Glacier Bancorp, Inc. (GBCI) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Glacier Bancorp Conference Call. At this time, all participants are in a listen-only mode. Later, we will be having a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I’d now like to introduce your host for today, Mick Blodnick, sir you have the floor.

Welcome and thank you for joining us today. With me this morning is Ron Copher, our Chief Financial Officer; Don Chery, our Chief Administrative Officer; Barry Johnston, our Chief Credit Administrator; Angela Dose, our Principal Accounting Officer and Don McCarthy, our Controller. Last night we reported earnings for the fourth quarter and full year 2014. Net income for the quarter was $28.1 million, an increase of 6% compared to the $26.5 million earned in last year’s quarter. We produced diluted earnings per share for the quarter of $0.37 that compares to $0.36 in the prior year quarter, a 3% increase. Earnings for the year were $112.8 million, that’s an all-time record for us and an increase of 18% from the prior year. Diluted earnings per share for the year were $1.51 that’s also an increase of 15% for the year. As expected due to seasonal trends our earnings were softer in the most recent quarter compared to the two prior quarters, which typically for us are much stronger quarter. However, we still delivered solid performance metrics and saw growth in both loans and deposits as well as continued improvement in credit quality. Our staff and directors should be very proud of what they accomplish this year and we will do everything within our power to keep this trend line moving in a positive direction in 2015. During the year we announced and completed of acquisition of First National Bank of the Rockies headquarter in Grand Junction, Colorado and are currently in the processes of closing on Community Bank Inc. located in Ronan, Montana. We received all regulatory approvals for Community Bank and plan on closing the transaction on February 28, 2015. The addition of Community Bank represents the fourth acquisition we will have closed in the past 21 months. Up on closing, Community Bank will part of our Glacier Bank and First Security Bank divisions, although smaller than the prior three deals, we believe this latest acquisition again represents a terrific opportunity to further enhance shareholder value without taking on a great deal of additional risk. In 2014, we completed three separate data conversions, two of which were done in the fourth quarter. Although these initiatives require a great deal of time and resources, I believe we have developed a very efficient and robust process that effectively brings our new banks onto our technology platform. I can’t give enough credit to all those responsible for making these conversions go so smoothly. With the volume of merger activity again this quarter and year it cost more onetime expenses than usual. We expect this to continue through the first-half of 2015 as we integrate Community Bank and move them onto our data platform. In addition, to the two platform conversion this past quarter, we also converted to a new mortgage loan operating system. We expect this new system to not only streamline the origination process for our 13 bank divisions, but will also provide us with an enhanced recording system, which will allow us to better manage and monitor our mortgage production. If mortgage rates stay at their current low level we should not be in a position to efficiently handle more volume, which is one of our goals for the New Year. For the quarter, we earned a return on average assets of 1.37% and a return on tangible equity of 12.51%. For the year our return on average assets was 1.42 and we produced a return on tangible equity of 13.07%. Loans grew at a 3% annualized pace in the fourth quarter, as we were able to offset a seasonable in CNI and Agricultural loans. The increase of loans in the most recent quarter helped to produce organic loan growth for the year of slightly more than 7%. If we include the First National Bank of the Rockies acquisition our loan growth in 2014 exceeded 10%. We grew our loan portfolio in every quarter of 2014 another feet we haven’t often accomplished. Once again this quarter most of our growth came in commercial real estate. However, we also growth in a number of other lending categories such as residential, construction loans, land, lot and other construction and home equity lines of credit. For the full year, we have growth in every loan category with again commercial real estate accounting for the larger share of the gain. And even though its winner through most of our footprint, the loan momentum we are carrying into the New Year has given us confidence that our goal to produce 6% loan growth in 2015 is achievable. The growth in loans this past year allowed us to once again reduce the overall size of our investment portfolio by 10%, compared to the same period last year. Much of the decrease came in collateralized mortgage obligations although we also reduced our corporate bond portfolio. However, this past quarter we did add to our investment portfolio to replace some of the securities we have sold off when we acquisition First National Bank of the Rockies. As we move forward the level and pace