Glacier Bancorp Inc (GBCI) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Glacier Bancorp conference call. (Operator Instructions) As a reminder this conference is being recorded. I would now like to introduce your host for today, Mick Blodnick. Sir, you have the floor.

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

Last night, we reported earnings for the fourth quarter and full-year 2014. Net income for the quarter was $28.1 million, an increase of 6% compared to the $26,500,000 earned in last year's quarter.

We produced diluted earnings per share for the quarter of $0.37. That compares to $0.36 in the prior year quarter, a 3% increase. Earnings for the year were $112,800,000. That's an all-time record for us and an increase of 18% from the prior year. Diluted earnings per share for the year were $1.51. That's also an increase of 15% for the year.

As expected, due to seasonal trends, our earnings were softer in the most recent quarter compared to the two prior quarters which typically for us are much stronger quarters. However, we still delivered solid performance metrics and saw growth in both loans and deposits as well as continued improvement in credit quality. Our staff and directors should be very proud of what they accomplished this year and we will do everything within our power to keep this trend line moving in a positive direction in 2015.During the year we announced and completed the acquisition of First National Bank of the Rockies, headquartered in Grand Junction, Colorado and are currently in the process of closing on Community Bank, Inc., located in Ronan, Montana. We received all regulatory approvals for Community Bank and plan on closing the transaction on February 28, 2015. The addition of Community Bank represents the fourth acquisition we will have closed in the past 21 months. Upon closing, Community Bank will become part of our Glacier Bank and First Security Bank divisions. Although smaller than the prior three deals, we believe this latest acquisition again represents a terrific opportunity to further enhance shareholder value without taking on a great deal of additional risk.

In 2015 -- or in 2014, we completed three separate data conversions, two of which were done in the fourth quarter. Although these initiatives require a great deal of time and resources, I believe we have developed a very efficient and robust process that effectively brings our new banks on to our technology platform. I can't give enough credit to all those responsible for making these conversions go so smoothly. With the volume of merger activity in this quarter and year, it caused more one-time expenses than usual. We expect this to continue through the first half of 2015 as we integrate Community Bank and move them on to our data platform.

In addition to the two platform conversions this past quarter, we also converted to a new mortgage loan operating system. We expect this new system to not only streamline the origination process for our 13 bank divisions but will also provide us with an enhanced reporting system which will allow us to better manage and monitor our mortgage production. If mortgage rates stay at their current low level, we should now be in a position to efficiently handle more volume, which is one of our goals for the new year.

For the quarter we earned a return on average assets of 1.37%, and a return on tangible equity of 12.51%. For the year our return on average assets was 1.42% and we produced a return on tangible equity of 13.07%. Loans grew at a 3% annual -- annualized pace in the fourth quarter as we were able to offset the seasonal reduction in C&I and agricultural loans. The increase in loans in the most recent quarter helped to produce organic loan growth for the year of slightly more than 7%. If we include the First National Bank of the Rockies acquisition, our loan growth in 2014 exceeded 10%. We grew our loan portfolio in every quarter of 2014, another feat we haven't often accomplished.

Once again, this quarter, most of our growth came in commercial real estate. However we also saw growth in a number of other lending categories such as residential construction loans, land lot and other construction and home equity lines of credit. For the full year we generated growth in every loan category with, again, commercial real estate accounting for the largest share of the gain. And even though it's winter, through most of our footprint, the loan momentum we are carrying into the new year has given us confidence that our goal to produce 6% loan growth in 2015 is achievable.

The growth in loans this past year allowed us to once again reduce the overall size of our investment portfolio by 10% compared to the same period last year. Much of the decrease came in collateralized debt obligations although we also reduced our corporate bond portfolio. However this past quarter we did add to our investment portfolio to replace some of the securities we sold off when we acquired First National Bank of the Rockies. As we move forward the level and pace of future acquisition opportunities as well as the rate of loan growth will dictate whether we continue to shrink or add investments to the balance sheet.

In this current rate environment it would be most beneficial if we could continue to acquire grow loans. One bright spot all year long has been the significant growth we've achieved in non-interest-bearing deposits. Again this quarter this low-cost funding base increased $36 million or 8% annualized. An increase in non-interest-bearing deposits is unusual and something we don't traditionally see in the fourth quarter, but all year long we have had excellent growth in the number of consumer and business checking accounts and the growth in dollars is representative of a much larger base of customers. For the year, non-interest-bearing deposits grew by $258 million or 19%, one of the best years in our history. If we exclude the addition of FNBR, non-interest-bearing deposits still increased by 13%. The stability of this deposit base is something we are constantly attempting to model and analyze. Nevertheless it is difficult to determine what will happen when rates begin to rise. However if we can continue to increase the number of accounts in our markets at the rate of the past three years, it will definitely reduce any drastic decrease of dollars in this very valuable funding base.

