Glacier Bancorp Inc (GBCI) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Glacier Bancorp fourth-quarter 2012 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I will now turn the call over to your host, 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; Don Chery, our Chief Administrative Officer; Barry Johnston, our Chief Credit Administrator; and Angela Dose, our Principal Accounting Officer.

Last night we reported record earnings for the fourth quarter and full year 2012. Earnings for the quarter were $20,800,000, that compares to $14,300,000 in last year's quarter, that's an increase of 45%. Diluted earnings per share for the quarter were $0.29 compared to $0.20 in the prior year quarter, also a 45% increase. There were no extraordinary items or gain on sale of investments during the quarter.

Earnings for the year were $75,500,000 versus $17,500,000 the prior year. That is an increase of $58 million. Diluted earnings per share for the year were $1.05 compared to $0.24 in 2011. Excluding an after-tax goodwill impairment charge of $32.6 million recorded in 2011, earnings for the prior year period were $50,100,000 and diluted earnings per share were $0.70 a share.

Excluding the impairment charge net income increased by 51% for the year and diluted earnings per share increased by 50% over the prior year period. We earned a return on average assets for the quarter of 1.06% and a return on cash tangible equity of 10.63%. For the year our return on average assets was 1.01% and return on tangible equity was 9.96%.

From an earnings perspective, both the fourth quarter and full year continued to show steady progress over last year. However, we believe our performance can improve further notwithstanding the challenges presented by the current banking environment, especially to our top-line revenues. Although there was significant progress made this past quarter to reduce credit costs, we expect those costs to decrease further in 2013 and allow us to deliver solid earnings next year.

Total assets for the year grew by 8% primarily due to an increase in our investment portfolio. Our loan portfolio decreased by 2% as a lack of demand coupled with our desire to remove distressed and non-accruing loans from our portfolio continue to pressure our loan totals.

It is still a very competitive and difficult environment to grow loans. However, there are some signs that point to better times ahead. Although loans declined by $10.7 million in the fourth quarter, if charge-offs and loans moved to OREO are excluded there was actually a small gain of $5.7 million in loans during the quarter.

For the past three years our attention and focus has been clearly centered on improving the Company's credit quality. With the significant progress that's been made in our credit quality, hopefully now we can once again turn more of our attention to growing loans.

In a continued attempt to protect the Company's interest income, we added to the investment portfolio in the recent quarter and throughout the past year. Investment securities grew by $97 million during the quarter primarily through the purchase of short-term US agency CMOs. Because of the short-term nature and specific structure of these CMO purchases the yield is approximately 1%.

We continue to accept the impact these lower yielding securities have on our margin rather than gain additional yield by extending the term of these investments in this low rate environment and exposing the Company to elevated interest-rate risk when rates begin to increase.

2012 was another good year for deposit growth. For the second consecutive year the balance of non-interest-bearing deposits grew 18%. We also posted nice additions to both the number of personal and business checking accounts. The total number of checking accounts increased by 5% this past year, a very good number and affirms our commitment to growing our checking account base which in turn increases our overall customer base.

Our interest-bearing deposits, excluding wholesale deposits, also demonstrated solid growth of 7% for the year. With soft loan demand and multiple low cost funding alternatives available to us, our banks did not price retail deposits as aggressively as other institutions in their market. Because of this conservative pricing strategy we reduced our cost of deposits by 18 basis points during the year down to 36 basis points or a 33% decrease.

We continue to maintain capital levels that are near historic highs. Our tangible common equity ratio ended the quarter at 10.3%, a slight decrease from last year's 10.4%. Tangible stockholder equity in dollars increased by $53 million to $789 million. Tangible book value per share ended the year at $10.96, that is up from $10.23 the prior year.

Our preference is to grow the balance sheet organically or by acquisitions and I believe this is an attainable strategy for 2013. However, if neither of these preferred alternatives generates the growth we are hoping for, we will, when appropriate, explore other options to effectively deploy this excess capital, which includes returning excess capital to our shareholders.