of future acquisition opportunities as well as the rate of loan growth will dictate whether we continue to shrink or add investments to the balance sheet. In this current rate environment it would be most beneficial if we could continue to acquire or grow loans. One real bright spot all the yearlong has been the significant growth we have achieved in non-interest bearing deposits. Again this quarter this low cost funding base increased $36 million or 8% annualized, an increase in non-interest bearing deposits is unusual and something we don’t traditionally see in the fourth quarter. But all year long we have had excellent growth in the number of consumer and business checking accounts and the growth in dollars is representative of a much larger base of customers. For the year, non-interest bearing deposits grew by $258 million, 19% one of the best years in our history. If we exclude the addition of FNBR non-interest bearing deposits still increased by 13%. The stability of this deposit base is something we are constantly attempting to model and analyze. Nevertheless it is difficult to determine what will happen when rates begin to rise. However, if we can continue to increase the number of accounts in our markets at the rate of the past three years it will definitely reduce any drastic decrease of dollars in this very valuable funding base. Excluding wholesale deposits, interest bearing deposits increased $149 million, or 3% during the quarter. As low cost transaction accounts primarily now and savings account collectively accounted for most of the increase. For the year, core interest bearing deposits excluding the acquisition were up $234 million or 6%, also one of the best growth rates we have seen in years. With this level of non-interest and interest bearing deposit growth, we were able to decrease the amount of our Federal Home Loan Bank advances by 65% this past year and still have sufficient liquidity available to adequately fund the balance sheet. We had another good quarter and year in the area of credit quality, as trends improved further. We achieved our goal for the year of reducing total NPAs below $90 million. NPAs ended the year at $89.9 million, $86.3 million if we exclude government guaranteed loans. During the quarter NPAs decreased by $8.2 million or 8% with land, lot and other construction along with one to four family residential loans accounting for most of the decline. Our NPAs end of the year at 1.08% of total assets, compared to 1.39% a year earlier. As we begin 2015, we expect to make further progress in lowering our NPAs. Our goal for the year is to reduce this figure below $70 million, a goal we feel is attainable. Net charge-off for the quarter totaled $1.1 million, an increase of $706,000 from the previous quarter. For the year net charge-offs were $2.5 million or 6 basis points compared to $7.4 million or 18 basis points the prior year. This was an excellent number and demonstrates a type of progress our banks have made in reducing our overall credit cost. Our goal for the year was to keep net charge-offs below 25 basis points. Not only did we achieve that goal this year, our performance in this area rival some of our lowest levels of net charge-offs ever. Early stage delinquencies ended the quarter at $26 million, that’s up from $18 million in the prior quarter, but down from $32 million in the same quarter last year. This time of the year we traditionally see an increase in delinquencies, but so far they’ve appeared they will be holding at a very manageable level, hopefully we can get through the rest of the winter without a significant move upward in past due loans. Our allowance for loan and lease loss ended the quarter at 2.89%, that’s a slight reduction from the prior quarter’s 2.93%. In the most recent quarter we provisioned $191,000 compared to a loan loss provision of $360,000 the prior quarter and $1.8 million in the prior year quarter. For the year we provisioned $1.9 million for loan losses versus $6.9 million the prior year. If credit quality trends continue to improve next year, we would not expect our loan loss provision to differ much from this year. We continue to actively manage our capital position. In November we announced a 6% increase to our regular dividend. This was the second time since December of the previous year the dividend was raised. During that time, the dividend increased from $0.16 to $0.18 or 12.5%. Our long-term goal is always been to attempt to increase the cash dividend at a 10% per year rate, depending of course on a level of earnings, capital needs and any other regulatory requirements. In addition, in December the Board of Directors declared a special dividend of $0.30, it was paid out on January 22nd. This will be 11th time we have paid a special dividend, but the first time since 2005. At the end of the year we felt comfortable that our level of capital was more than sufficient to meet our growth needs and still allowed us to payout this special dividend. Net interest income declined by $449,000, primarily due to a $938,000 increase in interest expense. Three years ago in October we entered into a deferred swap structure as a way reduced our sensitivity in rising rates. This particular structure allowed us to swap a portion of our