Glacier Bancorp Inc (GBCI) 2016 Q3 法說會逐字稿

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

I would now like to introduce your host for today's conference, 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, President of Glacier Bank; Ron Copher, our Chief Financial Officer; Barry Johnston, our Chief Credit Administrator; Don Cherry, our Chief Administrative Officer, and Angela Dose, our Principal Accounting Officer.

Yesterday, we reported earnings for the third quarter of 2016. For the quarter, our earnings were a record $31 million. That's an increase of 5%, compared to $29.6 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's an increase of 3%.

For the nine-month period, we earned $90.1 million, which was 4% above the $86.6 million earned in the same period last year.

Year to date, we've generated diluted earnings per share of $1.18; that's an increase of 3%, compared to the $1.15 in the same period a year ago.

The quarter's results include $228,000 of acquisition expense, along with $1.4 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 third quarter, we converted 10 of our 13 bank divisions, and earlier this month completed the final three banks. We're now working to complete the data system conversion for Treasure State Bank, after closing that transaction at the end of August.

Our return on average assets for the quarter was again a strong 1.34%. Return on average equity was 10.80% and we delivered return on tangible equity of 12.69%, all relatively consistent with what we've produced over the past couple of years.

During the quarter, we closed the acquisition of Treasure State Bank, located in Missoula, Montana, with assets of $76 million. It's great to add Treasure State to our Company and have it become a part of our First Security Bank of Missoula division. As we've previously stated, we believe this addition brings tremendous strategic value to our Company and look forward to having them on our new Gold Bank data system by late October.

We had another very good quarter, and year to date our results have been consistent and improving each quarter. We certainly hope that trend will continue through the end of the year.

Once again, we had good loan growth that exceeded our expectations. Our organic, non-interest deposit growth was especially strong, which helped us maintain our net interest margin. Topline revenue growth was higher again this quarter, primarily due to increased fee income, and we did a good job of controlling noninterest expense, especially when you exclude the expenses tied to the major data platform initiative and the hundreds of thousands of cards we reissued. Credit quality was stable, although we are no longer seeing further improvement in the metrics as we have in the past several years.

As we enter the fourth quarter, it's nice to know the largest internal project this Company has ever taken on is now mostly behind us, and we can refocus our attention in other areas and initiatives that have had to be sidelined the past two years. We hope this quarter will be another good one, and we believe that certainly could be the case.

However, we're now in a quarter where things traditionally slow down towards the end of the year, especially in certain revenue buckets. Nevertheless, we're going to do everything in our power to make sure this momentum we've built continues.

The CEO transition has gone very well, and Randy will be taking over for me effective January 1st. The Company is in good hands going forward, and I believe Randy and the talented management team and bank presidents we've assembled over the years will continue to produce the level of results you have come to expect from us.

I'm now going to turn the call over to Randy for a more detailed analysis of the current quarter and year-to-date results. Randy?

Thank you, Mick, and good morning to those on the phone and thank you for joining us.

So our 13 divisions -- well, let me start with I'm going to review the developments in the third quarter and then I'll open the line for your questions.

So the 13 divisions, led by our bank presidents in our 13 markets across our six states, once again did a great job across a number of fronts. You know, as Mick mentioned, loan growth continued to be strong. We got off to a good start in the first quarter, we had a great second quarter, and that trend continued into the third quarter.

Organic loan growth was $165 million or 3.1% during the quarter. This compares to $181 million or 3.5% growth last quarter, and 1.4% growth in the prior year's third quarter.

Third-quarter loan production increased by $75 million over the second quarter, with $680 million generated in the third quarter versus $605 million in the prior quarter. While gross loan production was up versus last quarter, the seasonally impacted payoffs in the third quarter resulted in a little less total loan growth.

The current 12% annualized growth rate through the first nine months of the year is way above our original plan of 5% that we set at the beginning of the year. However, we remain comfortable with the credit and the pricing dynamics in general and still expect to end the year with either a high single-digit or quite possibly a low double-digit growth rate.

We're very pleased to see solid loan growth across almost all our loan categories. Commercial real estate loans saw the largest dollar growth and residential construction also showed nice growth for the quarter. Our commercial and industrial loans declined slightly versus last quarter, but were still up 13% compared to a year ago.

Credit quality was relatively stable, as delinquent loans ended the quarter at 0.49% or $27 million of total loans, compared to the prior quarter-end when they stood at 0.44% and from the third quarter a year ago at 0.37%.

NPAs compared to total assets ended the quarter at 0.84% or $78 million versus 0.82% at the end of the last quarter and 0.97%, or $85 million, a year ago. Now we still have a long-term goal to reduce those NPAs to $65 million, but we take the approach of trying to find good solutions to these assets where we get the most economic benefit, and that takes a lot of time and patience.

We're seeing some slightly elevated delinquencies in NPAs, but we believe we're still in a stable part of the credit cycle and we'll see credit performance continue to move in a narrow range, like it has been, for some time.

The provision for loan and lease losses was $626,000 for the quarter, compared to zero for the prior quarter and $826,000 a year ago. The allowance for losses as a percentage to total loans ended the quarter at 2.37%, versus 2.46% at prior quarter-end and 2.68% a year ago. We still believe we're appropriately positioned in the event we begin to see a softening in credit.

Net charge-offs for the quarter were $478,000, compared to net recoveries of $2 million in the prior quarter and net charge-offs of $577,000 from the same quarter a year ago.

