Glacier Bancorp Inc (GBCI) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Glacier Bancorp second-quarter earnings conference call. (Operator Instructions). As a reminder this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Mick Blodnick, President and CEO. Sir, you may begin.

Thank you. Welcome and thank you for joining us today. With me this morning is Randy Chesler, Glacier Bank President; Ron Copher, our Chief Financial Officer; Barry Johnston, our Chief Credit Administrator; Don Chery, our Chief Administrative Officer; Angela Dose, our Principal Accounting Officer; and Don McCarthy, our Controller.

Yesterday we reported earnings for the second quarter and first half of 2016. For the quarter our earnings were a record $30.5 million, that was an increase of 4% compared to the $29.3 million earned in last year's quarter. We produced diluted earnings per share for the quarter of $0.40 compared to $0.39 in the prior year's quarter, that was an increase of 3%.

For the six month period we earned $59.1 million, which was also 4% above the $57 million earned in the first six months of last year. Year to date we've generated diluted earnings per share of $0.78, an increase of 3% compared to the $0.76 in the same period last year.

The quarter's results included $1 million of acquisition expense along with $1.3 million of expense associated with our core consolidation project and the reissuance of debit cards to our customer base with the new chip technology.

Through the second quarter we have now converted 6 of the 13 bank divisions with 4 more slated for conversion the weekend of August 6 and the last 3 of our banks in early October.

Our return on average assets for the quarter was a strong 1.34%, return on average equity was 10.99%, and we delivered return on tangible equity of 12.96% -- all consistent with what we have produced over the past couple of years.

During the quarter, as previously discussed, 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 have now secured all regulatory approvals and we look forward to closing the transaction on August 31. We believe this addition brings tremendous strategic value and we are thrilled to be adding Treasure State Bank to our Company. Tentatively we plan on converting their data platform in late October.

We were very pleased with both our second-quarter and first-half record results, especially considering the major internal initiatives currently underway. In the quarter we generated all-time record organic loan growth, maintained our net interest margin above 4%, and saw further improvement in a number of credit quality metrics.

We continue to see noninterest expense run higher than we would like. However, the majority of that expense, particularly this quarter, was attributed to these internal initiatives and acquisition expenses I mentioned earlier.

We certainly hope the momentum we have built in the first half of 2016 now carries through the rest of the year. In order for that to happen it will be important that we accomplish three things.

First, we will need to increase the loan portfolio at a respectable pace. Currently the prospects for further loan growth look good.

Second, we need to hold our net interest margin near our target of 4% as we continue to remix our balance sheet with higher yielding loans, replacing investment securities.

And third, we need to continue to grow our non-interest income while at the same time we complete the work on CCP.

If we achieve these three goals it should make for solid second-half results.

I am now going to turn the call over to Randy for a more detailed analysis of the current quarter and the first half's results. Randy.

Thank you, Matt, and good morning to those on the phone and thank you for joining us. As part of the plan to prepare for Mick's retirement at the end of this year, and as mentioned by Mick in his last earnings call, we decided as part of the transition process that I will cover the quarterly operating details of the earnings call today and going forward.

And on the transition, it continues to go very well. August 3 will mark the end of my first year at Glacier; it's been a lot of fun and interesting to learn about the unique culture of this great Company.

Over the first year Mick and I transitioned pieces of the business in order to allow me time to learn how things work and to give the people in those areas time to get to know me. This began with having the 13 banks report to me when I started a year ago.

At the end of June, given our comfort with how things are going, we completed the transition of all other parts of the business following the timetable we had planned on a year ago. So, I will now review some of the key operational developments in the second quarter and then open up the line for questions.

So our 13 divisions, led by our bank presidents in each of our markets, once again did a great job across a number of fronts. Loan growth was surprisingly strong; we got off to a good start and things continued to get better throughout the quarter. Loans increased $181 million or 3.5% over the prior quarter compared to 2.3% growth last quarter and 2.6% a year ago.

The 14% annualized growth rate is way above plan. However, we remain comfortable with the credit and pricing dynamics in general. Now we are clearly going to exceed our full-year target of 5%, but we don't expect growth to continue at this quarter's pace -- annualized pace.

All five of our primary loan categories grew with the exception of residential real estate. Now while we funded more residential real estate loans in this quarter than last, we sell most of our residential real estate loans so lack of growth in our held portfolio is really not a surprise.

