Glacier Bancorp's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Jan.24.14 | About: Glacier Bancorp, (GBCI)

Glacier Bancorp, Inc. (NASDAQ:GBCI)

Q4 2013 Earnings Call

January 24, 2014 11:00 a.m. ET

Executives

Michael Blodnick - President and Chief Executive Officer

Ron Copher - Executive Vice President and Chief Financial Officer

Don Chery - Executive Vice President and Chief Administrative Officer

Barry Johnston - Chief Credit Administrator

Angela Dose - Principal Accounting Officer

Analysts

Jennifer Demba - SunTrust Robinson Humphrey

Brad Milsaps - Sandler O'Neill

Jeffrey Rulis - D.A. Davidson

Jacquelynne Chimera - Keefe, Bruyette, & Woods

Daniel Cardenas - Raymond James

Joe Morford - RBC Capital Markets

Brett Rabatin - Sterne, Agee & Leach

Operator

Good day, ladies and gentlemen, and welcome to the Glacier Bancorp Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Mick Blodnick, President and Chief Executive Officer. Please go ahead.

Michael Blodnick

Thank you, very much. 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; and Angela Dose, our Principal Accounting Officer.

Last night, we reported earnings for the fourth quarter and full year 2013. Net income for the quarter was $26.5 million. That’s an increase of 28% compared to the $20.8 million earned in last year's quarter. We produced diluted earnings per share for the quarter of $0.36, once again that’s compares to $0.29 in the prior year quarter, a 24% increase. Both the fourth quarter and full year of 2013 represented strong growth in earnings, loans and deposits, while credit trends and asset quality also continued the improvement that began in 2011.

Our staff and directors should be very proud of what they have been able to accomplish this year. At the same time we believe there is an opportunity to further enhance our performance. During the year we added to great banks, both of which are already demonstrating the value and ability to add significantly to the company. For the most part, the year has been void of any major noise or significant non-recurring items. During this past quarter, however, we did experience a large debit card breach by a regional card processing firm and we have settled a number of loan buyback issues that we have been negotiating throughout the past year.

Along with onetime costs tied to the acquisitions, we collectively expensed $1.3 million in pretax items that exceeded last quarter's expenses in these three areas that we don’t believe will reoccur in a regular basis. We earned a return on average assets for the quarter of 1.33% and return on tangible equity of 13.04%. The best numbers that we have posted for these two ratios since 2008. For the second consecutive quarter, we delivered excellent operating results that exceeded our own expectation. It was another strong quarter that produced increased record earnings, improved performance metrics, solid balance sheet growth, a much higher net interest margin, and better credit quality.

Loan growth was especially surprising considering the time of the year. This was one of our best fourth quarters for loan production in our history and was a pleasant surprise and a great way to end the year. For the quarter, loans grew at a 6% annualized rate and for the full year we produced organic loan growth of over 8%. We grew our loan portfolio in every quarter of 2013, another feat we haven't accomplished in years. Including the addition of First State Bank and North Cascades Bank, loans grew by 20% during the past year. Once again this quarter most of our growth came in commercial real estate, however we also saw growth in residential construction loans for the second straight quarter, which is hopefully a sign of better things to come as we enter next spring's building season.

Most of the other loan sectors were flat or down during the quarter. For the full year, our loan growth centered on commercial real estate and commercial and industrial loans, which were up 20% and 24% respectively. This growth was well distributed both geographically with most of our banks contributing to these gains and among a wide variety of industries. In addition, we also nearly doubled the amount of agricultural loans last year. This diversification was one of our main lending goals as we entered the year and the addition of the two new banks went a long way in helping us achieve this goal.

The growth in loans also allowed us once again reduce the overall size of the investment portfolio, especially our collateralized mortgage obligation. However, the reduction in refinance activity this past quarter also slowed down the pace in which we were able to decrease the size of this portfolio. During the quarter, the security portfolio decreased by $96 million or 3%. And over the past 12 months, investments shrunk by $460 million or 12%. As I mentioned last quarter, our ultimate goal is to reduce investments to a point where they make up 20% to 30% of our assets. So we still have ways to go before those levels are reached. Nevertheless, we continue to make progress in reducing this component of our balance sheet. As loans increase again next year, we should be able to further reduce the size and dollar amount of this portfolio.

Moving to the liability portion of the balance sheet. Non-interest bearing deposits decreased $23 million or 2% during the quarter, which is not unusual at this time of the year. We also saw slow down in the number of new checking accounts opened which also is not atypical in the last quarter of the year. Historically, our best quarters for checking account growth are always the second and third quarters of the year. Excluding the two new banks, we were still able to increase non-interest bearing deposits by 6% this past year, which his good growth for us although down from the 18% increases we achieved the prior two years. With the stock market and real estate values improving, I think some of the money that had been parked in these accounts finally flowed to other types of investments and uses.

