Glacier Bancorp Inc (GBCI) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's teleconference.

At this time, all participants are in a listen-only mode. Please note, this call is being recorded.

I will now turn the program over to Mr. Mick Blodnick. Please go ahead, sir.

Thank you. Welcome and thank you for joining us this morning. With me this morning here is Ron Copher, our new CFO. Ron took over for Jim Strosahl, who retired as of March 31.

Last night, at our annual shareholder meeting, we reported record -- we reported earnings for the first quarter of 2007. Our diluted earnings per share for the quarter were $0.30; that was an increase of 7% over the prior year's quarter. There was $0.01 per share of stock-based compensation expense in the quarter. We had a return of assets for the quarter of 1.48 and a return on equity for the quarter of 14%.

As we evaluated the first quarter, I think the biggest surprise was the substantial amount of payoffs that we experienced. I noted this in the press release, but it was somewhat unprecedented for us. What we did was, we went back and we analyzed just where these payoffs came from and we really only analyzed loans greater than $1 million. When we took a look at the numbers, we saw where we had $83 million in loans payoff that were greater than $1 million. Again, this did not include just the normal amortization for the quarter, nor did it include the payoffs of any loans under that amount. That's far, far more than what we've experienced ever before in the past.

In addition -- and this is something we did note -- in addition, we lost $16 million when we divested the branch in mid-January that was located in Lewistown, Montana. Although we expected a slowdown in loan originations from the unprecedented pace of the past three years, actually our origination volume was surprisingly good. I mean, when you compare this first quarter to last year's first quarter, we were down about 5% in origination volume but last year's first quarter was one of the best the Company has ever had. So we didn't feel too bad at all about the level of loan originations, but we would have never expected that type of payoff volume that we saw in January through March.

As we break it down, there was really no common theme for the payoff. There was -- over the last three years, we have done a fair number of larger projects. Those project paid off, some of them just paid off early. Some of them were bought out completely by out-of-state and out-of-area investors. We did see a couple of businesses that were bought out, again, in two cases by out-of-state companies. But again, there was just really no common theme; it was just that there was a large, large volume of loans that just paid off in this first quarter and we've just not seen that kind of activity before.

I guess on a bright note is that, when you look at our loan portfolio, the asset quality basically remained unchanged. I know that there's been concern in the industry that maybe we are starting to see some chinks in the armor there, but we really did not see any of that and so far, we have not seen any indications that our asset quality is changing much.

We did see a slight increase in nonperforming assets. They went up from the fourth quarter of last year where they were at 19 basis points; they went up to 25. But that was basically just one credit that, for the last couple of years, has been in and out of that category. There's no loss expected on that one credit. In fact, we expect that hopefully, by the end of this quarter, that would be resolved again. That number was just a little bit better from where we were last year, where we had nonperformings at 0.27%. So, our asset quality remains very, very stable.

In addition, I guess another bright spot was the fact that, in the first quarter, we did not record any net charge-offs. In fact, we recorded a small, $86,000 net recovery for the quarter. So again, those trends are positive in our minds and something that we are working and continuing to work very, very hard on. At all of the 11 banks, I think they all recognize the importance, especially in this operating environment, of maintaining that type of credit quality.

Our loan-loss reserve did end the quarter at 158. That was a 5 basis-point increase over the prior quarter and up slightly from 1.55 in the same quarter last year.

Our net interest margin, unlike the fourth quarter where we did see a nice increase, we did see a slight decrease of 4 basis points in the first quarter. Our net interest margin ended at 436, and again, that was down from 440 at the fourth quarter and 439 at the end of the first quarter last year. We have gone back and we've analyzed our margin. Our margin really has stayed in a relatively tight range of up or down 8 basis points over the last about six quarters, so we haven't seen huge fluctuations there but as I will get into a little bit later, I mean, there's definitely pressure. We are not immune to the same pressures that many other banks are experiencing there. I guess we've just been a little bit more fortunate in the past of being able to maintain that margin, again within a tight range. But our net interest income for the quarter was definitely impacted by, as we've said already, the lack of earning asset growth but also by the shorter number of days in the quarter. You can really see that impact on our margin in the month of February.

