Glacier Bancorp Inc (GBCI) 2010 Q1 法說會逐字稿

Good day, and welcome to today's first-quarter earnings call. At this time all participants are in a listen-only mode. I will be standing by if you should need any assistance. And it is now my pleasure to turn your conference over to Mr. Mick Blodnick. Please go ahead, sir.

Welcome and thank you for joining us this morning. With me this morning is Ron Copher, our Chief Financial Officer; Barry Johnston, our Chief Credit Officer; Don Chery, our Chief Administrative Officer; and Angela Dose, our Principal Accounting Officer.

Last night we reported earnings for the first quarter of 2010. Those earnings for the quarter were $10,070,000 and that was down 36% from last year's quarter. Once again, the quarter was pretty straightforward with only a small $300,000 pretax gain on the sale of investment. Outside or aside from that there was no other notable nonrecurring income or expense.

Our diluted earnings per share for the quarter were $0.16, once again a decrease of 38% over the prior year's quarter. The average share count was 2% higher than last year's first quarter. In March we issued 10.3 million additional shares as part of our secondary offering which will have a greater impact on the average number of shares outstanding as we move through the year.

The first quarter was just about what we expected; our loan loss provision was $21 million; although less than the prior two quarters it was still $5.2 million higher than last year's first quarter. Gain on sale of loans was down $2.3 million or 37%, almost exclusively the result of a significant drop in refinance activity from the same quarter last year and of course that gain on sale down $2.3 billion, that was a pretax number.

OREO expense and write downs also increased 1.8% compared to last year's quarter as we are working hard to dispose of foreclosed properties. Our ROA for the quarter was 0.67%, down from last year's 1.15%, and ROE was 5.75%, that was also down from 9.27% in last year's first quarter. In addition to lower earnings, obviously another reason for the drop in ROE is the increase in capital within the Company.

On March 22 we completed a very successful secondary offering, which added just short of $146 million net in additional equity. With the increased capital, stockholders' equity ended the quarter at 13.47% versus 12.22% in last year's quarter. Our tangible common equity ratio increased to a very strong 11.19% and that compares to 8.72% the prior quarter and 9.65% in last year's quarter.

We believe that additional capital puts us in a great position to take advantage of what we believe are going to be some attractive opportunities the next couple of years, as well as the capacity to allow our banks to continue to grow organically.

As many of you know, credit quality has been a challenge for our company for the last 12 months and we continue to allocate significant resources to controlling, managing and disposing of these assets. In the first quarter we once again saw an increase in nonperforming assets to 4.19% of total assets. This compares to 4.13% the prior quarter and 1.97% in last year's first quarter.

We've consistently said we felt that NPAs would increase through the first half of 2010 and we're still staying with that prediction. That's proved to be the case in the first quarter. However, one good thing is the pace of the increase slowed to the lowest level in seven quarters and it appears to be showing -- and NPAs appear to be showing signs of moderating the past two quarters. So we've had two quarters in a row of moderating increases to our NPAs.

Nonetheless, the number was still higher this quarter, so there is no cause for celebration until we can make some significant progress in reducing the amount of our NPAs. We did see a couple of positive trends develop this quarter within the composition of our nonperforming assets. However, again it's still too early to be optimistic that things are going to improve rapidly.

Land development loans, which have been the biggest source of problem assets for us, declined this last quarter by $12.2 million to $76.3 million. Spec and presold residential construction loans did increase, but it was by less than $1 million. And one to four family residential loans that increased last quarter were also down $5.7 million this quarter.

The Boise market, which has been a source of most of our residential construction problems to date, is starting to show some signs that maybe things are starting to get a little better. It was reported this week that residential inventory fell in Ada County, which of course is the Boise -- the county that serves Boise, to a five and a half month supply. That's the best figure we've seen in that area in over two years, probably more like three years.

Unimproved land was the one category this quarter that caused most of the increase in nonperforming assets; it was up $6.1 million to $38.6 million. The increase in NPAs seems to be stabilizing without the use of additional troubled debt restructures.