Total organic deposits increased -- core deposits increased $161 million or 2.4% from the prior quarter and increased $191 million from a year ago. Core non-interest-bearing deposits increased $179 million or 9.4% from the prior quarter-end and $103 million from a year ago. Now a good portion of this increase in non-interest-bearing deposits for the quarter was driven by seasonality, but we're still very pleased to see some permanent growth here.

Core interest-bearing deposits organically decreased $17 million from the prior quarter-end and increased $88 million or 1.9% from a year ago.

Consistently attracting good-quality, stable, and low-cost deposits remains a key focus for the Company, and the team across our network does an excellent job in this area.

Total borrowings decreased by $129 million or 17.3% compared to last quarter, and borrowings are down $205 million or 24.9% from the beginning of the year and down $158 million compared to a year ago.

Our investment portfolio made up 32% of overall assets for the quarter, down from 34% at the prior quarter-end as we adjust our investment portfolio based on loan demand, deposit growth, and for acquisitions as they materialize. The portfolio decreased $197 million from last quarter, with most of the decrease coming from the CMO and MBS securities. The 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 September was $1.1 billion, which represents an increase versus the prior quarter-end of $23 million or 2.1% and an increase of $73 million versus a year ago. Shares outstanding at the end of June were 77 million, with a book value of $15 per share versus $14.76 at the end of last quarter and $14.23 a year ago.

For the quarter, approximately half the equity increase was due to earnings retention and the other half due to stock issued through the Treasure State acquisition. All our regulatory capital levels remain far above the required levels.

Mick covered our net income performance, so moving into interest income, this decreased very slightly, down $125,000 from the prior quarter, but was up $5.6 million from the end of the third quarter a year ago, driven by increased loan balances and relatively stable loan yields. The decrease in this third quarter compared to the second quarter was driven by one-time events in the second quarter, a large interest recovery and purchase accounting adjustments.

Interest expense was down $106,000 or 1.4% versus the prior quarter and was flat, up just $9,000, from a year ago. Overall, the team has done a really good job of maintaining deposit pricing discipline in each of their markets.

Our net interest margin for the quarter was 4%. Last quarter, the margin was 4.06% and was lifted by the one-time interest recovery and purchase accounting accretion. For the nine months of the year, the net interest margin is 4.02% versus 3.99% for the same period in 2015.

Average yield on the earning asset portfolio was 4.33%. Now this is down from 4.41% in the second quarter and down from 4.42% in the year-ago quarter.

Total funding liabilities had an average rate of 0.37% for the third quarter, compared to 0.38% in the prior quarter and 0.39% a year ago. So the remix of investments into loans has helped us maintain a solid and relatively stable margin over this period.

Non-interest income was up $1.5 million, 5.7% from the prior quarter and $2.5 million from the third quarter 2015. This quarterly increase in non-interest income was once again primarily driven by the gain on sale of residential loans.

Including the $1.4 million in CCP expense for this quarter, non-interest expense was up $719,000 or 1.12% versus the prior quarter and up $6.1 million compared to third quarter 2015. The increase over the prior year's quarter was primarily driven by the core consolidation project expense; an increase in headcount, including the acquisition at Canyon; and regular salary increases.

The efficiency ratio for the quarter, 55.8% versus 56.1% at the end of the prior quarter and 54.32% at the end of the quarter a year ago. We don't expect to hit our target -- our efficiency target of 55% this year, primarily due to the CCP expenses, but we are closely looking at the efficiency drivers as we develop a path in 2017 to reach this efficiency target.

On September 28, we declared a quarterly dividend of $0.20 per share, payable on October 20 to owners of record on October 11. This is the third dividend declared this year and represents a 5% increase over the dividend level paid in 2015.

Two other items I wanted to mention before we go to questions. First is, as Mick mentioned, we've now completed the Gold Bank conversion, also known as CCP, for all 13 bank divisions, and really the employees across the Company have done an excellent job of planning and managing the conversions and have spent a lot of time on this, starting in 2015 and certainly for most of 2016. Now that it's done, it will take some time to get used to the new system, begin to develop and test new workflows, before we can really start to quantify the gains we expect to achieve.

And lastly, we still expect to cross over the $10 billion threshold sometime in 2017, so we're moving forward with our plans and taking advantage of the long time horizon until we have to submit official DFAST stress test results in 2019. As discussed, we certainly don't expect the annual cost to this project to be anywhere near the same levels as CCP.

So that concludes my remarks. I would thank you for your patience, and I'd like to ask the operator to please open up the lines so we can answer any of your questions.

Thank you. (Operator Instructions). Michael Young, SunTrust.

Mick, first of all, I'd be remiss if I didn't say congratulations on a great career and a well-earned retirement.

Thank you very much.

You're sounding a little under the weather; I hope you're doing all right.

Yes, I did pick up a head cold here; you're absolutely right, Michael.

(laughter). Well, Mick, I wanted to ask just a big-picture question first on the M&A pipeline. I heard Randy's comments about planning on crossing $10 billion in 2017. Organically, you might not get there, but it sounds like there may be some M&A opportunities that you're seeing that would push you over that threshold.

You know, I think that we would -- you know, you can never guarantee anything, Michael, but I think we would be probably disappointed between now and the end of 2017 if our organic loan growth and the possibilities for additional M&A activity would not push us over that threshold.

