your comments. It's going to be quite a change for me after about eight years.

Brad Milsaps.

Just a quick question on the expense side. You mentioned that you got three of the five Citizens Banks converted around the beginning of the year. I know typically the first quarter is seasonally a tougher expense quarter for most banks. Can you kind of give us a little sense of what you're expecting in the first quarter? Will you get some relief on the expense side from those conversions? And then seasonally, I'm sure you got raises, etc. coming through. Just trying to get a sense of that number -- kind of what a run rate would be in '07?

I can't necessarily give you a number. But you are right, we do see compensation increases. Typically, most of our reviews are on a calendar year basis. So we do see increases in the first quarter. You also have -- everyone is -- all the compensation is subject to the payroll taxes. So that adds some more. And as you max out on some of those during the year, that helps a little bit in reducing those expenses. Heating bills and all that stuff are just typically higher early in the year with winter that we deal with.

I don't know -- we will have some expense reduction from merging those banks into our existing banks. It's not going to be real significant, but we will see some reduction there. A couple of offices that were across the street or a block apart had been closed. So there will be some expense reduction.

And again, on the data processing side, we will see some (multiple speakers) because we have moved them onto our system. So they are not paying that many outside of the Company any longer -- at least those three banks aren't for the time being. And by the middle part of the year, we will have not only the other two banks, but we will have First National Bank of Morgan converted also.

Yes, that is a good point.

And Mick, if memory serves, at least in late '05 into '06, you guys were at least fairly aggressive, by your standards, on de novo branching. Can you give us an idea of what you might have on the drawing board for '07 in terms of maybe additional branches or branch relocations?

We last year announced, if you remember, Brad, that we were going to have eight de novo branches. And then no fewer and then eight to 10 major remodeling projects.

Most of the remodeling projects are behind us. I can think of two additional ones that are probably going to take place or that we know of right now as far as additional remodelings.

And then we have probably -- we didn't get all eight of the de novos done -- we only got six of them done last year. Two of them have spilled over into this year. So we will be finishing up on those two -- one down in Boise, one up in Whitefish. But then I think that there is one more definitely that is going to be -- that's on the drawing board and in process right now in Spokane. And possibly, we're looking at maybe one or two other ones. But it is definitely not -- at this point in time -- now, things can always change -- but at this point in time, it is nothing like what we saw coming into 2006 as far as a facilities, upgrades, or brand-new de novo branches strategy.

And two of those will be late in the year. So there won't be much impact.

(multiple speakers) -- much of an impact.

A final question -- you guys have already gotten off to a fast start in '07 with one deal announced already. What is your appetite for the remainder of a year? And can you just kind of generally comment on what you're seeing out there in terms of additional opportunities for mergers and acquisitions?

Well, I think we have said a number of times that we -- and this is nothing new -- we read a lot. And I think that the market in general expects that 2007 could be a good year for M&A activity. Obviously, there is a lot of [sub-Ss] that will have the ability to after 10 years to decide if strategically they want to do some things differently. That might help the volume.

We continue to look around -- like you said, we have already announced one this year. I think there's more and more banks around the western part of the country and in our markets that like the model that we run. I think that is the key for us -- is for those individual banks that want to remain independent -- and not all of them do, of course, but those that do, I think we are one of the very few options for them. And so if there is a very good deal and it makes very good sense, and we can reward our shareholders immediately, then we will be willing to look at -- we'll be willing to look at them and hopefully some things done.

There has been a number of deals that you just don't get done, because we have tried to remain very, very disciplined in our approach. And as a result, we feel good about all the things we have done in the past. But we are not getting every one of these, obviously. And that is all right, because we're more focused on staying disciplined then we are getting deals completed.

Thanks, Mick. Jim, best of luck to you, and Ron, look forward to working with you again.

Ben Crabtree.

One of the questions I've got for Jim is what hobby are you going to take up, Jim, to fill up all your time?

