Good day, everyone, and welcome to today's Fourth Quarter Earnings Call. [Operator Instructions] Please note, this call may be recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Mick Blodnick, President and CEO of Glacier Bancorp. Please go ahead.

Welcome and thank you for joining us this morning. With me this morning is Ron Copher, our Chief Financial Officer; Don Chery, our Chief Administrative Officer; Barry Johnston, our Chief Credit Administrator; and Angela Dose, our Principal Accounting Officer. Yesterday, we reported earnings for the fourth quarter and full year 2011. Earnings for the quarter were $14.3 million compared to $9.6 million in last year's quarter, that's an increase of 50%. Diluted earnings per share for the quarter were $0.20 compared to $0.13 in the prior year's quarter, a 54% increase. There were no extraordinary items or gain on sale of investments during the quarter. Earnings for the year were $17.5 million, that compares to $42.3 million the prior year. That's a decrease of $24.9 million or 59%. In the third quarter of this year, we recorded an after-tax goodwill impairment charge of $32.6 million. Excluding the impairment charge, earnings for the year were $50.1 million, that's an increase of $7.8 million or 18% over the prior year. Aside from the impairment charge, we only recorded $346,000 in non-recurring earnings in the form of gain on sale of investments. That compares to $4.8 million recorded last year. Operationally, there were no other non-recurring income or expense items. Diluted earnings per share for the year were $0.24, down from $0.61 per share last year, that's a 61% decrease. Again, excluding the impairment charge, earnings per share were $0.70, that's an increase of 15%. Further discussion and the rest of my remarks this morning to full year's earnings and performance metrics will be on a non-GAAP operating earnings basis. We earned a return on average assets for the quarter of 80 basis points and return on average equity of 6.69%. For the year, our return on average assets was 72 basis points…

[Operator Instructions] And we'll take our first question from Joe Morford.

Hey, Mick, I guess I see you took borrowings up again this quarter. I just want to -- I mean, to supplement deposit growth and help grow the investment portfolio. Should we expect to see you continue to do that here in the near term until loan growth picks up? And then just in general, how do you feel about your ability to hold net interest income levels or possibly grow them given the challenging rate and pricing environment?

Well, I think that you might see, Joe, some additional borrowing increases. I mean, we are, again, and we've been saying this the last year, we are dedicated to supporting the net interest income especially interest income in the form of doing whatever we have to. Clearly, we'd love to see loans start to pick up. We're starting to see some early signs of that but I can't guarantee as we move through 2012 what that's actually going to do for us. So we are going to continue to add securities. We are reshuffling the mix of our security somewhat, though. And we're moving a little bit more away from the U.S. agency CMOs and we are in the process of buying a few more corporate bonds. Obviously, they won't have the hurdle of having to reinvest all that cash flow all the time, plus the yield's a little bit better. Now we haven't been willing to extend much on those corporates. That may be something that we do take another look at based on the comments made 2 days ago by Chairman Bernanke regarding interest rates and how much they're going to lower, how much they're planning on lowering. They're trying to lower long-term rates. So whatever -- I mean, we've had great deposit growth as I mentioned in my comments and if we find a need that the investment portfolio still has to grow beyond just a reshuffling of the mix, then, yes, probably some of that will come in the form of borrowings.

Okay. And then just one other question is just of the OREO expense, a lot of it seems to be still valuation hits. Where -- I know it's hard to tell, but just kind of where you think we are in that process in getting through the worst of it?

Well, I’ll let Barry chime in here, too, but I -- some of these legacy OREOs that we have further write-downs, I mean, they've been on our books for 2 or 3 years now. And we would have liked to have thought a year ago but that was the -- that we were getting to the end of it. In some cases, we are. I mean, we are seeing some properties in some locations where the reduction in value is really minimized or it hasn't changed much at all. Still on a few of the larger projects in certain other locations, as you can tell, we took further write-downs of that OREO. I would like to think, Joe, that at this point now especially with one of those credits going through like 3 years in 3 separate appraisals that we are definitely getting down to the bottom. But I guess, we maybe kind of thought that last year although the reduction this year was nothing like the write-downs that we took the last couple of years. So I think we are getting near the bottom. And again in some locations, I believe we've reached the bottom. Barry, you've got any other thoughts?