Commercial real estate loans saw the largest dollar growth with $93 million or 3%. Other commercial loans saw the largest percentage increase and second largest dollar growth totaling $85 million or 7%. Included in other commercial loans are agriculture production loans, municipal loans and other commercial and industrial loans.

Our loan production volume was up sharply for the quarter while payoffs and sales were up from the prior quarter, but consistent with past seasonal trends.

Credit quality improved as total past-due loans ended the quarter at 0.91[%], $49 million, of total loans. Past-due loans also improved compared to prior quarter end when they stood at 1.03[%] and from levels a year ago of 1.23[%].

Early stage delinquencies, which are accruing loans 30 to 89 ended the quarter at 0.44% or $23.5 million of total loans versus 0.46% at the end of the first quarter and 0.49% a year ago. So we are very hopeful that these positive credit trends continue or at least remain stable at these levels.

NPAs compared to total assets ended the quarter at 0.82% or $76 million versus 0.88% at the end of the last quarter and 0.98% a year ago. So we are moving in the right direction to meet our goal of $65 million for NPAs, but a lot of work remains in order to achieve this.

The provision for loan and lease losses was zero for the quarter compared to $568,000 the prior quarter and $282,000 a year ago. The allowance for losses as a percentage of total loans ended the quarter at 2.46% versus 2.50% at the prior quarter end and 2.7% a year ago.

Now we appear to be appropriately positioned in the event we begin to see a softening in credit. Now we don't expect to see a softening in the short-term, but we are very mindful that we have been in a positive credit cycle for some time now.

Net recoveries for the quarter were $2.3 million compared to $194,000 from the prior quarter and net recoveries of $381,000 from the same quarter a year ago. The bulk of the recoveries this quarter were primarily concentrated in one loan; but the stable economy over the last few years has provided a healthy period of time for a number of our NPAs to begin to improve and facilitate -- allow us to facilitate some work towards resolution.

Total deposits increased $73 million or 1% from the prior quarter and increased organically $152 million or 2% from a year ago. Non-interest deposits increased $20 million or 1% from the prior quarter end and organically $87 million or 5% from a year ago. Interest-bearing deposits, excluding broker deposits, increased $40 million, 0.8% over the prior quarter, and organically $65 million, 1.4% from a year ago.

Attracting good quality, stable and low-cost deposits remains a key focus of the Company and the team across our network does an excellent job in this area. Total borrowings decreased by $17 million compared to the last quarter and borrowings are down $74 million or 9% from the beginning of the year and up $5 million compared to a year ago.

Our investment portfolio made up 34% of overall assets, down from 36% at the prior quarter's end, as we adjust our investment portfolio based on loan demand, deposit growth and for acquisitions as they materialize.

The portfolio decreased $128 million from the last quarter with most of this decrease coming from the CMO and MBS securities. These CMO and MBS securities are lower yielding and the strong loan demand this quarter has enabled us to replace these securities with higher yielding loans.

Total stockholder equity at the end of June was $1.1 billion which represents an increase versus the prior quarter end of $31 million and $68 million versus a year ago.

Shares outstanding at the end of June were 76 million with a book value of $14.76 versus $14.36 at the end of the last quarter and $13.99 a year ago. For the quarter at the increase was driven by earnings retention and an increase in accumulated other comprehensive income generated due to an increase in unrealized gains on the available for sale investment portfolio driven by the lower interest rates. All our regulatory capital levels remain far above the required levels.

As Mick mentioned at the beginning, profits continue to grow very nicely. For the quarter net income was $30.5 million, an increase of $1.8 million or 6.2% versus the prior quarter, and an increase of $1.1 million or 3.8% compared to a year ago.

Interest income increased $1.7 million, 2% from the prior quarter, and $7.5 million or 9.5% from the end of the second quarter a year ago driven by increased loan balances and relatively stable loan yields. Interest expense was down $251,000 or 3% versus the prior quarter and was up $55,000, 0.8% from a year ago. Overall the team has done a really good job of maintaining deposit pricing discipline.

Our net interest margin for the quarter was 4.06%. The margin was impacted by a very large interest recovery concentrated in one transaction and it would be closer to 4.02% without this recovery. So for the first six months of the year the net interest margin is 4.04% versus 4% for the same period in 2015.