Excluding wholesale deposits, interest-bearing deposits increased $149 million or 3% during the quarter as low-cost transaction accounts primarily NOW and savings accounts collectively accounted for most of the increase. For the year, core interest-bearing deposits -- excluding the acquisition -- were up $234 million or 6%, also one of the best growth rates we have seen in years.

With this level of non-interest and interest-bearing deposit growth, we were able to decrease the amount of our federal home loan bank advances by 65% this past year and still have sufficient liquidity available to adequately fund the balance sheet.

We had another good quarter in the area of credit quality as trends improved further. We achieved our goal for the year of reducing total MPAs below $90 million. MPAs ended the year at $89.9 million. $86.3 million, if we exclude government guaranteed loans. During the quarter MPAs decreased by $8.2 million or 8% with land lot and other construction along with one- to four-family residential loans accounting for most of the decline. Our MPAs ended the year at 1.08% of total assets compared to 1.39% a year earlier. As we begin 2015, we expect to make further progress in lowering our MPAs. Our goal for the year is to reduce this figure below $70 million, a goal we feel is attainable.Net charge-off for the quarter totaled $1.1 million, an increase of $706,000 from the previous quarter. For the year, net charge-offs were $2.5 million or 6 basis points compared to $7.4 million or 18 basis points the prior year. This was an excellent number and demonstrates the type of progress our banks have made in reducing our overall credit cost. Our goal for the year was to keep net charge-off below 25 basis points. Not only did we achieve that goal this year our performance in this area rivaled some of our lowest levels of net charge-offs ever. Early-stage delinquencies ended the quarter at $26 million. That is up from $18 million the prior quarter but down from $32 million in the same quarter last year. This time of year we traditionally see an increase in delinquencies but so far they have appeared to be holding at a very manageable level. Hopefully, we can get through the rest of the winter without a significant move upward in past-due loans.

Our allowance for loan and lease loss ended the quarter at 2.89%. That's a slight reduction from the prior quarter's 2.93%. In the most recent quarter we provisioned $191,000 compared to a loan loss provision of $360,000 the prior quarter and $1.8 million in the prior year quarter. For the year we provisioned $1.9 million for loan losses versus $6.9 million the prior year. If credit quality trends continue to improve next year, we would not expect our loan loss provision to differ much from this year.

We continue to actively manage our capital position. In November we announced a 6% increase to our regular dividend. This was the second time since December of the previous year the dividend was raised. During that time, the dividend increased from $0.16 to $0.18 or 12.5%. Our long-term goal has always been to attempt to increase the cash dividend at a 10% per year rate, depending of course on our level of earnings, capital needs, and any other regulatory requirements.

In addition, in December, the Board of Directors declared a special dividend of $0.30 that was paid out on January 22. This was the 11th time we have paid a special dividend [but] the first time since 2005. At the end of the year we felt comfortable that our level of capital was more than sufficient to meet our growth needs and still allow us to pay out this special dividend.

Net interest income declined by $449,000, primarily due to a $938,000 increase in interest expense. Three years ago in October, we entered into a deferred swap structure as a way to reduce our swap sensitivity to rising rates. This particular structure allowed us to swap a portion of our floating-rate interest expense for a fixed rate. In addition, at the time we entered into the swap contract, we also chose a three-year deferral period before our higher fixed rate expense commenced. In the current quarter that deferral period ended and we are now paying the fixed rate cost of the swap. In the quarter, the majority of the $938,000 increase in interest expense was directly attributable to the cost of the swap structure. Interest income actually increased $489,000 to $76.2 million during the quarter with interest on loans up $1.2 million, offsetting a reduction in interest income earned on investments of $744,000. Interest income got a boost as residential real estate, commercial and consumer loans all posted higher interest income during the quarter. As a result of the decline, net interest income this quarter -- in net interest income this quarter, our net interest margin was also impacted.

For the quarter, our net interest margin decreased 7 basis points from 3.99% the prior quarter to 3.92% in the most recent quarter. Once again the swap accounted for 5 basis points of the reduction -- the other 2 basis points came from lower yields on earning assets. In addition, purchase accounting adjustments during the quarter added 1 basis point to the margin on a sequential basis. We will continue to evaluate the deferred swap structure as we move forward but currently have no plans to exit the swap unless our balance sheet or interest rate risk profile change substantially.

For the year 2014, one of the main highlights was the significant improvement in net interest income brought about by a combination of loan growth, better investment yields and lowered funding costs. For the full year, net interest income totaled $273 million. That's an increase of $38 million or 16% over the prior year. Interest income on earning assets increased $36.3 million, half of which came from commercial loans and the other half from investments. Interest expense decreased $1.8 million during the year, a majority of which came from lower deposit costs. Our net interest margin for the full year was 3.98%, an increase of 50 basis points over last year's 3.48%.

