Glacier Bancorp Inc (GBCI) 2011 Q3 法說會逐字稿

Good day everyone, andwelcome to today's program. (Operator Instructions). It is now my pleasure to turn the program over to President and CEO of Glacier Bancorp, Mick Blodnick. Please go ahead.

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 Cherry our Chief Administration Officer and Angela Dose, our Principal Accounting Officer.

Last night we reported earns for the third quarter of 2011. As previously reported earnings for the quarter were impacted by a $32.6 million after tax good will impairment charge resulting in a loss for the quarter of $19 million or $0.27 per share on diluted earnings per share basis. The volatility in our stock price that took place in the third quarter required us to engage an independent evaluation firm to review reporting segments of our Company for goodwill impairment. However, my comments this morning will focus primarily on our operating earnings this past quarter.

Excluding the impairment charge, the Company earned $13.6 million or $0.19 on a diluted earnings per share basis. That is an increase of 46% from last year's third quarter of $0.13 per share. The only non-recurring item for the quarter was an after tax gain of $497,000 on the sale of investment securities. Aside from that there were no other non-recurring income or expense items.

Core earnings held up well and a number of credit trends continued to show further signs of improvement. Although credit expense still had an adverse impact on our performance this past quarter. There were a number of credit metrics that moved in the right direction, which hopefully will allow us to make further progress before year end. Our return on assets for the third quarter again excluding the impairment charge was 77 basis points or 0.77%. That is up from 0.60% in the prior year's quarter.

Our return on tangible equity was 7.78%, also an increase over last year's 5.81%. Although still not the performance levels we expect of ourselves, we are making steady progress each quarter. If credit quality continues to improve, it will further hasten our return to higher earnings. Tangible stock holder equity ended the quarter at 10.6% versus 11.4% in last year's quarter.

We have a very strong capital base which has allowed us to increase the size of our asset base over the past year and gives us a great deal of flexibility in managing our balance sheet and to take advantage of future growth opportunities. Total assets grew by $65 million or 1% during the quarter to just over $7 billion. The growth in our asset base came from increases to our securities portfolio primarily.

Loan demand continues to be soft and not enough to offset the normal amortization along with the disposition activity taking place with our distressed credit. Recently, however, we have seen some pick up in loan demand and the quality of the credits have been very good. So hopefully we can end the year with loan growth trending in the right direction. One negative on the loan front continues to be the intense pricing pressure for quality credits. We saw no, easing up of the competitive forces in this area and don't expect that to change in the foreseeable future.

Because we are still experiencing weak demand for loans, again this quarter we purchased investment securities to offset the loss of loan footings and cover normal amortization from the investment portfolio. This past quarter we did a good job of maintaining the investment portfolio at its current level, however each quarter takes a sizable amount of purchases just to replace the securities amortization runoff. As we've stated before this is compounded by our resistance to extend the duration of our agency CMO's which constitute a substantial portion of the overall investment portfolio.

However with the events of the past quarter and the likelihood that we could be in this current rate environment for far longer than we ever expected, we are looking to extend our weighted average life on new CMO purchases to the two to three year range from the 12 to 18 month range we have been incorporating the past couple of years. This hopefully will slow down the amount of the cash flow required to be reemployed or reinvested each month. Deposit growth, and more specifically, demand deposit growth was once again a real positive for us this quarter as we had nice gains in both the number of accounts and the dollars on deposit.

The banks once again did a great job of not only originating new accounts but also reducing their attrition rates of existing accounts. This continues to be the primary focus for all our banks and the key reason the funding cost declined further this past quarter. These low-cost transaction accounts we believe will be a very valuable funding source in an increasing rate environment. Credit trends although still elevated showed continued improvement in a number of areas.

Non-performing assets showed the largest decrease in two years but still remain at levels that are too high. We did see much better activity from perspective buyers for some of these distressed properties during the third quarter and are still working on a number of additional transactions for this quarter. The key now is to get them done, not often an easy task. Unfortunately, some of this progress was masked by a large land development loan that after years of performance this quarter was moved to NPA status even though it was still current.

