Glacier Bancorp Inc (GBCI) 2016 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Glacier Bancorp first-quarter earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Mick Blodnick, President and CEO of Glacier Bancorp. Sir, please begin.

Thank you very much. And welcome and thank all of you for joining us today. With me this morning is Ron Copher, our Chief Financial Officer; Barry Johnston, our Chief Credit Administrator; Angela Docey, our Principal Accounting Officer; and Don McCarthy, our Controller. Both Randy Chesler and Don Cherry are on the call this morning listening in, but they are both out at our banks this week traveling and meeting with banks and boards.

Yesterday we reported earnings for the first quarter of 2016. For the quarter we earned net income of $28.7 million. That was an increase of 4% compared to the $27.7 million earned in last year's quarter. We produced diluted earnings per share for the quarter of $0.38. That compares to $0.37 in the prior year's quarter or at an increase of 3%. The quarter's results included $831,000 of one-time core conversion and card reissuance-related expenses.

During the quarter we moved our Glacier Bank division onto the new Gold Bancorp computer platform. And two weeks ago, we finished the conversion of Canyon Bank onto the same computer platform and have now fully integrated them into our Bank of the San Juans bank division. In addition, we also converted bank of the San Juans to our new Gold Bancorp computer system.

I'm happy to report that through these first three integrations the process has gone extremely well. We will be working hard the rest of the year to convert the remaining 11 banks to Gold Bank.

This is the largest, by far, internal project we have ever taken on. But I have all the confidence that we have the skill sets and the experience to finish on time and on budget. So far, the early adopters of the new system have definitely demonstrated that to be the case.

Wednesday evening, we announced the acquisition of Treasure State Bank, located in Missoula, Montana. With assets of $71 million, we are excited to add Treasure State to our Company and have it become a part of our First Security Bank of Missoula division. We will inherit some very talented bankers who will bring a wealth of knowledge and strong relationships, which is the real reason and the key to the partnership.

At the same time, we hope to provide them with added resources and product offerings so they can further enhance their relationships. We expect the transaction to close in the third quarter of this year.

The first quarter was a good start to the year for us as we closely tracked our expectations and budgeted numbers. Specifically, as I will talk in greater detail in a second, our loan production was better than planned, especially considering this loan growth came in the first quarter.

We definitely benefited from above-average temperatures this winter in most of our markets, which was a definite positive.

We suspect some of the loan growth we generated was possibly pulled forward, due to the temperate climate. However, if we did experience some loan volume closing earlier than usual this year, our production and demand levels currently remain solid and look good. Our performance metrics were down a little from the prior year quarter as non-interest expense ran higher as a result of the internal initiatives mentioned earlier.

Our return on average assets for the quarter was a very respectable 1.28% and return on tangible equity was 12.47%, consistent with what we have produced over the past couple of quarters. During the quarter we announced and paid our 124th consecutive quarterly dividend, and also paid a $0.30 special dividend on January 21.

This quarter the dividend was raised by $0.01 from $0.19 to $0.20 per share, a 5% increase. This represents the 40th time we have raised our dividend to shareholders. The dividend was paid yesterday to shareholders of record on April 12.

Total assets at the end of the current quarter were $9.1 billion. That was an increase of $32 million over the prior quarter and $646 million above the same quarter last year or an increase of 8%. The growth in our loan portfolio accounted for most of the asset increase in both periods. As our balance sheet moves closer to $10 billion, we continue to work and prepare to meet all regulatory requirements.

Our current projections for crossing over the $10 billion threshold remain sometime in 2017.

Our capital levels remain robust and certainly give us the flexibility to not only manage our balance sheet but to take advantage of opportunities that continue to present themselves in the area of M&A. We also feel very confident that we have the capacity to handle any surprises that may occur in regards to credit quality. We believe we have built a balance sheet that is capable of withstanding significant levels of stress if they were to occur.