Excluding wholesale deposits, interest bearing deposits increased by $113 million or 3% during the quarter as low-cost transaction accounts, primarily now and savings accounts, collectively accounted for all of the increase. For the year, core interest bearing deposits excluding the acquisitions were only up $18 million or 1.5%, as a significant increase in transaction accounts barely offset a sizable decrease in CDs. Because we were able to grow core deposits and as the same time reduce the size of our investment portfolio, we were able to decrease the level of both our wholesales funds and borrowings, both in the quarter and for the year.

We had another good quarter and year in the area of credit quality as trends to continued to improve. Even with the addition of two new banks, we made notable progress in improving our credit quality metrics throughout the year. Although we did not achieve one goal we established for ourselves at the beginning of the year, and that was to get our non-performing assets below $100 million. We came very close. Especially if you subtract out the government guaranteed loans.

Non-performing assets ended the year at $109 million. $104 million excluding the government guaranteed loans. During the quarter, NPAs decreased $15.6 million or 12% with the majority of the decline coming OREO which dropped $9.7 million. Our NPAs ended the year at 1.39% of total assets, that’s compared to 1.87% a year ago. A number of our banks did a nice job of resolving their problem assets and moving them off their balance sheet. Hopefully, as we begin 2014, we can make further progress in lowering NPA. This will become more challenging, however, as the remaining balance of OREO is now much smaller and some of the assets have either a single utility or are less attractive to potential buyers and will be more difficult to move.

Net charge-offs for the quarter totaled $2.2 million, an increase of $191,000 from the previous quarter. For the quarter net charge-offs were $7.4 million or 18 basis points, which not only was significantly better than what we have projected for the year but also a substantial improvement over last year's level of 83 basis points. Our goal for the year was to keep net charge-offs below 50 basis points. Not only did we achieve that goal this year, our performance in this area rivals some of our best years historically. Early stage delinquencies ended the quarter at $32 million, that’s up from $26.4 million in the prior quarter. One large credit went just over 30 days past due and has since been brought current. Otherwise, delinquencies would have been basically unchanged for the quarter.

At this time of year we traditionally see an increase in delinquency. But so far they appear to be maintaining at the current low level. Hopefully, we could get through the rest of the winter without a significant move up in past due. Our allowance for loan and lease loss ended the quarter at 3.21%, a reduction from the prior quarter's 3.27%, as the increase in loan balances contributed to most of the decline. In the most recent quarter, we provisioned $1.8 million slightly less than our net charge-offs of $2.2 million this quarter. This compares to a loan loss provision of $1.9 million in the prior quarter and $2.3 million in the prior year quarter.

If credit quality trends continue to improve, we could see our loan loss provision decrease further as we move into 2014. We continue to actively manage our capital position. In December, we raised our cash dividend for the third time since December of the previous year. During that time the dividend increased from $0.13 to $0.16 or 23%. Our long-term goal has always been to attempt to increase the cash dividend at a 10% per year rate, depending of course on our level of earnings, capital needs and any other regulatory requirement. At the end of the year, we feel comfortable that our level of capital was more than sufficient to meet our growth needs and in fact allows us to significantly increase our asset base if the opportunities arise.

Top line revenue growth, primarily our net interest income, also increased substantially for the second consecutive quarter, and also moved up significantly from the prior year quarter. A further decrease in premium amortization during the quarter was the main catalyst that led to an increase in interest income. Interest income in turn was the main driver that led to higher net interest income. Net interest income also got a boost as both residential real estate and commercial loans posted higher interest income during the quarter and interest expense was slightly slower.

As a result of the higher net interest income this quarter, we saw substantial improvement again to our net interest margin. For the quarter our net interest margin increased 32 basis points from 3.56% the prior quarter to 3.88% in the most recent quarter. This was the fourth consecutive increase to the margin driven primarily by a shift in earning assets away from securities and into higher yielding loans and four straight quarters in which a decrease in premium amortization has had a positive impact on the yield of our investment portfolio. After reductions in premium amortization of $1.9 million, $3 million and $3.2 million during the first three quarters of the year, we benefitted from an additional $6.2 million reduction in the latest quarter. This along with the slight change to the mix of our securities, moved the yield on our investment portfolio 69 basis points higher in the quarter.