In fact, the amount of TDRs, or troubled debt restructures, actually decreased in the quarter by $2.6 million to $62 million of which only $12.5 million of that $62 million at quarter end was still considered accruing and not part of our other NPAs. So only $12.5 million is sitting out there in accrual status of the troubled debt that we have restructured -- very, very low number.

Another positive trend this past quarter was in our early-stage delinquencies. After a spike in the fourth quarter our early-stage delinquencies decreased from $87.5 million to $61.3 million or 30% decrease. These early-stage delinquencies were also lower than the $66.5 million figure in last year's first quarter, so this past quarter we have made some progress on our early-stage delinquencies.

Net charge-offs for the quarter were $20 million or 2% annualized, that's about what we experienced the last two quarters, but still up significantly from $9 million in last year's first quarter. We expect at least the next couple of quarters for net charge-offs to remain elevated compared to our historical experience. We plan to aggressively dispose of nonperforming assets through the rest of this year which will probably result in continued high charge-offs levels.

So even though there are some reasons for optimism on the credit quality front we still have a lot of work to do. By no means do we like where we are and know we have to start to lower our NPAs and make further headway in decreasing our delinquencies. Unfortunately, even though we have made progress in resolving numerous nonperforming assets, we're still seeing a fair amount of loans move to NPA status. That has to slow down in order to make progress -- in order to make the progress that we hope to achieve this year.

Our loan loss reserve ended the quarter at 3.53%, that's up from 3.46% the prior quarter and 2.01% in last year's first quarter and that's after the $21 million provision. As we stated previously, we would expect the provision this year to more closely mirror our charge-offs, especially since we don't figure to add much loan growth to the balance sheet in 2010.

Our net interest margin continued to compress as we thought it would, sequentially our net interest margin decreased 27 basis points in the current quarter to 4.43 and was also down from 4.92% in last year's first quarter. We knew that maintaining last year's net interest margin, which was a 10-year best for us, would be difficult and we would have -- and we have now experienced four consecutive quarters of contraction in our net interest margin.

Loans added to non-accrual status this quarter caused the margin to be lowered by 7 basis points; the other 20 basis points was the continued reduction in higher yielding assets that were replaced with investment securities with much lower yields. Also last year we made great use of the term auction facility made available through the Federal Reserve at very attractive borrowing rates.

In anticipation of that program being discontinued, we shifted dollars from that program and began to extend some of these liabilities. Unfortunately both of these actions came with a cost and caused an increase to our cost of funds which last year was extremely low.

Net interest income decreased 7% on a linked-quarter basis and declined 1% over the first quarter of last year. Although we hope that this first quarter was somewhat of an anomaly, in this current rate environment we think there could be further stress on the margin but hopefully at a much slower pace.

Loans declined by $59 million during the quarter or 6% annualized. This is about on target for what we are projecting for the year. However, considering this was the first quarter, which historically is usually a slower time of year, we hope that maybe with spring and summer still ahead we can gain back some momentum and generate some improved loan volume. The next two quarters will be critical if we hope to stop the loan portfolio from decreasing further.

Just the opposite of the loan portfolio, we continue to enjoy great success in generating additional deposits. Non-interest-bearing deposits increased at a 9% annualized rate during the quarter. These low cost deposits and these low-cost funds will serve us well when rates start to move higher. We also saw higher levels of interest-bearing deposits which were up 6% annualized in the first quarter.

Since last year's first quarter total deposits increased by $870 million or 26%, which not only funded our asset growth but in addition allowed us to reduce our borrowed funds by $385 million. Non-interest income of $16.2 million was a decrease of $1.2 million or 7% from last year's quarter. Again, all of the decrease can be directly attributed to the reduction in gain on sale of loans during the quarter as a result of the decreased volume of refinance activity.

Although purchased volume has remained remarkably consistent, we did not plan or budget for the same level of mortgage origination activity knowing refi's this year would be down dramatically. But again, purchase volume has been a pleasant surprise and has been very stable and consistent and that carried through through the first quarter.