In the fourth quarter the Company increased its cash dividend by 8%. Our hope is that we can return to more regular dividend increases in the future.

We made significant progress this quarter and year in just about every credit metric we track. Non-performing assets decreased by 19% during the quarter and 33% for the year to $143.5 million, which represents 1.87% of total assets. For the quarter the improvement was broad-based with almost every loan category realizing a decrease in the balance of non-performers. Some of the larger decreases once again came from land development, unimproved land and one-to-four family residential loans.

The momentum to dispose of troubled assets that began building in the third quarter accelerated even more in the fourth quarter and was the culmination of all of the hard work that has been done by our banks to resolve and dispose of their distressed assets.

However, we expect progress could slow down in the first quarter since many of our distressed loans and projects we have been working on the past six months were disposed of in the fourth quarter. It will once again take some time to rebuild the queue and position other non-performing loans in OREO for sale.

With that said, the level of activity for this time of year remains encouraging, especially in the area of one-to-four family housing. Strengthening real estate values alongside attractive borrowing rates have allowed our banks to continue to move their foreclosed homes. Although non-performing assets ended at their lowest levels since December of 2008, we recognize that we still have work to do and are committed to continue our methodical approach to disposing of these assets.

This may not have been the quickest way to remove these troubled assets from our balance sheet the past couple of years, yet we firmly believe that patience has allowed us to sell and dispose of these assets at far better pricing than any form of bulk sale. We are hoping to make further reductions in NPAs during 2013 and would like to end the year below $100 million in NPAs.

Typically this time of year we see an uptick in our 30 to 89 day delinquencies due to a large seasonal workforce tied to the tourist industry. That did not occur this past quarter as early-stage delinquencies actually decreased further from the third quarter and were down substantially from last year's quarter. At $27.1 million or 0.8% of loans, these delinquencies were down 5% for the quarter and 45% for the same quarter last year.

With the progress made this past year I feel we are well past the inflection point regarding our credit issues and again expect additional improvement in credit trends in future quarters. If this year's sales activity is any barometer we should be positioned to further improve credit quality.

Net charge-off loans increased by $4.6 million to $8.1 million this past quarter, primarily a function of the large number of distressed assets disposed of. For the year net charge-offs were $28 million or 0.83% of loans. This compares to $64 million and 1.85% of loans last year. We saw dramatic improvement in net charge-offs this past year as we exceeded our goal of reducing net charge-offs below 1%.

Stabilization in real estate values throughout our footprint definitely helped curb the cost of charge-offs. We hope to further reduce these net charge-offs next year to a level more consistent with our past experience.

Our allowance for loan and lease loss ended the year at 3.85%, down from 3.97% at the end of 2011. In the fourth quarter we provisioned $2.3 million, that compares to $2.7 million the prior quarter. And for the year the loan loss provision totaled $21.5 million, that is down from $64.5 million the prior year. Once again, if credit quality trends continue to improve, as we believe they will, clearly we would expect to reduce our provision for 2013.

One of the biggest challenges this past year has been the well-documented low interest-rate environment which has led to further declines in our net interest income and net interest margin. Foremost among these hurdles was the high level of refinances, which in turn caused a continuous increase throughout the year in premium amortization, significantly reducing our interest income.

This past quarter's premium amortization was once again -- or once again increased by $4 million and was the fifth consecutive quarter that that specific expense has trended higher. As a result, in 2012 premium amortization totaled $72 million; this compares to $38 million in 2011. This $34 million increased to premium amortization expense proved to be a headwind all year long that had a significant negative impact both to net interest income and the net interest margin.

Our net interest margin ended the quarter at 3.05%, down from 3.24% the prior quarter. For the full year the margin dropped from 3.89% in 2011 to 3.37% this past year.

In addition to premium amortization the current rate environment continues to put additional pressure on loan yields. Although for the most part I thought our banks did a very good job of managing their loan yields both last quarter and throughout the year.