Deposit growth, excluding wholesale deposits, was down slightly in the quarter, which is not unusual for this time of year. Most of the reduction came in non-interest-bearing deposits, which decreased by $31 million.

With that said, over the past 12 months, non-interest-bearing deposits grew by 13%, a great number for us. As we move into the second and third quarters we expect deposits to once again move higher as the number of new account openings increase during the spring and summer months.

For the second consecutive year we had excellent loan growth in the first quarter. The good weather again probably contributed somewhat to the strong start this year that has allowed us, so far, to exceed our expectations and our projections.

As we move into the second quarter, there should be further lift from our ag and residential construction portfolios, although we did add slightly to both categories this past quarter, which was a nice surprise.

Organically, we grew loans in the quarter by $119 million or 9% annualized. This was well above plan for the quarter and gives us confidence that we can meet or beat our loan growth target of 5% this year. With the exception of one to four family residential and multifamily residential loans, all other loan categories showed gains in the quarter. Our loan production volume was down from the prior quarter; however, we saw an even greater production in loan payoffs, which also helped our net loan growth this quarter.

During the quarter our investment portfolio decreased by $16.5 million as the strong first-quarter loan growth allowed us to redirect some of our security cash flow to fund loans. We continue to actively manage our cash position and feel comfortable with our current level. At the end of the quarter investments as a percentage of total assets stood at 36%, unchanged from the prior quarter and down 1% from the prior-year quarter.

We will continue to monitor our liquidity position and going forward continue to actively adjust our investment portfolio based on loan demand, deposit growth and future acquisitions.

Typical for the first quarter, we did not see significant credit quality improvement as the metrics we track were mostly unchanged from the prior quarter. However, we did see progress in just about every area of quality compared to last year's first quarter.

Nonperforming loans increased slightly during the quarter but declined by 12% from the prior-year period. NPAs in the current quarter were 0.88% of assets, the same as the previous quarter, and were down from 1.07% from the same quarter last year.

Earlier in the quarter we did sell a couple of pieces of OREO that we owned, reducing that category by $4.7 million. However, we also had some credits that either moved to 90 days past due or we added them to nonperforming assets. As a result, at the end of the quarter the dollar amount of NPAs basically ended unchanged.

Our banks continue to work at lowering their nonperforming assets. And although some quarters the headway can be slow, we definitely hope to make further progress during the rest of this year.

Our goal we've established for this year is to reduce our nonperforming assets below $65 million. Although we got off to a slow start, I remain optimistic we can achieve that goal if a couple of things go our way.

In the current quarter, we added net charge-offs or we had net charge-offs of $194,000 compared to net charge-offs of $1.5 million last quarter and $662,000 in last year's first quarter. Once again, my hat is off to our 13 banks for the job they did in this area this past quarter.

Our goal again this year is to keep net charge-offs below 15 basis points, and at the current pace this is definitely achievable.

Early-stage delinquencies were slightly above the prior quarter but down significantly from the same quarter last year. For this time of year, delinquencies are very well-contained. Our 30-to-89-day past-dues are at 0.46% of loans at the end of the quarter versus 0.38% last quarter, and are down from 0.71% from the same quarter last year.

Once again, I think our banks continue to do a very good job controlling their past-due loans and focus a lot of their efforts in this area.

Our allowance for loan and lease loss ended the quarter at 2.5%, down from the prior quarter's 2.55% and 2.77% at March 31, 2015. The primary reason for the reduction during the past 12 months was the fact that no allowance was carried over from the Canyon acquisition this year and the overall growth in the loan portfolio.

Our coverage ratio, a percentage of our loan loss reserve divided by nonperforming loans, decreased this quarter to 224% compared to 244% last year but was higher than the prior year's quarter, where the coverage ratio ended at 207%. I think in all those categories that coverage ratio is very, very, very strong.