Yes. It's not so much the write-downs. I think it's more of the other side of it. It's just volume. We started the year with about $73 million in OREO and we took in additional $79 million. So what you're seeing is kind of the culmination of the peak of that. So in total, that's about $147 million. We have write-downs of about $16 million this year. So it's about 11% which isn't -- is, been right in line. So -- but as just the sheer volume of OREO diminishes, those write-downs should be going down. One of the big indicators that we saw -- that we're seeing, and it's really positive, is last year at this time, we had about $67 million of loans in foreclosure and, of course, we took in $79 million, which means a few of those -- a few new loans came in during the year that we foreclosed on, took them in the bank-owned property. This year at this time, we're at $20 million which is -- that's a precursor to better things to come. We're hoping so. So we anticipate what we're going to bring in to OREO in 2012 will be significantly lower than what we did in 2011.

And we'll go next to Jeff Rulis.

Barry, maybe if you could comment on the nonperforming loan inflows this quarter versus last?

Well, we definitely had some really improvement in reducing both NPLs and OREO this past quarter. We just -- we really aren't seeing -- I guess overall with the improvement in the credit metrics and the fact that we've been -- this is our fourth year in this cycle. Actually, if you look back to June of 2006 when we moved out of the Boise markets with A&D loans, we've been in this cycle 6.5 years now or almost 6 years. So we fully anticipate that the increase in NPLs specifically is going to start tapering off as we saw in this last quarter. So we're feeling positive about it.

I mean, Jeff, we're looking at quarter-by-quarter the in-migration of NPLs and, as Barry said, it's definitely slowing down. As -- if you would expect, I mean, going back to my comments, I mean when you look at where the bulk of our NPLs have come from in the form of unimproved land and land development, I mean, there is only $78 million left in those 2 categories that isn't already in NPLs or OREO, so that number is so, so much smaller than what it was 2 or 3 years ago. Now I guess, one can make an argument that if commercial real estate or 1-4 family or something like that starts to really ramp up and we start seeing more problems, which to date we have not, that could cause some additional in-migration. But, boy, with the small level of dollars left in those problematic categories, we just really think that the in-migration of NPLs is going to be much slower.

And I guess one follow-up on the OREO cost, I'm still kind of a head-scratcher on Q4, was anything seasonal in that jump or I'm trying to get some confidence into, Mick, you mentioned $27 million in OREO cost this year versus $22 million last?

Correct.

And then into 2012, the numbers pointed to lower cost there, but sequentially, I guess the question is, anything seasonal in the Q4 jump in OREOs, is it just a group of properties?

It was just a group of properties. There was nothing really, Jeff, seasonal. I mean, there was a lot of things being worked on. As Barry mentioned, OREO has really -- I mean, we have worked through a lot of NPLs this year and taking control of a lot of properties through a lot of hard work. And those distressed properties just ended up the last half of the year in a much, much bigger dollar amount of OREO. And as we work through those, especially in the fourth quarter, some of those, like I said, there was part of those was a loss, but yet a big part was still write-downs. We still made some progress during the quarter in OREO but I don't think there was anything necessarily seasonal about the write-down for the charge-offs. I think it was more just volume-driven and the fact that -- there was one other thing that we always go through. Our appraisal cycle tends to be back half of the year weighted. So I mean, we are -- and that’s just the way it's been for the last -- maybe that’s the way the credit cycle developed or the way that dollar amounts of NPAs or NPLs and OREOs have come into those buckets but that just seems to be the weighting that we have and it's heavily weighted on the back half of the year. And as you get those additional valuations and appraisals in that, that's when you take those charges and I think that also had something to do with why in the fourth quarter especially, we had more write-downs of OREO.