I think we have also done a commendable job of managing interest rate risk by resisting, in most cases, the extension of our earning assets. However, there is no free lunch; by maintaining a short duration in our investment portfolio and our unwillingness to fix loan rates for extended periods of time, it has cost us yield and in some cases production, both of which place further pressure on net interest income and lowered the margin.

We still believe this is the right approach to take, that the short-term benefit of stretching maturities and committing to long-term fixed-rate loans in order to secure higher yields is not worth the long-term pain in the form of exposure to interest-rate risk and the reduction to the market value of assets.

Clearly we did not expect refinance activity to reach the volume levels it did last year. And although our fee income benefited from the higher refinance activity by increasing our mortgage origination income approximately $6 million, it paled in comparison to the negative impact to interest income our margin and earnings caused by this historically high level of premium amortization we expensed.

It goes without saying that we are anxiously awaiting the eventual slowdown in refinances and a simultaneous decrease in premium amortization which would have a real positive impact on our net interest income and margin.

I felt the banks did an excellent job of managing their funding costs, which dropped 6 basis points to 48 basis points during the quarter, or 11%. Nevertheless, for 2012 this good work has not been enough to offset the impact of lower yielding earning assets. Since it appears that interest rates are going to stay down here for at least the remainder of 2013, top-line revenue growth is going to be a hurdle we are going to have to continue to battle.

Competitive forces have made the task even more trying as loan pricing has gotten extremely tight. And our reluctance to offer long-term fixed-rate loan structures to both new and existing customers has also impacted a loan production, which ultimately affects both our net interest income and our net interest margin.

Total interest income declined by $1.6 million during the fourth quarter and decreased by $7 million over the same quarter last year. We continue to attempt to protect our net interest income by adding to our investment security portfolio; however, the premium amortization discount this past quarter and year was just too great to offset.

The banks did a nice job this quarter generating fee income, especially in the mortgage origination area. Total non-interest income increased by $1.4 million for the quarter, or 6% sequentially. Fees on sold loans, primarily mortgage origination income, was up $400,000 over the prior quarter and up $2.1 million from the fourth quarter of last year.

For the full year non-interest income increased $13.3 million, or 17%, with the majority of the increase again coming from mortgage originations which were up $11.1 million or 53%. We had no security gains either in the quarter or any time during the year. Last year fee income included securities gains of only $346,000.

Our noninterest expense for the quarter decreased by $2.2 million primarily due to a $2.8 million decrease in OREO expense. There was very little change in most other expense categories as our bank divisions continue to do an excellent job of controlling costs. For the year non-interest expense only increased $1.5 million or 1% over 2011.

Once again, other real estate owned expense of $19 million was $8.3 million less than the prior year. Other operating expenses for the most part were well contained in 2012. However, compensation expense did increase 11% as commissions paid to mortgage originators and changes to our incentive and benefit plans drove up that expense last year.

In summary, 2012 was a good year. As earnings rebounded, credit quality improved significantly and operating expenses were well controlled. However, loan growth was still elusive and refinances, which did help our fee income, nevertheless caused a significant reduction to our net interest income and net interest margin.

As we move into 2013 we believe our credit quality should continue to improve and allow lull us to lower our credit costs further. I'm not sure when, however, at some point refinances are going to begin to slow and that would be a huge catalyst for us. Yes, we, like many other banks, would give up some fee income if that were to occur, but the benefit to our net interest income would be far greater.

A move up in rates would benefit us in two ways -- not only is our balance sheet positioned to do better in an upward rate environment, but higher rates would also reduce the volume of refinances and subsequently the premium amortization expense.

Growing our loan portfolio will be the single most important initiative for our Company this year. After three years of working through distressed credits many of those issues are now behind us and we will be applying far more resources this year to focus on growing our loan portfolio.

Hopefully the economy will continue to get better, business and consumer confidence improve and real estate values increase further. If any of these materialize 2013 should be another good year for Glacier Bancorp. And that concludes my formal remarks, so we will now open the lines up for questions.