Non-interest income was also down 2% sequentially from the third quarter which historically is expected this time of year; however non-interest income was up 4% compared to last year's fourth quarter. For the full year, non-interest income was down $2.7 million due to an $8.7 million or 31% reduction in fees on sold loans. Service charge and other fee income were down $315,000 or 2% during the quarter, along with fees on sold loans which were down $576,000 or 10% during the quarter. We expect a seasonal slowdown in mortgage origination volumes to continue into the first quarter of 2015 although the drop in rates since the first of the year may add more volume than what we anticipated. Once spring arrives we believe construction and purchase activity will increase and allow us to recapture some of this fee income. Although service charge fee income was down from the always strong third quarter we were pleased at just how well the revenue source held up during the quarter. Our banks continue to generate a larger and larger customer base, especially the newer banks to our Company as they have implemented and benefited from some of the customer acquisition strategies we have used for years. If the base of customers continues to grow at the same pace it did in 2014, we would expect this source of fee income revenue to continue to increase again this year at a similar high single digit pace. Controlling our operating expenses continues to be a major focus for the Company. Our expenses increased by $1.5 million from the prior quarter with $1.4 million of that amount coming from one-time acquisition-related expense. In addition OREO-related expenses for the quarter were $893,000, the highest quarterly total this year. However, overall the overall trend in this category continues to move lower as we reduce the overall level of OREO property. Most other expenses were basically flat compared to the prior quarter. Our efficiency ratio of 55% was up 1% from both the prior quarter and the year ago quarter as the higher one-time expenses in conjunction with the higher interest expense from the swap accounted for the increase. For the year 2014, our efficiency ratio was 54% versus 55% in 2013.In summary, 2014 was a terrific year as we exceeded just about every operating and production goal we established. It was a record year for earnings and the first year ever our net income eclipsed $100 million. Loan production was strong. We saw substantial increases to our low-cost transaction accounts, there was dramatic improvement in our net interest margin, asset quality improved significantly and we closed one bank transaction and announced another. We completed three data conversions and moved to a new mortgage loan system, three of which took place in the fourth quarter. As we begin 2015 the operating environment remains a challenge, especially the current level and direction of interest rates. However, we are excited and believe there is still a number of positive trends intact and they should allow us to continue to deliver solid results to our shareholders in 2015.So with that, those complete my formal remarks and we will now open up the line for questions.

Jennifer Demba, SunTrust.

I jumped on a few minutes late so if I am repeating something you already covered I'm sorry. Can you give us an update on your management search as it stands right now?

It's going very well and we are absolutely, Jen, on track so I think that our original disclosure that we would hopefully have an individual name by the second quarter, I believe we will meet that target date.

Okay. And can you talk to us about -- just a separate follow-up -- can you talk to us about the impact of declining commodity prices -- oil prices on your footprint? Indirectly -- your indirect exposure to the Bakken. I know you haven't had much. But --

Yes, that's a great question. We don't have much exposure. Obviously we have analyzed it over and over -- scrubbed the various -- scrubbed the loan portfolio. The exposure we do have to the Bakken obviously is indirect. We do have some exposure -- not on the production or exploration side but we do have some exposure to natural gas down in southwest Wyoming. That exposure has been there for years. The price of natural gas -- obviously it's not moving up to where you are going to see a lot more drilling or a lot more activity, but it's at a level where it's been hovering around. So we don't see a lot of impact on the natural gas side. I think there is -- again like you asked -- there is probably some indirect exposure and employees -- or workers working on the Bakken or at the Bakken living in this part of the country. There are some workers -- construction workers that have found over the last five years over there. I'm not sure that a lot of those jobs from what I'm hearing are necessarily in jeopardy. I believe more than anything we are probably going to at least in the near term, Jen, see slowdown in new hires. I just don't believe it is going to be anything close to the rapid pace of job expansion. But I do think that individuals working over there, unless oil prices would collapse further and stay down for an extended period of time -- I guess they could do that, I'm certainly not an expert in that area -- then maybe we could see some stress. But overall our exposure to the Bakken is very, very, very limited.

Thank you.

Matthew Ferguson, Sandler O'Neill.

Just wanted to touch on the NIM. Nick, can you give us a sense was there any noise in the margin this quarter? Any elevated prepayment penalty income or accelerated discount accretion and the number? Just trying to get a sense if [392] is a good level and hear your thoughts for maybe holding that level across 2015?