We did complete the convergence of three of the CDC banks in the quarter. In addition to those three integrations and data conversions, we also completed the divestiture of -- as I spoke of earlier, we completed the divestiture of the Western Security Bank in Lewistown. With the divestiture, we did realize a pre-tax gain on the sale of that office of $1.6 million. Of that gain, that was partially offset by one-time expenses in the quarter on a pre-tax basis of $500,000. So net-net, there was a pre-tax gain of approximately 1 million to $1.1 million there, pre-tax.

Of the conversion and the integrations, they went very, very well. But again, like any major conversions like that we went through all at one time -- and that was considerable -- they do sap up resources to get the job done and get it done right. So it's nice that we're done with definitely the bulk of the CDC conversion. We do have two more banks that will be -- the last two CDC banks we will be scheduling and converting their integration and conversions in June.

In addition, though, to the three that were completed, we were also working throughout the quarter on the data conversion for First National Bank of Morgan. That conversion took place just this past weekend, and again all signs -- and again, it is only just been four days since we went through that conversion but already all signs point to another very successful integration and conversion of First National Bank of Morgan.

The past few years, we've been fortunate to grow our non-interest deposit account. That did not happen in the first quarter. DDAs were down 41 million, although I guess, if there's any good news in DDAs being down 41 million, the good news is, at the end of January, they were down 80 million, so the did bounce back about 40 million from a low in January. There's always definitely, just like on the lending side, there's definitely seasonality that's built in. One of the things that definitely we do feel had some impact on our loan volume was the seasonality, although like I said the origination and production numbers were not very bad at all compared to a record year last year.

But the same holds true on the DDA side. You do definitely see and we have historically seen real fluctuations in the first quarter. We are hoping that we're going to be able to make up that $40 million as we move into the spring and summer months, but we never had any expectations that we were going to be able to continue to grow our DDA accounts as we have the last couple of years.

What is encouraging is the pace of new accounts, new checking accounts. It's just about exactly the same as it has been the last two years, but again, you're getting a lot of new account openings but there's a lot of existing customers who are shifting dollars out of DDAs and either moving to higher-cost deposit alternatives or doing something else with some of that money.

Our efficiency ratio was another thing that increased. We saw the increase at the end of the first quarter at 56%. That is mostly reflected in some of what has been planned and ongoing over the last year. The additional offices that we've added, which now totals eight over the last year with the addition of Spokane and Rexburg, Idaho, Spokane, Washington and Rexburg, Idaho, as well as adding the new banks that we added, all the CDC and Morgan banks, that they also, as almost is always the case, they come with a much higher efficiency ratio. It takes us a while to bring those down. Again, as aggressive and as active as we've been the last two years on the M&A front and the volume of mergers and acquisitions, it does take time to get our efficiencies more in line, and that's what we're going to be working on.

Now, as we had a meeting with all of our bank presidents just the last couple of days, I think we all recognized that our focus as 11 independent community banks is on watching our overhead, but really it's a function of trying to grow revenues and grow revenues at a much faster pace. We have added a lot of overhead over the last year, year and a half. Now, we've got to make sure we start to generate that higher level of revenue and get this efficiency ratio back down into the low 50s, which is where we feel more comfortable.

But in addition to all the new offices and the new banks, you know, two costs that did have to be absorbed in the quarter -- and these are a function of last years experience and performance -- was our health insurance expense did go up because we are not immune to that, like everyone else, but we did have -- you know, our experience has been rough in the health insurance side the last couple of years. So we did have to absorb that cost, and then again, we had additional expense for stock options for the quarter. So, that stock option expense, that's more variable. That is performance-based, so depending upon the type of year you have really dictates what you're going to see the following year as far as stock option expense.

So, another thing that was completed or announced was the acquisition of North Side State Bank in Rock Springs, Wyoming. We will be hopefully closing and the plan right now is to close on North Side State Bank this coming Monday at the close of business on April 30. We are excited about this acquisition. It's a bank that has a significant amount of liquidity. Liquidity is something with, in the past, our ability to grow loans at a much faster pace than we've been able to grow deposits. It was one of the real attractions, plus we just really like the market. It's headquartered right in the middle of the energy boom in Wyoming, and we just think there's some real good opportunities in that market. So, it's going to be an addition. We are not going to run it independently. It's going to be bolted onto our First Bank, or our First Bank franchise in Wyoming, and become another office of that bank, but at the same time give us a presence in one of the best markets in Wyoming.