The average yield on the earning asset portfolio for the quarter is 4.41%, this compares to 4.37% at the end of the first quarter and 4.35% a year ago.

Total funding liabilities had an average rate of 0.38% for the second quarter compared to 0.39% in the first quarter and 0.40% a year ago. We are very pleased to be able to maintain a solid and relatively stable margin over this period and we remain very focused on trying to continue this trend.

Non-interest income increased $2.5 million or 10.3% from the prior quarter and $957,000 or 3.7% from a year ago. The quarterly increase of non-interest income was driven primarily by the gain on sale of our residential loans.

Non-interest expense was up $2.1 million or 3.4% versus the prior quarter and was up $4.5 million or 7.5% compared to 2Q 2015. The increase over the prior quarter was primarily driven by an increase of other expense of $1.8 million, which was primarily composed of acquisition expense or consolidation project, or CCP as we call it, expense and some seasonally driven related expenses.

The increase in non-interest expense of $4.5 million over 2015 was primarily driven by an increase in compensation, which was impacted by the acquisition of Canyon and regular salary increases.

The efficiency ratio for the quarter was 56.1% versus 56.53% at the end of the prior quarter and 55.91% at the end of the quarter a year ago. Now we don't expect to hit our efficiency target of 55% this year primarily due to the CCP expenses, but we are looking very closely at the efficiency drivers as we would like to see a path in 2017 to reach our efficiency target.

On June 29 we declared a quarterly dividend of $0.20 per share payable on July 21 to owners of record on July 12. This is the second dividend declared this year and represents a 5% increase over the dividend level paid in 2015.

On a final note I would like to cover two other items.

First, we talked a lot about our core consolidation project, or CCP, today. This is a very large undertaking and it is the largest project of its kind that our technology partner and this Company have embarked upon. And we have learned a lot after each of the completed conversions so far and I think we have gotten better at the conversions as we move forward.

I do have to say our employees are doing an incredible job of planning and managing these conversions. And we are so fortunate to have all these talented individuals as part of our organization. We expect and are very confident that we will be completed with the CCP project by the end of the year.

Lastly, we still expect to cross over the $10 billion threshold in 2017. While we are still sizing the project, we are taking advantage of the long time horizon to efficiently plan. We certainly don't expect the cost of this project to be at the same levels as our CCP project.

That concludes my remarks. I thank you for your patience. And I would like the operator to open up the line so we can answer any questions.

(Operator Instructions). Matt Forgotson, Sandler O'Neill.

I was wondering if you could just remind us, in light of the fall in the 10 year, it stands to reason that securities reinvestment yields are going to tighten. Can you give us a sense of the reinvestment yields that you are seeing today and how we should factor that into our expectations for your margin?

You mean on just the reinvestment yields on the investment portfolio, the reinvestment yields on the investment portfolio?

Yes.

Ron, do you want to give him a handle on what we are seeing?

Yes. So when we do buy, which has been very limited, it is in respect of the 10 year yield going down, that is a great way to look at it, just say 2.5%. But we are really trying not to buy and I know the 10 year has bounced back, but we will see. But we are doing much better when we can put the yields into the loan book and that is the principal reason the margin is lifting, as you would expect.

So, I think, Matt, this is just one of those environments where, like Ron said, we are just not buying. We just can't get comfortable with the opportunities we are seeing out there, especially on the short end of the curve.

So, we certainly hope that loan volume maintains, as I said, a respectable pace through the second half of the year. So as Randy said, we can move from 36% of assets to 34%, which we did this quarter, and ideally maybe even move to 32% or 31% by the end of the year.

And can you remind us just how the securities portfolio is positioned? What the duration is and how much cash it is throwing off roughly per quarter?

It throws off about $90 million a quarter in cash. Duration is just -- it is right in that three to four year range. So this year, like Randy said -- I mean this quarter, like Randy said, we didn't really do much in the way of investing any of that cash flow back into the securities portfolio, it all went to fund loans.

But again, if the rate environment stays the same as it did this quarter, and we are certainly expecting that that $90 million is going to stay pretty consistent, that is certainly what we have seen for three or four quarters now, that it would be our hope that we would redeploy that $90 million back into loans again in the third quarter and fourth quarter.

Great. Okay, thanks very much.

Matthew Clark, Piper Jaffray.

