Glacier Bancorp Inc (GBCI) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Glacier Bancorp first-quarter earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, President and CEO of Glacier Bancorp, Mick Blodnick. Please proceed, sir.

Welcome, and thank you for joining us today. 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.

Yesterday, we reported earnings for the first quarter of 2014. Net income for the quarter was [$26.7 million]. That's an increase of 29% compared to the [$20.8 million] earned in last year's quarter.

We produced diluted earnings per share for the quarter of $0.36. That compares to $0.29 in the prior year's quarter, a 24% increase.

As we assessed our first-quarter performance, a couple of things stood out. It was a record quarter for earnings, which is unusual for the first quarter of the year. We grew our loan portfolio, something that hasn't always been possible during the winter months. Our net interest margin moved back above 4%, almost a 1% improvement the past year, as we continued to get a lift from not only a reduction in premium amortization expense but also the change in the mix of our earning assets.

And finally, credit quality trended better, especially in the area of net charge-offs.

Offsetting these highlights, however, was a decrease in mortgage origination income as mortgage volumes took a substantial drop compared to what was generated in this same quarter last year. Nevertheless, the benefit we received again this past quarter from lower premium amortization was more than enough to cover the loss of fee income for mortgages.

It was a clean quarter with no one-time gains or losses or other nonrecurring income or expense items. We generated a very respectable return on average assets for the quarter of 1.39% and return on tangible equity of 13.07%. Both of these performance ratios were the best we've produced in over five years and approached the levels we consistently delivered for years prior to the economic downturn.

For us, it's always difficult to predict how the year will play out, especially after the first quarter where winter definitely has an impact on overall activity levels. With that said, we're hopeful that, as we begin the second quarter, warmer temperatures will equate to increased activity, especially in the lending area.

Loan growth of 2.5% annualized this past quarter was above expectations, considering the harsher winter this year, and puts us in a good position to make our goal for the year of 5% loan growth. This was the fifth consecutive quarter we have increased our loan portfolio on an organic basis after five years of declines. It appears momentum is continuing to build as we enter what historically has been our best two quarters for loan production.

Once again this quarter, the largest percentage of our loan growth came in commercial real estate. However, we also had a nice increase in multi-family residential loans, a section of the portfolio we have long felt we were underweight in and one that brings further diversification to our overall mix of loans.

One area we had hoped would continue to grow was our residential construction portfolio. Unfortunately, this past quarter we experienced a 6% decline in this loan type. We hope this was more a function of the cold weather; and now that spring is here, we should begin to see a pickup in activity and resulting increase in residential construction lines.

Two other loan sectors saw decreases in the quarter. They were both construction -- or commercial construction and agricultural loans. However, in both cases, these were seasonal reductions, and we fully expect both loan types to increase through the next two quarters.

Again this quarter, we repositioned our balance sheet by continuing to change the mix of our earning assets. With the growth in loans, we were able to decrease the size of our investment portfolio by 2% primarily through the reduction in collateralized mortgage obligations.

At quarter end, investments represented 40% of total assets, a significant reduction from the 48% this time last year. Our goal is to further reduce the size of our securities portfolio, but that will depend on the amount of loan growth we can produce.

Also in the quarter, we moved $485 million of securities, or 15% of the portfolio, from the available-for-sale to the held-to-maturity category. Since we basically buy and hold securities, the move to held-to-maturity made sense and reduces the impact and volatility to tangible common equity on securities we most likely would not sell in the first place. Also, transferring these particular investments to held-to-maturity had no meaningful effect on our liquidity.

We saw good growth in non-interest-bearing deposits this quarter of $22 million, or 6% annualized. Although we are cognizant of the fact that some of our customers still have excess deposits parked in these accounts, they could withdraw if the right investment or business opportunity arose. We have yet to see that take place. Nevertheless, we do a great deal of modeling and formulating strategies to offset the impact of that event should it take place.