(Operator Instructions). Jeff Rulis, D.A. Davidson. We will move on to our next question, Brad Milsaps, Sandler O'Neill.

Just maybe a couple questions on loan growth. I know you mentioned there may be some bright spots out there. You were saying yet it still remains really competitive. Can you talk a little bit about maybe the loan pipeline today versus this time last year? And then the credit set -- you know, maybe percentage credits that you are turning down? It sounds like it is mostly related to unwillingness to fix terms for a long period of time. But just maybe talk about that a little bit more.

Yes, I mean I don't think there is any doubt that the pipeline is stronger this year than it was a year ago. And I think we saw the pipeline as 2012 -- as we went through 2012 I think that pipeline continued to expand. And probably the last six months we noted especially some pretty significant improvement in activity and credits that we were getting a chance to look at.

I still think that pricing and terms are something that are troublesome. I mean you are getting the chance to look at a lot of transactions, but a lot of these come with fixing rates for 15, 20 years. And as I have said over and over, in the past we have been hesitant to do that.

Now we may have to as we move forward -- on some of these we may have to take a little bit different tack and that is to start maybe match funding some of these longer term loans if that is what it takes to keep the relationship or get the transaction done.

Something we used to do a lot back in the 1990s and early part of the last decade, but really kind of got away from here more recently. So -- but Barry has a much better handle on what he is seeing, so I will let him comment on what he is seeing for volumes and where he's seeing the volume.

Yes, Brad, one of the things that -- our loan growth was essentially pretty much just down a little bit from last year and there was a couple of factors that led to that primarily as we continue to clean up our balance sheet in regards to credit metrics.

But if you look at some of the categories that have decreased, they are really the categories that where we have taken that initiative to do that and where we have had some of our challenges in the past. And presold and spec was down 41% last year, but custom and owner occupied, a category that is pretty conservative and fairly profitable, was up 14%.

Then total land lot and other construction was down 13%. But if you break it out by categories, land development, consumer land, unimproved and developed lots [were up to] builders and commercial lots were all down double-digit. But other construction, which is a lot of new production that we put on in the last six months and quarter is up 63%.

Owner occupied and non-owner occupied term commercial real estate had a small increase there, three and one, and that is the category that we are really fighting right now as far as rates and terms. But even given that, the competitive pressures out there, we are able to maintain a 3% growth rate there.

So -- and then one-to-four family essentially stayed flat when you exclude the loans held for sale. Home equity lines of credit of course are down; everybody is tending to take those balances and refinance into term credit given the low environment. We are down 7% year overall, but that portfolio is relatively small dollars in relationship to the entire portfolio.

And then [ag], other and -- are down three and up five. So it is those categories where we've traditionally had the asset quality problems. We are still moving some of those balances off the balance sheet to clean up our credit metrics. And yet we have had some fairly good results in those areas where we want to grow the loan portfolios in a more conservative productline.

So we are feeling pretty good where we ended the year. We always hope to do a little bit better, but I think 2013, as Mick said, I think we've got a lot of opportunities in some single-family residential construction. With the exception of the Flathead Valley and Missoula, all of our markets are seeing improvement in the levels of inventory held for sale; prices are starting to appreciate, so I think we've hit the bottom and are on the back -- on the way back up.

So we are feeling pretty positive about the direction things are going from the economic side of things, especially in the single-family residential construction and home sale businesses. And we are feeling pretty good about the other construction category.

We have a lot of construction loans that, for whatever reason, we have opted not to fix rates for extended periods of time. And yet we are still able to do the construction side of it, which generally is pretty profitable. You get some totals and you get some good fees for a short-term asset, so.

Okay. And just to kind of follow up. So one, Mick, I was wondering if someone on your team there might have the accruing TDR number at December 31. And then just another question, Mick. You mentioned last quarter that M&A talks had picked up I think you said quite a bit. Just kind of curious what your thoughts are there and sort of the probability of you guys getting something done in 2013?