During the past year, we have seen our net interest margin expand by 83 basis points and are now at a point where further expansion of the NIM is going to slow and we will dedicate much of our energy to maintaining the gains we have achieved this past year. Also during the recent quarter the net interest margin benefited by four basis points as a result of the purchase accounting adjustments attributed to the two new bank acquisitions and we expect going forward will only have a modest impact on the net interest margin. So as we begin a new year, the net interest margin has improved considerably from this time last year. Now our goal is to maintain the margin at this higher level.

In addition to the higher yield on our investment portfolio, the margin also benefitted from a slight decrease in funding cost during the quarter. At quarter end our cost on total paying liabilities was 40 basis points, compared to 41 basis points for prior quarter. If we stay in the current low rate environment which appears likely, we should see further small reductions in funding costs coming primarily from retails CDs and Federal Home Loan Bank borrowings. Again, one of the main highlights of the quarter was the significant improvement in net interest income brought about by a combination of loan growth, better investment yields and lower funding costs.

For the quarter, we generated net interest income of $67 million, an increase of $4.7 million or 7% from the previous quarter. And $15.5 million better than the prior year's quarter or 30%. This was the third successive increase in our net interest income after eight quarters of decrease. We did not have the same level of success when it came to non-interest income which decreased by $871,000 on a linked-quarter basis to $23 million, and was down $2.4 million from the same quarter last year. Service charge and other fee income were down $424,000 during the quarter but the biggest reduction in non-interest income came from fees on sold loans, which was down $2.1 million or 30% during the quarter and $4.2 million or 46% from last year's fourth quarter.

We expect mortgage origination volumes to also be slow in the first quarter of 2014. When spring arrives, we hope that construction and purchase activity will increase and allow us to recapture some of this fee income. We are also uncertain what impact the new ability to pay and qualified mortgage rules will have on our origination volume but we are hopeful it will remain minimal. As refinances have slowed, the percentage of purchases versus refinance volume has changed dramatically from early in the year. During the past two quarters, 65% of the dollar volume of mortgage origination came in the form of purchases with refinances making up the other 35%.

We can't make up the volume of refinances of purchases transactions so we have to try to capture as much of that segment of the business as possible, if we hope to maintain a reasonable level of fee income this coming year. Although service charge fee income was down from the always strong third quarter, we were pleased that just how well this revenue source held up during the quarter. Our banks continued to generate a larger and larger customer base, especially the two new banks, as they have implemented and benefited from some of the customer acquisition strategies we have used for years. If the base of the customers continues to grow at the same pace it did in 2013 we should be able to continue to grow this source of fee income revenue.

Controlling our operating expenses continues to be a major focus for the company. Our expenses increased by $2.7 million from the prior quarter with $1.2 million of that amount coming from OREO related expenses, which tends to fluctuate from quarter-to-quarter. In addition, other expenses were also up $1.1 million on a linked quarter basis, again, primarily due to the debit card fraud and loan buyback expense I referenced earlier. Excluding these two line items, the remaining expenses were basically flat from the prior quarter. Our efficiency ratio of 54% was unchanged from the prior quarter but an improvement from 56% in the same quarter last year.

In summary, 2013 was an excellent year in which just about every operating and production goal we established was met or exceeded. It was a record year for earnings, loan production was outstanding, we saw a dramatic improvement in our net interest margin, asset quality improved significantly, and we added two terrific new bank divisions that expanded our geographic footprint and further diversified our company economically. As we begin 2014, we are excited and believe that many of these same trends are intact and should allow us to continue to deliver solid results to our shareholders.

And those are my formal comments and we will now open the lines up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Jennifer Demba of SunTrust. Your question please.

Jennifer Demba - SunTrust Robinson Humphrey

Two questions. First of all, if I missed this I'm sorry, can you give us an idea of what you think organic loan growth could look like this year based on what your pipeline looks like? And then my second question is also pipeline related but on the acquisition front. I'm just wondering what you are seeing in terms of conversations right now and are you comfortable announcing a deal as early as tomorrow.

Michael Blodnick

Well the answer to the first question is, as far as loan growth, you remember our goal for this year after five consecutive years of our loan portfolio decreasing, was to finally get that number in black. Grow our loans by 2% organically. We of course did much better than that with a little over 8% growth. Our goal for this year is to hopefully grow our loans by 5%. Pipeline looks good, especially for this time of year. So we are not sure, Jennifer, if we are going to be able to -- if that pipeline will continue at the pace. As I mentioned in my remarks, we were very pleasantly surprised at what we produced in the fourth quarter, which is historically a slower quarter for us. And yet at the same time we are still seeing a decent amount of loan volume coming into the first of the year and the first quarter of the year is also another quarter where many times our volumes taper off.