Our efficiency ratio increased this quarter to 55% versus last year's 51%. Here again, a combination of lower revenues this past quarter along with higher OREO expense were the main drivers that led to the increase in our efficiency ratio. With that said, the banks continue to do a stellar job of controlling those expenses, both operational as well as funding, that are under their direct oversight.

In summation, we like how we are positioned; credit quality will continue to be a challenge that will require our full attention. However, we have built a capital base that is one of the strongest in the industry and will allow us to take advantage of what we expect to be some once in a generation opportunities.

We still have a net interest margin that compares very well to all of our peers. Even though we have seen compression over the last four quarters, when we look at our margin compared to the industry and our peers we compare very, very well. And this also allows us to maintain some very solid core operating earnings.

We continue to improve the mix of our assets and liabilities, further strengthening our balance sheet and improving our liquidity. And finally, we are operating in some good markets that could snap back sooner than other parts of the Western United States. Idaho, for example, which is the one state we have a presence in that was the hardest hit by the recession, reported their unemployment rate last week improved from 9.5% to 9.4% in March. So hopefully Idaho is on the mend.

As we move through the rest of this year we're fortunate to have these things working in our favor and hope we can make some additional improvements to our performance over the balance of the year. And with that, those are my comments on the quarter and we will now open it up for questions.

(Operator Instructions). Jeff Rulis, D.A. Davidson.

Good morning. A question on the foreclosed asset costs and losses, it trended lower in the quarter. Is that sustainable or how would you couch that versus your comments on getting more aggressive on moving some properties through? If you could touch on that.

Yes, I think the OREO expenses, I think they're going to be -- I wouldn't see them being real consistent from quarter to quarter. It really is going to depend upon the foreclosed property we're working on. It just so happened that in the fourth quarter that number was higher than it was this past quarter.

And it was just the properties that came in to foreclosure, the ones that we were able to move out -- again, the prices that we were able to get which have been really all over the place, Jeff. I mean we've had some foreclosed property where -- we actually got a gain back out of the property and then there are others that you're taking a significant hit.

So, for us to say that it's going to be that same amount or less, no. I know that's not a real good answer as far as what you're probably looking for, but I would suspect that OREO expense is going to be elevated far above what we've historically seen. But it's really going to be a quarter by quarter.

Some of these larger OREO projects, if we move them or if we can dispose of them that quarter, it may see a higher OREO expense than maybe the following quarter. Barry, have you got anything more to add to that?

Yes. We're also looking at doing some auctions in this upcoming quarter. And frankly we've never done that before. But we've seen some other banks in our marketplace complete those; they have been having a fairly good success on that as far as the amount of loss on sale. So right now, depending on how those go and what the market bears, it's kind of a guess I guess is what we're going to see as far as loss on sale.

And like Barry says, there are a couple of those planned for this quarter.

Right, right.

So, I mean, that right there could elevate the OREO expense in the second quarter.

Okay, tough number to predict.

Hideous.

I guess on margins, do you have monthly averages for -- do you calculate that also on a monthly basis?

The margin? Yes.

To see the trend?

Yes, we do. And the trend was -- well, the first quarter the way the margin -- the trend obviously was down, but the month of February, just because of the way it's calculated because of the fewer number of days in February, I mean February's margin, Jeff, actually bounced back from where January and March's were.

But, I mean, I think that the key trend is that we saw a pretty significant amount of compression in the margin in the quarter. It wasn't surprising to us, we expected that we would. I mean, if you take the 27 bps that we compressed during the first quarter, as I mentioned earlier, 7 of it can be attributed to non-accrual and the loans placed on non-accrual and adjusted. But there are still 20 basis points.

We lost $59 million in net loans during the quarter, in fact that was gross loans, $59 million in gross loans during the quarter. And I mean those loans on average are probably yielding us somewhere in the 6%, 6.5% range right now. And because we are just unwilling to step out and take any interest rate risk currently we are replacing those with some very, very short-term government agency type securities and something has got to give.

And we just were not able to buy enough product in the first quarter to even offset -- I mean knowing that the margin would compress anyway, but we were not even able to buy enough product of what we exactly wanted because we're very specific in what we're willing to buy on the -- especially in the mortgage-backed area with these agencies. And we just couldn't find the product. As a result, I mean we did see our net interest income decline rather significantly and that could continue.