floating rate interest expense for a fixed rate. In addition, at the time we entered into the swap contract we also chose a three year deferral period before our higher fixed rate expense commence. In the current quarter that deferral period ended and we are now paying the fixed rate cost of the swap. In the quarter the majority of the $938,000 increase in interest expense was directly attributable to the cost of the swap structure. Interest income actually increased $489,000 to $76.2 million during the quarter with interest on loans up $1.2 million, offsetting a reduction in interest income earned on investments of $744,000. Interest income got a boost as residential real estate, commercial and consumer loans all posted higher interest income during the quarter. As a result of the decline net interest income this quarter, our net interest margin was also impacted. For the quarter our net interest margin decreased 7 basis points from the 3.99% the prior quarter to 3.92% in the most recent quarter. Once again the swap accounted for 5 basis points of the reduction, the other two basis points came from lower yields on earning assets. In addition versus accounting adjustments during the quarter, added 1 basis point to the margin on a sequential basis. We will continue to evaluate the deferred swap structure as we look forward, but currently we have no plans to exit the swap unless our balance sheet or interest rate risk profile change substantially. For the year 2014, one of the main highlights was the significant improvement in net interest income, brought about by a combination of loan growth, better investments yields and lower funding cost. For the full year net interest income totaled $273 million, that’s an increase of $38 million or 16% over the prior year. Interest income on earning assets increased $36.3 million half of which came from commercial loans and the other half from investments. Interest expense decreased $1.8 million during the year, majority of which came from lower deposit cost. Our net interest margin for the full year was 3.98% an increase of 50 basis points over last year’s 3.48%. Non-interest interest was also down 2% sequentially from the third quarter, which historically is expected this time of year. However non-interest income was up 4% compared to last year’s fourth quarter for the full year non-interest income was down $2.7 million due to an $8.7 million or 31% reduction in fees on sold loan. Service charge and other fee income were down $315,000 or 2% during the quarter along with fees on loans, which were down 576,000 or 10% during the quarter. We expect the seasonal slowdown mortgage origination volume to continue into the first quarter of 2015. Although the drop in rates since the first of the year may have more volume that what we anticipated once spring arise we believe construction and purchase activity will increase and allow us to recapture some of this fee income. Although service charge fee income was down from the always strong third quarter, we were pleased to just how well the revenue source held up during the quarter. Our banks continue to generate a larger and larger customer base, specially the newer banks to our company, as they have implemented and benefited from some of the customer acquisition strategies we’ve used for years. If the base of customers continues to grow at the same pace it did in 2014 we would expect this source of fee income revenue to continue to increase again this year at a similar high single-digit pace. Controlling our operating expenses continues to be a major focus for the company, our expenses increased by $1.5 million from the prior quarter, with $1.4 million of that amount coming from one time acquisition related expenses. In addition, OREO related expenses to the quarter were $893,000, the highest total this year. However overall, the overall trend in this category continues to move lower as we reduce the overall level of OREO property. Most other expenses were basically flat, compared to the prior quarter. Our efficiency ratio of 55% was up 1% from both the prior quarter and a year ago quarter, as the higher onetime expenses in conjunction with the higher interest expense from the swap accounted for the increase. For the year 2014 our efficiency ratio was 54% versus 55% in 2013. In summary, 2014 was a terrific year as we exceeded just about every operating and production goal we established. It was a record year for earnings and the first year ever, our net income clips $100 million. Loan production was strong, we saw substantial increases to our low cost transaction accounts, there was dramatic improvement in our net interest margin, asset quality improved significantly and we closed one bank transaction and announced another. We completed three data conversions and moved to a new mortgage system, three of which took place in the fourth quarter. As we begin 2015, the operating environment remains a challenge especially the current level and direction of interest rates. However, we’re excited and believe there are still a number of positive trends intact and they should allow us to continue to deliver solid results to our shareholders in 2015. So with that those complete my formal remarks and we will now open up the line for questions.