In the most recent quarter we provisioned $568,000 compared to $411,000 the previous quarter and $765,000 in last year's first quarter. As I've said many times before, credit quality trends will be the main driver when establishing the amount of dollars allocated to the loan loss provision. However, at this time we don't see any alarming trends that would signal a significant change to our provisioning levels.

Now to the income statement -- topline revenue of $101 million exceeded both the prior quarter and same quarter last year. Net interest income increased 1% on both a linked quarter and compared to the same period last year, driven primarily by interest income, which was up 1.5% for both time periods.

In the most recent quarter most of the lift in interest income on a sequential basis came from commercial loans, which increased by 3%. This was also the case when we compare the current quarter to last year's first quarter, where commercial loans accounted for a 14% increase in interest income and was the primary reason for the improvement in this area.

On a linked quarter basis, interest expense increased 6%, due primarily to higher rates that adjusted with the Fed increase in mid-December. In addition, we had the cost of $100 million notional swap for the entire quarter, although part of that was offset by the payoff of a higher-end cost Federal Home Loan Bank advance. If we compare the current quarter with last year's first quarter, interest expense again increased by 6% for basically the same reasons.

Hopefully through the rest of this year we can continue to change the mix of our earning assets to one with a greater concentration of higher-yielding loans. This, along with higher levels of non-interest-bearing deposits the next couple of quarters, would certainly help maintain or increase net interest income and certainly help maintain our net interest margin.

Speaking of the net interest margin, our net interest margin decreased slightly this quarter to 4.01% versus 4.02% in the prior quarter and 4.03% in the same quarter last year. The decrease in the margin was due to a 2 basis point increase in our funding costs, offset by a 1 basis point increase in loan yields. This quarter there was no change to the margin as a result of purchase accounting adjustments, as both the prior quarter and the current quarter saw an impact of 7 basis points.

Our goal this year is to maintain the margin at or above 4%. So we were pleased with the fact that the margin held stable and above the target we have established.

As I just mentioned, the yield on our loan portfolio increased by 1 basis point from the prior quarter to 4.81%, primarily due to the change in our loan mix. Although I believe there is still some degree of downward pressure on loan yields, it was certainly encouraging to see them hold at the current level. We do not think the rate increase by the Fed in mid-December had much of an impact on our overall loan yield this past quarter.

Non-interest income for the quarter, up $24.3 million, was down $215,000 or less than 1% from the previous quarter. However, it was up 7% from the same quarter last year. Compared to last year's quarter both service charge income and gain on sale of loans were both up 10%.

Historically, the first quarter from a fee income perspective is usually our softest quarter of the year, and yet we were pleased with the amount of fee income generated. Mortgage origination volume should pick up now that we are heading into the spring and summer months. Provided interest rates behave, and we have no reason to think otherwise, we should see a strong couple of quarters of mortgage production. At least, that's what we are currently projecting.

On that same note, the breakout of our mortgage volume for this first quarter showed 64% of our volume in the form of purchase transactions while 36% came from refinances -- not much of a change from the past couple of quarters, and we doubt we will see much departure from those percentages going forward.

Non-interest expense was basically flat from the prior quarter but was up 12% compared to last year's first quarter. Compensation expense was higher in the first quarter although the reduction in other operating expenses offset all of that increase. Compensation also accounted for the majority of the increase compared to the year-ago period.

For the current quarter compensation was up 3% and was up 15% from last year's quarter. The primary reason for the higher level of compensation and benefits versus the year-ago period were the additional staff on the acquisitions of Community and Canyon banks, along with the annual salary adjustments that took place in the first quarter.

Our efficiency ratio for the quarter was 56.5%, the same as the prior quarter and an increase from 54.8% in last year's first quarter. Certainly, the costs associated with our core consolidation project and the chip card reissuance has elevated our efficiency ratio this quarter and will continue to impact the ratio through the remainder of the year.

Our goal for 2016 is to hold the efficiency ratio at 55%. In order to achieve that level, we will have to see an increase in revenue the rest of this year because we don't see operating expenses moving much lower until these major initiatives are completed.