I mean, you know, we're still seeing good deal flow, lots of interesting things, some we're interested in, some we quickly let the other side know that it probably isn't something that we would be interested in pursuing.

But I would certainly be surprised if, over the course of the next 13 months, that we wouldn't find a way and we would be crossing over that number. Certainly, we still have a large investment portfolio, although it is coming down; I mean, you heard Randy and we had it in the press release. We've gone from 36% of assets down to 32% of assets just in -- well, since the first of this year, but certainly from the same quarter last year.

There's still some levers there to be played if we need to on the investment portfolio, but I don't necessarily think that we're going to continue to manage this Company to stay under $10 billion. Timing, obviously, as we've talked about in prior calls, timing is critical. So we've got to be sensitive to the timing of how close we are to any given year-end or anything before we cross over.

But I think that Randy and myself, the Board of Directors, the management team, we all feel that 2017 is probably the year where that happens, and that's what we're planning for, preparing for, and expected to be ready for.

Okay, great. And then just wanted to ask one -- Randy, I heard your comments on the efficiency ratio and trying to get back to sub-55% next year. Just curious, kind of timing on that. Maybe you may not want to give [more] guidance to 2017, but with CCP largely done, should we expect some of the expenses to start coming out as early as fourth quarter, or is it more going to be a first half of 2017 phenomena?

Well, there's two aspects to CCP. One is, we've disclosed the elevated expenses associated with making it all happen, and so the bulk of that is not going to be in 2017.

The other piece is now that we have the one system, how do we get the efficiencies? And that is where I was trying to kind of telegraph some patience on that, because if you think about it, we just spent a year and a half; we've had hundreds of people working on this project. It is a major change and it's just stunning that we were able to get this all done and continue to do the amounts of business that we're doing. And quite frankly, I think the folks have taken a deep breath here for a little bit, now that it's done.

They have to learn the new system, so now everyone is on one system, but they are -- it's a new system in some ways for many of the -- for all the banks. But we've got to get comfortable with that, and now -- and then we're going to start experimenting and launching and implementing workflow. So we're looking at how people work on the new system, and then, one of the big advantages of having one platform is we can then use one workflow to gain efficiencies as we start to understand how people are using the system and where we think we can generate some efficiencies.

So that's just going to -- that's going to take longer over 2017 to really work out and really get the true benefit of that. So, probably towards the -- you know, you're going to see, obviously, the savings from not having all the costs associated with CCP not hit in 2017, and then the follow-on benefit of the program itself is probably a later 2017-2018 type event.

Okay, great. And then just last one for me, on the mortgage fees, obviously they were really strong this quarter and have been really strong all year this year. Are there any sort of things we should be thinking about as we go into next year in terms of maybe market-share gains or just a focus on purchase originations that are going to sort of offset the industry trend of declining volumes?

There's a lot of good things about our mortgage business. One is we're still running a very high percentage of purchase versus refi, so I think -- I like that because those are long-term relationships that don't disappear.

You know, I think you'll see -- probably expect just a pretty steady performance in 2017, that we feel like we are a share leader in a lot of the markets that we're in and we don't see that changing. But, you know, we don't see kind of material growth as well, but we kind of believe we are going to be able to hold the current levels we've been doing and hopefully see that in 2017.

Yes, I mean, I think that we can, like Randy just said, if we can increase market share, that will certainly help us maintain where we're at.

I think the one thing that's going to be concerning for all mortgage players next year is if we do see an increase in interest rates. It's certainly going to have some impact on refis. And for us, like Randy just said, 65% of our volume this year has been in purchased transactions; that's great. But still, there's 35% that's been in refi. So if that would dwindle, we're going to have to make sure we step up the purchase activity and get -- and reach out into more of our markets and capture more market share to make sure that we don't fall too far the other way.

One of the things I really like is the fact that we have applied a lot of initiative this year to putting in place the resources to grow the mortgage business. You know, there's been a number of banks, a number of banks in the past that are part of our Company now that were not heavily mortgage lenders. We've built those banks and those resources up in those markets, and they are now starting to really gain some traction.

In addition, we are picking up some very good originators in the Treasure State Bank deal, so that is certainly going to help and that's going to be volume that we will have in 2017 that we haven't had in 2016.

So, hopefully all those things together will allow us to maintain what we've got, if indeed we do see higher interest rates. If interest rates don't move up, then it would be my expectation that next year could be another really good year for mortgage origination.

Okay, great. Thanks again and congratulations once again, Mick.

Jacque Bohlen, KBW.

I, too, echo the sentiments; congratulations, Mick. I hope you are really looking forward to a lot of extra time with your family and getting to enjoy yourself a little more.

I am, indeed. Thank you very much.

I wondered if you could provide a little color on this. In the past, as we've spoken, you've talked about not wanting your lenders to reach for growth and that you would be okay if you didn't quite hit growth targets this year. As it comes to pass, you've surpassed growth targets, so just kind of your thoughts on what you're seeing in the markets, what may have changed over the last couple of months and quarters, and just your outlook kind of in the future on how you feel about loan growth and having people not reach for it.

Well, I don't believe we are reaching, and I'll let Barry quantify and speak to that very subject because he's seeing it every week, especially on the larger deals, Jacque. But certainly we came into the year, as we've mentioned countless times before, not putting high expectations on our loan growth for 2016 and, in fact, focused squarely on quality over quantity.