Our NPAs decreased $12 million to $249 million. BothNPLs and OREOs declined by $6 million. NPLs now make up 4.4% of growth loans that is down slightly from 4.5% the previous quarter and 5% in last year's third quarter. Our exposure to land development loans once again decreased this quarter. The $19 million reduction or 14% highlights the success we are having as we continue to aggressively work this category of loans.

Development loans have accounted for a significant portion of credit cost for the past two years. It is good to see this portion of the loan portfolio decline. Another positive trend for the quarter was the steep decline in early stage delinquencies. In the second quarter early stage delinquencies went from $41 million to $21 million or nearly a 50% decrease. The banks have done a great job of working delinquencies the past year and especially this quarter. This should make it easier to continue to reduce our overall level of NPAs.

Net charge offs for the quarter were $18.9 million, a decrease from $20.2 million in the second quarter. We expect our net charge offs will remain elevated but continue to trend down in future quarters.

Our loan loss reserve ended the quarter at 3.92%, that is up slightly from 3.88% last quarter. As we stated previously, we would expect a provision this year to once again closely match our charge offs and through nine months our loan loss provision of $56 million basically matched net charge offs of $55 million.

Revenues were up over the previous quarter primarily due to increases in non-interest income. We had our best quarter so far this year in mortgage origination income and service charge income held up well also. Net interest income, however, was flat for the quarter. Comparing this year's quarter to the same quarter last year, total revenues were basically flat if you exclude the gain on sale of investment that we had last year which was relatively large. With the current loan rate environment continuing to pressure yields the fact that our net interest income was up 3% from last year's quarter was a definite positive. The improvement in net interest income was driven buy lower funding costs as the banks again continued to do a good job in this area.

Our net interest margin as we expected decreased from the prior quarter by nine basis points to 3.92%. Once again, we experienced an increase in premium amortization during the quarter which caused most of the reduction in our margin. With the increase in refinance activity currently taking place premium amortization will continue to have an impact on our margin this quarter.

Non-interest expense excluding the goodwill impairment charge increased $1.9 million or 4% from the prior quarter. The results of higher OREO expense which increased $2.1 million in the quarter.

However compared to the same quarter last year we saw a reduction in non-interest expense of $3.9 million or 7%. As all categories of expenses saw some level of reduction. OREO continues to be the wild card each quarter and creates a fair amount of volatility in our non-interest expense.

Aside from OREO the banks continue to do a great job of controlling all other operating expenses. Compensation and benefit expense although down from last year did increase from the prior quarter primarily due to the higher commissions paid to our mortgage lenders as a result of increased volume of mortgage originations. Our efficiency ratio decreased this quarter to 48%. Versus both last quarter and last year's 50%. As once again lower operating expenses helped improve our overall efficiency.

In the near term we don't expect the efficiency ratio to change much from this current level. The banks this past year have really stepped up to look for way to cut costs and improve productivity, and these results speak to their success. Overall we continue to see some signs of improvement in credit quality although slower than we would like to see and there is more work to come done.

Loan growth has not been a catalyst for increased revenues this year however we are expecting 2012 will be better. In addition to slack demand for loans we also faced the hurdles of continued low interest rates and increasing competitive pressures on low yields. With that said we feel confident we are getting looks at most new deals and still control significant market share in many of our locations.

We also expect to continue to get more than our share of new customer relationships especially that core transaction account. The most recent quarter was one of the best in years in generating new core deposit transaction accounts. Our markets and the general economies of our footprints continue to hold up well. Commodity prices in the form of energy, mining, and agriculture remain strong.

Tourism although initially hurt by the late arrival of summer, bounced back nicely this past quarter and a number of our banks continue to benefit from the large number of Canadians who frequent our markets and have had a huge positive effect. In closing we are beginning to see some good things develop from our efforts this year. If we can maintain some of the momentum we have built this past quarter through the winter, I feel next year we could get back to a level of performance more typical of what we delivered for many years.

With that those are my formal comments for today's meeting. We will now open it up for questions.

(Operator Instructions). We'll take our first question today from Brian Zabora of Stifel Nicolaus Please go ahead.

Thanks, good morning.

Hi, Brian

Question on the land loan that was put on non-accural. Any sense on the size of that?

It was over $10 million.