Our CEO transition continues to go very well, as Randy is taking on more and more of the daily responsibilities, especially at the bank level. Beginning next quarter and for the remainder of this year, as part of our transition plan I will be having Randy provide much more of the detailed analysis of our quarterly performance during these earnings calls. I expect to give a high-level overview of the Company and then turn the call over to him to share our results.

In summary, it was a good start to the year. Considering we have substantial resources committed to CCP, I thought our banks did a great job of remaining focused on our customers' needs, as the loan growth we produce this quarter confirms. We also saw good growth in the number of checking account customers. It's imperative we also maintain this momentum throughout the rest of the year as we make our way through these major initiatives.

Overall, we are very proud of our accomplishments this quarter as we delivered solid performance while allocating a great deal of resources to build an infrastructure that will carry us well into the future. And I am even more proud of our staff's achievement as they continue to do a great job of serving our customers while still charged with learning and converting to our new Gold Bank platform. We're asking a lot from them this year and they continue to step up and deliver.

And those are the end of my formal remarks. So we will now open the lines up for questions.

(Operator Instructions) Joe Morford, RBC Capital.

My question was just I'm wondering if you could talk a little bit about the drivers for raising more wholesale deposits and what is the duration and pricing of those and just issues around that.

Mostly on the wholesale front, those are very short duration, probably 28 or 30 to 60 day wholesale deposits. We really, Joe, so far saw no reason, based on our asset-liability mix and the sensitivity to interest rate risk, we really see no reason to extend at this point in time.

If we can continue, as we expect over the next couple of quarters, to start to generate more and more non-interest-bearing deposits, as you heard me say before, we assign about six- or seven-year average life to those deposits. So if we can continue to see good growth in that area, I don't expect us on the wholesale front to do much in the way of extension.

The other thing is, if we see some really nice gains in core deposits over the next couple quarters, which traditionally we really should, Joe, then I think at that point in time you will see us pay down some of those.

That's what I was figuring, just wanted to check on that. The other question was just being curious about the tax rate. It looks like that came in a little higher, and just is this a good run rate for the year? Or any thoughts on the outlook there?

Yes. I think there is going to be volatility on the tax rate. And it depends upon -- we do still have, as I said last quarter, we still have some lumpiness in some of our new market tax credits in the quarters when they hit.

It doesn't seem that long, but it has already been seven years since we put on our first new market tax credit. And I think in prior years some of those were in that first quarter. Those went off this year. As a result, our tax rate was a little bit higher.

So I think that, if we can add some more down the road, we would certainly like to level off that volatility and that lumpiness. But I think we are guiding, Ron, what, to about 23%-24% on the (multiple speakers) -- ?

Yes, 24% for the year, and 23% is what I'm expecting in the second quarter. But again, to Mick's point, we continue to look at other tax credit, both low-income housing and certainly new market tax credits.

Perfect. Okay, thanks so much.

Jacque Chimera.

Are the three banks that you have already converted over to CCP -- just kind of chatting with their presidents, are you seeing any efficiencies from that at this early point?

No. It would be way too early. They are still doing some level of cleanup, although, like I said, these conversions to Gold Bank have gone extremely well. But it's still too early for us to start to delve into that because what's happening right now is, even those individuals that converted over in the form of those -- actually, it's two remaining banks, but we did three conversions because of Canyon. A lot of those people now that are on the new Gold Bank -- a lot of those people and those resources have been allocated to the future next roll of four banks. You know, we've got four more banks rolling the weekend of May 6.

So they finished their conversion, but many of those resources have been relocated to help the next group of banks get through their conversion.

And this next one is our first one where we are taking a group of four banks and rolling all of them over that weekend. Now, it's not a unique situation like it was with Canyon and Bank of the San Juans, where we were doing a conversion off of another system on Gold Bank as well as integrating them into the Bank of San Juans.