Accruing TDRs were down $5 million, they were at $100 million versus $105 million a quarter before. And regarding M&A, yes, the activity level has definitely picked up. I think we are getting a lot of opportunities to have discussions with multiple parties. And it is our hope that in 2013, as I mentioned in my comments, that we are going to be able to hopefully get something done.

I mean there is some very -- from our perspective, Brad, there are some very interesting and exciting opportunities out there, it's just a function of whether or not we could ever get those transactions completed. And that is always a big if. But I'm feeling pretty good based on just the volume of activity and the volume of discussions.

Okay, thanks, Mick.

Jeff Rulis, D.A. Davidson.

Must be having some technical difficulties with Jeff's line.

Jennifer Demba, SunTrust.

I had to jump on late, so you probably covered this, I apologize. Can you just talk about what type of problem loan sales you foresee executing in 2013?

You know, I think that the -- we didn't cover that. I think probably the problem assets that we expect -- it's going to be along the same lines of what we've had over the last year or two. I mean I think we are still going to be trying to move out some land development and some unimproved land loans.

You are going to have -- although it is leveling off, I think there are still some one-to-four family loans constantly going into foreclosure. Although, as I mentioned in my comments, those tend to cycle through relatively quickly unlike the raw land or the land development loans, which in some cases we have sat on for an extended period of time.

Don't see much -- we've got a few commercial real estate projects, but don't see much there. Totally surprising to us through this whole downturn has been our home equity lines of credit; they just really -- I think it was a function of the way we underwrote them and the quality of that portfolio.

We just haven't seen much in the way of losses on HELOCs. And of course that is a portfolio that is declining now as we are obviously getting a lot of our lines of -- our home equity lines of credit paid off and refinanced into first. Barry, do you have any other thoughts?

Yes, on our home equity actually of that total, about half of them are first liens, so that helps. The other half is second liens and we have always -- we're pretty conservative in how we underwrote those. We never got above 100% LTVs, there are a few in that category, a few in the 90%, but most of them were 80% or less. So that's an indicator of why that portfolio has done pretty well through this cycle.

And you know one other thing, Jennifer, I think it is a function of just lack of inventory in a number of our markets which have really -- like Barry said earlier, really come down. You look at the NPAs in our resi construction portfolio, that has really dropped. We just don't have much left in problem assets on residential construction.

So I don't see that as being an area where we are going to be able to make much in the way of gains. Again, it is going to still, in my mind, come primarily from one-to-four family, come from land development and unimproved land.

Thank you.

Daniel Cardenas, Raymond James.

Just a couple quick questions. Maybe just a quick update on how the charter consolidation is going? Is that going according to plan, better than expected, worse than expected?

It's going way better than expected. I mean although we didn't really expect -- I mean I can honestly say the reorganization -- I don't think internally we expected that it was -- we were going to have any kind of meltdown or anything like that.

But it really has afforded us to do some things, some of which we knew we were going to be able to accomplish from a -- just from an overall regulatory and supervisory burden perspective, and we were going to take a lot of that burden off of the individual banks, that absolutely has been the case. It is also allowed us internally to do some things.

I think first and foremost if you talk to most of our division presidents they will tell you that it is really allowed them to get back out on the street, in their communities, re-engaging with their customers on a variety of product services and just being -- once again becoming community bankers.

Internally I think it has allowed us to do some things that are really going to start to make a difference, especially in 2013. We made some changes to the structure of the Company in the fourth quarter. I think that is going to pay dividends. I think it's going to reduce a lot of work and time and effort that was being basically wasted. I think that is going to go away.

So every month it seems like there have been one or two more things that we have come across. A lot of these have been ideas from the banks; they have been pushing at lot of these initiatives -- why do we do this anymore, why should we even do that. And then of course some of us at the holding company have come up with some ideas, too, about being -- doing things that would allow us to be more productive, be more efficient.

It was just the absolute right thing to do because what it did is I think it really did restructure this Company and we took some steps that we have never taken before. But at the same time, I don't believe there is one customer out there that has noticed one thing different in the way that we provide product services, the people that they deal with, the community flavor of each of our 11 banks.