So you know, there has been some real headwinds, especially on the earning assets side. Definitely we did not expect some of those headwinds at the beginning of the year. We did obviously understand that things were going to be slower and we were not going to probably see the level of activity that we had seen in the past. Some of that was going to probably be by our own volution. I think we have and all the banks have probably taken a somewhat more cautious tone in their underwriting. Even without that, I think that we expected things to slow down some. I'm not so sure that things slowed down dramatically, but again, we just never would have expected to see that level of paydown of loans during the quarter.

You know, hopefully as spring is now here, we've done some check in the pipeline. It seems to be pretty good still, so we are sure hoping that the first quarter was somewhat of an aberration and we don't see that same level of loans being paid off.

So with that, those are all the comments that I have this morning. I guess we can turn it over and open up for questions right now.

(OPERATOR INSTRUCTIONS). Brett Rabatin, FTN Midwest Securities.

I had a couple of questions. First off, I just wanted to ask on the loan-loss provision during the first quarter. Given the loan payoffs, I guess I was surprised to see the provision be what it was, so I'm curious to hear some commentary, if you could give any, on just your reserve and the provision during the first quarter. I know you have a -- everyone has a formulaic process there but just any color on why the provision was so high in the first quarter, given the loan softness with paydowns?

You know, Brett, it really does -- I know we've had this discussion before but it really does -- we analyzed this some more just this week. You know, the model, which is of course, as everybody knows, we run a very unique model here and that -- what we all look at, at the end of each quarter, is the consolidated view of what happens to the reserve.

You know, unfortunately, some of the banks that had some of the higher levels of payoffs were banks that maybe were not reserving much to begin with or maybe not reserving much at all in case of one of the banks. Then you've got one of the banks that had very little payoff and a significant amount of growth, and they've continued to really add to their loan-loss provision. When you've got 11 banks out there that -- again, I think I probably said this before, but when you've got 11 banks out there making independent decisions as to what's in the best interest for their particular bank, based on their classified loans, their level of nonperformings, the growth that they are projecting, they are making 11 separate decisions out there. What we end seeing here is the roll-up of that. It's more difficult, I think, if we were like some of the other banks where this is a one-bank holding company, you just make the determination, well, we'll just cut back. But it's very difficult to mis-model a cut back because some of the banks feel -- and they are -- they are justified in providing that reserve.

Again, of course, I think that if there is some concern that asset quality is going to, ever down the road, start to really take a turn, I think we like our position; there's just no doubt about that. But it isn't quite the same as when you have a one-bank holding company as far as being able to modify or change the level of that provision.

Okay, that's good color. Then secondly, I was curious. You mentioned no common theme on the payoffs you had in the quarter, and you hope the payoffs are not as high going forward. I guess I'm just curious if competition is one of the more predominant factors for credit, or if you can just talk about what the primary factors were that seemed to be playing out in the first quarter. Then just any quick color on where you see the construction market and the inventory levels in your various main markets.

You know, I think that's a great question because there are some things out there. I mean, when I said there was no true color, I mean it wasn't as if there was $83 million worth of construction loans paid off. I mean, we lost a large C&I customer because business got sold, and there was just nothing there for us to do.

We had a number of construction projects that investors from outside the state just wrote a check for the thing. We had some nice loans, some nice balances out there and really didn't even get an opportunity to do anything with a couple of those projects.

I think one of the good things -- maybe this is reflected in our asset quality -- is the economy. I failed to mention this in my remarks but the economy in these states continues to be very, very good. Just an example, last week, last Thursday, the State of Montana put out a press release where the unemployment rate in the State of Montana is the lowest in the nation at 2%. I will tell you, Wyoming and Idaho are not too far behind at 2.6 and 2.8%. So I mean, from an economical perspective, things are pretty darn good around here. I suspect there are people from out-of-state that maybe have been doing things in the Southwest or in California that have decided maybe this is a good place to develop or to invest some money. I think we've seen some of that up here.