Now our hope is that as we come into the second and third quarter that maybe we can offset some of the decline in loans and maybe our loans maybe won't get hit quite so hard as they did during the first three months of the year. But there's no guarantee of that either. I mean, we could see further reduction.

So, the margin is one that it's what we said it was going to be. I mean, I think I've been saying this for the last number of quarters, that we're going to continue to probably see compression in the margin, hopefully it won't be 27 basis points again, but I don't see anything out there that's given me any reason to believe that the margin is going to turn around and go the other way. Especially since our margin was so high to begin with.

Okay, thanks for the detail.

You bet.

Jennifer Demba, SunTrust Robinson.

Can you give us an idea of what range of loss severities you're seeing in your construction and land development portfolio? What you've seen to date and what you expect to see?

You know, Jennifer, that is -- it's tough. I'll let Barry give you kind of an average. But boy, it's been all over -- it's been all over the chart. Again, some of the severity has been from everything from getting all of our money back to 60%, 70%, 80% loss on some things. Barry, if you had to figure an average, would you say on both combining the residential and land development that it's somewhere in the 30%, 35%?

Yes, 35%, 30% to 35%, somewhere in there.

I'd say that's probably the marks that we're taking, Jennifer, on those portfolios.

Okay. Thanks a lot.

Joe Gladue, B. Riley.

Good morning. I guess last quarter you talked about you were seeing some increased interest or maybe people kicking the tires of some of the repossessed properties and such. But I guess still hasn't been much I guess a whole lot of movement. Just wondering if you could touch on how that level of interest has progressed?

I'd say the level of interest has intensified. I mean, there's no doubt in the last three months that, again, the number of tire kickers is even greater than it was in the fourth quarter. And you're right, Joe, we did mention in the fourth quarter for the first time in a long time we were actually seeing some actual people call and ask about some of the projects that we had.

I can just flat tell you that we have seen a lot more of that activity. I'm not saying that there's been a significant amount of offers yet made, but there's no doubt that there are more interested parties calling, checking around, snooping around. Barry?

Yes, I think the way to analyze it, in 2008 we saw no offers, in 2009 we went from no offers to low offers, just really offers that just didn't make a lot of sense to us. And early this year we actually -- we sold a couple properties, we're receiving two or three offers that if one sits back and thinks how long we'd have to hold these properties versus the opportunity cost of investing those dollars are getting somewhere closer to what we would accept.

I think we're seeing more of that. And of course, every time we evaluate these holding costs on these properties --. This year I think we'll see a lot more activity in the sale of bank owned properties than we have in the last two years.

Okay. I don't think I saw this in the press release, so could you give us a little bit of color on what the composition of the early stage of 30- to 89-day delinquencies is, what types of loans?

Type of loans?

Yes.

I don't have that (multiple speakers).

We'd have to get that to you, Joe.

Okay. Again, just wondering if it's much different (multiple speakers).

Yes, we could sure provide that, but we don't have that at our disposal right now.

Okay (multiple speakers).

Joe, I'd say just generally that delinquencies run about the same as the nonperforming. If you wanted a comparison, those percentages run pretty true.

I think that's a good point, Barry. I think that if you looked at the NPAs and applied percentages to those you could pretty much take that $61 million and apply the same percentage you'd be probably --.

Pretty much spot on.

Yes.

Okay. All right that helps. Lastly, just touch on the decline in the I guess NSF fees. Is that change fee structure, is that in anticipation of the new regulations or what's going on there?

No, I think part of it is -- I mean because -- on a sequential basis and a linked-quarter basis we were down -- these are pretax numbers, Joe -- we were down $1.1 million in fee income on checking, savings accounts and that from the linked-quarter or the fourth quarter. But we were actually up by $500,000 over the same quarter last year, which obviously we're a bigger company, we've got more customers than a year ago.

