Glacier Bancorp, Inc. (GBCI) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Glacier Bancorp's Second Quarter Earnings Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Mick Blodnick, President and CEO. Mr. Blodnick, please begin.

Thank you. And welcome, and thank all of 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 second quarter of 2013. Earnings for the quarter were $22,700,000. That compares to $19 million in last year's quarter, or an increase of 20%. Diluted earnings per share for the quarter were $0.31 compared to $0.26 in the prior year's quarter. That's a 19% increase. On May 31, we closed the Wheatland Bankshares transaction. During the quarter, there were $571,000 in one-time, nonrecurring acquisition expenses. Those costs were somewhat offset by a small gain on the sale of investments of $241,000. Aside from that, it once again was a straightforward quarter with little or no extraordinary items recorded. We earned an ROAA, or return on average assets, for the quarter of 1.17%, and a return on tangible equity of 11.32%. Both were the best quarterly earnings ratios since December of 2008. It was a good solid quarter on a number of fronts. Loan growth was the strongest we have seen in over 5 years. And the outlook remains favorable for the second half of the year. Revenues improved on both a linked and prior-year quarter basis. An increase in interest income during the quarter was especially encouraging as premium amortization declined further. Credit quality continued to trend in the right direction as delinquencies, nonperforming assets and net charge-offs all decreased from the previous quarter. One area of credit cost that did increase this quarter was other real estate owned, with the write-down of 1 property. For us, the highlight of the quarter was the closing of Wheatland Bankshares and their main subsidiary, First State Bank. We have acquired a terrific group of people, and are excited with the potential they create. We've also begun the integration process of incorporating them into our company. This project is moving forward as scheduled. As with any acquisition, some noise is created in both our balance sheet and income numbers. For some of the more significant sectors of the financials, I've removed the impact of First State Bank in order to give a clearer picture of our performance without the impact of our new bank. We are also preparing to close on the second of the 2 bank acquisitions we announced last quarter. The completion of North Cascades Bancshares transaction, with its main subsidiary, North Cascades National Bank, is on target. We will close next Wednesday, July 31. We're excited for the possibilities that these 2 franchises bring to further enhance our growth and earnings potential for years to come. As I stated previously, one of the pleasant surprises of the second quarter was the level of loan growth our banks were able to produce. Our goal for the year was to hopefully increase the size of our loan portfolio by 2%. After this quarter's performance, we are optimistic that we will surpass that target. Loans grew by $98 million or 12% annualized, excluding the addition of First State Bank. So we far exceeded our expectation, and I believe demonstrated our ability to grow loans now that many of our production staff can commit more time and effort to this activity. Both real estate and commercial and industrial loans made up most of the increase during the quarter. In addition, most of the increase in construction lending also came in the commercial area. We have still [Audio Gap] continues to improve. We hopefully can gain additional traction in this segment of our portfolio. With the addition of First State Bank, our ag portfolio grew 63% to $238 million, and will increase significantly again next quarter with -- as North Cascades joins the company. The growth of loans allowed us to slow down our security purchases during the quarter. Excluding the investments acquired from First State Bank, the security portfolio increased by $42 million or 1%. Once again, this quarter, we chose to decrease our exposure to CMOs by changing the mix of our portfolio by reallocating some of this cash flow from the CMO portfolio into municipals and corporate bonds. This shift in the mix, along with a slowdown in refinance activity accounted for the reduction in premium amortization during the quarter. With a steep drop-off in refinance activity in recent weeks, we expect to see continuous and even greater reduction in premium amortization during the third and fourth quarters. Noninterest-bearing deposits increased at an 8% annualized rate in the quarter, excluding the addition of First State Bank. We continue to have excellent growth in a number of new checking account relationships. But the growth in dollars, although still good, has slowed from the torrid pace of the past 2 years. Historically, the second and third quarters of the year are our best quarters for generating additional checking account relationships. This past quarter was no exception as