But again, our origination, our production volume was not very much different from a record-setting year last year. So, when you look at -- again, you look at some of these big projects that paid off. There was one credit that -- and it was a large one -- where we just did -- I mean, that was on our own volution. We just said, hey, it's not a matter of rate, it was a matter of terms and conditions. What they were being offered, we just said, hey, we're not going to go there. If it means -- and if that's what it means going forward, and I guess this was the second part of that question -- it means that we've got to start doing some goofy things to keep that volume up, then maybe we have to just sit on the sidelines. Because I don't believe this is an operating environment that, you know, you've got some issues out there anyway with the yield curve and with what's happening out there in housing and that. I'd just don't think that we want to take on a lot of credit issues at this time, too. I think that would just exacerbate any future problems you might have.

But I didn't see -- I only saw that one large credit that we lost for [that] purposes. I do believe that, yes, everybody you talk to is going to tell you that competition is intense. Even there, we talked to 11 banks. You know we've got a small microcosm of the industry with our 11 banks, and even there, we've got a few banks that don't see the same level of pricing competition that some of the other banks do. But overall, I would say that is a common theme. We've got that and we are willing to compete on price. We're just probably not going to be willing to compete on terms.

Sure. On that one large loan, do you have a number for that or --?

Yes, that thing was almost $20 million.

20 million? Okay, great. Thank you.

Matthew Clark, KBW.

Good morning, guys. On the origination side, just because I don't have last year's number in the first quarter, can you just give us a sense as to what the origination for the production was in the quarter, and how it spread throughout your affiliate banks?

I don't have -- well, I do have the affiliation spread but probably I think, Matt, that might be something that we could sure get to you. I mean, I could go through all of those numbers with you. But I do know that on -- let me just answer that question first of all by just breaking out -- we take our loan origination, we break it out by the three categories, consumer, commercial and residential. Last year -- I will just give you some numbers here. Last year, in the first quarter, on the real estate loan side, we originated $215 million in the first quarter. This year, we originated 242 million, so we were actually up on the real estate origination side. However, that's usually not the piece that sticks, because a lot of our real estate production is made -- not all of it but a lot of it is originated and sold into the secondary market.

Where we really do like to see and what adds to the actual growth in the balance sheet is when we are growing Commercial and Consumer loans. Both of those areas were down from last year. In Commercial last year, we generated $294 million in Commercial. Of course, in that is, most of our banks, especially on any kind of large construction development projects, they are in the commercial side. But last year, we did $294 million; this year, we did 253 million. On the consumer side last year, we did 86 million; this year, we did 71 million. So I mean, if you add them all up, I think it was just a little bit less than 5% difference.

Again, you've got to remember that last year's first quarter was a blowout quarter. I mean, it was a quarter not only because it was the first quarter of the year, but you could compare last year's first quarter to almost any quarter at any time of year prior to that, and it was just about the best ever. And you're comparing yourself to an awfully good quarter but the flip side of that is we are a bigger company. We are $500 million, $600 million larger than we were last year, too, so you've got to take that into consideration.

But as you break out -- you know, I think that, without going through all of the detailed numbers, if you need those, we could get those to you. But clearly, Mountain West Bank in Coeur d'Alene continued to be strong; Glacier Bank in Kalispell continued to be very strong. Valley Bank -- actually, Valley Bank in Helena showed some good numbers, and that's a market that is starting to show some signs of getting better. Our First Bank of Wyoming showed some very good numbers. Then there were other banks, like our bank in Billings, a bank in Morgan, well, Morgan was about even -- our bank in Billings, our bank in Whitefish, Big Sky Western in Bozeman -- even though that's a very hot market, it's also a market that has had about I think it's five new banks that have come to town in the last three years, so it's getting split up; that volume is getting split up. Again, from an origination perspective, we didn't feel too bad about the quarter once we actually got the numbers in. What made us not feel so good was the level, again, of payoffs that we had.

Okay, great. Then on the core deposit side, can you give us a sense as to -- I assume when you mentioned that account openings are on pace with last year, that is net new checking accounts? That's not just gross?

That is correct. That's net new. That's new openings, minus attrition, or minus closings. That continues to run right around 7 to 8%.