First of all just in terms of the accretion in the quarter, can you give us that contribution to the margin?

The accretion from the first quarter was 13 bps versus 11 last quarter. So, we had 2 more basis points of increase -- you are talking about the purchase accounting accretion, right?

Yes.

Yes. To the loan yield it was 13 bps versus 11 bps.

Okay, okay.

Now, on the margin, if you want to just talk about the margin --.

Yes, on the margin I think it was 7 last quarter.

It was 8 this quarter.

Got it, thank you. Okay and then new money yield in the production that you put on this quarter, just curious what the weighted average rate was there?

New production.

New production?

Yields on new production, what the weighted average yield was.

Yes, I think -- I looked at those numbers last week. It seemed like, Matt, on the new production side we were right in that [4.53] range down from [4.76] the quarter before.

Okay. And then how should we think about the CPT expenses in the third and fourth quarter?

Go ahead, Randy.

Yes, I think if you -- it is still fluid, but I think if you look at our expense in the first quarter and look at our expense in the second quarter, somewhere between those two bookends is probably a good estimate for the next two quarters.

Okay, got it. And then the loan growth you guys put on was obviously pretty impressive. I was hoping you could dig a little deeper and give us a sense for where it is coming from. Is it market share gains?

Is it just more business with existing customers? How much of that is municipal lending that you guys have started to do more of? And it also looks like you have been willing to get back into doing some land and other types of construction here.

Yes, I mean as far as municipal loans, it was not a major contributor. We did have some in the second quarter, but it wasn't the number we saw in the first quarter of the year, Matthew. But I think we are teeing up some additional municipal loans in the third quarter and fourth quarter. So that -- we are certainly hoping that that number is going to be a bigger number.

When it comes to construction and land development, there was a little bit more in the way of land development loans this quarter versus last quarter, but some of the bigger drivers were the commercial construction. I mean commercial construction was up just about $40 million during the quarter.

So, residential construction was up $10 million, but the bigger driver in that land lot and other construction category by far was other construction and that is predominantly commercial.

Yes. And again, is this -- are you seeing this come from other banks or is it just market share -- market share gains or (multiple speakers)?

Barry, what do you see? You are more -- you are on top of that every week.

Just from a perspective our second and third quarters are always our best quarters for loan growth traditionally, the first and last quarters due to some seasonality aren't as prevalent as the second and third quarter.

So what we are seeing is draws on revolving lines of credit, a lot of construction companies, draws on agricultural operating lines of credit. And this quarter we had a couple extra ordinary items and we had a couple large transactions that will not be reoccurring.

And we also bought a portfolio from a competitor bank over $20 million that -- a lot of FSA guaranteed loans that they no longer wanted to service. So, we had some noise in those numbers and so that is why we had such a strong quarter.

Most of the other construction is new, it is new construction, we aren't taking it from a competitor per se or we aren't refinancing a lot of competitors that -- it is all new production. So we are feeling pretty comfortable with those numbers in that we aren't pricing accordingly, we are originating new.

Also had agriculture loans draw on their lines in this quarter --

Right.

-- which is a seasonal event which will -- should be kind of -- it is a one-time event that we will see that get repaid at the end of the year.

Right, okay. And then just last one on the tax rate -- a little higher than expected this quarter. Should we expect that to drop back down 24%, 24.5% going forward?

This is Ron. I would go with 25% for the rest of the year.

Okay, into next year as well?

No, let me get through the second half of the year. Please, I'll encourage you to ask that question in the fourth quarter.

Got it. Thank you.

Joe Morford, RBC Capital Markets.

I understand deposit growth is an important focus internally and you still have a fair amount of liquidity. But given how it has lagged loan growth year to date, are you considering any more formal initiatives to spark that or should we just see it pick up seasonally here in the middle of the year?

I think it will pick up, it always does seasonally. We are not really going to change our playbook too much in that respect, Joe. I mean we continue to have great results on our initiatives through HPC, the growth in the number of accounts continues, both retail and business continues to be very strong.

We do have, obviously, the remixing of our assets is helping us to fund some of that loan growth that is coming up a little bit short from just core deposit growth. But the third quarter and into the early fourth quarter are also really good. And historically, Joe, have been good quarters for us for deposits.