However, a lot of the growth that we've seen above what our expectations were has come from, as we've said in past calls, the municipal loan market. I think our banks have done an absolutely fantastic job of capturing a lot of that opportunity and a lot of those projects that exist or become available to us in our six-state markets. And we've pulled a lot of that kind of volume from basically all six of the states and just about every market that we do business in.

And I'm not so sure, Jacque, that early in the year we were necessarily thinking we were going to be as successful and we were going to see that number of opportunities and the size of some of these opportunities in that muni space. It's excellent business, we really like the business, and, like we said, we think we're pretty darned good at that business.

Outside of that, I still believe that when you have our 13 bank presidents, who over the last couple of years have had the opportunity and the time to spend more time in the area of growing their franchises, I think a lot of these bank presidents are far more active now than they were prior to the charter collapses to be able to spend time with their customers. And there's no doubt in my mind that these individuals can move the needle, and they do move the needle. When they get involved in deals, I think we see a lot more deals getting done. And for whatever reason, they just bring a lot of credibility and we get -- I think we're getting looks at just about everything.

As far as the quality of the deals that we're booking -- because you're so right. We never expected to be sitting here through nine months of the year and up about 12% annualized. Now, I do believe that, as Randy said, that's probably going to pare back a little bit in the fourth quarter. I would be really, really surprised if it doesn't. But still, it's going to be a far better year than what we expected.

From a quality perspective, Barry, do you want to speak to Jacque's question as far as what you're seeing?

Yes, Jacque, you know, we just haven't seen too much pressure on lowering credit quality standards this past year. And probably where we have seen some pressure is extended amortizations above where we normally like to go, but in a lot of cases the loan-to-values there mitigate that, to a certain extent. Definitely seeing some pressure, pricing pressure.

But overall, what we've been looking at, at least of the larger credits that I get involved in, have been pretty solid credits, general, run of the mill, nothing outside the box too much, for the most part, on our municipal financing. A lot of those credits that we've seen are almost investment-grade, if not investment-grade, credits. And we have some health care financing that we've been pretty aggressive in, but we're taking a look at that to see how much we want to continue into that marketplace, and a lot of those credits have been high-quality, bond-rated facilities.

And then we've just seen a lot of growth throughout our footprint from all different product lines. It really hasn't been something that -- in one area we've seen, commercial real estate has been good. We've always been a heavy commercial real estate lender. We have a lot of projects under construction now that, for the most part, some of those will term out, some of those, we'll find alternative takeout commitments. But it's been pretty broad based.

We have got some leverage off our new acquisitions, especially in the Colorado market, due to the changes in the legal lending limits of the Canyon acquisition. We've got some benefit there.

So it's been broad based. It's been good, if not above-average, credit quality credit, and we're feeling pretty comfortable about where we're going to end up the year, and I think Randy's right. It's going to be high single digits or maybe low double digits.

One other thing, Jacque, I'd like to add to what Barry said was we also have not had to add to our concentration, so really -- in fact, in a few areas where we have hit concentrations and have been at concentration levels that are internally established a year or two ago and haven't booked any additional credits in those areas.

You know, Barry talked about healthcare and how that's one that we'll be certainly talking about and discussing as to how and what our appetite is going forward there. But I think one of the really nice things that I see is that we haven't had to go out there and book a bunch of loans in areas where we already had a high level of concentration. We have just absolutely avoided doing that.

And with that all said, you know, you hear a lot of press, and all of you on the call are very well aware of this, there's a number of banks, a large number of banks, around the country that are already exceeding their CRE limits. We are still a ways away from our CRE limit. So we've got some runway there, too, if we choose to continue to -- and see the opportunities to book more of those kinds of credits.

It was somewhat of a surprise. I'd be lying if I didn't say that coming into 2016 that I expected we'd be at double-digit loan growth. We did not expect that, but as I look back on how we've gotten to where we are today, obviously the munis have been a big part of it, and I believe that the level of relationships our bank presidents, our chief credit officers, and our lenders have throughout our markets has absolutely allowed this to happen.

Okay, that's really tremendous color, guys. Thank you. And just one last quick one, the past two years you've done a special dividend that's been declared in the fourth quarter. Is that something that you might contemplate again?

That will certainly be contemplated, you bet.

Okay, thank you, and congratulations again, Mick.

Matthew Clark, Piper Jaffray.

First one, just I'm curious how much accretion contributed to the margin this quarter.

To the margin this quarter, purchase accounting was four bips. You know, last quarter it was eight. So it was about half of what we experienced in the second quarter.

Okay, that's what I thought, okay. And then, crossing $10 billion sometime next year suggests that you're going to have the interchange hit mid-2018. I'm just curious what your best guess of that annualized revenue hit is.

I would think we have consistently told the Street, Matthew, that we expect a pretax hit of somewhere in that $10 million range, so call it $6 million after-tax. I don't see anything right now that would change our analysis.

Certainly, Barry always says that hope is not a strategy, but we could certainly hope that something would get done there and that atrocity would get removed. But, you know, that's -- you can't plan on that and you can't design a strategy around that.

So right now, we're assuming that, yes, you're right; if we cross over by December of 2017, then we're going to -- July 1, 2018, that would be impactful for us.