(laughter) Well, we have some beautiful lakes up here and the fishing is great -- lots of good golf courses. And I have 10 grandkids scattered around the Northwest. So I think I can find something to do.

You are going to keep yourself busy, huh? I wonder if you have a couple of specific numbers. You have given some ratios, but just to get the numbers -- I guess, and maybe detail. Do you have a number for non-accrual loans in the fourth quarter, year end? You have got non-performing assets, but trying to get a little breakdown there.

Non-accruals for the company -- actual non-accruals were $6.065 million.

And I would assume that some of those might have come with the acquisition. So net-net on an organic basis, you had a decline in non-accrual loans in the quarter?

Non-performers totally -- NPAs declined in the quarter then from approximately $9.505 million to $8.894 million. But non-accrual -- that is non-performing assets. But non-accruals did move up from $5.252 million up to $6.065 million. So non-accrual did go up, the non-performings did go down.

And when you look at the pipeline, it sounds as though you did somewhat of a typical year-end clean up or whatever you want to call it on your stress credits. So how does the entry point on the pipeline look in terms of what new problems might be developing?

Just let me get back to you on one thing -- that $813,000 increase in non-accruals -- CDC and Morgan -- well, Morgan was in the prior quarter's month, but CDC was 941 of it. So there was more from CDC than the overall gain.

But as far as what we're seeing out there, and we just finished a two-day meeting with all our bank presidents. And we're not seeing a lot of issues out there right now. We are so cognizant of that. And we're so aware of staying on top in this. And I think that our model is one from the perspective of asset quality and knowing your issues, it's one thing that we have always really, really liked about this model is -- you've got 11 bank presidents, you have got 11 chief credit officers out there, and they are watching this stuff like a hawk. It's not like a one-bank holding company, where we're trying to watch all these offices and all these branches and everything. We had them all in here just the last Tuesday and Wednesday of this week. And knock on wood, but so far, they are saying that things look awfully good.

Charge-offs, like I said earlier, were up in the fourth quarter. But that was a combination of just a number of credits that we have been working on throughout the year. And it just happened to be the timing when we got those answers and values and everything resolved.

Okay. I guess I was pleasantly surprised by how little your deposit costs went up in the quarter sequentially. Obviously, there's probably some contribution on the acquisition. I guess you have already mentioned that. But I'm wondering in terms of the rolling over of CDs, do you have a bunch of CDs that are low-cost CDs coming due? Are you going to get hit with some significant repricing on CDs going over the next quarter or two? Or are they -- (multiple speakers) coming off pretty close to market?

They are pretty close to market, because none of the banks -- maybe this is something we should have done differently, but over the last 2.5 years now since the Fed has been raising rates, we have really kept, and all the banks have kept their CDs offerings relatively short. No one was going out there for two years. They were keeping it in the seven -- even the specials were running in the seven-month and nine-month variety.

So we're not seeing a lot there. There are a few still Federal Home Loan Bank advances that we purchased back when rates were really, really low. And we locked those out for about -- up to three years. And there's a few of them still left out there. But nothing of any significant dollar amount, Ben.

And then one last question, and I don't know where I screwed up here, but I had a significant lower number for average shares outstanding. Do you have a number for actual shares outstanding at the end of the year?

I think we do.

The actual number I think was 52 million --

52,302,820.

Chris Stulpin.

All my questions have been address. I would like to expand on a little bit the M&A question. Simply, are you seeing an increase of banks knocking on your door to become underneath your umbrella -- the Glacier umbrella? Or is it basically the same level of interest from other banks as it has been for the past year or so?

I would say it's about the same level for the last 18 months. I in no way would ever want anybody to think that we have had a big rush in the last three or four months. It has been pretty -- the pace has been pretty consistent, actually.

Okay, great. And Jim, have a nice retirement.

Sir, at this time we have no further questions queued.

Okay, well, if anyone thinks of anything else, by all means get a hold of Jim or Ron or myself. Again, thank you all for taking time today to listen into this call. And have a great weekend, and we will talk to all of you later.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect at anytime.