Yes. I can just add to that. It's really a function of our regulatory examination cycle. We always want to ensure that all of our OREO and nonperforming loans are properly evaluated, and generally for our 4 or 5 biggest banks those examination cycles came in October and November, so we have tended to update valuations just prior to that to ensure that we don't have any issues there so that those write-downs usually come in the fourth quarter.

And we'll go next to Matthew Clark.

Just as a follow-on to the OREO, I guess, just trying to get some magnitude of potential write-downs and loss on sale. I mean, you have $78 million. Gone through that same exercise, I think, Barry, that you went through, having $78 million of OREO going into '12 and your backlog, it sounded like $20 million or so. And obviously, you'll have -- you may have some more flow in but is it $50 million of additions this year you think, maybe or...?

I think that would be on the high side.

Okay. And I guess the other question is, what do you currently have your OREO written down by? So on that $78 million, what is the carrying value of that OREO, do you think?

Okay. We have $78 million. We ended the year with $78 million. Just to break it down, we started with $73 million. We took in about $79 million. We sold $58 million and we took a $16 million in write-down and about $3.5 million loss on sale. I can shoot you those numbers.

I got it. Okay, that's helpful. And then I guess on the securities portfolio, I think I know 2/3 of it is just CMOs and you got, I think, 1/3 in munis. But I guess, can you update us on the duration of that overall book and then maybe isolate the CMOs? I'm just trying to get a sense for the magnitude of yield compression we could see in the securities portfolio over the course of the next year assuming pre-pays temper a little bit.

Well, I mean as far as the amount of compression, I'm not sure that we're looking -- I mean -- well, when you look at 2/3 of that portfolio and that, I think, their current rate on that entire CMO portfolio is about 1.6%. So if you think, Matthew, that we're -- and this is the case, I mean, currently what we're booking in at the margin type of new investments is slightly less than 1%, yes. I mean, there's 60 more basis points of compression there. Now one of the things that's going to make that type of analysis a little bit difficult is we're not necessarily going to continue to roll all of those CMOs directly back into CMOs. Currently, we're in the process of moving some of those dollars into corporates. In which case, the uptick in corporates is probably an additional 1.5%. So you've got 2 things, you've got 2 forces going on. Yes, I would agree that we would see some pretty significant compression if our goal was to take all of these CMO dollars and all the amortization on that portfolio and just continue to plunk it in to new CMOS, but that's not the case. We're starting to roll a portion of that in the higher-yielding corporates. So that is definitely going to offset some of that compression. But I've not stopped to try to calculate exactly what that is. But it's not like we're going to replace every dollar every month in corporates. That's not going to be the case. So there is still going to be some CMOs that get purchased at a lower yield level than what we have as a weighted average of that portfolio.

Okay. That makes sense. And I guess on the duration on the CMO, that 1.6%, I guess what would be the weighted average of the duration there?

1.2.

Yes, 1.2. This is Ron, Matthew.

Okay. And I guess in terms of how much you have in corporates at the end of the year, and I guess, how much you might want to take that up to in terms of contribution to the overall portfolio?

Yes. So far, I mean, our only commitment is to take that to -- we've currently got about $50 million, maybe $60 million purchased right now. Our commitment is to take that to about $0.25 billion. So there could be approximately $200 million more in purchases. But again, that's not going to be net-net. That's going to be taking cash flow off of the CMO portfolio and redeploying it into corporates.

Right. Okay, great. And then on the mortgage revenue line, I guess, anything -- I guess, just curious about the pipeline going into 1Q applications and your sense for the level of activity there. If that number can hold up in the near term or not?

The pipeline going in was almost exactly where we ended the latter part of the fourth quarter. So at least for probably the next 2 months or 2 months of this quarter, which is about as far out as you can really see, 60 days is about the most we look forward. It looks as though that pipeline is relatively stable with where we were in the fourth quarter. So yes, we're expecting especially on a year-over-year comparison, we're expecting probably mortgage origination fee income to be better in this first quarter than where it was in the first quarter of last year, hopefully comparable to what we recorded in the fourth quarter.