Got it. And then, the increase in non-accruals, part of that was driven by ag. I'm just curious as to what you're seeing, what exactly is going on there, and maybe also give us some color on what the mix looks like in terms of grains, including wheat, within that portfolio.

This is Barry. Actually, I think this quarter our nonperforming agricultural credits went from $3.9 million down to $2.3 million. We had one credit last quarter that was on a past-due status awaiting financial information from the borrower and depending on whether or not we were going to renew that line.

But in regards to the overall impact to some of the credit, yes, we are seeing some challenges there. We're seeing some increases in carryover. We're seeing some -- a few operators that are just struggling, as you can well imagine, with the change in commodity prices, but we are monitoring those. We are actually looking at different strategies to work through those, depending on secondary resources, real estate equities, government enhancements, through -- with their various programs, and/or look at alternative financing for the borrowers, that they are available or have the ability to do that.

But, you know, Matthew, you bring up non-accruals and I wanted to make sure that -- and Barry and myself talked about this this morning, we want to make sure that, you know, as you look at our non-accruals for the quarter, and our NPAs, our NPAs were up a total of a little bit over $2.6 million, call it $2.7 million for the quarter.

But during the quarter, we brought on one large credit and moved it to nonaccrual. That one credit was approximately $9.6 million, $9.7 million. So, on the one hand, without moving that one credit to NPA and nonaccrual status, we would have had a heckuva quarter for reducing our NPAs of almost $7 million, and getting back to what Randy said earlier, we would have really started to make an assault at that goal of ours of 65. But that's neither here nor there; that wasn't the case. This large credit was moved to nonaccrual.

Now, that large credit was an OREO property that we had during the credit crisis. We sold that OREO to a group, and this is maybe one of the first times where the Canadian dollar and what's gone on in the slowdown in Canada has obviously caused some impact to our credit quality. That was a group that took that OREO property over, and with what's gone on up in Canada over the last 18 months or so, we felt it prudent to move that credit to nonaccrual status, because they are experiencing some slowdown and some issues up there, and as a result this credit, we felt, needed to be moved to nonaccrual.

The good news is, again -- now, that's not what we like to see, and we certainly hope that over time that we can work through this one, too. But the good news on even that credit is the condition of this collateral and the amenities that have been added to that project in the last five or six years since we originally sold that OREO and it was been taken over by this group are far, far superior to what we sold back five or six years ago.

So, we are -- and we feel we are in much, much better shape collateral wise. The property is in much, much better shape. There are far more amenities that exist today that did not exist back then. And so as a result, it's one of those good news/bad news things. You know, the good news is the property is in really good shape; the loan-to-value, we believe, is far below what it was five, six years ago. The bad news is, you know, there is a slowdown and there is some stress on this particular project, and we did decide to move it into a nonaccrual status.

With that said, as I mentioned earlier, without that one credit coming on, we would have this quarter seen approximately about a $7 million reduction in NPAs. So, there's again a full disclosure. I wanted to make sure that that small increase in NPAs this quarter was not camouflaging what was a large credit that got moved to nonaccrual status, and I just wanted to make sure that everybody understood that.

Got it, got it. Okay. Sorry about that, yes.

And then on the CCP expenses, you know, $1.4 million this quarter, obviously not going to have that level of expense next year, particularly the expense that you've incurred year to date. But just curious, how much of those CCP expenses might we still see here in the fourth quarter and as we get into next year? For modeling purposes?

Well, just a clarification; it wasn't $4 million in the quarter. It's been $4 million so far this year, for the nine months (multiple speakers)

Yes, one point -- I was saying $1.4 million (multiple speakers)

(multiple speakers) for this quarter, yes.

This quarter.

You know, again, we have -- we're complete right now, but we had one more roll this quarter. So, with that roll obviously came a lot of the CCP expenses that we've seen every quarter during the first three quarters of the year. And this was a roll that once again had another relatively large bank of ours that rolled.

Now it was only three, but in addition we are converting Treasure State here this weekend. So, you know, call it four conversions, anyway you want to slice or dice it. There's still a lot of work and effort and expense that's going to have to go into that.

So, I don't know. I would suspect that it's not going to be too different. I just think that what we've seen in the first, second, and third quarter and what we know has taken place and will take place this weekend, we should still be right in that ballpark. Randy, do you want to comment on what you see for next year? I mean, these --

No (multiple speakers)

-- should be done, pretty much.

Should be, I think you're right, you know, that you think four is kind of the pace we've been on for the year, so the expense should be consistent with what you've seen in the past.

And then, we're going to do everything we can to make sure there's no trailing expenses, and we don't see it in 2017. But, you know, knowing how these things work, there's probably going to be a little bleed-over in the first quarter, and then I hope we've seen the end of it.

Okay, and then just curious what the weighted average rate was on your production this quarter.

On the new production, well, sitting here we know we probably have that number here, Matthew. We're all kind of scrambling to see, but it looks like for the third quarter it was new production was right around [456].

Okay, thank you.

Matthew Forgotson, Sandler O'Neill.

Congratulations to you, Mick, and to Randy as well, on a flawlessly executed transition. So, thanks to both of you.

Thank you.

I wondered if you could just talk a little bit about the net interest margin. You know, your outlook. You're right at 4%. As you move forward, the puts and takes to hold that level.