So I guess we are feeling good that the 5% loan growth for next year is something that’s achievable. I mean could we do better than that? Yeah, of course we could. It's always difficult to make those kind of projections when you sit up here in January and it's the middle of winter. Things change when you enter the months of April through October. But right now we kind of like what we are seeing out there. Of course Barry sees a lot more of this then I do. I will answer the second part of your question and then I will turn it over to Barry and you can get any further remarks from him.

Yes, conversation is still taking place. You will not hear a -- you will not have a press release issued tomorrow, unfortunately, but we are still hopeful, Jennifer that there is couple of transactions to be done in 2014. And with that probably I won't say anything more. Barry, you want to comment any more on the loan volume?

Barry Johnston

Yes. One of the things, Jennifer, that we will probably take advantage of and we already have to some extent, is with our acquisitions, because of their legal lending on that size they participated some loans out to some non-affiliate banks and I think through this coming year we have the opportunity to repurchase some of those. So it's kind of little ace in the pocket there that we can take advantage of that. So that will be part of that. Also those two banks, as you probably remember, are very centered in the agricultural production with Wheatland being in cow/calf and hard grains and North Cascades being in apples and cherries and some cattle and grain production. So those totals should increase through the year as we ramp it up. So we have the ability to do that to. So we are kind of keen on those two things.

Operator

Thank you. Our next question comes from the line of Brad Milsaps from Sandler O'Neill. Your question please.

Brad Milsaps - Sandler O'Neill

Hey, Mick, I joined a few minutes late. I think you were just touching on expenses, but just kind of curious, anything in the quarter, aside from the merger costs that you kind of callout, that you think you could get some relief from as you move into 2014?

Michael Blodnick

Yes. I mean that was the acquisition cost for a little over $400,000. So they are non-recurring but that was not a big, big number. We probably will see some larger acquisition related expenses as we move into 2014, especially when we get closer and closer to converting the platforms on the two banks. But it wasn’t a big number this quarter. The bigger numbers tended to be that debit card fraud that we experienced with a local merchant processing firm up in the Pacific Northwest and it was the largest one that we have ever experienced. And part of it is the fact that we have got a huge customer base. I mean we are one of the larger banks in the inland Northwest and that’s really where these retail outfits were located and they used this one servicing center, we did. We took, as most banks do, you end of taking the loss on these things even though we had nothing to do with the breach or the fault.

So that was a big number for us. And also we had been working all year on some loan buybacks, negotiating some loan buybacks and we really put all those together in the fourth quarter. We may have future loan buyback but I think they are starting to become fewer and far between. And these were ones that we had negotiated, kind of have been negotiating all year long. We just took the charge in the fourth quarter. So if you take just the difference between the third quarter and the fourth quarter, just those two items, the fraud and the buyback, just the delta on those was about $900,000-$950,000. So couple of expenses that hopefully won't be showing up, Brad, each and every quarter.

Brad Milsaps - Sandler O'Neill

Okay, great, that's great color. And then, Mick, on the securities portfolio, I know rates have kind of rolled over a little bit to start the year here. Do you suspect that the yield on the securities book will kind of be in this range, maybe a little bit higher? And then, secondly, I guess the taxable securities portfolio was down about 11% in the quarter on average. Do you expect that to continue to come over? Obviously depending upon loan growth, but just kind of curious your thoughts on where you kind of see that leveling out.

Michael Blodnick

Yes. We are actively managing our investment portfolio. I don’t believe we are going to see the reduction that we were able -- and we did in the fourth quarter, Brad, we did reduce the investment portfolio by nearly what we were able to in the prior quarter. And part of that was that prepayment speeds definitely slowed down. But we are going to continue to manage that investment portfolio based on any future M&A activity as well as organic loan growth. I mean those two are going to drive what Ron and Jeff really decide to do on the investment portfolio. We monitor it weekly, daily. So we are always taking a good, hard look at what's happening on the production side as far as loans. Obviously, M&A activity, that’s not a daily thing you are dealing with but we are always out there trying to think a couple of steps ahead, what happens if we were able to acquire this level of assets. What would that mean? How would we handle that? Because clearly our goal, like I said in my comments, Brad, is to try to get that investment portfolio back to a more historical level for us which would be more in that 20% to 30% range. And when I say that, probably closer to the 20% to 25%, if you really go back to our numbers historically.