So, we will take a look at where we are at the end of the third quarter into the early fourth quarter, recalibrate if that trend line that you just mentioned continues. We will certainly address it. But I am hoping and guessing that with just the growth in the overall number of customers that that in and of itself is going to go a fairly long ways to helping to fund any future loan growth.

Right, okay, that all makes sense. And then the other question is just, and you have touched on some of this, but I guess kind of to wrap up. I am curious as how sustainable you feel that the margin is over 4% here and what are some of the main things you are focused on to defend it there?

If we stay down lower for longer, I mean it is not going to be an easy -- it is just not going to be easy to maintain that 4% target. I mean we are still getting pressure on the loan portfolio. I mean I look at what our legacy portfolio is at versus new production and there is still compression there.

We did benefit this quarter slightly on our overall funding, so that helped us a little bit. But I mean, the pressure is still there, Joe, and it is not abating.

If we can continue to remix, which we have done the last two or three quarters now, and if we can continue to move some of those lowering yielding assets in the form of our investment portfolio off the balance sheet and replace them with some higher yielding loans, that certainly is going to go a long, long ways for us to maintain that [floor].

And we are going to do everything we can, but I can't guarantee for the long-term if we stay down or, God forbid, go lower like we did late last month, it just puts pressure -- and we are not the only ones that face that pressure. I mean every bank in the country is struggling.

In fact, I would say that we have absolutely managed through this better than most, whether it is the markets we are in, whether it is the shape and the scope of our balance sheet that has allowed us to have some benefits in this area. But we are certainly pleased with where we are at. Maintaining it over the long haul in this rate environment, it's just going to be a challenge.

Yes. No, understand. That is helpful. Thanks so much.

Jeff Rulis, D.A. Davidson.

Question on the non-interest income. Obviously you cited the mortgage revenue is pretty strong, but the service charge and fees were up nicely. Any explanation for what drove the sequential jump there?

Yes, just more accounts. I mean, we are -- the banks are doing a terrific job, Jeff, of generating more and more accounts. And we got off to kind of a slow start in the first quarter. And we were actually behind plan and behind our expectations. But boy, in the second quarter those numbers came roaring back.

And what is really impressive and my point is that is taking place under the backdrop of CCP, because you have got a lot of individuals in this Company that are impacted one way or another with this major internal project.

Now granted a lot of those people are not necessarily right up there in the front line, but even all of our front-line people have a part to play in this project. So, for us to really step it up -- and we really saw a step up in the second quarter as far as the number of customers that we generated.

I think plain and simple that has been the main reason because it isn't, Jeff, because we went in and raised fees in this line item or that line item. That just hasn't really taken place. So, it is more a function of just how many customers we have been able to attract.

And we certainly hope these -- the second quarter -- I have said this for years and years, second and third quarter we have got to make hay while the sun shines. And that is when we do and that is when we add the bulk of our new account customers.

And so, we have got this quarter now to continue that pace and that trend line before we probably will see a slowdown in the fourth quarter which we again traditionally do.

And, Mick, you mentioned on the loan growth side that it was fairly widespread I guess geographically speaking. But was there any area that you'd point to that had particular strength? And then maybe a follow on to that would be how about the timing of the loan growth throughout the quarter? Was it front end loaded, back end, pretty steady?

Well, I can tell you about the front and back end loaded, it was not, it was pretty steady throughout the quarter. I mean it was very, very consistent when we were looking at production numbers. Barry, what do you think regarding any of the banks that you saw, I mean you are seeing these that over contributed or --?

Outside of a couple large transactions that we mentioned, it is pretty evenly based throughout all the divisions.

Which, Jeff, makes us feel good because that is geographic distribution. There is a fair amount of economic -- our economies and our markets throughout these six states are different. So, it adds that level of diversification.

So, I think we are feeling pretty good. We are not looking at one state or one bank that is causing all of the growth or adding to all the growth. The 13 banks for the most part are all making a contribution.

Great, thanks, guys.

Jennifer Demba, SunTrust.

Jen?

Miss Demba, please check your mute button. Due to no response we will go to the next question. Jacque Chimera, KBW.

I wondered if you could provide an update for us and if there has been any change to the interchange impact of what would happen when you cross $10 billion. I know in the past you have said it is roughly around $1 million for every $1 billion in assets.