I'll let Randy chime in here, too, but going forward we've done -- I think we've done a remarkable job, truly, of maintaining this margin through this entire time period. I mean, if you go back, we had a 4% margin for the quarter, but so far for the first nine months, our margin has been at 4.02%. And that compares to, like, 3.99% for the first nine months of 2015.

So, rather than our margin actually decreasing, we've actually been able to step it up by three bips over the last -- over the course of 2016 versus the same period in 2015. I think, again -- in my mind, that's been pretty remarkable.

You know, I think there's some things that we continue to do that certainly support the margin. Our banks aggressively go out and try to generate checking accounts. Zero cost dollars into this company, and they've done a really, really good job of doing that.

The numbers through nine months are as good as any we've seen in the last three or four years, as far as number of new accounts. That's helping because, on average, all these new accounts truly maintain about the same average balances. So you get some growth, and Randy alluded to that. Just by increasing your customer base, you're going to get some level of additional non-interest-bearing deposits, and we're certainly seeing that. That has helped.

The remix has probably been one of the biggest things, though, because when you're taking lower yielding securities -- as I mentioned earlier, we've gone from 36% to 32% of total assets, and when you take and remix that balance sheet and put on yields that are arguably about double what is paying off and what's paying down, or what's moving off of the books, that certainly lends a great deal of support to that margin also.

There's no doubt in my mind that those two issues are the main reason why we've been able to maintain this margin. Will that continue going forward into 2017? Who knows? I mean, I'm not that smart to figure that out. But if we stay somewhere in this tight range, I can probably assure you that we are going to be out there wrestling for every new checking account. And I think we'll continue to be successful in that arena, like we have been in the past.

We still do have another -- I believe we've got easily another $500 million, $600 million that could move out of the investment portfolio and move into the loan portfolio. Or we could use that cash flow out of the investment portfolio to fund our loans. That, next year, will go a long ways.

In my mind, Matthew, those are going to be the drivers. And if those drivers stay intact and in place, our goal is to try to keep that margin in or around that at 4% level. And we've been able to do that pretty consistently for a number of years.

Now, the wildcard is, do we get a rate increase? We don't know. I mean, speculation is that if you're betting right now, you're betting that probably in 2017 you are going to see higher interest rates, to some level. But we thought that same thing this time last year and look at what we've got.

So, we don't bet the bank. We don't try to change the balance sheet or we don't try to formulate strategy based on speculation of where interest rates are going. We try to deal with the reality at hand, and right now I think we're all preparing for a tight band of interest rates and us doing much the same as what we've been able to do these last two or three years to maintain that margin where it is.

And just staying on rate, I believe the most recent disclosure we have on your interest-rate sensitivity is actually in your 10-K, and you showed you basically had an interest-rate neutral position at that time. Given the modest changes to the balance sheet, are you still interest-rate neutral or do you believe you are more asset sensitive? And if so, if we were to see a 25 basis-point lift, what kind of benefits would you expect to see to margin?

For the most part, we are neutral. I mean, we've always managed the balance sheet to more of a neutral position.

With that said, the latest numbers we have at our disposal show us slightly asset sensitive. But it's -- we're not one of those banks, Matthew, that an increase in rate is going to move the needle dramatically. You know, like day one we're going to have hundreds of millions of dollars of assets that are going to move higher like other banks are positioned. That's not us; it's never been us.

But we should -- over a 12-month, 18-month period of higher rates, we will benefit, simply because -- and I've said this for many, many, many, many years, we've built this very, very valuable DDA base of customers and that's where we'll get the benefit. Ron?

Yes, I would add, you know, if you look back in the fourth quarter last year, December rate increase, our bank -- our division presidents did a great job of not passing on those rates to our depositors. So we'll benefit on the asset side, to Mick's point, but equally as important is to control the rates on those interest-bearing deposits in combination with growing the non-interest-bearing. So it will help, but, as Mick said, it won't move the needle real dramatically. But if all taken together, it's very helpful.

Thanks very much.

Tim Coffey, FIG Partners.

Mick, again congratulations on your retirement. You're always accommodating with your time with me and I really enjoy covering Glacier because of you. I wish you nothing but the best in your next endeavors.

Well, that's very kind and thank you very much, Tim, and it's been a pleasure working with you over the years, too.

So, Randy, now that you're going to be in the hot seat, do you have an update on how the team is performing in Colorado Springs? Barry talked a little bit about it earlier with the higher legal lending limit for that team, but do you have any kind of update on how they're doing and where they are versus kind of the Company's expectations when the merger was originally announced?

I would say that given what we've seen come out of that market as far as the size of some of the transactions and the respective underwriting and credit quality characteristics, it's been a positive.

I wouldn't say I'm totally surprised, because that same scenario happens with most of our acquisitions, where you have a small community bank limited by the legal lending limit, and there's really two benefits. They can go out and solicit larger transactions, more complicated transactions; and the second thing is we can repurchase some of the participations they've sold over the years. We can bring those back into the portfolio, so we can get that little benefit.

But in the case of the Colorado acquisition, it truly has been on the growth side, some very large transactions that they've been able to generate some volume out of, through either some quasi-public entities, some municipal financing. We've had some success there that they just haven't been able to source at those borrowers before, so I anticipate that's going to continue as that franchise down there continues to grow.

The lenders we have brought across, top-notch, good-quality lenders. And we're really kind of pleased with their performance. They've done a good job down there.