Okay. Then, lastly, on the home equity portfolio, just because -- and I know the residential markets in your footprint are obviously relatively strong and haven't -- but also haven't seen the big price increases that we've seen towards -- on the coast. But nonetheless, can you give us a sense as to breaking out that loan book, 350-plus million, between what's kind of considered piggyback, what's maybe not a piggyback or you have the first and what also made us be non-piggyback but also where you have the first? So I guess three categories. I don't know if that's something we can follow up on or if it's something you know, kind of you can guesstimate at this stage.

I can really guesstimate. The piggyback loans are not a big -- that's not a big line of business for us. We do have some out there, but I would suspect, of all the home equity loans that we have originated, that piggyback loans are probably pretty close here, Matt. They probably would be in that 10% range of the HELOCs that have been originated. It's just not something we've done a lot of and continue not too. You know, there's a couple of banks that have done some of that, especially our bank in Couer d'Alene has done more than any of the Montana banks in that respect.

Okay, great. Thanks, guys.

Brad Milsaps, Sandler O'Neill.

Good morning, guys. Just a couple of questions. First, Mick, it sounds like obviously the loan growth was affected by seasonal issues, but it doesn't sound as if it will be as strong in '07 and to the extent you can, you'll continue to use the investment portfolio to fund that. Even with the North Side acquisition, it looks like your capital is still going to continue to build throughout the year. I know you are always on the lookout for acquisitions. Do you have any other plans in terms of buybacks or anything like that to kind of use some of this excess capital, absent even stronger loan growth?

No. At this time, no, but I mean, that's always an arrow in the quiver, Brad, that we would definitely have available to us. I mean, we are sensitive and we do want to manage our capital, but at the same time, I guess we've always felt that with a lot of the opportunities that we've had in the last couple of years, we are not really noticing why that would change any going forward. It could change. Basically, if it changes, it's going to because pricing because we just can't seem to come to agreements on what we think these franchises are worth. But I think we kind of want to keep our powder dry from a capital perspective because, you know, we are building capital; you're absolutely right. And it probably is a little bit higher than what we would -- even what we conservatively have felt comfortable with. But you know, if this trend continues through the first six months or seven months of the year, definitely we're going to have to look at some capital management tools, and we know we have those at our disposal. But for the time being right now, I guess we are just kind of willing to let it build, sit on the sidelines and see if we can take advantage of it in the form of earning asset growth either through M&As or organically.

But yes, our expectation this year was that we were not going to grow loans at 20% like we did the last three years. I mean, we never felt that was in the cards at the beginning of the year, if nothing else just because of the law of large numbers. I mean, it just gets to be tougher and tougher to grow at that pace. But again, we were disappointed in the level of payoffs that led to virtually 0 growth. If you exclude the divestiture, we barely grew our loan portfolio in the first quarter, so that's got to pick up. If that doesn't pick up, then we're going to have to look at some of these capital management tools.

Okay. I don't know, Mick or Ron, do you have an estimation or a guess at this point kind of what the drag of the new branches that you've added over the last year were on earnings in the first quarter, if in fact they were a drag?

You know, we don't. Again, that's partly because -- I mean, it's not like that's impossible to get those numbers, but here again, because those branches are part of individual banks, you know, if it was a one-bank holding company, we would probably be more sensitive. The banks are sensitive to what the drag is, but we don't roll those numbers up, Brad.

The only thing we do know is that now, over the last 12 months, we've opened up 8 de novos. That's probably four times what we've ever done in prior years, where it has always been one to two. I don't think that 2007 -- even these two that were opened up, you know, one of those was a holdover from what we reported over a year ago. I don't see that we aren't necessarily going to have that same level of de novos going forward. In fact, I would bet that we're not going to see that same level.

But as far as being able -- we could get those numbers but I don't have them at my disposal here.

Okay. Kind of going forward, do you expect to get some cost saves obviously from the conversion you just completed? I mean, it sounds like you are very mindful, as always, of the expenses and the efficiency ratio, etc. But could we see the expense numbers trend down maybe a bit as a result of getting CDC kind of fully in the loop now?

Yes. You're going to see those efficiencies, and now we've got Morgan onto the system as of last week. We've got the two more CDC banks, and then we will start working on North Side in Rock Springs. We hope to have that conversion done by mid-December is the plan. In every one of those, there's no doubt, Brad, you get those efficiencies.