One offset is the continued focus on growing our base of checking account customers. Here, we have had great results recently. The number of new checking accounts relationships established this quarter exceeded 5% on an annualized basis. For this time of year, this is an excellent number and especially encouraging, considering the best months for generating new checking accounts are still in front of us.

Excluding wholesale deposits, interest-bearing deposits increased $49 million, or 5% annualized, with most of the increase coming from money market deposit accounts and regular savings accounts. Because we were able to grow core non-interest-bearing deposits as well as interest-bearing deposits again this quarter, it allowed us to shrink both wholesale deposits and federal home loan bank borrowings this quarter by 13% and 18%, respectively.

At the same time, the reduction in the size of our investment portfolio also made it possible for us to decrease the level of both our wholesale funds and borrowings in the quarter and for the year.

We had another good quarter that saw improving trends in credit quality. Nonperforming assets ended the quarter at $107 million, $103 million excluding the government guaranteed loans. That's a 2% reduction.

Currently, we are working on a couple of large nonperformers that, if they cure, would really jumpstart our initiative to reduce nonperforming assets below $90 million this year. Our nonperforming assets ended the year at 1.37% of total assets, compared to 1.79% a year earlier.

It's definitely getting more difficult to lower nonperforming assets, but the banks continue to work these problem assets hard. So we're hopeful by year end we have worked the number down below the $90 million goal we set.

One real bright spot this quarter was our net charge-offs, which totaled $744,000 or 8 basis points annualized, a significant drop from the prior quarter and the best net charge-off figure we have recorded since the first quarter of 2008.

Our goal for the year is to keep our net charge-offs under 25 basis points, so we're off to a good start in that regard. Not only were our overall charge-offs much lower this quarter, but for the third consecutive quarter, we continued to recover substantial amounts of dollars on loans that were previously charged off. Hopefully, we will continue to see this trend of recoveries through the rest of the year.

Early-stage delinquencies was one area where we took a step backwards, as the dollar amount of 30 to 89 days past-dues increased by $10.7 million during the quarter to $43 million. A couple of large credits totaling $6.7 million went just over 30 days past due and have since been brought current. However, an additional $6 million is still past due and represents one borrower that is expected to be current by May. At this time of year, due to a large seasonal employment base, we historically see an increase in delinquencies.

Our allowance for loan and lease loss ended the quarter at 3.2%, basically flat from the prior quarter's 3.21% as the increase in loan balances contributed to the slight decline.

In the most recent quarter, we provisioned $1.1 million, which exceeded net charge-offs by $378,000 but was less than the loan-loss provision of $1.8 million in the prior quarter and $2.1 million in the prior-year quarter. If credit quality trends continue to improve, we could see our loan-loss provisions decrease further as we move into 2014.

Net interest income increased $17 million, or 34%, from the same quarter last year, as interest income increased by $16.1 million and interest expense declined by $800,000. The reduction in premium amortization has been the main catalyst that has led to an increase in interest income this past year. This was the fifth consecutive quarter our interest income benefited from lower premium amortization expense. As a result, interest income from investment securities has increased 71%, compared to the first quarter of last year.

However, interest income also got a boost from commercial loans, which posted a 22% increase in interest income over the same quarter last year. For us, additional growth in net interest income through the rest of this year will depend upon our ability to generate high-yielding loans and not from decreases in premium amortization, which, although expected to stay at these low levels, will not decrease much further from here.

For the quarter, our net interest margin increased 14 basis points from 3.88% in the prior quarter to 4.02% in the most recent quarter. This also was the fifth consecutive increase to the margin, driven primarily by a shift in earning assets away from securities and into higher-yielding loans and, as mentioned earlier, five straight quarters in which a decrease in premium amortization has had a positive impact on the yield of our investment portfolio.

This quarter's reduction in premium amortization of $1.4 million accounted for 6 of the 14 basis points in net interest margin improvement. Three basis points were attributable to purchase accounting adjustments, and the remaining 5 basis points came from the shift to higher-yielding loans and securities.