Yes, and we are still sticking with that analysis. Like Randy said, we are going to -- we are making plans of crossing over in 2017. So, if we cross over in 2017 this is going to be a July 1 of 2018 issue unless we get some relief. Certainly we are not holding our breath.

But it is still that $1 million per $1 billion in assets. And so, pretax we are talking -- and we have been pretty consistent, as you know, Jacque, over the last couple years. Our best projections are for about $10 million pretax.

Okay. And then I am assuming that the crossover would be as a result of some M&A that has yet to be announced. So maybe you could just provide an update on the discussions that you are having and how you are thinking about acquisitions in general?

It's -- M&A has been -- it has been fluid. I mean there has been a lot of things to look at. We have been approached a number of times. Some of the things probably initially right off the bat didn't make a lot of sense. But there is other ones that we certainly think do.

We have got the Treasure State Bank transaction that is scheduled to close at the end of next month. Any given quarter, Jacque, we are looking at a couple of other opportunities. Getting some of these we certainly hope will pan out, some of them don't for a myriad of reasons.

But sticking with our long-term plan of trying to acquire a couple of banks or at least announce a couple of acquisitions a year we, are still hopeful that that is going to take place in 2016.

Certainly we announced Treasure State this year; we will close Treasure State this year. It is going to be the only -- it will be the only bank that we close in 2016, because even if we are fortunate enough, Jacque, to announce another transaction this year, we will not be closing it until 2017.

So -- and let's just say on a worst-case base we didn't even do another M&A, and we certainly don't believe that to be the case. But if we didn't, Randy, myself have talked about in the past that at $9.2 billion at the end of the second quarter and with Treasure State yet to come on, call it we would be somewhere close to $9.3 billion.

Is that $700 million enough runway without acquisitions to allow for organic loan growth through 2017 where you don't even crossover to 2017? And that could be the case. I would not argue that organically maybe you could do that especially if we remixed the balance sheet, especially the earning assets. But I just don't believe that is going to be the case.

I think the opportunities are there. I think that the space that we operate within, which tends to be smaller banks, I think the pressures in that have not abated. And I just don't see a scenario where we don't get another deal or two done at the end of 2017 for sure.

And have -- realizing that the time period is a short one, have you noticed any change in the conversations that you have been having in kind of a post Brexit world?

No, not at all.

So it is not --?

I don't think that piece has come up in any of the dialogues whatsoever.

I guess what I am getting at, are people more concerned with the down fallen rates than they were maybe earlier in the year? Have spirits been dampened at all or are those that are struggling still struggling and there hasn't really been a change?

Intuitively I would say that you are spot on. And those -- maybe those dialogues are going on and those discussions are going on around those Board tables. But at the M&A level it at least hasn't been discussed or it hasn't been a big thing.

And maybe the whole reason for a reach out from one of these banks is because of exactly what you just said. But they certainly haven't, they haven't brought that up in any of the discussions.

Okay. Maybe a more relevant discussion on next quarter's call. Thank you for the added color, I appreciate it.

Daniel Cardenas, Raymond James.

Just a couple follow-up questions here or quick questions here. As it relates to CCP, you said you have done about six of your institutions. Are these the larger ones? I mean are you going by size from biggest to smallest? And is there a difference in cost to conversion based on the size of the institution?

No, I think, Dan, we have mixed them so that we haven't done them in terms of largest and onwards. It has been a good mix just to kind of load balance the conversions.

Okay, and then I missed the number of banks you plan to convert this quarter, your initial comments. Can you give that to me again, please?

Well, we -- so we have seven more to go. We expect to do four in this quarter and then three in the fourth quarter.

Okay, perfect. And then just kind of jumping over to the loan portfolio. Maybe if you could give me a quick update as to what line utilizations look like at quarter end and maybe how that compared to the end of last year.

I don't have those numbers.

Yes, we would be guessing, Dan. We could certainly get you those, but we have that data, we don't have it here with us. But if you want to call Barry offline or something we can probably get you a number.

Okay, just general sense, do you think that number is a little bit higher than it was six months ago?

Oh, yes, because certainly all the ag lines, if nothing else, I can guarantee you that ag lines are more advanced upon than they were six months ago.

Regarding other C&I, just traditional C&I credits I don't really have a feel. Barry would have more of a feel for if other businesses and that are drawing. About the only one that I know of is the ag credits.