And I think those are still even better. Because, like I said earlier, I think that a lot of our bank staff is able to spend more time on far more productive things than they were before.

Excellent. And then just a quick question on capital. I mean your capital levels are robust, your TCE -- it's 10.3%, looks like it has been kind of slowly drifting down over the last several quarters. Maybe if you could tell us a bit -- where is your comfort level with that ratio? I mean what number -- what percentage would you not want to go below as you look to deploy some of this capital in the future?

You know, Dan, we have always long -- long-term we have always said that we never wanted to go below 8%. 8% is kind of -- it's not cast in concrete, but it has really been a long-term goal or number that we focus on and we are still clearly above that.

But there have been times in the past when we had a growth spurt, that tangible common equity started to move down around 8%; it was one of the reasons we did the follow-on offering back in 2010, and actually the first one in 2008 also. So I guess if you are looking for a number, that is probably as close as one that we really try to manage to.

Great, thank you.

(Operator Instructions). Tim Coffey, FIG Partners.

Given the comments you made about your improvements in credit quality and what is going on within the non-accrual bucket, I am wondering if we look at some of the gains you have been booking on OREO sales, would you anticipate those to remain at similar levels to the last two quarters or would you think they would change?

Boy, I think there are two competing forces there, Tim. On the one hand I think it is only logical to expect that as you get deeper down into your OREO, probably those types of assets are probably more troublesome, for whatever reason. I mean they are just not as enticing to a buyer or they've got some issue with them. Although the flip side of it is we have written down a lot of those OREO to very low levels.

So on the one hand, yes, you start to have to deal with more distressed OREO properties, which would argue that maybe your OREO losses could be higher. But then offsetting that is the pretty significant discounts that we have applied to all of those already.

And offsetting that -- offsetting the negative is also a firming up real estate market. And in some of these, even though you would argue that a land development project or raw land project this last six months wasn't the most attractive, we were still able to sell it and in home some cases sell it at what we were carrying it at or either a very small loss or a small gain.

So I think just the overall real estate market and real estate values is going to continue to help us throughout 2013. So that is probably a long answer, but I guess at the end I wouldn't expect OREO to change or differ too much from what we have seen the last two -- two quarters. I mean, again, I think the product that is still left out there in OREO has been priced pretty much where it needs to be to move it and that we would probably not see a lot of additional loss.

And in some cases we might not even accept any additional loss to move it. We held firm on a number of properties this last year and offers that we were getting earlier in the year, Tim. And compared to what we got in the fourth quarter they were significantly higher. So I mean as we have far less of it our willingness to give stuff away is just not going to be there. So overall I think that we are not going to see any noticeable change.

Okay, I think that is helpful. And then looking at your non-credit operating expenses, is there -- do you have a feeling that there are opportunities to trim that back? Or is it more of being able to leverage what you already have in expenses and generate more (inaudible) assets, more spread income?

I think it is the latter. It's our ability to leverage. I mean, we run pretty lean, I mean we really do. I think the banks do a great job and of course this was an initiative of ours last year, it's going to be an initiative of ours again this year to really focus on our efficiency ratios at each of the bank divisions.

And so, I don't think there is a lot in operating expenses that can -- we can take a knife to. I think what we can do though is hopefully move to change the mix of our earning assets. Clearly we would like to lessen that investment portfolio by more quality loans.

And as Brad asked earlier, I mean if we can get some M&A activity going, I think we have got the -- I think we've got the system, we've got the company, we've got ability to handle more of those types of assets and take advantage of that additional scale and just become that much more efficient.

So, yes, it is definitely the latter. We want to grow this Company. And I believe that the incremental growth that we are adding would not be necessarily causing us to add the same level of expense. So I just think that's going to be where we are going to focus on and hopefully -- like I said, hopefully we can get some things done either on the loan growth side or on the M&A side.

And then just kind of a question about the deposit growth that are you are seeing. Is any of that translating into new business or is that just existing business that is adding to their deposits?