Also, you said you gained traction as far as customers. Is it consumer and commercial? Are there any lines tied to those that could result in loan growth in the future?

I would say that we're -- it is both. It is both business and retail and or consumer, Brian, but more heavily weighted to the consumer side. I mean we are clearly as you probably heard before there is a fair amount of dislocation taking place among customers out there especially from some of the larger banks and we are definitely benefiting. But it's not just that. It been a renewed focus on all of our banks' part to really go after customer relationships and I think it has been as much that renewed focus on our HPC program and what we are doing and making sure that that program is working to the best of its ability as much as maybe some of the recent events regarding increased pricing from some of the larger competitors.

Thank you for taking my question.

And we'll take our next question from Chris Stulpin with Raymond James. Please go ahead. Your line is open.

Thanks and good morning.

Hi, Chris.

Hi. Mick, first thing I know it is always difficult to read the crystal ball. It's very hazyI recall last quarter if I recall correctly you were more optimistic loan growth or at least reaching -- net loan growth -- or at least reaching an inflection point for net loan growth maybe this quarter going forward.

I know you made comments during your remarks, you hope to get some traction in Q4. What is your outlook as far as that inflection point? Q4, 1, 2? What are your thoughts, please?

As far as the inflection point, it is tough to pin that down, Chris. We had a better second quarter as far as loan growth than we did in the third quarter. It wasn't one of those momentum type issues where we built in the third quarter off of some success we had in the second quarter. It just was a softer quarter.

We are as we are sitting here now a third of the way through the fourth quarter we are seeing some nice deals, some bigger deals coming to us. Again, the competition for these deals is as intense as it has ever been but as far as when we actually hit that inflection point, I mentioned last quarter that at some point in time you feel that a bank of our size with the number of locations that you have a normal amount of loan activity and volume that will support a certain dollar amount of loans. I just don't know what that number is, and I wish I could give you a better answer as to when we would hit that inflection point.

Our hope is and our expectations are that 2012 of course will be a better year, but 2011 has been a little softer than we projected at the beginning of the year as far as loan demand so I guess we are keeping our fingers crossed at this time and we are going to be implementing -- I know Barry has some plans of doing things to make sure we continue to get our fair share. We think we are getting our fair share but maybe make sure that we are staying as absolutely competitive as we need to be from a pricing perspective. Barry, do you have any thoughts? You are closer to it than I am.

What we anticipate is next year is going to be a challenge like it was this year. There are things moving in the market that we are anticipating will generate some volume. The big thing is as we look back the past year there is probably some opportunities for a eighth or a16th of a point we passed on. And probably this coming year those type of decisions will be certainly looked at in a little different light given where our volume has been.

We have been concerned. When you have such huge market share as we do in so many markets, you don't want to disrupt those markets because that can have a worse impact than the benefits you get from generating one new customer if word gets around.

We just haven't really gone there very much and we played some defense on some transactions that were our very good customers, but I think we have been hesitant to go out there and aggressively push the envelope when it comes to generating new customers if it was going to require a significant reduction in terms and rates. Maybe that was a mistake this past year, maybe like Barry said we could have been more aggressive, but you know there are two sides to that story and we just felt that this was the more prudent way to approach it.

That is very helpful. Thank you. You made mention and I may have missed it are you seeing changes in real estate values compared to last quarter within your primary markets?

Not really.

That's what I thought.

If anything they are probably down a little bit. They have pretty well stabilized pretty much all across our markets.

I was in Boise yesterday, that has been a market that has been one of our tougher markets for the last couple of years and there seems to be some signs that market is stabilizing. I wouldn't say that it is taking off or anything like that, but people seem to be a little bit more upbeat down there and I guess talking to a number of people and I met with four or five hundred of the customers not all of them but I met with a big share of them. I sensed a little more optimism than I did this same time last year.

Thanks, and then one other question. We're housekeeping. What is unrealized securities gains at the end of the quarter, please?

It was 497 -- $497,000

Yup. Thanks guys.

Thank you, Chris

We will take our next question from Joe Morford with RBC Capital. Your line is open.

Thanks. Good morning, everyone.

Hi, Joe.