But if we can continue to grow loans and if we have success again like we had this past year and some of the things that Barry and myself pointed out, yeah, I think you would see that investment portfolio continue to move down. We went from 48% at the beginning of the year, investments to assets, down to 41% at the end of the year, investments to asset. Don’t necessarily know that we could make that same kind of progress over the next 12 months with prepays slowing down a little bit, but our hope is to get into the 30s by the end of this year.

Brad Milsaps - Sandler O'Neill

Okay. Great, Mick, and just one final number. Do you happen to have the balance of accruing TDRs?

Michael Blodnick

Yes, we do. The balance of accruing TDRs is, $81 million, down from $86.8 million last quarter.

Operator

Thank you. Our next question comes from the line of Jeff Rulis from D.A. Davidson. Your question please.

Jeffrey Rulis - D.A. Davidson

I think average loan yields were up last quarter for the first time in a couple years and it looks like that may have just pulled back a bit in Q4.

Michael Blodnick

Sure [ph].

Jeffrey Rulis - D.A. Davidson

I guess what do you read into that or is it just that we're kind of finding the bottom here?

Michael Blodnick

Well, we were analyzing that, Barry and myself were analyzing that just recently. And as we went back 3, 4, 5 years, we saw that dip take place in the first quarter versus the third quarter the last three of four years. And I am not sure, we will have to do a little bit more research on this, Jeff. But we are not sure if, when you make that -- the only time you make that 92 day and 92 day quarter comparison is between the third and fourth quarter of the year. Every other time you are making a comparison from 92 to 90, 90 to 91, 91 to 92. It may have something to do with the number of days and the way we calculate the margin, because it seems like that pattern held up for the last four years where we see that dip in the fourth quarter. Hopefully that will be the case and maybe we can see that stabilize and may be even experience what we experienced in the third quarter where we actually saw a little bit of an increase in the overall loan yield.

I guess Barry said it best after our discussion, and that is, being able to give all of our banks and our senior credit officers the charge that, hey, if we want to move that up from this point on, here is the base line. I think it ended up the quarter at 4.96. Here is our base line. And loans that we can book above that going forward should move that in the right direction. If we have to do many below that it's going to hurt that yield further. So I think that’s a great way and a very simple way for Barry to challenge the banks to see if maybe we can move that back up above 5%. Again, it may also have a little bit to do with the way we calculate it too, Jeff.

Jeffrey Rulis - D.A. Davidson

Sure. And I guess just a follow up, maybe for you or Barry. I guess do you think pricing is rational in your markets, just the competition that you're seeing out there today?

Michael Blodnick

It's very competitive and there is no doubt that on occasion we run into the occasional borrower where the competition, for whatever reason, has offered them what as you mentioned, some irrational pricing. On occasion if it's an existing relationship and we want to maintain it, yes, we will either match that or beat it a little bit to retain the relationship. What we have found though is we have been able to probably attract new credits by going a little farther down the curve. Traditionally we have pretty well held to a five-year maturity or repricing point. And we are going out 7 and 10 years now on occasion with some borrowers where it makes sense certain properties, generally real estate secured, and that has too some extent been able to generate some volume for us. And then on the other side of the balance sheet Ron Copher has been properly matching that to try and eliminate any interest rate risks. So that’s where our success has been. But you are right, it's really competitive out there and we have to reach on a couple of deals occasionally, but only when warranted.

Operator

Thank you. Our next question comes from the line of Jacque Chimera from Keefe, Bruyette, & Woods. Your question please.

Jacquelynne Chimera - Keefe, Bruyette, & Woods

I wondered if you could provide a little bit of color on the held to maturity move that took place in the first quarter. I know when we discussed it in the past, at least my interpretation of your comments was that you'd like the available for sale flexibility. So I wanted to see the reasoning behind the move.

Michael Blodnick

Absolutely. You know as we started looking about midsummer and started looking at what some of the other institutions around the country were doing and we had nothing in held to maturity. And yet, I think we are a bank and a company that does very little with our investment portfolio. I mean we really are a buy and hold shop. We just don’t actively trade that investment portfolio. And as we started looking at the level of liquidity that we had, obviously we had a significant amount of liquidity. So we didn’t have to worry about keeping those -- a certain of our long-dated securities, or any of those securities available to us for sale for liquidity purposes. That was just not the issue.

And yet, I think we felt that if we could reduce some of the market price volatility of some of our longer-dated municipals, which we have no intention selling anyway simply because these yields on these municipals, Jacque are really, really good. I mean some of these were bought in other interest rate cycles and they still have a fair number of years to run before they mature or they are called. We just felt that since we are not going to do anything with them anyway, why go through on a quarterly basis the volatility to our equity if we don’t need to. And that was really the reason. We didn’t need the liquidity and we just chose to minimize some of the volatility in those longer dated investments that we have no intentions of selling anyway.