You know, I think, Tim, if there's one addition to what Barry said is we do have great lenders down there, very talented. We may be probably, over the course of the next year, may look to add to our resources down there. That's a very, very, very big market. There's a lot of things going on, and I suspect that with us we'd like to maybe capture even a little bit bigger share of that market.

And that's probably only going to get done if we probably can find a couple of additional lenders. Because I think the talent and the people we've got down there are doing a great job, but they can only handle so much volume, too.

So, I think if we're going to really continue to take advantage of what Barry just said, the things that we bring to the table, we may need one or two more lenders in that market.

Yes, Tim, I think the -- you know, one of the things that the acquisition did I think with Canyon has really got us into the Springs market. I mean, they were in the market, but much less so than they are right now, and that's a 600,000-population market, so I think a lot of opportunity there. And that's -- a fair aspect of the incremental growth we're seeing is the products and the approach has opened up some new opportunities down there.

Yes, that's what I remember from the transaction being announced, that it was one of the bigger markets that Glacier was going to be operating in. And given the success that you're having in that market, does it provide additional encouragement to maybe enter some bigger markets than you have historically, via acquisition?

That's a great question (laughter). That's kind of a double-edged sword, too, though. You know, on the one hand, Tim, as you know, we've always kind of wanted to play around the edges of the bigger markets.

And you're absolutely right. It is the biggest market. I believe the Colorado Springs market is even bigger than Boise and Spokane, the other two larger markets that we operate within. And we've had great success there, so it probably does beg the question you just asked, well, why not -- if you've had success, why not go after more of those?

There are a couple of other markets that we think are similar to a Colorado Springs, a Boise, and that that certainly we would be interested in. And if those opportunities arise, I think you're going to see us -- and we have already attempted, in a couple of cases, to move into a few of those markets; just haven't been successful. So, it's not for lack of trying, but just more of the fact that we do what we do and we are willing to pay what we're willing to pay. And in some cases, it doesn't always work out totally in our favor.

But I think there are some other markets like that that if we do get those opportunities down the road, they could have a similar outcome as to what we're seeing currently in the Colorado Springs market.

You know, I don't think our philosophy or our strategy about going into metropolitan markets has changed much. Over my 40-plus -- or close to 40 years, I have learned never say never because you'll always be proven to be a liar. But, you know, it's still -- those metropolitan markets, we realize that maybe the model that we have, the things that we rely on to make this company a very good company, you need different attributes, and maybe this model doesn't play as well in metropolitan areas where scale, presence, things like that are more important, a wide breadth of product offerings and different types of financial services.

That's not us. I mean, we know that. We know who we are and we accept who we are, and we've been very good at what we are. Going into the metropolitan areas, I don't know if that's necessarily in our best interest, but certainly playing around the edges. Markets, Tim, the size of Colorado Springs, I don't think we're a bit afraid of moving into those markets because I think down the road they could be good for us.

Thanks; those are my questions.

Daniel Cardenas, Raymond James.

Congrats, Mick. A quick question, can you remind us what percentage of your loan portfolio is influenced by the Canadian dollar, or had some dependency on the Canadian dollar?

Well, you know, 51% of our portfolio is centered in Montana, with the bulk of that at Glacier Bank is about $1.8 billion. So, you know, that would be probably -- that portfolio is probably influenced more than any other in our organization.

Now there's always some drifts out. There's some snowbirds that come out of Canada and would impact some of our other markets, but that would be the bulk of it. It's about -- a little over $1 billion would be my best guess.

(multiple speakers). That's just at Glacier; that's not Canadian influenced.

Right.

I mean, the Canadian influence, I would be -- I don't know.

We're just guessing here now. We could probably run a report and get that, but I would really be surprised if the Canadian -- straight Canadian exposure, where we've made loans to Canadian individuals, would be much more than $50 million, $75 million. I mean, I --

The other thing I was going to say is Mick talked about the one exposure that hit the NPAs, so we really don't see anything else at this point with the same dynamics that's concerning us. That was the one big one.

The one area where we thought we'd see it, so if you think about some of our resort markets, you know, like Whitefish, Montana, where there is a heavy influence of Canadians, you know, we're looking at the resort tax and there we still see them coming down and spending money. So we just haven't -- you know, at the beginning of the year, I think we expected a little bit more impact from the lower oil prices up there, but we haven't seen much of it, other than the ability to purchase real estate, which has really driven this one big NPA that we had to deal with.

Okay, good, good. So the tourist industry is looking healthy as well, it sounds like.

Tourism was an absolute blowout this year. It was fantastic. I think we're going to see where Glacier, Yellowstone, just about every national park in the western United States, Dan, is going to crank out all-time attendance figures. I know that Glacier and Yellowstone are. I mean, that was almost baked in at the end of September, and in fact in one case was already baked in.

So, it was a wonderful, wonderful tourist season, and I think that some of the numbers that we went through earlier with the growth in (multiple speakers) and some of that that we've seen through the third quarter, that's all part of what we saw from the tourists coming in. There was just so many individuals, and I've heard countless stories from those people in that industry that it was just a really, really solid, great year. And I think you could see that from here; you can see that into Yellowstone, Grand Teton. You know, a lot of the other parks and tourist destinations that make up the six states that we operate within, I think they all experienced the same thing.