Yes. No, it is -- that is a tough number to always get our arms around. And the only numbers that we have Angela gave me -- is our unfunded commitments stand at about $1.1 million versus $944 million -- or $1.1 billion versus $944 million last year. So how much they are actually drawn on the overall revolving lines is just a tough number to originate.

Okay, fair enough. And then maybe just a quick update on how the tourist season is going right now for your markets?

They are still at record levels at Yellowstone, but we have got to be at record levels appear at Glacier. We got an earlier start to the year than we have the last six or seven years now that the major road construction project is completed. So the park opened up earlier.

Knock on wood, we have had a much cooler summer. Ever since June and July rolled around the summer has been just completely the opposite of last year. And I knock on wood because we certainly don't need the ravaging forest fires that we saw in July, August and September of last year.

So far it is looking pretty good around here. I mean a couple of fires down -- actually as you mentioned the question, a couple of fires actually around Yellowstone Park as we speak, Dan, but nothing major, nothing massive, nothing that I don't think is going to be totally running out of control like it did last year.

And that is critical for us because, believe me, once the word gets out that there is forest fires in the area the tourists, they do, they do shut it down and a lot of them just don't come. They don't want to fight the smoke and they don't want to fight or they can't see in that.

So we have been very, very fortunate. And as a result I think that we are going to continue with very strong tourist dollars coming into our markets.

And, Dan, I think from Durango all the way up to Kalispell and over to Coeur d'Alene I think low gas prices continue to help us quite a bit. And I think the world events people being a little -- maybe a little more cautious about travel also helps. Just folks can get in the car and go to a lot of great places. So I think those things have really helped as well.

Okay, great. Good quarter. Thanks for the update, guys.

Jennifer Demba, SunTrust.

Sorry about that. Just wondering -- this is actually a question on the trans -- the management transition. Just wondering, you said that kind of -- it sounds like the transition is substantially complete now. Just, Randy, wondering what has surprised you in the 12 months you have been in place, either to the positive or negative, since you have gotten up to Montana?

I think the biggest surprise really has been the quality -- the deep quality of the team. I mean I think throughout the 13 divisions, I have been out to all 13 divisions a number of times, and we not only have a really good team of strong folks here at the holding Company, but you go into each of those 13 banks and in addition to the presidents and their staffs, very, very solid. So that was unexpected but a great, pleasant, very pleasant surprise.

Thanks so much.

Matt Forgotson, Sandler O'Neil.

It is just on the loan growth. I know heading into the year we were thinking kind of 5% annualized growth. You have blown through that in the first quarter and in the second quarter. And I know we are going to slow from here.

But just in terms of the market dynamic, was this -- is the outsized growth, does that reflect an opening that you guys saw and are capitalizing as some of the others fell back? Or was that just kind of a favorable winter and having some of that production pull forward? But what accounts for the deviation relative to the initial view of where we are today?

Well, I think that first and foremost, as usual, I think we try to take a conservative approach. When we are putting plans in place we don't want to shoot for the moon and then just be totally disappointed. So as you know, Matt, we backed off of what our expectations were for 2015. We backed those things off even more.

But you have got to remember, we are making these assessments back in October, September/October of the prior year going into the year. And if you remember last September/October we were facing energy plays and energy that was collapsing. You were facing an economy that some people were speculating for 2016 was just not going to be that terrific.

We always did feel that residential construction and housing was going to be one of the bright spots and I think that has certainly played out in our minds and in reality. But you are right, we had a great winter, we really didn't have much of a winter throughout the Rockies. And that certainly, like you said, helped to get us off to a very, very, very good start.

Then that momentum continued into the second quarter. But like Barry has said and like Randy said in his remarks, some of those were a couple of large deals that we have been working on for a long time. And you might work on some of these. I can think of one credit we have been working on for well over a year. And it just so happens that in the second quarter that deal closed.

Don't necessarily see a lot of that in the third and fourth quarter. Barry also mention that we got a huge lift this quarter on the ag side, not just from the normal advancing on the operating lines, but from an opportunity to pick up a -- certainly a significant portfolio in -- of ag credits that we feel very, very comfortable with; like I say, most of those were guarantees.

And that is not going to happen every quarter for sure. I mean that was kind of a one-time opportunity on the loan side. But with that said, and getting back to your original question -- I think on the municipal front we have been working hard and the bank presidents and the chief credit officers have been working hard to try to uncover a few opportunities on that front.