accounts grew at a rate of 5% annualized, a nice increase to our customer base, which expands our opportunity to cross-sell more of our products and services to a larger group of individuals and businesses. Excluding the impact of First State Bank and excluding wholesale deposits, our interest-bearing deposits decreased 1% on an annualized basis during the quarter. The decrease was primarily due to a reduction in retail CDs as the current interest rate environment has made it more difficult to maintain these balances. We continue to maintain significant amounts of capital and have worked hard this year to find effective ways of deploying it. The acquisitions of First State Bank and North Cascades National Bank are great examples of how we intend to leverage this capital in the future. In addition, on June 27, we announced an increase of 7% in our cash dividend at $0.15 a share. This was the second increase to our dividend in the past 6 months and 35th time the dividend has been increased since our initial public offering in 1984. Our goal is to prudently manage our capital levels, being mindful of our growth potential, the quality of our assets and any and all regulatory standards and considerations. However, it has always been our conservative policy and philosophy to carry higher capital levels than what is required. Strategically, this has served us well especially during downturns in the economy. And I do not see that changing in the future. Credit quality improved in a number of areas this past quarter as nonperforming assets, delinquencies and net charge-offs all moved in the right direction. NPAs decreased by $5 million or 4% to $131 million. Nonperforming assets are now down to 1.64% of assets. Although we saw further reduction in NPAs during the quarter, we will have to accelerate the pace of dispositions if we hope to hit our goal of reducing nonperforming assets below $100 million by year-end. In order for this to occur, we will have to move a couple of our larger OREO or other nonperforming properties. Fortunately, there continues to be increased interest among buyers and an improving real estate market, both of which have made it easier to dispose of our distressed assets. Hopefully, as we enter the second half of this year, we will see the same level of interest we saw last year and sell a few more of our larger problem assets. Early stage delinquencies, those 30 to 89 days past due, ended the quarter at $22.1 million. That's a 32% reduction from the prior quarter and down 55% from the same quarter last year. Our banks continue to do a great job of working these credits and keeping borrowers current. Net charged-off loans were another bright spot this quarter, totaling only $1 million. Through June, total charge-offs this year were $5.9 million with recoveries of $2.7 million, leaving net charged-offs at $3.2 million for the first 6 months. As a percentage of loans, net charge-offs for the first half of 2013 are tracking at a 16 basis point annualized rate, far below both our goal for the year of 50 basis points, and last year when net charge-offs totaled 83 basis points. If net charge-offs continue at this run rate in the second half, they would approach levels we customarily achieved prior to the credit crisis. OREO expense increased by $2.1 million in the quarter to $3 million, with $1.6 million of the increase coming from the write-down of 1 property. We expect this expense will continue to fluctuate each quarter depending on the volume of sales and the timing of appraisals and evaluations of our OREO properties. Nevertheless, OREO expense through the first half of the year of $3.9 million is 57% below where we were at this same time last year, and also below our internal projections. Our allowance for loan and lease loss ended the quarter at 3.56%, a reduction from the prior quarter's 3.84%. The acquisition of First State Bank resulted in a 17 basis point reduction in the ALLL because no loan loss reserve was carried over after the transaction was closed. The allowance for loan and lease loss will be impacted in a similar way this next quarter as we bring on North Cascades National Bank's loan portfolio without an accompanying loan loss reserve. The most -- in the most recent quarter, we provisioned $1.1 million, slightly more than our net charge-offs this quarter. This compares to a loan loss provision of $2.1 million to prior quarter and $7.9 million in the prior-year quarter. As credit quality trends continue to improve, we should see loan loss provisions remain at these lower levels through the rest of 2013. Once again, this quarter, we saw further improvement to our net interest margin. For the quarter, our net interest margin increased 16 basis points from 3.14% the prior quarter to 3.30% in the most recent quarter. The past 2 quarters' increases to our net interest margin have been directly attributable to higher yields on our investment portfolio, primarily driven by lower premium amortization. After declining by $1.9 million in the first quarter, we saw