And it was pretty much just about that simple. I mean we really did not try to over think this at all or get to deep in the weeds as to what to do. We took 15% of the portfolio, moved it into HTM and steel feel we got all the liquidity and flexibility we need. If loans would continue to move for whatever, we would still see good volumes there. We have the resources to be able to fund that. So that was kind of it.

Jacquelynne Chimera - Keefe, Bruyette, & Woods

So when you look out to that 20% to 30% goal for the investment portfolio, how do you see the ideal breakdown between AFS and HTM?

Michael Blodnick

I think the investment portfolio shrinks. I see the HTM as probably being, you could never say never but my guess is, this was a onetime move. I don’t know that we have got any plans or designs, Jacque, to add to that anymore. But clearly, if that just stays intact and the overall investment portfolio decreases, than that 15% obviously becomes a bigger percentage of the overall portfolio. But it's not because we would be moving securities or additional securities into HTM. So you can pretty much do the math. I mean if we went from 40% to 20% securities, and originally that HTM represented 15% of our portfolio, so it would represent 30% of the portfolio then. But it wouldn’t be because we have done anything different. We just maintained at the current dollar level.

Jacquelynne Chimera - Keefe, Bruyette, & Woods

Okay. And then just one little cleanup, little accounting question. Do you happen to know how much accretion income you had in the quarter? Any discount accretion related to the two recent deals? I think last quarter....

Michael Blodnick

I mentioned that it had a 4 basis point impact to our margin.

Jacquelynne Chimera - Keefe, Bruyette, & Woods

Okay. I missed that in the prepared remarks. That's all I needed. Thank you.

Michael Blodnick

Okay. Yes. 4 basis points. And Jacque I suspect it's going to probably start to dwindle from there.

Operator

Thank you. Our next question comes from the line of Daniel Cardenas from Raymond James. Your question please.

Daniel Cardenas - Raymond James

A couple of questions here. On the acquisition front, can you maybe give us a little bit of color as to whether or not seller expectations are beginning to move higher right now?

Michael Blodnick

I kind of think so. It's hard to tell, it really is, Dan. I mean I guess on the one hand I would say that sellers expectations are probably moving up somewhat. But I think rather than sellers expectations moving up, I think that sellers thinking about whether this is the right strategic move, is becoming more prevalent. More so than their price expectation. I just hear a lot of chatter regarding the margin, lack of loan growth, regulatory cost, compliance concern. I think, and I am not saying anything that anybody else hasn’t heard either but it just seems like I am hearing more and more and more of that now. And of course I think the smaller the bank, probably the more concern there is about those kinds of issues. But as far as their, and I assume that’s what you were talking about, Dan, was their pricing expectations or were you referring to other expectations?

Daniel Cardenas - Raymond James

No, pricing expectations.

Michael Blodnick

Yes. I haven't necessarily seen a huge move in that area. I think, obviously the discussions that we have had, I don’t think it's always have necessarily centered around price. I think there is a lot of other things that are important to these sellers. You know one of the big ones I believe is liquidity. I mean I really do. I think that who are they willing to partner with and what does that partnership ultimately get them. Does it get them a little bit better price but no liquidity, I just don’t see that as being that attractive to a lot of these individuals that are starting to contemplate their next move. And then I also think that if they are going to accept liquidity and if the liquidity is an important component, which I believe it really is in a lot of the discussions I have had, then I think, once again, picking the right partner is paramount too. So we like kind of where we are at. I think we have got a good story to tell and like I was mentioning to Jennifer earlier, our hope is that in 2014 if we could do one or two banks that with the quality of what we did in 2013, we would be thrilled.

Daniel Cardenas - Raymond James

Good color. And then I guess as you think about potential M&A or acquisitions, is the focus going to be still for banks that have a significant agricultural presence, or is that maybe not necessarily the case going forward?

Michael Blodnick

It's not necessarily the case, I mean we are not actually going to search that out. But if they happen to be an Ag bank that would kind of just be frosting on the cake. Because I think it is still our desire to further expand that line of business. As I said in my remarks, Daniel, we doubled the size of our Ag portfolio in the past year but it still only represents about $280 million in loans, up from $145 million last year. So we are still well below 10% of our overall loan portfolio. So, yeah, I mean if we have the ability to do a deal and they happen to be an Ag, that’s the best of both worlds right now. But it's not really the one thing that drives us, right. I mean we are not just looking for Ag banks. There are a number of other very interesting and we think exciting opportunities that you wouldn’t necessarily classify as an Ag bank.