We have seen a dramatic increase in our net interest margin over the past four quarters from 3.14% to 4.02%, significantly increasing our earnings along the way. Now hopefully we can hold the margin in this 4% range, at least until such time when increasing interest rates would move it higher.

At quarter end, our cost on total paying liabilities was 40 basis points, unchanged from the prior quarter and down 6 basis points compared to last year's first quarter. It's unlikely we will see much further reduction in our funding costs this rate cycle.

With that said, we continue to work very hard to increase our transaction account base. Although currently this may not have an immediate impact to our cost of funds, we believe attracting a greater percentage of these low-cost deposits will have a positive effect on our funding costs in a higher interest rate environment.

Clearly, we've profited the last year, as net interest income increased significantly as the slowdown in refinance volume led to lower premium amortization. Unfortunately, this decline in refinances also caused a significant reduction in mortgage origination fee income. Nevertheless, the overall net outcome was still a huge positive that definitely benefited our Company.

Noninterest income decreased by $3.6 million from the prior-year quarter as mortgage origination fees declined by $5.5 million, or 60%. As we enter the second quarter, barring any unforeseen interest rate surprises, we should see better mortgage volume from both purchase transactions and new construction.

It is still early to tell what impact, if any, the new qualified mortgage and ability to repay rules are having on our production levels. It'll most likely take a few more quarters to better understand the implications rules have on mortgage volume.

With that said, the mortgage pipeline appears to be firming up some as we strive to replace refinances with purchase transactions and construction loans.

Offsetting the decrease in mortgage origination fees was an improvement in service charge income of $1.6 million as our base of customers continues to expand, providing additional opportunities to grow this income stream. Even though we experienced a nice increase from the same quarter of last year, on a linked quarter basis we were still down $1.4 million. Because of the fewer number of days in the first quarter each year, we at best experienced modest reductions in service charge income compared to the other three quarters.

With that said, as we enter the next two quarters, if account growth maintains its current base we should see increased fee income in this area.

Although service charge fee income was down from the already strong third and fourth quarter, we were pleased at just how well this revenue source held up during the quarter.

Our banks continue to generate a larger and larger customer base, especially the two new banks, as they have implemented and are beginning to benefit from our customer acquisition strategies.

So far through the first quarter of the year, our checking account base, which contributes most of the service charge income, grew at even a faster pace than what we achieved in 2013. Part of this came from the two new banks, but we also saw nice growth from our legacy banks. I thought we did a pretty good job of managing noninterest expense during the quarter as the banks continue to hold the line on those expenses they have control over.

Sequentially, our expenses decreased by $3 million from the prior quarter, with $1.8 million of that amount coming from OREO-related expenses, which tend to fluctuate from quarter to quarter. In addition, other expenses were also down $2.1 million on a linked quarter basis; again, primarily due to a reduction in both debit card fraud and loan buyback expense we had last quarter. Excluding these two line items, the remaining expenses were basically flat from the prior quarter.

Our efficiency ratio for the quarter came in at 53%, as compared to 54% the prior quarter and 55% in the same quarter last year.

In summary, 2014 has gotten off to a good start. If loan growth accelerates through the remaining three quarters, we hopefully should hit both our balance sheet goals and earnings targets for the year.

Our net interest margin continues to get better. Asset quality is still improving, and so far our operating expenses remain in check. If we can maintain some of these trends and improve upon others, we should be in a position to have another good year.

And with that, that is the end of my formal remarks, and we'll now open the lines up for questions.

(Operator Instructions) Brett Rabatin, Sterne Agee.

I wanted to, I guess, first start with the loan portfolio and thinking about growth. And you mentioned multi-family and the 5% growth target. Can you talk about how much you think you might grow multi-family this year and what you are seeing in pricing there? And then just generally how much ag pickup you think you'll see in the portfolio maybe in the second quarter here.

As far as the multi-family side of it, that was somewhat of a surprise to us because it hasn't been a portion of the loan portfolio that we have historically had a lot of real success. It's not been a piece of the portfolio or a section of the portfolio, Brett, that we've actually gone after in a big, big way. We just happen to have a couple of nice transactions during the quarter that came from existing customers.