But it's a better comparison going first quarter of this year versus first quarter of last year because, I mean, two or three less days a quarter, which of course the fourth quarter had 92 days where the first quarter only has 90, those two days make a significant amount of difference in our fee income off of checking and savings accounts. So it's probably better to compare last year with this year. And we were actually up about $500,000.

I think the other thing too that we usually see in the first quarter is it's just a slow time of year. You don't have people traveling, you don't have people -- the activity level is just so far less and below what you would normally see during the spring, summer and early fall months. So, if historical trends do continue we should see a snap back in this quarter.

But I think your other question was, I mean, although we have not seen any real implications from some of the changes that the Fed made to the Reg E and the overdraft rules, we're working very diligently right now to get customers to opt in. I mean we think -- we have never ran one of those overdraft programs to begin with. We think the people that absolutely do overdraw their account, I mean, it's oftentimes a service that they're willing to pay for and we're right now in the process of working to get a lot of our customers to opt in.

We started very early in that process. Even though it's probably not going to be much of an impact specifically until August we've been working since January on this and we hope to be far along by the month of June as far as knowing who has opted in and who has decided to opt out.

We're hoping that it's not going to have the impact that some people have speculated it would have. We're confident that we can do as good a job as anybody in that area. But it still, I mean it's by no means is it any kind of a positive. So, we're just going to have to wait and see how we make it through this second quarter. And then in the third quarter will really be the telling tale as to what kind of an impact it does start to have on us.

Okay, thank you. That's all I had.

Brett Rabatin, Sterne, Agee.

Good morning, Mick. I wanted to ask, you talked some in the press release and then on the call about generally stabilization of non-performers hopefully occurring here. And I know that non-performers weren't up that much this quarter and past dues were a little lower. Can you give us -- is your estimation of that occurring a function of primarily those two things or is it also key incrementals you're seeing from maybe your lenders and your chief credit officers or your banks? Can you provide more color on past dues and problem asset formation, maybe?

Yes, Brett, that's a good question, it's got a lot of components. Barry is the one that's in constant contact with all of the banks and many, many of the loan officers. So, Barry do you have any -- because I would say -- I'll just give you my two cents worth and then I'll turn it over to Barry.

I mean NPAs, they have stabilized the last two quarters, they stabilized even more this quarter than they did last quarter as far as the dollar amount of increase. And as I said earlier, this was the smallest increase in dollars we've experienced in seven quarters. So, I mean, that trend at least is going in the right direction, but with that said NPAs were still higher, I mentioned that earlier. And that's not satisfactory, that's not acceptable.

And we -- but I've been very, very consistent in saying that I still believe it could be, based on what we're seeing out there and based on the flow of loans into the early-stage delinquencies from there into NPA status, I still feel that we could be into the second half of this year before we start to see some reduction in NPAs. We still very well could see another higher number in the June quarter.

I'm very cautious about saying that we have seen the top, I'm not going to say that. We could see higher NPAs through this next quarter. But our hope, and I underscore again the word hope, is that in the second half of the year we can start to reduce. I mean that's our goal, our goal is to start to reduce NPAs. And how fast and how rapidly those NPAs can come off the books, I think that's part a function of the economy, I think it's part a function of how aggressive we want to be and what kind of hits we're willing to absorb.

And right now I just can't tell you. I mean I wouldn't even venture a guess as to where our NPAs will be at year end. I know we've got targets internally that we obviously have not disclosed as to where we hope to be, but publicly I would never tell you that we're going to be right or wrong. So, Barry have you got any other thoughts from the ground level as to what you're hearing out there?

On a gross basis, if you look at it everything net of charge-offs, our new NPAs this quarter were about $30 million. Of course we had about $2.3 million in OREO write-down loss, we had $20 million in charge-offs and we increased $6 million. So, that's a big negative. We anticipate that why the net was $7 million -- a $6 million to $7 million increase and the smallest increase we've seen in quite a while, there are still some issues out there.

We have to live with the credit decisions we made four or five years ago and we have to live with this economy that -- especially when it comes to the real estate side of things, that we need to work through some of those issues. And while we saw some improvement, again I think I'm just going to echo Mick's comments that we by no means are out of the woods yet.