We were a little bit concerned last year that maybe Glacier, with the reduction in the Canadian dollar, maybe fewer Canadians coming down in the Glacier Park and into the Flathead Valley was going to really hurt tourism. And I do believe that there was some of that and I do believe that they did come down in probably smaller numbers, although we saw a lot of Canadians still down here all summer long. But they were more than, and that slowdown, if it really was much of a slowdown, was so far made up by people coming from other countries and other parts of the United States to these destinations. And it really, really was a nice, nice benefit for us. And not just Glacier, but a number of our banks throughout the Rockies.

Okay, good, good information. Then just a quick question on the M&A front. Now as you guys are approaching the $10 billion mark, has there been any change in terms of the size of the institution you would be willing to look at, either on the low end or on the high end?

No, I think we've been pretty consistent about saying that we know, Dan, who we are. We know the type of deals that we are good at doing and the type of deals that we have historically done.

I think in the prior calls we have mentioned that, could we do a bigger deal? Well, of course, we could. And yet, not so sure that a lot of those deals necessarily exist in our part of the world. But we certainly believe that there is still a lot of opportunities to do deals, but they probably are going to continue to be of the smaller variety, and as we have said countless times, if those are the types of deals that present themselves, and in our minds strategically, those are the deals that we have historically done and have built this Company on, we're willing to continue to keep doing things the way we've always done it.

I don't believe that any of us on the management team, any of the bank presidents or the Board feel that there's an urgent need as we approach $10 billion to change strategies and to move in an entirely different direction. The fact is we have got to go out there and do something transformational. That's not us. That's not probably the way we see this playing out. And we're certainly not -- we're not expecting that that's the way it's going to be.

You know, Dan, I think -- Mick and I have talked a lot about that. I think we are very much on the same page there and we have a very disciplined approach to acquisitions. And we don't think it's in our best interest of the Company to change that just to leap over an artificial number.

So, we'll continue to do what we do, and certainly if something big comes along, we'll look at it, but it's got to fit what our typical approach has been and our metrics, to make sense for us.

Okay, perfect. Thanks, guys.

Jeff Rulis, D.A. Davidson.

Just try to narrow it down to one for the sake of time, but really just interested, Mick, in your role with the Bank into 2017. I know that certainly you've developed some long-standing relationships and friendships, and I don't know -- hopefully, they are not calling in too often, but if there are sort of M&A, I guess, is kind of where I'm leading this to, but maybe outline kind of your role into 2017 if there is M&A-led conversations and how that may impact next year.

Randy and myself talked a lot about this. You know, I'm going to stay on the Board, and you don't work in all these states and in this market for 40 years and not build up a lot of relationships with a lot of banks, a lot of ownerships, a lot of Board members. And I've mentioned to Randy, I've mentioned to the Board, that I'm more than willing to do whatever I can on the M&A front.

Again, I know a lot of people. I've been doing deals for 25 years now, and there's a lot of deals that we haven't done, but those deals haven't gotten done yet, either. So those things are still out there potentially down the road, and these are many times deals that I've had lengthy and detailed conversations with these people before. And so, I would hope that whatever value I can bring on the M&A front, I'm more than willing to do that. And I would just work at the pleasure of the Board and of Randy and the rest of the management team to do whatever I can to do to help add some of these great franchises down the road to the GBCI family.

Okay, great. Thanks, Mick.

Thank you, and I'm showing no further questions from our phone lines. I would now like to turn the conference back over to Mick Blodnick for any closing remarks.

Well, very good. And again, thank you all very much for the time that you've spent today.

I just have a few final thoughts that I wanted to go through with everyone on the phone. You know, like we've said, after 20 years, this is my final earnings call, but before we close today, I wanted to thank a few groups.

First of all, I'd like to thank the investors. And I know we have a number of investors on the line today. I'd just like to thank you for the faith and support that you've given us in the past. Some of you have been invested in this Company for many, many years, and we can't thank you enough, and hope that we have provided you in some small way with the growth and the returns that you expected. So to all of you investors out there, thank you very, very much.

Next, to the analysts, and you heard on the call today a number of them. These are analysts that some of them have covered us for many years, some of them are newer to the Company. But I also want to extend this remark to all those analysts that covered us in the past, because over the last two decades or longer, we've had a number of other analysts that have taken the time and resources to cover Glacier Bancorp. I'd like to thank all of you for the time and the energy that you've put in to getting to know our Bank, our markets, and our community bank approach to doing business.

You know, I've enjoyed the many road shows and conferences that we've had together, and through good times and those that were more challenging, I always thought that we were treated very fair by all of you. When we messed up, you called us out on it. And when things went well, you were also there to congratulate us, and that's all we could ever ask for.

And then, finally, to the 2,300 individuals who make up Glacier Bancorp, I've said it hundreds of times and I'll say it again. You're simply the best. You can't produce the type of results this Company has produced the past 32 years without talented and committed people, and we certainly have that.

This point was never more evident, and we certainly -- this point was never more evident and we certainly saw this the past two years during this massive core consolidation project. To achieve this level of performance, while planning and completing what turned out to be 15 -- if you add Treasure State and Canyon -- 15 data conversions, is absolutely remarkable. And although we had some challenges along the way, we learned from them and we moved forward. But what we really learned was the character and commitment we have from this terrific group of people.

So with that, I'd like to say goodbye, thank you for your support, have a wonderful weekend, and go Griz!

Thank you all very much, and, again, have a terrific weekend. 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 wonderful day.