[Operator Instructions] We'll go next to Jennifer Demba.

If you covered this I apologize, but in terms of the restructuring and the consolidating of the charters, how much cost do you anticipate saving per year with that move?

Jennifer, we have not quantified that yet. Yes, and I know I've been asked that question a lot and clearly there are definite cost saves. I mean, some of those that we'll be recognizing immediately, as I said in my remarks. Some that we will recognize over time. But it's really difficult because so much of the cost saves -- I mean, there are specific cost saves. There's cost saves with various vendors. There's cost saves with certain fees and things like that, that we pay. But the biggest cost saves is just in the reallocation of time among our entire staff in all 11 banks to hopefully be able to pursue, as we said earlier, more productive endeavors. In other words, getting out, reengaging with customers, going out, hustling a lot more loans rather than being required to spend a lot of that time on regulatory, statutory, legal and compliance types of issues. So, which many of those we continue to do 11x. We're going to simplify much of that by doing it one time and that's absolutely going to free up a lot of resources within the company. I think our staff, especially our bank presidents, are very, very excited about this new structure. I think they recognize that it's really going to allow them to really get back into the business of banking and not be so tied down to so many of the other, again, regulatory issues and that, that they had to deal with in the past. But we have not put a dollar and cents figure on it, Jen.

And we'll go next to the site of Joe Gladue.

I think most of my questions have been answered, I guess really just have one quick one left. Where did the performing TDRs end the year at?

The total is $164,541,000. And it's broken out to nonaccrual, those nonperforming, there are $65,583,000, or 584 rounded, and accruing are $98,957,000.

That was basically about the same as the third quarter. There's a change from quarter-to-quarter.

They're up about $12,115,000 somewhere.

And we'll go next to David King.

Forgive me if I missed this, I jumped on late and if so we can probably just talk about it off line but the main question I had was on the outlook for improvement in credit going forward. I think you had a comment in the release that you expect to make additional headway as we head into 2012. Mick, maybe can you just comment on what you've done so far in the year and how to think about the paces of problem asset reductions going forward based on everything you see today?

Yes. I mean, based on my comments on what we talked about, Dave, we certainly could cover this off line but we have said that our expectations are that our credit metrics are going to continue to improve. We've built up some nice momentum in the second half of 2011. We don't necessarily expect that the first quarter is necessarily going to be like the fourth quarter of the year because the fourth quarter was far better than what we were really expecting as we went into the fourth quarter. But yes, for this time of year we've had a great winter. The first quarter is looking better than many other times when you enter the first part of the year. We still have a number of transactions that we're working hard on hoping that those will close up, if not in the first quarter, hopefully early in the second quarter. So just the overall momentum is far better. We talked a little bit earlier about the in-migration of problem credits, especially from the areas that we have had the most concerns and issues with. That definitely is looking far, far better. So I mean, the bottom line is we're excited. We think that if we continue to see a stabilization in values in prices that we will make further headway in 2012 and with the ALLL where it is, I mean, I think we feel very, very comfortable that we've got -- we're very adequately reserved at this point in time.

And it appears we have no further questions at this time.

Okay. Well, very good. Well, we'd like to thank all of you who participated this morning. Again, we're -- start of a new year. We're excited both for the new structure that we're putting in place. That should finish up right around April 30. So we're working hard on getting that put together. And with credit looking better these days, we're feeling that 2012 and the earnings that we can deliver should be better. So again, a lot of things going on right now but we're excited and think that we're going to have a year in 2012 that gets us a little bit closer back to the type of performance that we delivered for many, many years. So with that, I'd like to thank all of you again for your participation this morning and you all have a great weekend.

This does conclude today's teleconference. You may now disconnect. And have a wonderful day.