I think, as we've really broke out our operating expenses though, I mean, when you look at what the additional healthcare expenses were because of last year, not necessarily a reflection of '07 but that was expense baked in during '06 that you end up paying for in '07. You know, that experience was not good. We had a great year last year, so our stock-option expense is higher this year, but that comes and goes. I mean, if the performance isn't there, that stock-option expense moves up and down, too.

But I mean, the things that we really truly can control are -- and I do think we do a great job. I mean I look at our merit increases and our salary increases. They were right at CPI levels; there was nothing extravagant at all there. I don't believe that any of the buildings or anything like that are dragging us too bad, although we did have a huge buildup in a lot of facilities over the last year, year and a half. I mean, there's a lot of buildings that are being expanded and added onto.

I think the key is for us that we've just got to get that revenue going back in the form of some decent-sized loan volume. I mean, if we could have finished the first quarter similar to where we were in the fourth quarter, you know, that would have been a $50 million swing, about a $50 million swing in earning assets. So, I think that's the real key, and then just to continue to -- all the controllable expenses. Then we talked with the bank presidents this week about that very issue, and I think they are very cognizant of it.

Okay. Final question -- just kind of as it pertains to the margin, I noticed that you decreased your utilization of those U.S. treasury tax auction funds and kind of swapped into FHLB advances. I know that those auction funds tend to have a bit of a lower-cost than the FHLB advances. Did that change in the quarter or did that market dry up some? I just kind of wanted to get a sense of what direction you guys were headed there.

Yes, it really did. We had it through the end of December, but the first week in January, those went away, and they did not come back to us until -- there was about a one-week period in mid March when some of the estimated tax receipts came back to a treasury, but then it wasn't until last week where the treasury was active again. That is -- I mean, when that is there, that's a great funding source for us for a couple of reasons. Number one, it mostly contains collateral or repledged collateral that is ineligible at FHLB and some of these other firms. So, I mean we are using -- we are using collateral that helps in our liquidity. But the bottom line is it's 30 to 35 basis points cheaper funding, when it's there. Unfortunately, it's just not there all the time, and it wasn't there almost hardly at all the first quarter.

Okay, great.

Ben Crabtree, Stifel Nicolaus.

I guess a number of kind of small questions -- do you have a rough count as to what the construction -- the construction development would be included in the commercial portfolio, right?

That's correct.

What would the size of that be, roughly?

Well, our construction -- I would have to get you, off-line, the construction number as far as the first quarter origination, but you know, our construction loans have been -- if we break out our construction, I think it's right around 15 -- well, that's one to four-family construction; that's about 15% of our commercial portfolio. But I would have to get you the commercial and one to four family construction numbers. We have those numbers; I don't have them in front of me though, Ben.

Okay. Just a little maybe a tiny bit more color on the payoffs. I mean, you've talked a lot about them and one of the things we've seen elsewhere is that a lot of the payoffs seem to be driven by basically non-bank players. I'm wondering to what extent that's been true there -- insurance companies coming in, even hedge funds, that sort of thing. Or you are the players here bigger banks from out of the market?

It was the latter. I mean, the one that I talked to you and I mentioned on the call, the one large credit that we lost -- and just we were willing to go and compete on rate, but we just were not going to compete on structure and terms -- was with one of the capital market firms. We've seen a little bit of that. They seem to only play in the large, large credits. Maybe that's the reason we haven't seen too much of it ourselves, because we don't have that many really large credits. But this tended to be a really good-sized one for us and a real good one. But the bottom line is we just were not going to go there. We thought long and hard about it but that was a decision and a call that we made.

Would you have a breakdown of the nonperforming assets between non-accrual, 90-day late and OREO? I didn't see that in the release. If it's there, I'm --.

Yes, I think I've got that here. Okay. Let's see now. For our total nonperforming, Ben, at the end of the first quarter, it was 11.306 million. Non-accrual loans were $5.597 million. That was down 468,000 (multiple speakers) quarter. Then past due loans, $3.982 million, and that was up $2.637 million from the prior quarter, and again, predominantly that one credit I referred to, that 1-A credit. Then OREO and OPPA was $1.727 million. That compares to $1.484 million, so that was up 243.