As far as what the -- our ability to continue to grow that, I'm just really not sure. I just don't think that there's enough of those kind of opportunities within our market. There's a lot of players that really do focus on multi-family lending that seem to be all over that type of loan. And that just hasn't in the past been us.

So I think we were fortunate that we saw an increase this last quarter, but I'm not expecting that that's going to be an area. It would be great if we could continue growth because it is a nice piece of diversification, as I said in my remarks, away from some of our more traditional lines of loans. But I just don't believe that we are going to see that thing ramp up a whole bunch more the rest of the year.

In regards to ag, we're coming into our, obviously, our two best quarters. I haven't put a percentage on it. I don't know, Barry, if you have as far as what we hope to increase. But let's face it, the overall portfolio is twice as large as it was a year ago, and that's come primarily from the addition of two new banks.

What we will get over the next two quarters will -- with the operating lines being drawn on, it's going to definitely add to ag outstandings.

But as far as a percentage, my best guess is that, over the next two quarters, that we would maybe see a 10% to 15% increase from the outstandings at the end of the year. So you take that number, you're probably talking $25 million to $35 million, Brett. And then by the end of the year, our expectations, if everything goes right, most of those lines will be paid back down. But we'll have this -- over the next six to seven months, we'll have this increase in ag lines outstanding. And, again, my guess would be that that's going to range somewhere in the $25 million to $35 million range.

Okay, that's great color. And the other thing I was just curious about, you talked about holding the margin at 4%. Can you maybe talk a little bit about the loan portfolio yields going forward? Do you think you can keep the portfolio at the present yield? And then any additional benefit you think you might get on the premium end -- front going forward?

If we do get any benefit on premium, it's going to be much smaller. If we go back four quarters -- and I looked at these numbers recently -- we had about a $3 million reduction in the first quarter of -- or maybe it was -- yes, it was the first quarter or second quarter of last year followed by a $3.2 million reduction, followed by a $6 million reduction in the fourth quarter, and then, like I said, $1.4 million this quarter.

We could see some reduction. Because I think if you looked at March's numbers and carry March into the next three months, that would probably give you a slight reduction. But, believe me, I think that most of the gains there have already been noted, and we have already received most of the benefit coming from premium amortization.

On the loan side, it appears as though we have kind of hit that inflection point where we haven't seen yields on the loan portfolio change much here over the last two quarters. We had a little bit of a reduction in the fourth quarter; but, as I noted, this last quarter the yield on the loan portfolio was flat.

I don't expect that there's a lot a further reduction. It seems like at the margin, the yield that we're putting new loans on is not materially depressing that overall loan yield. And that probably makes some sense. We've gone through a number of years now where that reduction in yield has actually been a quarter -- an every-quarter event. But I think -- again, I think we've hit that inflection point now.

And we're expecting that that yield kind of holds in this range. Not obviously going to see any kind of an increase in that yield until rates start moving up, but don't believe we're going to see a lot of additional contraction.

Now, what will benefit us more than anything in the margin is a change in the mix. If we can, as I said, drive more and more volume into these higher-yielding loan assets and out from the investment portfolio, that obviously will do us some good.

And that's really where the focus is right now, Brett, is to, again, make sure that we are doing everything we can to try to generate more loans and maybe take pressure off of us having to buy more and more securities.

Okay, great. I appreciate all the color.

You bet, Brett.

Jeff Rulis, D.A. Davidson.

Just a question on the, I guess, visibility on the gain-on-sale line, and that's a tough one to predict. But kind of approaching a bottom here, is that -- could that, I guess, approach zero? Any sort of outlook on that front?

You mean gain on sale on the security portfolio?

No, within the mortgage banking.

Oh, the gain on sale on the fee income side.

Right, yes.