Daniel Cardenas - Raymond James

Great. And then just quickly on the lending side. I mean your comments earlier were that it's pretty competitive on the pricing side. But are you seeing your competitors maybe make any -- or is there any give on the structural side?

Michael Blodnick

I don’t think so, no. I think they have all been drinking the Kool-Aid and I don’t mean from a negative perspective. I think they all understand. And I think the regulatory bodies have been pretty consistent in expecting that standards and underwriting is done the right way. And I think if there is any wiggle room at all, it probably, like Barry said, it's in the pricing side of it in the terms, not so much in the structure of the underwriting. And we haven't really seen much of that at all. And so that part is positive.

Daniel Cardenas - Raymond James

Then last question on credit quality. I think you had mentioned that in your OREO there's some granularity in that with a lot of maybe single use, harder to sell properties. Just given your capital position, would you be willing to maybe write those down to get them out of the bank through a fire sale or is that not on the board right now?

Michael Blodnick

No. No, I mean that was never on our board to begin with. We chose not to package credits up even back in the -- even in the days of, or the years 2009, '10, '11, when things were much more stressed. We chose to work through these and take them on a one by one basis. And I think that the one thing we can feel pretty comfortable with and confident in is, as we have looked back at that strategy, I think it was the absolute right thing to do. I think we saved ourselves million of dollars by persevering and willing to work through these credits one by one and not packaging them up. I think it was, like I said, I think it was one of the smarter things that we did during the entire credit crisis. We are at a point now where, no, I don’t see us, Dan, doing that.

Even now we have had really good trends but there is always, even right now we have got a couple of credits out there that are large and they have been performing, but you just never know at any given quarter or any given downturn they could move into NPA status and we would have to work through those. But at the same time we have also already got some other NPAs, that are currently NPAs, that we think there is a strong likelihood that in the first quarter of the year we could resolve them. So I am not sure if -- we haven't set a goal yet for the year of 2014 like we did last year. As I said, we didn’t quite reach that goal. I think Barry and the board and myself, we got to sit down and we have got to come up with what's a realistic number for NPAs that we can achieve by the end of 2014. And keeping in mind that what happens if a credit that currently is performing moves the other way and moves sideways on it, we will be taking all those into consideration. But I think our overall hope is and I think we feel reasonably comfortable that as we sit hear a year from now that, that NPA number could be lower than where it is today, and should be lower than where it is today.

Operator

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

Joe Morford - RBC Capital Markets

Just a quick question. Were there any change to environmental factors in the reserve calculation in the quarter and are you still using the kind of rolling 12-quarter look back for that?

Michael Blodnick

Yes, we are using the rolling 12-quarter look back still. I will let Barry comment on what we have done as far as environmental factors.

Barry Johnston

Yes. What those factors that changed basically were in direct proportion to our historical loss percentage dropping for the quarter. I think the quarter that rolled out was 2.5%, in the quarter that rolled in it was 20 basis points. And that change overall dropped by about 10 basis points in total. So we have adjusted some environmental factors, primarily in management and policies. We have had quite a few changes in our senior credit officers' positions this past year. Out of the 13 divisions, six of them have changed in one format or another, generally with existing senior loan officers assuming most positions. Of course we brought on the two new acquisitions, they had two new senior credit officers there. From a perspective -- so we increased the factors there. On asset quality, of course with the improvement in asset quality we lowered those. But in loan concentrations we are booking -- we increased the factors there, we are seeing some heavier concentrations in some commercial real estate and C&I. Those volumes have increase in the past year. And also we are booking a lot larger relationships than we traditionally have and some of those are approaching are $20 million in-house relationships. So we increased the factors there.

We also increased the factors for other to reflect the competitive pressures that are out there. The pricing challenges, the term challenges. And as I mentioned earlier that some irrational pricing that we have to do and some, really challenges of meeting some competitive pressure. So we increased that environmental factor. So overall it's pretty much stayed flat.

Michael Blodnick

Yes. I think, Joe, we have tried to, as Barry just outlined, try to be conservative on some of these things. Nobody has crystal ball but we certainly have long memory going back to the last crisis and we don’t need a repeat of that. So we are, I think Barry and senior credit officers are trying to be very conservative in their assessment of the world.

Joe Morford - RBC Capital Markets

Right, makes sense. That's helpful. And then other was just a quick sense on how is winter unfolding in your market, and just general activity levels this quarter? It sounds like from your earlier comments that volumes are holding up okay, so my guess is it's not so bad so far.