That had a lot of moving parts to it, as did the very first one with Glacier Bank, because so much of the back-office infrastructure and the way we have architected the Company runs through Glacier Bank of Kalispell. So that one was very -- it had its own level of complexity and additional things that we shouldn't have to deal with as much, as we move through the other and remaining 11 banks.

But this time we are taking four of them on at once. So it's still going to, probably, be later this year or the early part of next year before we are able to really sit back and say, okay, now everybody is on Gold Bank, everybody is on the one system. Now, what can we do and where are these -- where is the productivity coming? What things are we able to streamline and what efficiencies can we really gain?

Okay. So that efficiencies won't necessarily come from the individual divisions themselves; they will come more from collaborating with the group as a whole?

Yes. But to your first part of that question, I think there will be at the divisions. I think every one of the bank presidents will be looking at their individual operations.

And when this whole major project is behind us, I think they will be looking at who is doing what, what is left out there in the divisions, what changes have been made, what new things are being asked of some of the divisions. This is cutting both ways; we are pushing some of these centralized functions or, better yet, keeping some of these centralized functions at the bank level. But they are working now -- instead of just for their bank, they may be working for all the banks.

So there's still work to be done even once we get everybody converted over. But like I said, once we complete the conversion of all of our banks on to Gold Bank, we will definitely, I think, see some streamlined functions.

Okay. And the roughly $900,000 in costs associated with that in the quarter, is that a fairly good run rate for the next three quarters while you continue to implement, or with that go down with the -- since you did some debit card issuance in the --

No. I think that's probably a good run rate because obviously the next three or the next couple of quarters we've got, certainly, more of the banks converting. When you add up -- Glacier's card reissuance was one of the largest banks, of course. So it had a lot more cards than some of the other banks.

But when you look at the number of banks still left to roll and on a combined basis, those cards are going to probably be very similar each quarter. I think your run rate or the run rate we had this quarter -- that would be a good one to use for the next three quarters.

And we will see. Hopefully, it would be nice if it did start to drop off as we get more banks on, we get better at the process of doing these conversion rolls. But at this point in time I think that's probably as good a number as any.

And was the reclassification of some of your occupancy expenses into your data processing expense line -- was that related to the CCT?

Yes. Don, do you want to answer that?

Yes. I think, during this quarter we had the Jack Henry maintenance in a different category. And we decided it was more properly classified in IT expenses. So that was the big line item that moved.

So it really was more of a re-class.

Okay. Okay, great. I'll step back now. Thank you very much.

Jennifer Demba, SunTrust.

Just curious about M&A pipeline at this point. Are you seeing anything accelerate now that the Fed has got a more dovish stance on rate hikes?

Yes. I think the activity level, Jennifer, has been really good. There has been a lot of dialogue. Certainly our announcement on Treasure State Wednesday evening -- we started talking with them late -- or actually, it was pretty much early this year. So that transaction came together relatively quickly and very seamlessly.

But there's certainly other discussions and dialogue taking place. So no guarantees on any of these, but the activity level is still really good.

Great, Mick, thanks. Good quarter.

Jeff Rulis, D.A. Davidson.

Great quarter on the loan growth front, so naturally I'm going to ask about the one segment that had some amount. But in the one to four family segment, was that one that you would point to that maybe followed the traditional seasonality? Or was there a conscious decision to maybe sell some production? Maybe some color on that category?

Yes. No, there was no conscious decision to reduce that category. That was just probably more a function of the seasonality that takes place in the first quarter.

Barry, did you have any -- is there any -- we didn't do anything strategically or anything like that.

No. It's probably just a function of just some payoffs and refinances, probably some product we had in one or two of the divisions. They were all in one construction term loans; they have been holding them for a while; they sold those, and just some pure amortization off that term portfolio. So --

That's a good point, Jeff, that Barry made. With [tread] and with all of the things that our mortgage system had to put in place there was a couple of products that we had that are really good products for us that we had to continue to work with the vendor to get those fixed and to the point where some of those loans, like Barry said, were salable. So maybe that was another thing where they built up into the fourth quarter and we sold them out this quarter.