Yes, we -- as I have said, a 60% drop in mortgage origination fee income just from the same quarter last year, that's a bunch. We were expecting that that was going to be down pretty significantly, and yet I think it was even down more than what we had estimated from the same quarter last year.

Again, I'm hoping, Jeff, that we have seen kind of the bottom. We are certainly -- as we enter the spring now, we're certainly starting to see a little bit more activity. That activity has got to come in the form of, as I said earlier, purchases and construction. Although there's always going to be some refinance out there, and we still do some refinances. It's a far cry from what it was this time last year.

So our hope is that with the spring, better weather coming, a renewed focus among our mortgage originators to really get out and reestablish and continue to firm up relationships with builders and realtors, that this quarter hopefully will be the low point when it comes to gain on sale.

And I apologize if this was addressed; I hopped on a little late. But the compensation cost, is that -- anything one-time in there? Is that -- I guess is there some seasonal ads, or is that kind of a core rate that we should assume going forward?

On the compensation, I think that's pretty core. We've seen the reduction in compensation from the mortgage side. Obviously, with the lower volume of mortgage originations, there is somewhat of an offset on the expense side to those lower -- through that lower fee income, and that comes, clearly, from the lower compensation expenses.

But at the same time, each quarter -- or each quarter, especially the first quarter of the year, obviously our FICA expenses move up. We had some extraordinary expense in the form we paid some director's fees during the quarter. That was paid in the first quarter; that will not be paid through the rest of the year.

A few little things like that, Jeff, but nothing that I believe is so material that you could see a significant reduction moving forward. So I think the compensation figure that you saw is pretty core and one that you could probably rely on through the rest of the year.

Okay. Thanks, Mick.

You bet.

Jennifer Demba, SunTrust.

Just wondering what kind of progress you think you can make on the nonperforming asset (inaudible) over the course of this year, Mick, based on what you are seeing right now.

Well, as I mentioned, we've got a couple of larger deals that there's never any guarantee, Jennifer, that they ever get done. And they don't get done until they are absolutely closed. But a couple of the remaining larger non-performers are currently in the process, and they look -- it looks pretty encouraging that we could move a couple of more of these.

As I said in my remarks, our goal this year is to remove NPAs down to that $90 million -- get below or at that $90 million level. We started the year at $107 million, that's a $17 million reduction, which would be just about 20% -- just slightly over 20%. That's our goal for the year. We think it's achievable. If some of the things that are looking, like I said, encouraging right now do materialize, I definitely believe we could get down to that $90 million. I mean, obviously, we'd like to get below that, but that is our goal for the year is to see if we could reduce that number by approximately another 20%.

It gets a little bit more difficult, as I've said in past quarters. As you get lower and lower to the bottom of that barrel, some of the remaining nonperforming assets -- it's not as if they are bad assets, it's just maybe they have a single utility that's going to take the absolute right borrower in order to move that or to sell that property. And in some cases, some of the property is just not the most attractive. So you got a little bit of both. And we are in the process of working very, very hard -- again, there's two or three transactions out there that if they do close, I really do believe we will hit our goal for the year.

Thanks.

Jacquelynne Chimera, Keefe, Bruyette & Woods.

Mick, I wondered if you could give us an update on the two acquisitions you did last year and how the conversions are coming in the integration and everything.

You bet, Jacque. We are -- this Friday, we are converting on First State Bank of Wheatland. That will be the final piece of integration that we will have to complete regarding that entire integration process.

I think that both their staff and our staff, both our technology people and our operation staff, have done a great job. Knock on wood, you never get through any conversions without some hiccups and some things that get missed. But right now, throughout the testing everything that's been done, it's really looking good.

So my hat's off to the staff at First State Bank. I think they've done an incredible job of focusing on this conversion. And we're going to be flipping the switch on Friday evening on that particular one. So we're -- of the two that we partnered with last year, that one will be totally integrated.

And then it's -- we're in the process of doing the network conversion at North Cascade's bank. They are scheduled for that October-November time frame for their conversion. Once again, I think that with the staff that they have and -- you know, we're -- I think we get a little bit better and we learn more and more from these conversions every time we do them, and we've done a lot of them. I would expect that that last piece of that integration goes very, very well also.