[Operator Instructions]. And our first question is from the line of Jennifer Demba from SunTrust. Your line is open.

Good morning Mick, how are you?

Good, Jen how are you?

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

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

Okay. And can you talk a little bit about, just the separate follow-up. Can you talk to us about the impact of declining commodity prices, oil prices on your footprint and indirectly your indirect exposure to the Bakken I know you haven’t had much but...

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

Thank you so much.

Thank you. Our next question is from the line of Matthew Forgotson from Sandler O'Neill & Partners. Your line is open.

Hi, good morning everybody.

Good morning, Matt.

Just wanted to touch on the NIM, Mick could you give us a sense was there any noise in the margin this quarter any elevated prepayment penalty income or accelerated discount accretion in the number? Just trying to get a sense if 392 was a good level and here your thoughts for maybe holding that level across ‘15?

Well, we will have the swap expense going forward and I think I fully explained you know our rational for putting that on three years ago and we need that to maintain and control our interest rate risk profile. But it came at a higher cost than what we were paying through the first three quarters of the year. But with that said, we had very little difference in purchase accounting impact during the quarter, I mean, I think the discount accretion for the third quarter was like five basis points and it was six basis points in the fourth quarter. So, there was one basis points amount of difference between third and fourth quarter. So, that was negligible. Again the major impact from the swap or the swap led to the major impact in that seven basis point reduction. Going forward again the swap is there, the swap will be there. So there shouldn’t be any change necessarily between fourth quarter and first quarter from that perspective. I suspect there could be especially we stay down at these levels that we have seen and the much lower rate environment in the last three-four weeks of the new year, I suspect that would put some more pressure on our earnings asset yield. So but just much to that matter I just don’t know would it be a couple of basis points like we saw this quarter, going forward that very well could be the case. We are certainly hoping that it’s nothing much more significant than that and we are still growing loans, I mean even though the loan growth was nothing compared to what we did the prior two quarters. For us that fourth quarter loan growth was, it was good number, because that number was a net 3% annualized increase in loans, but we also experienced pretty significant pay downs in both our C&I portfolio and our Ag. portfolio, which is typical for this time of the year. So we feel good that come next March a lot of those eight lines will start to ramp back up and we are carrying a fair amount of momentum as I said in my formal remarks we are carrying a fair amount of momentum for this time of year and we certain had winter this year, we are carrying a fair amount of momentum into the early months of 2015 so. I don’t know, Mat I guess a slight reduction in margin, don’t see us being able to make dramatic reduction in the yield on the investment portfolio and even there, there is definitely some lift by replacing investment securities with loans, but it’s not the same level of difference that we were seeing 18 months or 2 years ago, both the yield on our investment portfolio has definitely improved over the last 18 months, while the loan portfolio has continued to see some level of decline. So hope that answers your question.

It does. And just kind of a related question, so if margins under a little of modest pressure, can you help us think through the value offset, you are remixing cash flows from the securities portfolio into loans, but do you think you are able to grow the earnings asset base and hold NII across ‘15 or should we see a little bit of compression there just in light of the dynamics?