But no; strategically, Jeff, we didn't do anything or didn't make any changes that would have accounted for a known reduction in that category.

And was there any -- switching gears a little -- any meaningful change in premium amortization linked quarter?

No, no. It was basically just kind of flat. And as we have been saying now the last couple of quarters, probably, based on the type of products we are buying today versus what we were buying back in 2010 and 2011, we just don't expect a lot of change one way or another on premium am.

So it has been very consistent. I think it's to the point where, when Ron and Jeff and myself look at those things, we pretty much can count on a consistent level of cash flow. And even the last year or so, when we've seen some of these little mini refinance booms, really has not moved the needle at all, Jeff, in the area of premium am.

Great. Okay, thanks.

Matthew Clark, Piper Jaffray.

First one, just on wondering what the contribution from accretion was in the margin this quarter. I think it was 7 basis points last quarter.

That's exactly what it was this quarter. So there was no change from quarter to quarter, but it was 7 basis points in both quarters, Matthew.

Got it, okay. And then just on the loan yields, up 1 basis point, curious if you could help maybe quantify the contribution from loan fees, interest income reversals this quarter and last.

As far as on the reversals, I actually think that we had a couple of basis points in the fourth quarter that we did not have this quarter.

So that actually was down; it was 2 basis points, if I remember the report, that we had in the fourth quarter, Matthew, that we didn't have this quarter. So that was not the reason for it. In fact, that was actually the reason that it should have been -- yields could have actually been up a little higher if it wasn't for that.

It was mostly like I said in my comments. I think it was mostly just a mix change. And we are certainly hoping that we can maintain; but, like I said, I have a sense that there is still some downward pressure on yield.

Barry, do you have any sense --? You see a lot of transactions. What's your sense on pricing these days?

Pricing, as has been the case for the last year, is very competitive. And our new production is, from a yield standpoint, is down from our legacy loans have been. We would expect to see that continuing throughout the year. So I think we will see some decrease in the yield as we continue to produce those type of loans.

And that's why, Matthew, we really felt good about the fact we did get a 1 basis point increase. We'll take that -- in this rate environment, we will certainly take that over the next couple quarters if we can just manage to maintain that overall yield.

Yes. That was my next question, around loan pricing. Just curious what the average rate was on new money this quarter. I think last quarter you guesstimated 20, 25 basis points below the core portfolio, which I think is around 3.68, excluding purchase accounting. So just curious if there's any update there.

Last quarter new production coming right in, in the 4.40, 4.42 range. So far in the first quarter of this year, we are looking at right around 4.57, a little bit better, the production this -- and maybe that's another reason why we are not seeing -- we are able to actually increase the yield on the overall portfolio, Matthew.

Maybe it's because the difference from the legacy portfolio versus the new production wasn't quite as dramatic as it had been the quarter before. And again, the type of loans and, in some instances, I think, Barry, you would agree that depends upon the market that spoke in some of these, too.

Certainly, some of our markets are -- we see it -- they are more competitive than others, wouldn't you say?

Yes. In some markets where we have a larger market share, divisions are able to hold their yields better than some of them where we have a smaller market share in competing for a smaller share market. But overall we are pretty pleased where we ended up in the quarter.

Yes. And that number, that new reduction number was certainly better than last quarter, Matthew.

Yes, and that should help also with your guidance in trying to hold the 4% margin. I got to give you credit; you are not giving yourself much wiggle room at 4.01%.

No, no, that's true. But hey, it never hurts to have a goal. And that's our goal for the year. We are going to do our darnedest to make sure that with everything within our power we can hold that.

Yes, and mix shift is obviously a key to that. Thank you.