Well we will have the swap expense going forward and I think I fully explained our rationale for putting that on three years ago. We need that to maintain and control our interest rate risk profile so -- but it came at a higher cost than what we were paying through the first three quarters of the year --. With that said, we had very little difference in purchase accounting impact during the quarter. I think the discount accretion for the third quarter was like 5 basis points and it was 6 basis points in the fourth quarter. So there was 1 basis point, Matt, the difference between third and fourth quarter. So that was negligible. Again the major impact from the swap -- or the swap led to the major impact in that 7 basis point reduction. Going forward again the swap is there -- the swap will be there so there shouldn't be any change necessarily between fourth quarter and first quarter from that perspective. I suspect there could be especially if we stay down at these levels that we've seen and the much lower rate environment in the last three or four weeks of the new year, I suspect that would put some more pressure on our earning asset yields. So but just how much of that, Matt, I just don't know. Would it be a couple of basis points like we saw this quarter going forward? That very well could be the case. We are certainly hoping that it's nothing much more significant than that and we are still growing loans. Even though the loan growth was nothing compared to what we did the prior two quarters, for us, that fourth-quarter loan growth was -- it was a good number. Because that number was a net 3% annualized increase in loans. But we also experienced pretty significant paydowns in both our C&I portfolio and our ag portfolio, which is typical for this time of year. So we feel good that come next March a lot of those ag lines will start to ramp back up and we are carrying a fair amount of momentum, as I said in my formal remarks. We are carrying a fair amount of momentum for this time of year and we certainly had winter this year. We are carrying a fair amount of momentum into the early months of 2015.So I don't know, Matt. I guess a slight reduction in margin. I don't see us being able to make dramatic reductions in the yield on the investment portfolio. And even they are there is definitely some with by replacing investment securities with loans. But it's not the same level of difference that we were seeing 18 months or two years ago. Both the yield on our investment portfolio has definitely improved over the last 18 months while the loan portfolio has continued to see some level of decline. So I hope that answers your question.

It does. And just kind of a related question, so if margin is under a little bit of modest pressure, can you help us think through the volume offset? You are remixing cash flows from the securities portfolio into loans but do you think you are able to grow the earning asset fees and hold NII across 2015? Or should we see a little bit of compression there just in light of the dynamics?

That's a great question. If we hit our 6% number for loan growth this coming year -- and that's our goal, I stated that -- that's a little higher than what we -- remember, we set out a 5% goal in 2014 and we exceeded that. This is organic -- we only look at organic loan growth, not the impact of any acquisitions. So we set out a goal for 2014 of 5% growth -- we did a little bit better than 7%. We thought we would up the bar this year and challenge the banks to create or hopefully produce and generate 6% organic loan growth this year. I think if we can do that, I think that definitely holds the net interest income line. You've got to remember, though, going forward we will have that -- if you are comparing year-over-year, Matt, we are going to have that swap out there for the full year now in 2015. We only had it out there for one quarter in 2014. If that was roughly $1 million of additional cost, you can basically add $3 million more of interest expense, everything else being equal. So that's one hurdle we will need to overcome, and I think we can but a lot of it is going to center around loan growth. I just finished meeting with all 13 bank presidents over the last 2 1/2 or 3 weeks and we had lengthy and expensive discussions about asset quality, credit quality, loan growth. We think we can hit that 6% mark -- at least the bank presidents felt that they could. A few of them were higher and if you were slightly lower. But the one thing that was consistent in all of our discussions was, we are not going to push the envelope. If it means that the only way we are going to get 6% loan growth is to start to undermine our underwriting standards, then we are just not going to go there. I think Barry was given that message loud and clear and I think it will be his responsibility this year to make sure that we just don't see a lot of credit creep. Because, I think, we all learned over the last six or seven years that additional volume, if it comes with any amount of significant credit cost or credit loss, you are probably better off staying away from it. I think that was the message that we conveyed to all of the banks and, of course, they are very very smart people -- they were all well aware of that already. And I think that will be the mantra. I don't know, Barry, do you have anything to add to what you are seeing out there creditwise? Are you seeing pressure on underwriting?

Yes. There's constant pressure on underwriting -- generating product, nonrecourse loan to value percentages are constantly being challenged but probably more so is pricing and terms. While we generally try to stick to our guns, on occasion we just have to meet competition. But we hate doing it and on a rare occasion, we are going to have to extend some terms as far as fixed rates. But other than that we've pretty much been holding true to our current underwriting.

And that's a good point that Barry brings up, too, Matt. And we have made this pretty clear to all the banks -- if it's a good quality deal and we have to skinny down the pricing on it to get it, we are more willing to do that than we are to, like Barry said, start to change those underwriting standards of ours. We haven't seen much in the way of extension, though. That's been one good thing -- the banks, I think, have done a terrific job of keeping that loan portfolio and the weighted average maturity for the term of that portfolio pretty constant. We have not had to extend a whole bunch -- although there has been, again, like Barry said, there has been some deals with some very good borrowers -- long-term customers. We are just not going to lose those deals for the fact that we needed to extend to keep the deals.

I appreciate it. Thank you.

Jacquelynne Chimera, KBW.

Wonder if you could give us a brief overview of what cost saves remain from the deals that you have already closed that could flow into 1Q?