premium amortization drop an additional $3 million in the second quarter. With refinance volume declining significantly during the latter half of this last quarter, we would expect a corresponding decrease in premium amortization to take place this next quarter. This should set the stage for additional expansion of our net interest margin in the near term. In addition, we can continue to grow our loan portfolio at a reasonable growth rate. This would also allow for an increase in the margin. So as we begin the second half of the year, the net interest margin should be one ratio that continues to get better. Although the net interest margin had a nice increase in the quarter, loan yields continued to decline. For the quarter, yield on our loan portfolio averaged 5.04%, a decrease of 6 basis points. About the only positive takeaway is the pace of the reduction in loan yields is beginning to slow down. As we stated last quarter, our expectations were that the compression in loan yields would decline at a slower pace. And that seems to be holding true. Unfortunately, the pricing competition for good quality loans remains intense, placing constant pressure on loan yields. And I don't expect that to change much in the foreseeable future. Offsetting some of the decrease in loan yield was a 3 basis point decline in funding costs during the quarter. At quarter-end, our cost on total paying liabilities was 43 basis points compared to 46 basis points the prior quarter. Although the reduction still lagged behind the 6 basis point decrease in loan yields this quarter, the gap did narrow, which definitely helped us out. In this interest rate environment, we battle for every additional basis point of yield or reduction in interest expense that we can get. Net interest income increased substantially in the second quarter to $55 million. That's an increase of $4.5 million or 9%. This was the first increase in net interest income in 8 quarters and the main reason for our increased performance. The combination of loan growth, better investment yields and lower funding costs all contributed to the vast improvement in net interest income. Interest income on commercial loans increased by $1.2 million. And investment income was $3.5 million higher in the quarter. Going forward, if we maintain the momentum established this quarter on the loan front, we see continued expansion of revenues from our investment portfolio. Our net interest income could accelerate further in the second half of the year. Noninterest income increased by $272,000 on a linked-quarter basis, to $23.3 million, and was up $1.4 million from the same quarter last year, which is an increase of 7%. Service charge fee income increased by $1.3 million or 11% during the quarter, and just about offset the decrease in fees on sold loans, which declined by $1.6 million as a result of the reduction in refinance volume. The increase in service charge fee income was encouraging and demonstrates the value we receive from an expanding customer base. In addition, the second and third quarters are traditionally stronger quarters to generate that type of fee income. We expect fee income from refinance activity to drop further in the second half of the year. Already, in the latest quarter, our purchase volume overtook refinances 55% to 45%. This was a significant swing from the prior quarter when purchases only represented 36% of total originations compared to 64% in refinances. Once again, the reduction in premium amortization should hopefully offset any reduction in mortgage origination income going forward. Our noninterest expense for the quarter increased by $5 million from the prior quarter. As previously stated, $2.1 million of the increase came in OREO expense. And $2.6 million of the increase was in other expenses, a majority of which was due to increases in New Market Tax Credit expense of $816,000 and again, acquisition expenses of $571,000. Our bank divisions continue to do an excellent job of controlling the cost of most other line items under their direct control. Compensation and benefit expense, also the largest expense for a financial institution, was also well-contained, increasing by only 5% from a year ago, including the addition of First State Bank. In summary, it was a very good quarter and a strong first half of the year. It was great to see the volume of loan production generated in the quarter. And the pipeline looks good as we begin the third quarter. There's a cautious optimism that premium amortization could see further significant declines in the second half of the year, which would further enhance revenues. First State Bank has now joined our family of banks. We're excited to close the North Cascades National Bank transaction on July 31. Both of these banks are going to be great additions to our company. So in closing, it was a fun quarter with a number of positive trends that we think can continue through the rest of 2013. And that ends my formal remarks on the quarter. So we will now open the lines up and take some questions.