Matthew Forgotson, Sandler O'Neill.

Can you just talk to us at a high level across the footprint? Where are you seeing competition the fiercest? Where are you seeing opportunities to gain lending share? Any particular corners of the footprint have you pulled back materially, in light of the competitive dynamics? Just your overall thoughts on the market, what's attractive, what's not.

And I'll let Barry chime in, too, on this. But the one thing that I noticed was that the growth this last quarter, which for the first quarter of the year, like I said, was pretty exceptional for what our expectations were and what we historically experienced in the first quarter, but it was also, I think, very well-diversified among all the geographies. We really didn't see where Wyoming had nothing going on or it was all coming out of Western Montana or Colorado was slow.

We had nice production levels, for the most part, coming from all the various banks. I think for the most part, they did participate, didn't they?

All but two. One stayed flat, two were down just a small amount, and all the other divisions had loan growth.

Loan growth. So that's another really good thing from our perspective is when we can geographically disperse the growth.

And then a logical follow-up would be last quarter you dialed back the loan growth expectation a little bit, citing some frothiness in the market. I can't imagine the competitive dynamics have changed all that much, given what rates have done since.

So can you just help reconcile that comment about frothiness versus -- with the outstanding growth we saw in the first quarter?

Yes. And as we've mentioned before, a big -- a nice percentage of the growth and certainly the reason that we probably exceeded our expectations the first quarter came from the one niche we've talked about before on the municipal loan side. Now, that's a very complex and it's a type of loan that you really need a high level of skill set to be able to do that kind of lending. We've got it, we've been doing it now for over three years. We've got the internal skills and the internal knowledge to pull that off.

At same time, that is very, very, very good-quality loans. Here you are talking loans that in many cases where AA, AAA, have the AA/AAA moniker associated with them or attached to them. And again, that was really a big reason as to why we did hit the levels of loans that we did in the first quarter. I think if you back those out, we are a lot closer to our original projections.

So getting back to your question, Matt, yes, we have been talking about dialing back and being more conservative. And I absolutely think we have done that, especially on the conventional loan products. But this one product that we have really focused on and we have developed the skills around, we certainly don't have any issues doing more and more of that level and that type of loan product. And that was really the differentiator this quarter for us.

So it was kind of a good news/good news. We did have much better loan volume than we projected. I think the reason for that came from this one type of loan. But that one type of loan carries excellent asset quality that's way different than the other loans that we booked. So I think in this case it was the best of both worlds.

Great. And then just lastly, how big was the gain on the bank building that you sold during the quarter?

Oh, let's see, that was a building down in Paulson. I know what we sold it for. I'm not sure what we had it on the books for. I guess it was about $250,000, $275,000, somewhere around in there. I think that was the gain that we booked, yes, right around $250,000 to $275,000.

Thanks Very much.

(Operator Instructions) Daniel Cardenas, Raymond James.

Just a quick question, a follow-up on the municipal loans -- does higher quality indicate lower yields on that portfolio? What is your average yield on the municipal lending portfolio?

Well, we have been doing -- I don't have that average in front of me. But certainly I can tell you that yes, you are not going to get the same type of yield that you do on a more conventional product. What I will tell you is you do get paid for understanding the complexity of these loans. And on a risk-adjusted basis I think it's a very, very good product.

So certainly the pricing is not what you would expect on a conventional basis, but on a risk-adjusted basis it's an excellent product.

But once again, I don't want to downplay the complexity. You do need to have some real expertise to be in this market, to make sure that all the T's are crossed and I's are dotted. We just, again, have gotten that and build that skill set up in this Company over the last number of years. We actually had the skill set before we even started getting into this. But we have certainly leveraged that skill set more the last couple of years.

Okay. And then you are your main competitors in this arena, the small community banks? Or is it the larger (multiple speakers) --

No, it would be the larger banks, for sure.