It’s a great question. If we hit our 6% number for loan growth this coming year and that’s our goal, I stated that that’s a little higher what we - remember we set out a 5% goal in 2014 and we exceeded that this is organic; we only look at organic loan growth not the impact of any acquisition. So we set our goal for ‘14 of 5% loan growth we did little better than 7%. We thought we would up the bar this year and challenge the banks to create or hopefully produce and generate 6% organic loan growth this year. I think if we can do that I think that definitely holds the net interest income line. You got to remember though going forward we will have that, if you’re comparing year-over-year Mat we’re going to have that swap out there for the full year now in ‘15. We only had it out there for one quarter in 2014. So that was roughly $1 million of additional cost you can basically add $3 million more of interest expense everything else being equal. So that’s one hurdle we’ll need to overcome and I think we can. But a lot of it’s going to center around loan growth and I just finished meeting with all 13 bank presidents over the last 2.5, 3 weeks and we had lengthy and extensive discussions about asset quality, credit quality loan growth. We think we can hit that 6% mark at least the bank Presidents felt that they could. A few of them were higher and a few were slightly lower, but the one thing that was consisted in all of our discussions was we’re not going to push the envelope and if it means that the only way we’re going to get 6% loan growth is to start to undermine our underwriting standards than we’re just not going to go there. I think Barry was given that message loud and clear and I think it will be his responsibility this year to make sure that we just don’t see a lot of credit creep, because I think we all learned over this last six, seven years that that additional volume if it comes with any amount of significant credit cost or credit loss you’re probably better off staying away from it. So I think that was the message that we conveyed to all of the banks and of course they are very, very smart people, they were all well aware of that already and I think that will be mantra I don’t know Barry do have anything to add to what you’re seeing out there credit wise and are you seeing pressure on underwriting?

Yeah there is constant pressure on underwriting either generating product non-recourse loan to value percentages are constantly being challenged. But probably more or so it’s pricing and terms and why we generally try to stick to our events on occasion we just have to we have to meet competition, even though we hate doing it, but and on a rare occasion we’re going to have to extend some terms as far as fixed rates. But other than that it’s been, we’ve been pretty much hold them true there were current underwriting so…

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

I appreciate it, thank you.

You bet, Mat.

Thank you. Our next question comes from the line of Jacquelynne Chimera from KBW. Your line is open.

Hi Mick, good morning.

Good morning, Jackie.

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

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

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

It did and it went great, it really did I think our chase and his group along with our conversion team up here who is led by Marcia Johnson and that’s a very good team anyway we have done three conversions this year and they were arguably three of the best conversions we have ever done. Now, did they go perfect, they never ever do and you will have a hiccup here and hiccup there just because they are always unique and different, but I think the process that we have built up is a very robust one and one that I think we can continue to hopefully and we are going to have the opportunities to do this well into the future. So I think we’re getting pretty darn good at integration.

Yes, practice makes perfect.

It certainly does.

All right and just one last quick one. Where do rates need to move before the swap becomes a benefit for you?

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

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

Thank you very much, Jackie.

Our next question is from the line of Jeff Rulis from D.A. Davidson. Your line is open.

Thanks, good morning

Hi, Jeff.

So Mick I guess we got to add couple of percent to your 6% loan growth I guess as you flow above this a couple of years in a row. So want to bake that in.

Now come on Jeff.

No Jeff we have it’s just been couple of good lucky deals we’ve got.

There is no there is no sand bagging here.