In regards to the second half of your question, we have taken a very Draconian stance in trying to eliminate to NPAs and classified assets to the extent that if we can get a 2-for-1 reduction in NPAs either with a loan loss or an OREO write down we are considering those more so than we have in the past.

And if we can discount a classified asset by 20%, even though we may not have some loss in it, and we can reduce those classified assets -- we're evaluating those options now that we traditionally did not look at in 2008 and 2009. Of course hindsight is 20/20. But we're at a point where we need to aggressively reduce our NPAs and classified assets. So, we're taking those steps to do that.

One comment I will make, Brett, because I know we were criticized from a number of people on maybe not taking enough charge-offs and not charging the portfolio down enough last year. But, there were a couple of things, number one, we were sitting on, even last year we were sitting on capital levels that were far greater than most other banks. We knew we had the capacity and the capability of holding on to these NPAs.

We could have -- we could have marked a lot of this stuff down to, like Barry said, some very, very Draconian levels and probably blowing it out the door. We chose not to do that. Instead I think we adequately every quarter added to the loan loss reserve and the loan loss reserve is at a level that we're very comfortable with.

But now a year later rather than selling all of those we're starting to get more aggressive now. But -- and maybe I'll be wrong on this, but I don't think so. I think we're starting to sell some of this stuff in a better economy with more interest level than what we would have seen last year. And hopefully we're just not going to give this stuff away and take the marks that we would have taken if we would have chosen last year to, again, just blow this stuff out.

Now I do realize there are opportunity costs, we recognize that. We analyzed every one of the deals. But again, there were a lot of banks that could not hold on, they didn't have a lot of options. We obviously did -- chose to go this route and I think it's in the long run, with the overall marks that we take through this cycle, I think it's probably the right thing to do.

Okay, great. Thank you for all the color.

You bet, Brett.

Matthew Clark, KBW.

Good morning, guys. First just on your comment about the provision likely to match charge-offs here going forward. I think knowing that you guys want to remain aggressive in taking losses, is there a sense that even if charge-offs move a little higher or are lumpy throughout the year that you're still going to match charge-offs, you wouldn't let that reserve release?

That's a great question, Matthew. Not necessarily. I mean again, we're going to have to see -- when we're analyzing that reserve we're analyzing the size of the loan portfolio, what's taken place, how much of these NPAs and OREOs are we taking off the books? So I think that's going to have to ultimately be a quarter-to-quarter decision.

I don't think that coming out of this crisis I'm not sure what the right level for the ALLL is going to be. I mean I've said it many times, I mean you come out of this thing and if those credit issues are behind you are you going to continue to put 4% of every new loan dollar two years from now into the lone loss reserve to support a 4% loan loss reserve? I don't know.

I mean, I don't know what the regulators will be expecting. I know right now that our reserve is higher than most. And whether or not we continue to support it 100% or do you let it back off one quarter, bring it back the next quarter -- a lot of it is going to have to depend upon what has taking place within the portfolio itself. Any additional thoughts?

Yes, I think it's really going to -- the key is it's going to be classified asset totals. Until we can see those fully stabilize and start to decrease I don't see us at any time changing the level of provision versus charge-off. But it should -- when we were setting here six, eight months ago, maybe a year ago, we were talking with the second and third quarter's increases in NPAs we were mumbling about a 4% and maybe even a 5% reserve.

Well that's stabilized, so we backed off the provisioning at the end of last quarter, a little bit this quarter compared to where we were. Traditionally we were at about 2 to 1, some quarters even above 2 to 1 provision versus charge-offs. Last quarter we were about 1.5 and this quarter we're about 1. Whether or not we would go sub 1% it really will come down to the ultimate classified asset totals and per the old accounting literature will be directionally consistent with that methodology.

Okay. And whether or not you guys match charge-offs or not is it still fair to say though that charge-offs are probably going to still march higher?

I would say that charge-offs would be at least where they are right now. I mean, that -- at least for the near term, I don't see any way that we're going to significantly, Matthew, make any kind of noticeable reduction in overall NPAs and expect that charge-offs are going to decline. So, I'm not saying that they would necessarily go up materially, but I wouldn't be expecting anything less than somewhere in that $20 million charge-off range.