Hi. Mick, I know last quarter you were pleased to see the margin finally break through 4%, and then we had the August FOMC meeting and it looks like premium amortization has picked back up. You've given a lot of those gains back. What are your thoughts where we go from here?

As I mentioned, my guess is we're going to see some more premium amortization next quarter. That really, Joe, was -- thatwas the impact. If premium amortization would have stayed similar to where we were in the second quarter we wouldn't have had the contraction to the margin.

Now that it is here and now that we are starting, or not starting but we are going to continue at least through this month and probably through November to see a fair amount of refinance activity. We are going to continue to see premium amortization, it is my guess anyway, Joe, through the better part of this quarter which could further compress that margin a little bit. Offsetting that, of course, is this quarter we had a large trust preferred that went and went to variable rate and there was a huge reduction on that trust preferred. That didn't happen until the tail end of the third quarter.

We will have that reduction this whole fourth quarter. That will offset some of the premium amortization and as well as a number of our banks continued in the latter part of the third quarter to try to lower some of their additional funding costs especially in the area of MMDAs and CDs. I suspect that will help a little bit, too. I think we are in a tighter range, but I am expecting and we are expecting that that margin could still come off a little bit from where we ended the third quarter.

I guess just one follow up to that. Maybe if you could talk a bit more about the competitive environment and elaborate on some of your comments about the intense pricing pressure you are seeing both with new business or retraining existing business.

I think we have done a very good job of retaining. To date I can't think of an existing customer that we have lost, Joe. But often times it has come with having to come off of our pricing, not always, Joe, have we had to match the competition's offer. If someone is being approached by one of our other competitors and they have got an offer, sometimes we haven't had to go all the way to that offer. That tells us there is some value in the relationship and the length of time that we have had these individuals or these businesses as customers but it still costs us because we did have to come off what we were earning before.

As far as -- that is with our existing base. As far as what we are seeing out there competitively, probably I will let Barry answer that. He is in ELC every week. He's looking at all of the credits especially any of the larger credits that are hitting. Barry, anything to really speak of there?

What we seeing as far as new transactions or new relationships, of course, the competition out there as far as pricing is pretty fierce right now. I mean rates are down, these borrowers are shopping those credits. They have requests for pricing out there. The banks, our competitors are sharpening the pencil. We had to move off some of our rates here in the last 90 days that we traditionally have not done.

We have broken some new barriers that the fear is of course that you are going to cannibalize the rest of the portfolio. But even as far as pricing is concerned the other factor of course is the other competitive issue is how long you fix those rates. Traditionally we've tried to stay fixed for five year adjustments. That goal is disappearing quickly as a lot of the competitors are out there on 10 year -- seven to 10 year fixed. Some of them up to 15.

That puts a lot of pressure on us as far as matching those terms and accepting that interest rate risk. At the end of the day if you manage to zero you will have zero to manage. We are looking very closely at trying to compete in that arena without exposing ourselves to the rest of the portfolio.

I understand. That is helpful. Thank you.

Thanks Joe.

Our next question comes from David King with Roth. Your line is open.

Thanks. Good morning, guys.

Hi, Dave

I guess first off I was wondering how to think about the pace of credit improvement going forward. It sounds like you are working on a number of deals that could hopefully close in the fourth quarter but then Mick, I know we have talked in the past about you not wanting to necessarily give all of the upside to the distressed investors out there and wanting to hold onto to some of that upside for some of your longer term shareholders et cetera. I wonder how you are thinking about that these days and if NPAs can be down meaningfully at any point in the next few quarters?

As far as down meaningfully, Dave, probably not. Meaningfully -- I don't know what you mean. If you are talking $25 or $50 million, yes, I think there is a chance over the next couple of quarters you could see somewhere in that range. If you are talking -- in that range. If you are talking going from $250 million down to $100 million, no, The only way you're going to get that done is to do some kind of bulk sale or some kind of package deal.

Again we are content making decent progress, a little better progress every quarter. As I mentioned in my comments there are a lot of things in the works. I can't guarantee if they are going to get done. Again, we have been many, many times to the 11th hour on deals and transactions and had them fall apart for one reason or another. However, we are coming into the fourth quarter which we thought if we didn't get things done by the third quarter this year we would be waiting until next spring but I have been very pleasantly surprised at the things that are still in the works.