You know, clearly on the North Cascades, we are now -- we have converted North Cascades Bank on to our platform system. They are also on the new mortgage loan operating system. I definitely believe there is going to be some additional -- that conversion took place, Jackie, in October. So we believe moving forward that's going to definitely give us some efficiencies. I believe Scott Anderson, the President, thinks that that's going to definitely help make them a little bit more productive -- brought some additional product lines and services to them that they did not have before. I think that's going to help. With First National Bank of the Rockies, Art Chase is right now still in the middle of -- even though we've completed the conversion and it went very very well, Art is still in the process of integrating those operations. Because remember, the First National Bank of the Rockies was folded into Bank of the San Juans. Definitely more integration opportunities there than you do with a standalone like First State Bank of Wheatland or North Cascades Bank in Chelan. So we will see some more. Have we tried to quantify that, Jackie? I don't think so so much. We are busy now on Community Bank, and closing that next month. I don't think -- that's going to be another one that gets folded in as I said in that my remarks to both Glacier Bank and First Security Bank. Definitely there will be some efficiencies there that will be gained. We are going to be pretty aggressive on that one to get that conversion done because this one is, again, moving into two banks. We are kind of splitting Community Bank up and dividing it among Glacier and for security. A lot of very very attractive opportunities for us with this acquisition. At the same time, we felt that we really needed to get that conversion done much quicker than what we normally would. So, we are going to close at the end of February. And we're -- right now we've got an early June conversion date on that one. So we are going to have to really get going right off the bat as soon as we close to get that platform integrated and get that bank assimilated into -- for security in Glacier. So, I think there will be in the first six months of the year, I think from some of the past transactions, Jackie, we will see some further cost saves, some further efficiencies. But we really haven't tried to put a dollar tag on it.

Okay. Fair enough. And did the First National Bank of the Rockies, did that take place on December 12 as planned?

It did and it went great. It really did. I think Art Chase and his group along with our conversion team up here you is led by Marcia Johnson -- that's a very good team anymore. We've done three conversions this year and they were arguably three of the best conversions we have ever done. Now did they go perfect? No, they never ever do and you will have a hiccup here and a hiccup there just because they are always unique and different. But I think the process that we have built up is a very robust one and one that I think we can continue to -- hopefully and we are going to have the opportunities to do this well into the future because I think we are getting pretty darned good at integration.

Yes. Practice makes perfect.

It certainly does.

And just one last quick one, where do rates need to move before the swap becomes a benefit for you?

That swap contract -- the notional amount of that swap contract was $160 million. We are at [338] on that thing locked in for seven more years. Had of lately at seven year FHLB advances but my guess is rates would still have to move up probably another 100 basis points from here. Maybe even a little bit higher than that in order for this -- the swap contract to move into the money. The other thing about it is as we put that on three years ago, fully expecting three years later that rates would be higher, well guess what? They did not. I mentioned to Ron numerous times even prior to the swap taking effect in October that it would be our luck that as soon as we canceled that, swap rates would go screaming up and we would only wish we still had it. Certainly it made a difference in our interest expense, Jackie, this last quarter but we still think it was -- obviously for us, it was the right thing to do. We have been able to maintain a better risk profile, have been able to book a few longer dated securities than we would have done otherwise. So I guess if that wasn't there -- if it wasn't on the books you would have seen a little bit lower interest expense than what -- as we said, than what we had this last quarter. But I also think if it wasn't there you would have had a lower interest income yield, too, because we probably wouldn't have went out and probably been as -- I don't know what exactly what the word, I guess -- we wouldn't have gone out as long on a few securities and generated the yields that we were able to generate if we didn't have that spot in place. It impacts both sides of the balance sheet obviously. But we think again it was the right thing to do and we plan on keeping it at least in the near term.

Okay. Thank you for the color. I appreciate it.

Jeff Rulis, D.A. Davidson.

So, Mick, I guess we have to add a couple of percent to your 6% loan growth -- you've lowballed us a couple of years in a row. So I'm going to bake that in.

No, Jeff, we haven't. It's just been a couple of good lucky deals.

There is no sandbagging here.

All right -- I'll stay at the 6. But I guess a number of questions have been answered but the non-interest income growth rate -- Mick, you mentioned some fee income expectations or potential growth there. Could you repeat what that figure was?

Yes. During the last year on fee income service charge, miscellaneous fee income our fee income for the year-over-year period, Jeff, was up about 9% and if we continue -- I think we hope and feel we can -- if we continue to drive new account growth both consumer and business, I think we feel pretty comfortable that we could drive something similar -- I'm not sure it's going to be 9%, but I think -- as I said, I think we are confident that we can be some high-single digit increase in that category.