Okay. Well, let's hope the new normal is not 4%, let's hope it's half that on the reserve. And the securities portfolio, that's now I guess 28% of earning assets, I know it's partly because there's no loan demand and you have a lot of excess liquidity. But just curious as to what the duration is on that book, what kind of implied prepayment rate are you assuming on the [MBS] book. I'm just trying to get a sense for how that might -- that duration might change as rates go higher here?

Well, as I mentioned earlier and, I'll turn it over to Ron, he can give you a little more color. Regarding the -- and you're absolutely right, with no loan volume, I mean lots of liquidity, you've got to do something. And we have chosen -- and unfortunately for net interest income and unfortunately for our margin, we have chosen to take a very -- an ultra conservative approach to the investment portfolio.

I mean, we're purchasing securities with average -- weighted average lives and durations of around two years or even less. And stated finals that can't go, no matter what, beyond three, three and a half years. Now in order to get that kind of structure and that kind of product, I mean we're not getting much in the way of yield. I mean the yield on this product is about 1.75%, so it's having a definite impact there.

Now as long as the yield curve stays at least as steep as it is right now it's still better than shrink in the portfolio. But, it's definitely weighing heavy on our margin. And then, as I said earlier, we just were not able to buy a dollar amount of product that we had hoped for. We would have probably liked to have bought even more of this type of structure during the first quarter. Either a lot of other banks are looking for that same kind of product or it's just not out there, just not available right now. So, Ron, do have any other thoughts?

Yes, Matt, let me add to that. We are avoiding the high coupon agency issued mortgage-backed securities, CMOs, call them what you will. We don't want to have to worry a whole lot about what the prepayment levels are going to come in at. So by staying in those lower coupons we don't have the premium at risk and therefore don't have to sweat out, if you will, did we get the prepayment number right.

And by staying short, as Mick said, complemented by the low premiums, we can feel pretty comfortable with the analyses that we do on each of our purchases looking across a range of prepayment levels to see what is that extension risk and then what is the premium amortization that will go with that.

That's great. Thanks, guys. I appreciate it.

David Keene, RBC Capital.

Thanks. Good morning, guys. I guess following up on Brett's question a bit, Barry, that $30 million of new inflows we saw this quarter, how does that compare to the fourth quarter or I guess maybe just the last couple quarters?

Well, the second quarter of last year we had a $70 million to $80 million increase and we had (multiple speakers).

In the fourth quarter we had about 3 -- what was the OREO write down in the third quarter? Well, in the fourth quarter it was over $3 million. We had $19 million in charge-offs, David, and our NPAs went up $17 million.

So that's a fair amount -- okay (multiple speakers).

So, I mean it was more (multiple speakers) it was definitely more than it was in this first quarter.

Okay. That's helpful. And then, Barry again I guess, when these other banks are auctioning off the loans, assuming that they're in land and construction, the marks they're taking, how does that compare to that 30% or 35% average severity that you talked about in response to Jennifer's question?

I think there's any qualifier there. Depending on what the -- normally what we have seen the banks doing is auctioning off bank owned properties, not loans per se. But it all depends on how conservative the bank is in bringing those bank owned properties onto the balance sheet, what they write them down to and, of course, expense the loss against the provision.

And depending on that process, depending on the regulatory accounting side of it and of course the FAS accounting side of it of what they're allowed to do really makes a difference on what their ultimate loss on the sale of OREO is. What we have seen at a couple auctions, and this is in the Idaho market, is that they basically were receiving about a 10% discount to what they were carrying those assets at, which gives us some comfort level that if we do the same thing, basically taking a 10% discount as compared to a holding cost for a year.

Either hard cost property taxes, homeowners fees, that sort of stuff and your opportunity cost just pure taking a 10% loss on sale. So that's why we're looking that avenue this time because they have had what I would consider some relative success.

Now to add -- David to add to what Barry said, we have not done one, we've got some scheduled, as Barry said earlier this quarter. But we have been in contact with, again, some other auctions that have taken place, the banks that ran those auctions seem to be very satisfied with the outcome.