Again there is no guarantees they are going to close but we are working on a fair amount of transactions. Some of these might not close this quarter but would close in the first quarter of next year. That would be fine, too. The trend line is definitely in the right direction, Dave. I just can't really tell you how fast, and the speed of the movement of these credits off the books would take place.

I can tell you, though, that we are going to stay the course. In this interest rate environment and with what we are seeing out there, our thoughts have not changed as far as packaging a block of these distressed properties and blowing them out the door. We are just not going to do that.

That is very helpful. Maybe a quick follow up to Joe's question. I understand the premium amortization will probably continue into the fourth quarter, but arguably that that's going to subside as we head out into next year. It seems like less and less borrowers are refinancing these days. Given everything you know today including competition on the loan side that you talked about, what is the thought on the margin as far as where it could trough out or how it should progress to next year?

I think our goal for 2012 I think we will start the year at a margin that is not all that different from where we finished the third quarter. As you project out through four more quarters, Dave, I think we are saying that in this rate environment and if things don't change from what we see right now in front of us that margin is probably going to be somewhere in that 3.75% range, maybe even a little lower than that. I mean I think we have got some things going for us next year. Remember part of our margin and we mentioned this last quarter at the conference call. Part of our margin now is negatively impacted by the fact we went out and purchased over $100 million worth of 10-year advances or borrowed I should say, not purchased.

We borrowed over $100 million worth of 10-year advances. We did that to pre fund a big block of advances that come due next year at a much higher interest rate. Well, we are carrying both of those borrowings right now. Starting in January over $80 million of high cost advances are going to be coming off the books. That is going to help.

That will help throughout the year offset this low interest rate environment. Aside from that, though, there is really not a lot more that we can do on the deposit side. I think this last quarter, the banks have once again got aggressive in trying to lower their deposit costs and I wouldn't expect it in 2012 that lever is going to be there to be pushed.

That is helpful. Hopefully we can get loan growth next year to help out.

That would be key. If we start to see loans pick up, that would be a great thing because we have a huge amount of amortization coming off this investment portfolio. That investment portfolio is working just exactly how we hoped and expected it to work. Unfortunately, we didn't expect that three to four years into this thing we would still be in this rate environment but it is doing all of the things that it was bought and structured to do and that is throw off a tremendous amount of cash flow. If we could redeploy that cash flow into higher yielding assets especially in the form of loans. That would go along ways to supporting the margin.

Absolutely. Thanks, Mick.

We'll take our next question from Jeff Rulis of D. A. Davidson. Go ahead. Your line is open.

Good morning, guys.

Hi, Jeff.

Mick, on the net charge offs in the last couple of quarters have exceeded the provision, but with the loan run off the reserve to loans, that ratio is still climbing. What are your thoughts in the next year of seeing greater reserve releases than we have seen? I mean it is a couple million the last couple quarters. Do you see that increasing in the next year?

That is a great question. You know there are so many things that go into what that provision especially with the 11 banks as we have said probably multiple times before. It is really going to be a function, Jeff, of where the allowance analysis each quarter comes in at. Clearly, though, I will tell you this that if charge offs come off, which they look like charge offs are going to be down this year from last year and we would expect charge offs down next year from this year.

Even if we determine that we are going to match once again for the third year in a row provision with charge offs, that in and of itself you continue to whittle down all your problem assets and at the same time you are not whittling down that reserve at all. That is going to at some point in time in the analysis that the banks do for Barry and Don, that in and of itself will have to come into play when they are doing their quarterly analysis. Otherwise you are going to move too far to the other side of the goal post and you are not going to be able to continue dollar per dollar to replace charged off loans.

So far through three quarters, we're slightly -- we have provisioned just about $1 million more than we've charged off. As I have said all year to investors and to all of you analysts, our expectation this year was to match charge offs dollar per dollar. We are right there just a little bit ahead of schedule through three quarters. I would expect that is probably going to be about where we end the year and 2012, more of it, Jeff, is going to be predicated on the quarterly analysis that has to be done. Barry, do you have anything to add to that?