I just want to make sure that I heard this correctly. You said that, with the Lewistown branch sale, there was obviously the gain, which was highlighted. Did you say there were roughly 0.5 million of related expenses, and would that have been on the other noninterest expense line?

No, not necessarily. A lot of that was in compensation -- some of it, not all of it but some of it was in compensation because we had a significant amount of over-time during the quarter to take care of those three acquisitions and the divestiture, too, so that was part of it. There was other miscellaneous expenses predicated -- or as part of the conversions that were non-recurring. When we added it up for all three of the banks, including the one bank that not only had an integration but they also were affected by the divestiture, it came to just a few thousand dollars under 500.

I guess the last thing isn't really -- it's not a Glacier question. But how long has it been since Montana has had the lowest unemployment rate in the country?

(LAUGHTER)

In our lifetimes?

Never! I can guarantee you, never, maybe when there were 13 states and Montana wasn't one of them!

That really was, I mean, that got a lot of press around here, and rightfully so, because I think it does demonstrate that the economy is pretty vibrant. If you are willing to work -- I mean, and in some of our markets, they broke out some of our markets. Bozeman's unemployment rate was 1.7. Billings' was right in the 1.5, 1.7 range. Some of them were even lower than that. But collectively for the state, it was to 2%, 2.6% for Wyoming, 2.8 for Idaho, and nationally I think we are at 4.4. So it shows you there's a lot of jobs around here, or maybe it's a lack of people, I don't know.

Okay, thanks a lot.

Jim Bradshaw, D.A. Davidson.

Good morning. Were there any -- connected to the payoff activity, did you get much in the way of prepayment fees on those loans?

No, we really didn't. You know, it has been a tough -- you know, some of these loans, Jim, were just your normal construction, your normal development loans that -- but some of these were just originated mid-last year. You didn't really expect that there was going to be any early payoffs but boy, they sure did. Historically, we have really struggled to get prepayment penalties. I mean, we get them every now and then but it's such a minute percentage of the overall volume.

Okay, good. The second question I had related to the investment portfolio. It was up a couple of million this quarter, and probably down close to 100 million year-over-year. I imagine some of that is related to Fed funds and things like that, but --.

You just hit the nail on the head; it's all Fed funds.

Okay, so you continue to take cash flow from the bond portfolio and plow back into loans when you have loan growth, I guess, but --.

I believe it was $52 million lower at the end of the first quarter, Jim, than it was at the end of the year. So what you're seeing there is just the Fed funds build up.

With Rock Springs, will you sell their bond portfolio prior to close or is that going to be concurrent with close then or will you just keep that stuff and carry it in and cash flow it out?

Concurrent with closing, you are absolutely right. We will sell it and we will turn it into cash.

I got it. Then the last question I had, Mick, and I just don't remember the answer -- but do you have much DDA runoff around tax time, or is that just a minor event for you guys?

I guess, you know, when I looked at that DDA number, Jim, and I will tell you at the end of January when we all looked and everyone of the 11 banks saw this pretty significant decrease, we just said whoa, what's going on here? I think part of that was we did have somewhat in the fourth quarter, we did have probably a nice buildup in some of these companies and in their DDA balances, and again February and March, thank goodness, you know, they turned that trend around and cut that initial loss of DDAs in half. But I don't believe that -- I mean if you're going to see much in the way of tax implications on DDAs, I don't believe you're going to see much of that until April. Of course, we will have to wait until we get April numbers here to see if there is any of that type of impact. But it's not something that we've really focused on or looked at, so my guess would be -- and this is strictly a guess, Jim -- if it was a huge issue for us in the past, that we would have been analyzing or at least we would have been aware of it. Maybe that has been covered up and disguised in the past with maybe acquisitions that took place in April or March, or something like that. But I don't know, maybe. That's something that we will take a good look at this April. I don't think we so much of that in the first quarter, though, and definitely you would not have seen that in January. January is really the month that we saw the drop-off. February and March, we actually rebounded quite nicely as far as growth in the DDA during those times.

I got it. Thanks very much. I appreciate it.

Brett Rabatin, FTN Midwest Securities.