Yes. On occasion, we will get a small community bank bidding for a very small amount. But usually the size of these transactions are way above their legal lending limit, so they aren't that competitive. If they do get on it, they usually have to go out and find participants, which is a challenge on some of these type of projects, given the limited knowledge and understanding of the expertise in those small community banks to evaluate and book [for] that product.

Okay, makes sense. All right, looking at your security to asset ratio, you have been at 36%, give or take a few bps, for the last couple of years. Where do you envision that ratio going as you approach that $10 million mark?

In a perfect world, you'd like to see it continue to move downward. But as I mentioned the last couple quarters, for us it's a little bit more challenging for us to say we are going to take this investment portfolio from 36% down to 30% or to 25% because we've always prided ourselves on the level of yield and the performance of that.

You got to remember that a lot of that investment portfolio has got some very, very, very high-yielding legacy municipals that we bought six, seven, eight years ago. We certainly took advantage of some opportunities that the market gave us over the years. And we've picked our -- we've picked our times and we picked our opportunities very carefully. We've got an investment portfolio that is right up there at the very top among our peers, as far as yield.

So for us to say, well, we're just going to drop this thing down by 10% or something -- it makes it more difficult.

Again, would we like to have a smaller investment portfolio crossing over $10 billion? Possibly. But I don't think that a couple years ago, when we were looking at this, we probably thought that would be the case, that we would move lower and lower and lower and not cross over with any kind of a size. But when you look at the yield that we drive versus the at-the-margin yield for loans in that, there's not a huge, huge difference.

So I think our expectations, Dan, to answer your question, are that we could very well approach $10 billion and not see the material change in the overall percentage of -- now, if we grow another $1 billion, I don't necessarily that we would continue to maintain or want to maintain that 36%, so I would hope that most of the additional earning assets that come onto the balance sheet would be in other forms outside of securities. So that, in and of itself, when you cross over $10 billion, could lower that percentage somewhat.

But I don't believe you are going to see a massive move lower in the form of the percentage of securities to total assets. Guessing maybe we could be a 33% or something like that when you get to that level, basically, we are about $900 million away. So if that $900 million came on and a good share of that was in the form of loans, it would obviously offset that percentage or lower that percentage a little bit.

But it's not going to get down into the mid to low 20s. Just don't expect that.

Okay. All right, good. All my other questions have been answered. Thanks, good quarter.

At this time I'm showing no further questions. I would like to turn the conference back over to Mick Blodnick, President and CEO of Glacier Bancorp, for any closing remarks.

Okay, thank you all very much for joining us this morning. Like we just reported, we thought it was a pretty solid quarter -- a lot of good things, a couple of surprises. Certainly, I think the loan growth was a nice surprise. But I also know that the banks have been working very, very hard, especially on a couple of those loan categories that we think we've got an opportunity to grow.

If we can hold the margin through the next couple of quarters, that would be terrific. We certainly, as we enter into the second and third quarters -- historically, fee income in that has gotten a little bit better. We get into the tourist season. We are hoping for a very, very strong tourist season this year with the big national parks and everything else that we have going for us. Gas prices are very well-behaved. So if tourism can be what we think it can be this year, that's going to help significantly, too.

Last thing I want to mention is I think we were very, very fortunate that there was really no real significant -- we had really no significant energy exposure on our balance sheet and in our loan portfolio. And I think from a credit quality perspective that's certainly helping us go forward. So some good things.

But I also want to mention that, boy, we have got 2,000 people that are working on CCP. And it affects just about all 2,000 of them in one way or another. And I can't thank them enough for all the work they are doing on the CCP front at the same time, like I said, they have got their day jobs, too, and their day jobs are to grow this Company and help and meet customers' needs. And right now and through the rest of this year, that's a lot to ask. So far they have been incredible, and I don't expect that to change at all over the next three quarters as we continue to work our way through this massive project.

So with that, I hope everyone has a great weekend, and we will look forward to talking again. Bye now.

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