It really does depend on where our asset quality metrics end up. Our goal is to improve on those. As that happens we would qualify. I want to make sure I qualify if those NPAs start dropping, or those non-performing loans start dropping, our (inaudible) levels drop to where we hope they are, there will be some reserve releases next year.

Jeff, one of the things I mean we look at a lot of other companies clearly every quarter and we see this is definitely a trend out there especially among the big banks but also among the smaller banks and so far we haven't done that. To some degree it is a function of the 11 banks doing their independent individual analysis every quarter. This isn't done at a centralized one-time location so we end up maybe from that perspective there is a definite difference in the way other individuals are doing their allowance calculation, but maybe we are also taking the more conservative approach to the provisioning. We have seen where a lot of banks especially banks our size and smaller have been releasing reserves here, the last couple of quarters and there has been a little reserve release but we look at that on an annualized basis.

Through the first three-quarters we are still up about $1 million above our charge offs. Ron, do you have anything to add to that?

Yes, you can summarize it, directionally consistent. To Barry's point, our metrics improved. You would not expect to continue to build the reserve on the path that we have certainly in the 2010 and continuing somewhat into 2011 and that is what we are looking at.

The component of a shrinking loan portfolio I would imagine would play into that as well if you are not posting loan growth.

Absolutely because you can see. That is -- that bore out, Jeff, in the last couple quarters we haven't quite matched charge offs with provision. But yet our ALLL loans keeps going up.

Okay, Mick, one follow up. You had a question about broad thoughts on the NPA direction, but I had one about specific movement in October so far subsequent to quarter end since we are counting the days ahead of winter. Any significant momentum that continued in the first few weeks of October, into Q4 here?

October has been a good month so far. Don't want to jinx because there are still a couple days left here this month. It has been surprising to us the activity level but again for us an increase in activity and an increase in dealing with a lot of opportunities and possibilities, until those things get closed up we don't want to get too far ahead of ourselves, but we have been very pleasantly surprised that the volume that started in the third quarter after the second quarter was pretty soft, Jeff, that now that we are almost a month into the fourth quarter we like the activity level we are seeing.

That is great. Is that more OREO sales or movement of non-accruals? What component or both?

It is both. It would probably be the ones that I am primarily thinking it is more OREO than it is NPLs. There are some of both in the mix.

Thank you for the comment.

I think the biggest issue there is what is coming in? You know, this last quarter we weren't surprised but we were disappointed that we had the one large credit move in. Because it had been performing for a long, long time and we decided we'd better move it, and without that you would have been talking a $20 million to $25 million reduction in NPAs during the quarter. That would have been a nice number for us, but we are going to see. We are going to keep working it and again October has been a pretty active month so far.

Thanks Mick.

You bet.

We'll take our next question from Matthew Clark with KBW. Please go ahead, your line is open.

Good morning, Mick.

Hi Matthew.

Maybe first just on the loan side. Can you give us a better sense as to what happened in the C&I bucket? It looks like it fell 7% [in] quarter.

Part was charge offs and part transferred to OREO. That is part of it.

In terms of the type of projects or properties or businesses.

Really you might have a little seasonality built into it as some of the construction companies are winding up their years. I know that most of the contractors, road contractors shut down the middle of September and are just wrapping up. There is probably some impact there.

Some of the servicing companies we have for some of our oil and gas entities probably are shutting down. Probably there are some dirt contractors out there that definitely have shut down. There was no single large payoff that I recall in any of the portfolios of any size. It is more seasonality and again some charge offs and loan losses and transferred to OREO.

I guess just getting to the whole outlook for net loan growth. Can you give us a better sense if you look at the construction portfolio overall, it is still 10% of loans. I've got to believe those balances are all still going to come down for the next year. You have got to more than offset that degradation. Do you think any of those four buckets within construction might start to stabilize for some reason in this environment?

I don't think that the construction bucket, Matthew is going to keep coming down that much. It is down to about $85 million residential construction if I remember right, $89 million at the end of the quarter. That is a little lower than it was the prior two quarters, but you know I think the area that is going to see the continued reduction continues to be in that land development side. I mean as I mentioned in my comments we reduced it by $19 million.