No. There is no doubt, we are -- I mean the last two years just our -- in 2011 and 2012 we have added almost 12% more customers to the Company. So I mean, yes, we are getting higher and higher balances, 18% each of the last two years growth in non-interest-bearing accounts. But during that same time we have also grown our customer base by 12%.

So it is a combination of both. I mean clearly some of our existing customers are keeping higher balances; we can see that, we track that. But it is also a function that our banks have done a very good job of bringing in new customers and expanding our customer base.

Great, well thank you. Those are all of my questions.

Daniel Cardenas, Raymond James.

Just a quick follow-up question on M&A. Just kind of given the changed operating environment, has that changed what you are looking for in a potential acquisition candidate?

Well, to some degree, Dan. I mean I think our focus going forward will be to diversify our loan portfolio definitely. I don't think we -- number one, I don't think we have any reason to move outside of our existing footprint. I think over the next couple years there are going to be plenty of opportunities within our existing footprint of six states to do possible transactions.

But one of the things we are looking at clearly is to reduce our exposure to real estate. I mean I think there are a number of opportunities throughout -- again, throughout our geography that would give us some diversification within that loan portfolio, that is definitely going to be one of them.

I think another one is going to be some of the economies. We are heavily laden in a -- a lot of our economies are tied to tourism. We clearly would like to see more of an [ag]-based exposure, something that we have a little bit of with our existing banks, but something that I think would further diversify our balance sheet and our loan portfolio. And I think it's -- I think it is just a good line of business.

So we will be looking at some of those things. I mean I don't think that there will be too many banks that will materially change the liability side of our balance sheet. I mean -- although we are not going to go out there and look for banks that are totally dependent on brokered CDs or high cost CDs.

I mean most of the companies that we would be very interested in would be your typical community bank, and those would have a funding base that looks very much like ours and our 11 existing banks' funding base. So I think the real change would be in trying to further diversify that loan portfolio.

Excellent, thank you.

Joe Morford, RBC Capital.

Just a couple of follow-ups I guess. First, I mean you have talked about being a little more optimistic about loan growth. How should we think about net balance sheet growth? It sounds like if you have got the opportunity and loan growth comes in you will just fund it with securities and the overall earning asset base won't grow all that much or --?

Yes, I wouldn't expect -- we grew at 8% this year. I would say that our targets for this coming year are somewhere -- I mean total balance sheet growth, Joe, is somewhere in that 3% to 5% range. And we are hoping that the majority of that is net loan growth.

Right, okay. And then the other question is the reserve release was a little more this quarter. You said that will continue, but should we see it at kind of the similar pace or is there any reason to think that you might take the reserve down at a bigger pace at all?

No, not really. We provisioned, what, $21.5 million in 2012. There is going to be some provision; we are not going to just probably drop it, unless trends really pick up. But we went from $64.5 million to $21.5 million. I don't know -- I mean I'm just speculating here, do we go from $21 million to $15 million? Do we go to $21 million to $10 million? A lot of that is going to just depend upon how much more progress we make in the early part of the year -- or throughout the year for that matter -- how much progress we make in further improving credit quality.

And of course the flip -- another important component is just how fast can we grow our loans, too. But I think that -- I would be very, very surprised, Joe, if our provision was the same as it was this year. We are not expecting that.

Okay, makes sense. Thanks, Mick.

I am showing no further questions at this time. I will now turn the call back over to management for closing remarks.

Okay, thank you all very much for meeting with us this morning. Once again, I think to sum up the year, I think it was a very good year. I think we made a tremendous amount of progress. Still think there are some things that we could obviously do better. I think that if we are fortunate enough to have a few things happen next year it could have a pretty significant impact on 2013's results.

But we are very, very pleased with the work that all the banks did. And with that I will just wish everybody a great weekend and thank you very much for joining us this morning. Bye, now.

Thank you. Ladies and gentlemen, that does conclude today's conference. You may all disconnect and have a wonderful day.