Now the other side of -- the other fee income category that we saw some reduction this last quarter was, as expected, the mortgage origination fees or our fees on sold loans. That wasn't a big surprise to us -- I mean, things really do slow down here. If you would be looking out our window today you are looking at a foot of snow and that's down from to 2 1/2 feet a couple of weeks ago. Things just slow down and people aren't as likely to look at construction, look at purchases, and that. This is not Texas, Arizona and California, Seattle -- so many of the places that there is not as much seasonality built in. We see a lot of seasonality built into the mortgage business. I also think, Jeff, that part of the reduction -- we had, what, I think $576,000 less in mortgage origination fee income than we did prior quarter. Part of that was we had all hands on deck in the fourth quarter. We had every MLO -- we had every processor, underwriter, back office person that were working very very hard to learn a brand-new system and get a brand-new system in place. That system is now in place. We think it's going to be a great, great addition to the mortgage operation. And quite frankly, we are excited to start to get into the spring of the year when we traditionally have much more volume and much more activity with a new streamlined process that should allow us, as I said, to do more volume. And our expectations for 2015 is for us to do a higher level of mortgage volume. Now that's somewhat dependent on interest rates but if there's one benefit -- I said this to all 13 of our bank presidents during their reviews recently was that if there is one benefit to this low level of interest rates -- I mean, if we are going to get pressure on overall loan yields in that, we should benefit from higher levels of mortgage volume. I think the last couple of weeks we saw kind of a kick back up in refis -- I'm not sure that's going to really move the needle a lot, but it certainly moved the needle some the last couple of weeks. But I do believe as we get into the spring and summer months, it should definitely have an impact on our residential construction, our purchase volume and again, we think we have put in place the systems and the processes to be able to handle a lot more volume far, far more productively and efficiently. So it took a lot of work and a lot of time and I'm sure some -- I'm not blaming it all -- but I'm sure some of the reduction in volume in the fourth quarter was the result of all hands on deck implementing and integrating that new system.

Sure. And just to clarify, so the new origination system -- is that strictly a benefit to production? Or is there an efficiency or a cost benefit?

I think there is a number of benefits. I think there is definitely a benefit -- it's forcing us to standardize a lot more things than we ever did before in that loan category. We used to run pretty autonomous and I think it's given us the opportunity to standardize more processors, standardize more procedures on the mortgage side. It's definitely going to be a benefit on the compliant side. That was a big reason for putting this new system in place is the health and the things that it allows in the areas of compliance, to remove some of the concerns and track and make sure that certain mistakes just aren't made going forward. And then, I think from the production side, we definitely feel that the system is going to be a benefit to all those producers out there, too. So yes, there was three or four pieces of the mortgage -- of the overall mortgage process that we think this new system is definitely going to help us with.

Great. Thanks, Mick.

Joe Morford, RBC Capital Markets.

Just following up on that discussion on the fees -- I'm wondering if you could talk about any kind of impact you see from the falling Canadian dollar? I know it's not necessarily the season for a lot of the activity but the dollar is now below $0.80 for the first time in almost six years and I'm just curious how you see that playing out?

Yes. I think it's something that we are definitely tracking very closely -- we are monitoring the impact, trying to get as much data as we can get our hands on. You are absolutely right -- the first time in six years that that exchange rate has been at this level. Took a significant drop just in the last week since the Bank of Canada lowered rates. So we've still got some really good things going for us down here. Clearly no sales tax in Montana is a real advantage. The fact that the selection and the things that Canadians can come down here and buy is still very good. All goods and most goods are a lot cheaper than what they can get there. But it's not like it was three years ago or four years ago when the loon and the greenback were at parity. So we are tracking it very carefully. I still see a lot of our good friends from the North down here in the Valley. Now remember, Joe, it's primarily our largest bank in the company, Glacier, that would feel the brunt of it. Clearly Bank of the San Juans or the Wyoming banks or the Idaho banks they don't see -- it's really not going to impact them one way or another but clearly for Glacier Bank, to a lesser degree Mountain West Bank in the panhandle of Idaho, maybe a little bit for North Cascades Bank in north-central Washington there could be some impact there. But I think the biggest concern would be the level of Albertans coming down and they are the ones -- they have done very, very well over the last six or seven years. They've got a lot of natural resources that provide those individuals with terrific incomes. That's the ones that we tend to see the most in the Flathead Valley. We are going to be monitoring -- what they said, Joe, we are just going to start to monitor. We haven't seen a lot of numbers yet. This has been a pretty recent event but we are going to definitely keep our eyes on it and hope that it doesn't have a material impact, that there's still enough other good things that cause those friends from the North to want to keep coming down here.

Okay. Understood. That's helpful in terms of framing how we should think about it. I guess the other question was just how should we think about the mix of that 6% loan growth you are projecting for this year? Do you see much difference in terms of the type that lead categories have or the geography of all?