There is a fair chance that some of -- and a big chunk of that is NPAs as it is right now. If we pull-off some of these transactions that we were talking about a second ago in the fourth quarter we will see more reduction in land development. Now if there are in OREO already it doesn't impact them some of these are still NPLs, which it would impact the totals. There is that headwind that we have, and have had for the better part of the last two and a half years of trying to work down these construction and land development loans, at the same time trying to grow a portfolio and it just hasn't happened.

I think we are -- someone asked about the inflection point. I am not sure if we are there yet right now or not. But we do expect the 2012 that we are not going to see the runoff. I would be totally amazed if we saw the same kind of runoff next year that we saw this last year.

There are just fewer and fewer of those asset categories that we have been pushing out the door. There are just not the dollars there were the last couple of years. One can argue at some point in time if we got any up draft on housing starts that that $89 million in residential construction is maybe too low. I don't know.

I wish I had a better answer. We just don't have the Fortune 500 company in our markets. We don't have a lot of those mid-market companies. It seems like some of the other banks are gaining some traction by lending to them.

We are still relying on Main Street businesses, small business for a lot of our loan growth. They are just cautious right now. They are just not stepping out and expanding or building or increasing inventory. It is a little bit more difficult in maybe some of these smaller communities than what you are seeing at banks that are working and operating in these metropolitan areas.

Okay. The $10 million land development loan that went into non-accrual but still paying, was that in Kalispell?

That was up in northwest Montana.

And as relates to a special mention, sub-standard, maybe a watch list disclosure, any plan to say do that in the upcoming Q or K?

You know it has been our take that the way we are structured with all of the banks and the way that we view our sub-standard and our classified, criticized assets you know it is subjective. We don't know if it really adds much to what other people do and how other people treat their criticized classified loans. We are just going to probably continue down the same path that we have. Plus it puts that much more work in getting all of these reports.

You can only imagine when we consolidated 11 banks, we are tapped out. We tapped out our accounting department hard getting everything done that we do right now. We are not planning to add anything to that.

A housekeeping item. The effective tax rate has bounced around the last four quarters. I am trying to get a sense for where we might, at least on average, be next year. Is it 15%, is it 25%? Just trying to get a sense.

If you took out the goodwill impairment for the third quarter we would have been at 14%. Last quarter we said use north of 11%. I just want to speak to the rest of this year. That would probably be 12% to 13%, no higher. I am going to say 15% for 2012. From this day looking with all that you have heard today looking forward 15%. That is going to depend on all of the things we heard. If loan growth picks up and charge offs come down, and provision, all that. That rate. Put it this way, I would love it to move up because we are making great earnings.

Yes, okay. That's helpful. Thank you.

We'll take our next question from Joe Gladue with B. Riley. Please go ahead, your line is open.

Thank you for taking my call.

Hi, Joe

Most of my questions have been answered. I was wondering if you could give us an update on your outlook for the M&A activity and M&A market.

It is pretty soft. You know I had a few calls early in the third quarter. I had a few visits with individuals kind of interested in our story and that, but you know they were calls that those people were not about to do anything immediately. They were just kicking tires. But clearly, Joe, with our stock price where it was in the better part of August and September, come back a little bit, but I just don't see too much the rest of this year and into the early part of 2012. I don't think we are that unusual in that respect.

I also don't think, and in visiting with various regulators, I don't think we will get much in the way of an opportunity on the FDIC front either. It seems like our part of the country, a lot of things have been cleaned up or you know the banks are just not in a position where they are going to afford that type of opportunity. I wouldn't -- we are sure not expecting that at least in the near term, Joe, that that's is going to be -- that there is going to be much of a chance for us to look at M&A opportunities.

All right. I would like one quick follow up. I guess you had a couple questions on this. You said you had a number of discussions underway for potentially disposing of some of the problem assets. Have we reached the point in the year where no new discussions are likely to start or is that point coming soon.

I would say so. I would say that most of the activity that we are currently engaged in was started in the prior quarter. I mean there hasn't been that many new developments of things that just all of a sudden the last week out of nowhere took place. A lot of these have been cultivated over the last couple of months, but what is somewhat encouraging, Joe, is the fact that some of these are going to get done this quarter but there is a few of them that if they hold together would close in the first quarter and again some of these are good-sized credits.