So, Jacque, if you want to call me next week, I can give you a better sense as to how First State Bank has gone (laughter), but our expectations are that it's going to go very, very well. And in talking with Marcia Johnson, our Chief Operations Officer, she's feeling very, very good and has said that the staff down there has been incredible to work with. And she really feels good about where that conversion is going this weekend.

Okay. So is it safe to assume, then, that in the latter half of 2Q and 4Q there will be a little bit of expense relief associated with those conversions?

That is correct.

Okay. And how do future discussions look? I know that you have said that two to three deals similar to what you did last year is kind of what you are looking to do this year. Is that something that you think is achievable?

Yes, I think there's an outside chance. Obviously, we are already through the first quarter, and there's nothing at this point in time. But lots of dialogue; lots of discussions; lots of interesting things to discuss and look at. So we're still hopeful.

For us to put three together, that might be a stretch. But it would certainly be nice to get one more done yet this year. And if we could work on two, that would be great. Again, you just never know. And all I can really say on the phone is that there's been a lot of dialogue; there's been a lot of interest from a lot of banks in Glacier, and we'll just see where that takes us.

And do Washington, Utah, and Colorado remain kind of your key markets of choice?

Yes, I'd have to say -- we look at all six of the states. And the only reason I mentioned Washington, Utah, and Colorado is because you just don't have many HHI issues, market concentration issues in those states; that we have more of an issue in Montana, Idaho, and Wyoming. But I don't want to misinform or give anyone the wrong impression that we're not looking and we have not had dialogue with banks in those other states also.

Okay.

But I just think that the opportunities, Jacque, for us and the headwinds of doing transactions are much easier in those three states.

Okay. So discussions are taking place broadly across the footprint.

Across the footprint, that is correct.

Okay, great. Thanks for the update.

You bet. Thank you, Jacque.

Joe Morford, RBC Capital Markets.

Most of my stuff has been asked, but just one follow-up on credit quality. Given the drop in net charge-offs and the fact that you're still getting some recoveries and prospect of getting NPAs down further, when might we see you perhaps take down the reserve at a little faster pace?

Yes, we obviously we do the analysis every quarter. We want to make sure that it's -- that that reserve is fully adequate. We believe it is at the end of the quarter. Can't really say whether we would take it down a whole bunch from here. Clearly, we've got a lot of growth that could be added to that loan portfolio and still retain a very adequate -- in our mind, a very adequate reserve.

I think, Joe, the biggest thing for us is we're going to have to see if credit trends do continue to improve. We expect that they will. But then probably the big driver is going to be two things. Number one, what kind of organic loan growth can we put on the books? And then how successful are we in the M&A arena? Because, like it or not, every time we do a transaction -- and under purchase accounting rules, we don't carry that ALLL over.

So if it's going to be a bank that's got any size of loan portfolio, that's going to have to be absorbed by our existing ALLL. And we are mindful of that, and I think that's one of the things that gives us some comfort that the level of the ALLL is where it is. We like where it is. We think it's adequate for the type of business that we hope to produce organically as well as the additional business we hope to put on the balance sheet via the M&A route.

That's about -- probably I guess all I will really have to say.

Okay. That's fair enough.

It's adequate.

I would think so. Okay, that's helpful. Thanks, Mick.

Tim Coffey, FIG Partners.

I had a question about possibly for net recoveries going forward. Given that you're entering the best two quarters of the season for you guys and the optimism you are expressing on the construction side in terms of the loan growth going forward, does that at all increase your optimism for net loan recoveries in the next couple of quarters?

We've had two -- we've had really three good quarters in a row now where recoveries have been awfully strong. It's one of those things where it's really difficult to gauge if -- now the second quarter, that's going to continue.