No. I guess -- we were just talking about that this morning before the call, Joe. I'd say that if the growth we experienced -- the organic loan growth that we saw in 2014 -- that little over 7% -- it was distributed among all of the banks. They all had a good year for actually putting on positive loan growth but I would say that our bank down in southeast Idaho -- in that Idaho Falls, Pocatello area probably produced the highest growth for increase in production. It's not one of our larger banks but definitely had a very good year. Actually a few of our larger banks were ones that, for various reasons, struggled a little bit more to generate loan production. That loan production was not close to the 5% or 7% that we did as a company. Now with that said, I feel really good about a few of those larger banks of ours doing pretty darn well this year. So it could've just been a timing thing -- it's hard to really drill down, Joe, to figure out exactly what the cause was. But overall all the banks grew their loans. We'd certainly like to see a few of them demonstrate more loan growth this year and, as far as the type I would suspect, Joe, it's going to be very, very similar. I think commercial real estate just tends to be a category where we probably do more volume than any of the other categories. It was nice to see residential construction for the first time in a number of years start to move back the other way and we've said many times on these calls that we ended the year a little over $100 million. We would certainly like to see that number be in that $150 million to $175 million, so there's some room in resi construction. I think HELOCs, as the economy heals up more and people generate real estate values improve, I think HELOCs can be another opportunity for us this year. But my guess is if you are sitting here a year from now it's going to probably the commercial real estate that leads the charge for us.

Okay. Makes sense. Thanks a lot, Mick.

Matthew Clark, Sterne, Agee.

Maybe just first on loan pricing. Wondered what the weighted average rate on the production this past quarter was. With your portfolio at [480], I just wanted to get that differential.

I don't have that right at the top of my head and we've will get that number here for you in a second.

Okay. And just as a follow-on to that can we just talk through with a five-year off 50 basis points what that -- obviously it would suggest that loan yields are going lower longer but I just wanted to get an update as to whether or not you are seeing any change in pricing from what the curve has done yet?

Matthew, I'll let Barry answer that because every week he is right there looking at all the credits of any size from all the banks so he'll have a better indication than I would as to what kind of pricing he's seeing out there. Maybe how it compares to 30, 45 days ago, Barry.

Yes. We are definitely seeing some compression -- there's no doubt about it. Especially when we go longer out on the curve. So is it huge? Not anything significant, but definitely yes, we're -- in order to stay competitive, especially the larger transactions -- not so much the smaller stuff but a lot of the larger transactions like anything else are being shopped. So we've been quoting some rates that are pretty aggressive. The positive thing, though, is we haven't had to go out too much across the board out on the curve but on occasion we will get out to some 10-year fixed and occasionally some 15-year fixed. But for the most part we have been paying at around that five- to seven-year term.

Okay. And were any of the payoffs that occurred at year end unusual and that it was because of rate that you guys just weren't willing to match or not? Just trying to get a sense of whether or not that phenomenon could continue or not? Whether or not it's all seasonal.

Generally at year end, what we tend to see is a lot of those companies that have bonding requirements or have financial statement covenants generally tend to draw on their lines of credit right at year end. So we haven't seen as far as I know any large payoffs that happened right at year end. We had a pretty good December and in our minds a great quarter when we actually had some net loan growth, which traditionally has been a challenge for us. So what we always tend to see is that occurring. And then, of course, those loans pay down the first month of the new quarter. But in our minds, we had a good fourth quarter loan growth wise.

Matthew, on your first question I don't have the actual yield on all brand-new production for the quarter. I can somewhat assess that from November to December our yield on our entire loan portfolio dropped by 1 basis point. So you know that's the yield of roughly in this period that was roughly about a 480 yield on loans. So if we would figure that we are getting some pressure there, but at the margin I've got to believe that we are right in that wheelhouse as far as what the new production is. I don't think that our portfolio is sitting out there at 480 and everything we are booking is, on average, at 4.25; that would certainly have a much bigger impact than a 1 basis point reduction. So I'm guessing that we are on average right around that 4.75, when we add all the various loan types together.

Okay. Great. And just the other piece of the margin on the asset side, on securities just wanted to get your sense and whether or not your guidance -- your margin guidance contemplates higher premium amortization with the flatter curve. I know a lot of that played itself out going the other way but I just wanted to get a sense for how much you might has been buying more recently for premiums --.

We are just not buying that product anymore and it's just a wind-down -- number one, the piece of our investment portfolio, Matthew, that caused all the premium amortization paying back in 2012 and early 2013, that CMO portfolio is just so much smaller than it was two years ago now. And we are just not seeing the month-to-month impact anymore. In fact, I think premium amortization was actually a little bit less again this quarter that it was the third quarter although that story is yesterday's news in my estimation. All of the big reduction is behind us in the rearview mirror. It looks like now what we are going to see is a more consistent and constant premium amortization number that we would've seen anyway. Even though there has been a few times here in the last six months where refis have moved up a little bit -- and they certainly, as I said earlier, they've certainly moved up in the last two weeks. In all of our analysis, we do a lot of analysis in this area -- we just don't see the impact going forward from premium amortization. Again, that portfolio just continues to wind down.

Okay. That's it for me. Thank you.

Daniel Cardenas, Raymond James.

Just kind of following up on your Canadian discussion, your Canada discussion. I know that Canadians are big buyers of some of your [REO] property. Maybe if you could refresh us -- remind us what percentage of your loan portfolio is Canadian-based.