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

Yeah I mean during the last year on fee income service charge miscellaneous fee income our fee income for the year-over-year period Jeff was up about 9%. And if we continue and I think we hope and feel we can, if we continue to drive the kind of new account growth both consumer and business I think we feel pretty comfortable that we could drive something similar. I’m not sure, it can be 9%, but I think as I said I think we’re confident that we can do some high single-digit increase in that category. Now the other side of - the other fee income category that we saw some reduction this last quarter was as expected the mortgage origination fees or fees on sold loans. I mean that wasn’t a big surprise to us I mean things really do slow now here I mean, if you would be looking out our window today you are looking at a foot of snow and that’s down from 2.5 feet a couple of weeks ago, things just slow down and people aren’t as likely to look at construction look at purchases there, I mean this is not Texas, Arizona, California, Seattle so many of the places that there is not as much seasonality built in. We see a lot of seasonality built into the mortgage business. I also think Jeff that part of the reduction we have I think $576,000 left in mortgage origination income that we did the prior quarter part of that was I mean we had all hands on deck in the fourth quarter, we had every MLO, we had every processor, underwriter, back office person that we’re working very, very hard to learn a brand new system and get a brand new system in place, that system is now in place. We think it’s going to be a great, great addition to the mortgage operation. And quite frankly we are excited to start to get into the spring of the year when we traditionally have much more volume and much more activity with a new streamline process that should allow us, as I said, to do more volume and our expectations for 2015 is for us to do a higher level of mortgage value. Now that’s somewhat dependent on interest rates, but there is one benefit and I said this to all 13 of our bank presidents during their review recently that if there is one benefit to this low level of interest rates, I mean if we’re going to get pressure on overall loan yields in that we should benefit from higher levels of mortgage volume. I think, last couple of weeks we saw kind of a kickback up in refis I am not sure that’s going to really moved a lot, but it certainly moved the needle some the last couple of weeks, but I do believe that as we get into the spring and summer months it should definitely have an impact on our residential construction, our purchase volume and again where we think we have put in place the systems and the processes to be able to handle lot more volume, far, far more productivity and efficiently. So it took a lot of work and a lot of time and I am sure that some, I am not blaming at all but I am sure some of the reduction in volume in the fourth quarter was the result of all hands on deck implementing and integrating that new system.

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

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

Great, thanks very much.

You bet, Jeff.

Thank you. Our next question is from the line of Joe Morford from RBC Capital Markets. Your line is open

Thanks, good morning Mick.

Hi, Joe.

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

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

Okay understood, that’s helpful in terms of framing how we should think about it. And I guess the other question was just how should we think about the mix of that 6% loan growth you’re projecting for this year? Do you see much difference in terms of the type, the lead categories there or the geography at all?

No I guess we were just talking about that this morning before the call Joe and I’d say that the growth we experienced the organic loan growth that we saw in ‘14 at little over 7% it was distributed among all of the banks, I mean they all had a good year for actually putting on positive loan growth. But I would say that our bank down in Southeast Idaho in that Idaho Falls, Pocatello area probably produced the highest growth or increase in production it’s not one of our larger banks, but it definitely had a very good year, actually a few of our larger banks were ones that for various reasons, struggled a little bit more to generate loan production and that loan production was not close to the 5% or 7% that we did as a company. Now with that said, I feel really good about a few of those larger banks of ours doing pretty darn well this year. So it could have been just the timing thing, not really it’s hard to really drill down Joe and figure out exactly what the cause was. But overall, I mean all the banks grew their loans, but we certainly like to see a few of them demonstrate more loan growth this year. And as far as the type I would suspect Joe it’s going to be very, very similar. I think commercial real estate just tends to be a category where we probably do more volume than any other categories. It was nice to see residential construction for the first time in a number of years start to move back the other way. And we’ve said many times on these calls that we ended the year little over $100 million, we’d certainly like to see that number be in that $150 million to $175 million. So there is some room in resi construction. Now I think HELOC is the economy heals up more and people generate real estate values improve I think HELOC could be another opportunity for us this year. But my guess is if we’re sitting here a year from now it’s going to probably be commercial real estate that leads the charge for us.

Okay, make sense. Thanks a lot, Mick.

You bet Joe. Thank you.

Thank you. Our next question comes from the line of Matthew Clark from Sterne Agee. Your line is open.

Hey, Mick how are you doing?

Good, Matthew, how are you?

Good, thanks. Maybe just first on loan pricing wondered what the weighted average rate on new production this past quarter was, with your portfolio at 480 already just want to get that differential?

Yeah, I don’t have that right off the top of my head, we'll give that number for you here in a second.