I would suspect that total charge-offs are going to behave. I don't see -- at least, we're not seeing anything out there right now that would be a big surprise, although I have been surprised many times. So the time I say that is now the time where, in this quarter, something will come out of nowhere that no one could have foreseen or no one expected.

But as we are looking at the tea leaves right now, it appears to us that charge-offs should remain fairly well behaved. And there was a lot of dollars charged off, as unfortunately we all know, during those down years. And I think the banks are doing a really nice job of recovering some of those. And that's what we really experienced here over the last three quarters.

Will the second quarter or third quarter of this year, Tim, carry that on? We certainly hope so. We certainly believe there are loans out there to be recovered on. But I just -- it's just one of those things where I can't really -- I'd just be speculating as to whether this next quarter is going to be as good as the last three. Could even be better. There's clearly some loans out there that could be recovered on that would make that recovery another very, very -- or make this quarter for recoveries another good quarter.

All right, understood. And then the interest income, the color you gave seems to indicate that you -- that could start going up without this premium amortization issue. My question, though, is on interest expenses. That's been coming down fairly steadily. Are we getting to the point where it's going to bottom and start to rise marginally?

I don't see it rising in the near term, Tim. You are right, though; it's not getting any lower. Take, for example, this last quarter. It flatlined from the fourth quarter. And even if you go back to the third quarter and compare third to fourth quarter, it was like a basis point or two. It just has really been now three quarters where we haven't seen much movement on the interest expense line, and I would not expect that to go down much.

As I said, we work very, very hard at generating a lot of transaction accounts, and the banks have done a great job of doing that. And the new banks are really doing a nice job in that area.

Unfortunately, though, when you bring it in a non-interest-bearing account, it's not materially different than what we borrow money at and what we pay on other types of accounts. And yet, we still recognize the long-term, inherent value built in those, and that's why we continue to just drive down to each and every one of the banks the importance of growing that non-interest-bearing deposit base.

So that's -- and I think that during the summer months, Tim, we usually see those balances increase as tourism increases, as just the overall activity level increases throughout our footprint. So it would be our hope that that piece of our overall funding continues to get larger and larger and larger. Maybe not right now having a noticeable impact on our funding costs, but the expectation with us is that down the road when rates do start to move back up, those will be very, very, very valuable deposits. And that's just the way we are approaching it.

Good. And then during your comments, you mentioned deposit -- customer deposit account growth of 5%. Is that kind of the target growth for you?

No, that's actually so far on an annualized basis that succeeding our goal. Our goal was 3%. So through the first quarter, we have seen better growth than what our expectations were and what our plan called for. That's why I'm saying if we can continue to hold that kind of growth through the rest of the year, that would be outstanding. And it would trump what we did last year. Last year, our growth was over 4%. We figured that it was going to be tough because we had a very, very good year in 2013. We felt that was going to be very difficult to replicate, so we actually brought down our expectations a little bit and we're calling for 3% growth this year. But through the first quarter, we did a lot better than that.

So now I'm going to be very interested to see if that momentum can be maintained and the pace of 5% transaction account growth will hold through the remaining three quarters of the year. If it does, that would be outstanding.

Because you're talking -- once again, you're talking 5% on a much, much bigger base, too. We are approaching 300,000 checking account customers. So it's one thing to have 100,000 where 5% means 5000; where at 300,000 it means 15,000 new accounts. So it's a bigger deal for us and one that we really focus on; the banks really spend a lot of energy and time and effort in this area. And so far through the first quarter, it has paid off.

All right. Well, hey, Mick, I appreciate it. Those were all my questions.

Thanks, Tim.

Brett Rabatin, Sterne Agee.

My follow-up has been asked. Thank you.

At this time, I'm not showing any further questions.

Okay. Well, thank you all very much for joining us this morning. And, again, I believe we've got the year off to a good start. Now the key for us is to continue to maintain this level of momentum, hopefully, as we enter what historically and traditionally for us has always been the two busiest quarters. We certainly, certainly hope that that is the case in 2014.

So with that, thank you all for joining us this morning, and have a great rest of the week. Bye now.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.