It's pretty small, actually. You know even though they thought, Dan, a lot -- I wouldn't say a lot -- well they did in this valley -- they were definitely especially on any kind of recreational property and that -- I don't want to discount the importance that they provided or how important they were during this last credit cycle. But so much of those were cash purchases -- not that we don't periodically lend to Canadians, but it's just a small number. It's not a very, very big piece. The key there was -- as you just said, Dan, the key was that they did come down and they had the money and they had the interest in buying these properties and during the crisis they took a number of these off of our hands. Now we just don't have the same level of OREO property or nonperforming assets that we once did and even the properties that we do have they are probably not centered in this Flathead Valley area like they once were. Some of our remaining OREO properties in that are further South in other parts of the footprint and I just don't believe that there is any -- there's just no interest on their part to pick up some of that product.

Yes. In the Flathead Valley, we only have $3.8 million of OREO left out of the total $27.7 million. It's not a big number.

As I was just saying we just don't have enough -- and even of that, the number that Barry just gave, my guess is that the percentage of recreational property that makes up that $3 million is probably a much smaller number. So that's really what they are interested in. They were down here trying to buy lake frontage, river frontage, places up in Whitefish so that they could come down and have a place to recreate. I just don't believe that there is very much of that type of product left in OREO.

Good. And maybe just last question here, an indication of what line utilizations looked like in Q4?

Well, we definitely saw a decrease in C&I. Do you happen to have that number on hand?

I never track it. Track it quarterly after quarter end.

Dan, we can certainly get to that number. I don't have it right here in front of me but we can certainly get you that. I know anecdotally we saw pretty significant paydown is on operating lines in the ag portfolio, but that's to be expected. Especially this year with a lot of the cattle operations -- wow. I mean, the price of cattle -- that was a group that did very, very well. Very, very few of them had any reason to carry over lines in that piece of ag. So we saw a lot of paydowns and payoffs in the fourth quarter. C&I, once again as tourism comes to a halt, you just tend to when the season ends the park basically shuts down. We just see a lot of additional C&I loans get paid down. Barry, do you have something?

Generally what we will see is all those contractors that are in the road construction, anything weather-related. We have a couple of large borrowers out of central Montana and to a certain extent some vertical on those contractors that are in vertical commercial real estate. We will see some of that where they are funding their operations actually. They are a commercial borrower but they are building a commercial building. Their lines will draw down during the weather-related because they just can't operate in this cold weather. We had a real cold December, which essentially shut all construction down. It's been really cold for a couple of weeks so I know that impact will impacted things a little bit. But it's generally the case this time of year.

Great. Thanks, guys.

(Operator Instructions)Matthew Ferguson, Sandler O'Neill.

Just one follow-up question -- Mick, could you give us just a sense of deal chatter in the region? Are you having an uptick in discussions now in light of the drop-down in the back end of the curve?

No, I wouldn't say an uptick. I think the activity level as it has been for all of 2014 remains good but I wouldn't necessarily say that in this last 30 days, Matthew, or prior to year end where rates have really slumped that that has caused a significant increase, I would go there. At least, not with us it hasn't. Now maybe across the industry maybe you are hearing that that's more the case but it's been a very nice pace for us and a lot of interesting dialogue in discussions. But I certainly wouldn't want to say that it has spiked here in the last four to six weeks at all.

Thank you.

(Operator Instructions)And I am seeing no other questioners in the queue at this time.

Well, thank you very much again. We finished 2014, it was our best year ever. We exceeded our expectations significantly for the entire year based on what we set out to achieve and what we felt we could achieve in January of 2014 versus what we ended up achieving were significantly better. So it was a very very good year.

Again, we are excited as we begin 2015. We just had our January Presidents' meeting where they bring all of their strategic plans and what they are going to do to increase shareholder value, improve productivity. I come away from that meeting every year just really energized and charged with the fact that we've got some really, really smart people in this Company and those 13 banks (technical difficulty) going to knock themselves out trying to do even better than what we get this year.

Ratios that we hit this year were ratios that, quite honestly, I didn't think during the middle of the crisis I'm not sure that banks were going to get back to the performance metrics that we achieved. We realized that we've got a tall order and a high bar to continue to keep ROAs in that 130 to 150 range but we are going to knock ourselves out trying to do that and again I feel good about the quality of the balance sheet. I think we've got a lot of really positive things going.

Now the key I think for us this coming year is what kind of quality loan production can we produce? Can we continue to acquire quality franchises that will just continue, over time, to add to the value of GBCI?

With that, a terrific year. My hats off to 2,000 individuals. We say we are 2,000 strong and that sums it up. We've got a great staff. They just knocked themselves out trying to make this Company better and better and they certainly absolutely did that in 2014. So everyone have a great weekend.

Thanks, again, for all of your support and know that we are going to do everything in our power to make 2015 an even better year for Glacier Bancorp. So with that, thank you and have a great weekend. Goodbye now.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may all disconnect your telephone lines. Everyone have a great day.