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

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

Yeah we’re definitely seeing some compression. There is no doubt about it especially when we go longer out on the curve. So isn’t huge not anything significant, but definitely we’re in order to just stay competitive. Some of the larger especially the larger transactions. Not so much the smaller stuff, but a lot of the larger transactions like anything else are being shopped. So we’ve been holding some rates some rates that are pretty aggressive. The positive thing though as we haven’t had to go out too much across the board out on the curve, but on occasionally we will get out to some 10 year fix and occasionally some 15 year fix. But for the most part we’ve been hitting in around that five to seven year term.

Okay. And where any of the pay-offs that occurred at year-end unusual and that it was because of rate that you guys just aren’t willing to match or not? Just trying to get a sense of whether or not that phenomenon could continue or not? Whether or not there was it was healthy enough [ph].

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

And Matthew on your first question, I mean I don’t have the actual yield all the brand new production for the quarter, I can somewhat assess that during from like November to December our yield on our entire loan portfolio dropped by 1 basis points. And that’s a yield of roughly end of period that was roughly about a 480 yield on loans. So I mean if we would figure that we are getting some pressure there, but at the margin I got to believe that we are right in that wheel house as far as what the new production is I don’t think that our portfolio is sitting out there at 480 and everything we’re booking is on average at four in a quarter that will certainly have a much bigger impact on a 1 basis point reduction. So I am guessing that we are on average right around that 4.25 when we add all the various loan types together.

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

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

Got it. Okay, that’s it from me. Thank you.

Thank you, Matthew.

Thank you. Our next question is from the line of Daniel Cardenas from Raymond James. Your line is open.

Good morning, everybody.

Hi, Dan.

Just kind of following up on your Canada discussion I know the Canadian were big buyers of some of your OREO property, maybe if you could remind us what percentage of your loan portfolio is Canadian based?

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

Yeah, in the flat head Valley we only have $3.8 million of OREO left out of the total 27.

Yeah, that’s…

So it’s not a big number.

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

Okay, good. And then maybe just last question here, any indication of what line utilization look like in Q4?

Well we have definitely seen a decrease in our C&Is. Do you have - Jeff have that number?

Yeah, I will try to get quarterly after quarter end but.

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

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

Great, thanks guys.

Thank you, Dan.

Thank you. [Operator Instructions]. And I have a follow-up from the line of Matthew Forgotson from Sandler O’Neill. Your line is open.

Hi, just one follow-up question. Mick could you just give us a sense of the deal shatter in the region you are starting to see you are having an uptick in discussions now in light of the drop down in the back end of the curve?

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

Thank you.

You bet.

[Operator Instructions]. And I’m seeing there no other questioners in the queue at this time.

Well, thank you very much again. We finished 2014 it was our best year ever. We exceeded our expectations significantly for the entire year based on what we set out to achieve and what we felt we could achieve in January of ‘14 versus what we ended up achieving were significantly better. So it was a very, very good year. Again we’re excited as we begin 2015 we just had our January Presidents' Meeting where they bring all of their strategic plans and what they’re going to do to increase shareholder value improve productivity. I come away with that meeting every year, just really energized and charged with the fact that we got some really, really smart people in this company and those 13 banks are going to knock themselves out trying to do even better than what we did this year, I mean the ratios that we hit this year were ratios and quite honestly I didn’t think during the middle of crisis I’m not sure that banks were going to get back to the kind of performance metrics that we achieved we realize we’ve got a tall order and a high bar to continue to keep ROAs in that 130 to 150 range. But we’re going to knock ourselves out trying to do that. And again I feel good about the quality of the balance sheet, I think we’ve got a lot of really positive things going. Now the key I think for us this coming year is what kind of quality loan production can we produce? And can we continue to acquire quality franchises that will just continue overtime to add to the value of GBCI. So with that, terrific year my hats off to 2,000 individuals. We say we’re 2,000 strong and that's sums it up we’ve got great staff, they just knock themselves out trying to make this company better and better. And they certainly absolute certainly did that in 2014. So everyone have a great weekend. Thanks again for all of your support. And know that we are going to do everything in our power to make 2015 an even better year for Glacier Bancorp. So with that thank you and have a great weekend. Bye now.

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