I just had a follow-up question on -- you were talking earlier about you weren't willing to compete on terms. And I had two questions. One is, I was curious if you were seeing some of the construction folks form LLCs and try and get limited liability and reduce kind of the -- [quote] the guarantees that typically go in for a lot of those projects is question one.

Yes. We've seen some of that. That wasn't the incident that I was referring to. That really wasn't the case in that one large credit. That had four or five issues. Sometimes, Brett, if there's one thing that goes [against us] or [is] an exception to our policy, but if we've done business with the people for a long long time, even if these are people who are forming this LLC and you know, you might have give or take a little bit, but I don't think we've seen very much of that at this point in time. Even the LLCs that have formed, they seem to be people with high net worth, people that we've done a lot of business with, and credits that we've felt pretty darn comfortable with.

You know, we had an interesting conversation with all of our bank presidents yesterday. When you get all of them in a room, it's kind of interesting. We've been very, very blessed to have very good asset quality, and yet a couple of the bank presidents -- and this (technical difficulty) really highlighted but if you go back to what ever loan problems that we have experienced in the past -- and again, we've been fortunate there haven't been very many -- but those that we have had, it's never been an underwriting issue. It's always been a credit management and credit monitoring issue. I think that when you look at some of the (technical difficulty) it's not so much that the thing was structured wrong or that it was underwritten incorrectly. I think it was underwritten very, very well, but somebody, somewhere dropped the ball. Again, we don't have very much of this but the focus of that discussion was that, going forward, we could even cut our losses further down if we really are paying attention and those loan officers are paying attention and continuing to truly managed these, and manage them based on the way they were underwritten.

I kind of thought it was an interesting discussion yesterday, and kind of a sideline for what you were asking -- but no, we haven't been pressured much from LLC to do things inordinately different. Again, this one large credit we'd lost, we had every opportunity to keep that credit. They would have loved -- in fact I believe they wished that we would have, but there was just no way that we could and were willing to compromise on that level of structure and terms to do it. I think that maybe is the good news, but most of these, except for all of these direct payoffs, people from out of the area just buying these out -- when we do lose a credit, I think, more often than not, we definitely have a chance at keeping it, but sometimes, it just doesn't make any sense to us to do that.

Okay. Then the other question I had was -- and this is not showing up in your markets that I know of yet but I was curious if you were seeing any of it -- was there are some banks out there that are basically noting that pressure on pricing has left the commercial real estate world and is now firmly moving to C&I and construction, and so it used to get the prime plus some numbers. Now, it's, for C&I, maybe prime plus a little bit, if anything. Then on construction, it used to be prime plus 1 and now it's shrinking to prime plus 50 basis points or something, plus whatever fees. So I was curious if you were seeing any pricing pressure in any of your markets, in terms of competitors being more aggressive to pick up loans.

No doubt and especially the quality C&I loans. I mean, in, I don't think there's any question that competition has picked up. I know we joke, but it's probably closer to being true than not. Prime should probably be recast to 1 over Fed funds, not 3 over Fed funds. Then at least we could all feel good about getting something over prime because, in this world that we're living in today, prime (LAUGHTER) for even some of your average customers, it's prime minus something, you know. So I don't know if that index is as relevant as it used to be it. I don't see -- and maybe, maybe it's a function with us of not working and not dealing enough in the B and C-type credits. I mean, I think all of our banks have, over the years, they have built up a core group of customers that are pretty high-grade. So for them, maybe we see it more than maybe some other banks would that are willing to stretch more. We just haven't been willing to do much of that on credit. So that's why we get pounded maybe more on price, because these customers know that they can go down the street and they would be more than happy to grab that credit at a lower price.

So, I think we do expose ourselves to maybe more pressure from interest-rate pricing and fees that we are able to charge, but the flip side of it is let's hope that we are benefiting from the asset quality side. We sure believe we do.

Okay, great. (technical difficulty).

It appears we have no further questions at this time.

Okay, well, thank you all very much. Again, if there's some further detail-type of information, you can sure give Ron Copher, our CFO, a call, or myself. We can dig whatever you need out if you want some more color on some of these issues we talked about today. But thank you all for your interest and attendance, and we will talk to everyone a little later.

Once again, this does conclude today's teleconference. You may disconnect your lines at any time and thank you for your participation.