We may see some continuation into the first quarter next year. If we can get through that quarter and get back to the springtime, I think that will open up further opportunities for us to push the NPAs down further. We are not going to do anything rash. We are not going to go out there and wholesale these things out the door, but the activity level that started in the third quarter has definitely continued into the fourth quarter and we expect some of these could ultimately close in the first quarter of next year.

Thanks. That is all I had.

Thank you, Joe.

I'll take our next question from Jennifer Demba with SunTrust RobinsonPlease go ahead. Your line is open.

How are you, Mick?

Hi, Jen

Two questions. Wondering what you are looking at in terms of a tax rate in future periods, and you said the activity for dispositions is a little better than it typically would be this time of year. Are you doing anything different, employing any new strategies?

I think Ron in a prior -- it might not have been on a call but in a prior question -- I think we said that for next year, Jen, you could be looking at somewhere in that 12%, 13%, 14% range. I think Ron is what you said.

Yes, you saw 15% as I sit here today, 15% for 2012, and for next quarter you might use 12% because that is the run rate we had for the 9 months without the goodwill impairment.

Sorry I missed that before.

The second question was what, Jen, again?

Are you employing any new strategies with regards to dispositions as we head to this seasonally slower period?

No, but one thing I do want to mention is that online auction that we did in the third quarter. We rolled it out at the very end of June so it didn't really have any impact until the third quarter. Only one of our banks, they were the ones who piloted that, they were the ones who developed the strategy. That has been a pretty good-- the results from that have been amazingly good I would actually say. To the point where a number of our other banks probably next spring are going to look to do that same thing.

That was something that one of our banks did. They had some very good success with that. Clearly I think some of the other banks saw that success and are going to try to emulate that next year. Aside from that, nothing really new.

We have a couple of auctions planned. We have been working with borrowers on auctions. We have done that in the past but this another one where it's being driven by the borrower themselves. We are looking forward to seeing what comes out of that. I can't think of anything else. Barry, any other thoughts on things we are doing new?

We aren't really doing anything new. On the other side of it, the people we are talking to I think there is a general trend that at this stage of the rate environment alternative investments out there -- they just aren't seeing returns on anything other than-- There is nothing in the stock market and nothing on yields. We are seeing some cash move into real estate again on a long-term basis with long-term hold periods and that sort of thing, and given what is a lack of opportunities, alternative opportunities, I think we are starting to see some of these discount rates coming down and I think there will be movement there.

It is not so much that we are doing anything differently. The people we are dealing with have a different perception of these asset and what they are willing to pay for them.

Thanks a lot

Thank you, Jeff.

We will go next to the [site of] Brad Milsaps with Sandler O'Neill. Please go ahead.

Hey, Mick, how you doing?

Good.

I may have missed this. I apologize. I was just curious if, Barry, if you had the level of the accruing TDRs at September 30.

Yes, we do. Hang on. The level of accruing TDRs is $85,847,257.

Some of those would be on non-accrual, correct?

Non-accrual are $67,012,354.

Then, Mick, I know this is something you haven't done much of in the past and with NPA still being high, it may not even be on your radar. But just curious if the stock were to dip back down close to tangible book value again, would you guys think about a share buy back at this juncture or is that something you haven't considered yet?

We really haven't considered doing that. You know this isn't just something -- of course, the stock price hasn't dipped for a couple of decades to the level it did in the third quarter. We talked about it. Didn't get real excited about doing that and maybe it is because of the uncertainty out there that especially in the third quarter. You didn't know which way this economy was going to go and what was going to happen.

I think everything is on the table but it is not something, Brad, that we spend much time -- We are paying a pretty decent dividend out. It -- just the dividend alone, you know, has not so much this quarter but in prior quarters absorbed a good piece of earnings, and I think that we look at that historically as more important to us than looking at a buy back.

Great. Thanks, Mick.

You bet.

There appear to be no further questions at this time.

Okay. Well, thank you all very much. If anyone -- if any of the analysts have further questions you can certainly get a hold of us. And with that I would like you wish you all a good weekend and thanks again for all of your support and interest in Glacier Bancorp. And have a good day. Good-bye.