As we've talked to some of the auction companies about our own auctions, here again, they're in the business to run these and conduct these, so take it with a grain of salt. But they're pretty excited about these upcoming auctions and they think that we're going to be very pleasantly surprised at the outcome. We'll have a lot more color on this come the second quarter when we get through a couple of these and we'll be able to tell you if we're happy campers or not.

What we plan to do just to -- we plan to offer about half the properties with no reserve. And then depending on what -- during the auction. And then depending on the success, the prices at how those properties go, we will open up additional properties with reserve. But then again it's a marketing tool that we have not used before, but we have seen some success with some other banks that are using that means to do it.

The one big thing though is that we have all seen in talking to some of our counterparts of some of our other competitors that anybody buying -- looking at a piece of property is definitely waiting until the bank gets the title back to it, primarily because it's a lot easier dealing with a banker than it is a developer or owner of the property. So we just haven't seen any activity per se until we actually own the property.

And it kind of goes back to maybe why our TDR levels are a lot lower than some other banks is because a TDR -- we kind of look at that as just delaying the inevitable. And so rather than trying to restructure something or putting the borrow for two or three years and then getting the property back, we have just taken the fact we'll accept a short sale, we'll except a deed in lieu of releasing a guarantee and going that route in trying to just get these properties back and liquidating them as bank owned properties rather than struggling with the borrower for a couple of years and then ultimately come to a resolution on them. So -- that's our program.

Okay, that's really helpful. Thank you. And then lastly real quick maybe on FDIC assisted deals. I guess is there any color you can provide maybe on the pipeline? Is that still as encouraging as it was a month ago? Is it better than it was? Anything you want to add there, Mick?

Well, yes, I mean we're going to be -- believe me, David, we're going to be looking very closely when we start getting UBPRs out for the first quarter and see where the trend is, especially among those eight banks that we noted in our presentation when we were doing the capital raise, we're going to be paying particular attention to the progress or lack of on those.

Again all we know right now is fourth-quarter numbers so we -- it's going to be a lot better for us to see first-quarter numbers, see if some of these have deteriorated further, if they found some way to bounce back; it will be interesting. But, that's right what we're doing right now and we have every intention of following those along with any other ones that could show up in this market area.

Because remember, we initially looked at over 40 that had high Texas ratios and will -- but we actually reduced that number by three or four qualifiers. We're just going to see where the overall group of 40 is and where that group of eight was. So, yes, we're just waiting for about another it will probably been about another month before we said those numbers for the first quarter.

Okay. Thanks much.

Brett Rabatin, Sterne, Agee.

Hi, Mick, I was going to ask the FDIC question, but since it's been answered -- what happens if you're not able to do a transaction sometime this year, what happens with the -- you have obviously a huge amount of capital. Have you had any conversations with Community Banks that are pretty clean or is M&A going to be the next step if the FDIC thing doesn't quite play out the way you've hope it will?

You know, I would think that over the next couple years that -- I mean, because it could still be the rest of this year and maybe even into next year on this FDIC -- on the FDIC deals, Brett. But if they don't pan out over the next 12 months or so I really do believe that especially as the industry comes out of this crisis there is going to be a lot of whole bank opportunities because I believe there's going to be a lot of individual companies that their management, boards, owners, they will be three, four, five years older than they were coming into this thing.

And I still firmly believe, and I said this last month during the capital raise, that we're not going to have any shortage of opportunities to take a look at. But I think that right now, as we've said all morning, I mean our focus right now is to clean up our own NPAs and get ourselves to the point where we're not having to spend the level of resources we do right now trying to get our asset quality where we want it to be. Once that takes place and once we start to see some nice trends there I think we'll be a little bit more active in going out there and knocking on doors again.

Okay, great. Thank you.

It appears we have no further questions at this time.

Okay, well, thank you all very much. Have a great weekend, thanks for the interest and all the support and we'll talk with all of you later. Thank you again.

This does conclude today's teleconference. You may disconnect your lines at any time. Thank you and have a great day.