Michael Blodnick

No. It's not. I mean winter hit us with a blast. I mean that first week or ten days of December, I mean we had some really really brutally cold weather. But, boy, since then it's been a little bit different story and January has been remarkably mild. So I don’t know we have got still another couple of months around here of winter so. But the other thing, I am glad you asked that question, Joe, because I will tell you, with may be getting that blast early in late November, early December, we had a disproportionate amount of precipitation in December also, which we haven't had much in January at all. But in December we definitely did. And I will tell you, the ski resorts have been doing extremely well. I mean I have heard record down at Big Sky. I heard records up at Whitefish Mountain Resort, great conditions. And then I think also, I was talking to a good friend of mine and he was saying that just the way the holidays fell this year, with Christmas and New Year's right in the middle of the weak, it brought the holiday earlier. You know a lot of people in the weekend before Christmas started taking advantage of it. And it carried that holiday all the way past the weekend after New Year. So it was a much longer period of time this year. And I think for the resorts and that, it was a very, very, very good year. So we are excited travel was great last year.

Glacier, I haven't seen Yellowstone's numbers yet, Glacier had the fourth best year ever. 2.2 million people came to the park this last year. I suspect that those trends, especially if gasoline prices stay down, I think they are pretty excited as to what 2014 is going to bring too. So from a tourist perspective, as I have said many, many times, god bless Canada, as the Canadians keep coming down I think that's been a huge, huge catalyst for a couple of our larger banks that tend to border, our friends to the north. So, yes, I think there were some good things and some of those are weather related like you said.

Joe Morford - RBC Capital Markets

Maybe you are getting some Californians skiing out there because there is no snow in Tahoe and the resorts were just empty over the holiday weekend. It's pretty bleak out here.

Michael Blodnick

Send them up. Send them up. We have got all the snow in the world.

Operator

Thank you. Our next question comes from the line of Brett Rabatin from Sterne, Agee. Your question please.

Brett Rabatin - Sterne, Agee & Leach

I wanted to ask, I realize your geography is pretty spread out and some of your banks are pretty far apart, but I was curious if you think you are ever going to consolidate the brands and go to one platform from a name perspective, just kind of given how a lot of consumers are online now more than they are going into branches. Just to know if you had any thoughts on sort of what will happen over the next few years with the branding.

Michael Blodnick

No. No plans to do anything like that. Understand that consumer preferences are changing. Delivery channels, Brett, are changing. You can say that it's much more modernized nationally. But we also take into account that we are in a part of the country that still is basically far more rural than just about anywhere else, maybe with the exception of a few pockets in the Midwest. And this thing has worked well for us. I think we have made some adjustments in the last couple of years that has allowed us to become more productive, more efficient. But we kind of like the way this thing is working right now. And now we just really haven't given a lot of thought to make any changes to it.

Brett Rabatin - Sterne, Agee & Leach

Okay. And then the other thing I was curious about, I joined a few minutes late so may have missed this, but any thoughts around just the Bakken and the energy. What's going on there in terms of, I know you're not looking specifically to become 'an energy lender per se'. But any new thoughts on what's going on with the Bakken and how that might benefit you guys?

Michael Blodnick

Not really. I mean we know that we have benefitted. I think, and we have talked a little bit about in past calls, and I think you and myself have talked about that. There is no doubt we have benefitted even though we don’t directly operate in or around the Bakken. But we still are a large institution in this part of the country. We have got a number of customers and businesses that have been long time customers and relationships of ours and are doing business in the Bakken. So clearly, we have taken advantage of that. But as far as dramatic changes recently, no, I just think the Bakken is still humming along. It's still a fantastic catalyst to the overall economy in this region. And it sounds like it's going to be that for quite some time. But right now we don’t have really any designs or any plans of directly moving in to that region of Montana or North Dakota. But we have definitely benefited.

Operator

Thank you. This does conclude the question-and-answer session of today's program. I would like to hand the program back to management for any further remarks.

Michael Blodnick

Well, just final remark. It was a heck of year and I just got to thank again the 1900 employees who made it happen because they truly did, they did a fantastic job, worked hard. The dedication in this company is just amazing. And you know you don’t achieve these kind of results without having great people. And we are just blessed and fortunate to have those kinds of individuals working for us. And with that I would just like to thank all of you for your support. Again, the one thing you can be guaranteed is we are going to be working as hard as we possibly can, and that’s all 1900 of us to try to deliver these same kind of results or maybe even better results in 2014. So with that I hope everybody has a great weekend. Thank you again for all of your support and we look forward to talking to you later. Bye, now.

Operator

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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