This last quarter, as I said earlier, we didn't get quite the number in dollars that we had probably expected as a few of those probably got pushed out into the third quarter that we originally thought were going to be second-quarter events.

But, hey, they are still on the table and so we are hoping that that will help us as we move into the third quarter of the year to at least, again, as I've said two or three times this morning, keep our loan growth at a reasonable pace.

I mean certainly with what we did in the first half of the year, what we know and what we expect to close in the near-term, in the next month or two, we would certainly be disappointed now if loan growth for the year doesn't come in at that -- again, at that 7%, 8%, 9% range. Are we going to be at 14%? I can't imagine that to be the case.

I mean in the fourth quarter, if everything goes according to plan, we should have a lot of these ag operating lines paid down. If they don't then that is a different issue that we are going to have to deal with. But we don't see that in the cards right now either. So we will get that paid down on a lot of those lines.

And then as tourist season starts to wind down a lot of other businesses that are squarely focused on the tourist industry, they will start to pay back down too.

We have gone through this for many, many years, we looked at what we did in 2015 in the first, second, third and fourth quarter. Certainly the fourth quarter was a significant slowdown. We don't see any reason why we don't see that same level of slowdown in the fourth quarter which is going to normalize these numbers from this quarter.

Again, I don't want to minimize the fact that it was a terrific quarter for loan volume. Best ever. And best ever by a significant amount. However, it is probably not going to be those same increases in the second half of the year especially in the fourth quarter.

But again, I think we have done enough already and will have done enough through three quarters where it is going to be another pretty doggone good year for organic loan growth.

Yes, Matt, just to give you a little more just context on that. I think Mick, Barry and I started off the year being very clear to the lenders that this was not the time to get out over your skis. So that is why I said the growth was a little surprising because our message at the beginning was, hey, we think where the cycle is let's not get out over our skis this year. Let's make good loans.

And so, we still think we are sticking to that, but with all the things that Mick has laid out, that fueled a lot of good quality growth.

Great. And, Randy, while I have you, just you're now a year into this, you are familiar with life above the $10 billion mark. What do you think the Company needs once CCP is digested? What else do you need to put in place to be able to cross with confidence?

Well, I think -- well, let's start with there is a lot of very good things in place here already. So one of the critical areas needed as you go over $10 billion is a very robust enterprise risk management function. And I think [TJ] who leads that for us is very, very strong and he has got every good department. So I think that a lot of the pieces of that particular infrastructure are in place, which will be very helpful.

Probably the area we have the most work to do is kind of around treasury and [Alco] where we have outsourced some of those services in the past. And most banks the majority, if not all, of the larger banks have those functions in sourced.

So you need to think of stress testing and the requirements around DFAST really being, at the end of the day, creating a balance sheet and an income statement that demonstrates -- that shows the effects of the stress testing and the ability to explain how you got there. Those are -- that is probably the area where we are focusing on to kind of close.

The point I made in the comments about taking advantage of the time is I really think, as Mick kind of pointed out, will be over sometime in 2017. But we won't really be required to submit DFAST results until 2019, that is the timing.

And so, we are taking advantage of that and planning and really looking at things so we do this in the most efficient manner possible and also recognize this Company is very different than other companies. And so I think we have a very straightforward business model.

So, I think the way we are approaching it, in conjunction with the regulators, we have had a lot of discussions with them and we are working -- we want to work closely with them. We think will take advantage of the time and do this in the most efficient manner possible.

Thanks very much.

Thank you. And I am not showing any further questions at this time. I would now like to hand the call back to Mr. Mick Blodnick for closing remarks.

Well, thank you all very much for being with us today. Once again, we are -- we thought we delivered a very, very solid, strong quarter on a number of fronts that we have discussed this morning.

We certainly are excited about the prospects and the momentum that we are carrying into the third quarter. We certainly hope that that momentum continues. If it does, like I said earlier, I think we are in for a good second half of the year. And you can be assured the entire 2,300 people are going to be working very, very hard to make sure that that happens.

So, with that, I hope everybody on the call has a great weekend. We have got a Chamber of Commerce weekend planned for Northwest Montana, weather is going to be terrific up here. And we are looking forward to the weekend and hope all of you have a great weekend also. So, thank you for joining us this morning and we will talk soon. Bye now.

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