[Operator Instructions] The first question is from Jeff Rulis of D.A. Davidson. Simonas Matulionis - D.A. Davidson & Co., Research Division: This is Simonas sitting in for Jeff. So my first question would be on the timing of the loan growth you saw. Was it throughout the entire quarter? Was it in the beginning or near the end? And any potential tailwind to the net interest margin from that?

No. It was pretty much throughout the quarter. I mean, it wasn't any large credit that -- or a series of large credits that came on towards the end. I think it was pretty well-distributed through the quarter wouldn't you say, Barry?

Yes, there was nothing unusual about...

The timing of it.

Yes. No. Simonas Matulionis - D.A. Davidson & Co., Research Division: All right, cool. And then my other question would be on the potential goodwill and CDI on the North Cascades deals. Do you have any update on that?

No. We're still -- I mean, we're still working on part of it. I mean, I don't think -- have we disclosed any of the numbers yet? No, I don't think we have. So we are working on it though. And we should have those out in time for the Q or will they be -- they wouldn't even be incorporated in this quarter's Q. So it'll probably be a third quarter event.

Next question is from Brad Milsaps of Sandler O'Neill. Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division: Mick, I appreciate the color on the margin, in particular the CMO premium amortization expense. Just curious to maybe dig in to that a little bit more. I know you guys have changed the mix, some buying less CMOs in the last few quarters. It still sounds like you potentially have a big benefit coming. Is there another way to look out, exclusive, Ron, if you could maybe detail maybe the yield on the securities portfolio by month in the quarter? Just to kind of get a sense of how it did progress throughout the quarter and kind of what else you might have coming?

Brad, we don't break it out on a monthly basis. I mean, we struggle enough just to come up with where we ended the quarter. I think intuitively, it would only make sense such as the quarter progressed that the yield on the investment portfolio got better because premium amortization continued to shrink. I mean, we do. At least, we see cash flow numbers coming every month. And there was no doubt that cash flow, that we were getting back on the CMO portfolio declined from March to April, April to May, May to June. So there was that declining amount of cash flow coming in. And again, I think from that, you can assume that we were receiving lower and lower levels of premium amortization, but -- and yield, we also look at the overall yield. Now that's just not on CMOs, but that's just the overall yield. And the yield throughout the quarter got better and better, which again I attributed to lower premium amortization and a slight shift in the mix. But I don't believe this change in mix was as predominant of a reason for the better yield as the premium amortization was, Brad. Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division: Got it, got it. No, that's great. So I mean, you can't assume over time you're going to get all 100 basis points back. But if rates stay stable, you should begin to eat into that number over the next few quarters. That would likely accelerate in the third?

Yes. Because I mean what we did look at, and there's the strong correlation that we've been tracking for years. And I think I've talked about this on past conference calls that we -- obviously, we watch very carefully the refinance index. And there seems to be a very, very strong correlation between that index and what happens to premium amortization with a lag time of 6-to-8 weeks. So as we started seeing refis really collapse and fall off a cliff starting in early May, mid-May, we felt that 6 to 8 weeks later, which was going to take us into the third quarter, that volume -- I mean, just a sheer volume of decline and decrease should bode well for premium amortization beginning sometime after July 1. We saw, obviously as I made mention in my comments, I mean there was a reduction in premium amortization in the first quarter of $1.9 million. The fourth quarter last year was absolutely our high watermark. We reduced it by $1.9 million in the first quarter, another $3 million in the second quarter. I guess I will be disappointed if that number doesn't increase further in the third quarter knowing what we've seen on the refinance side. Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division: Okay. And just as a reminder, you guys do it on actual cash flows. You don't make any estimates. Is that correct?

That's correct. Brad, the only difference is on the bond accounting service we use. They will use 3 months of CPR, which is always a true-up fashion. So we never lag. We're always catching up with where the 3-month prepayment fees are. Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division: Okay, great. And then Mick or Barry, final question. Do you happen to have the balance of occurring TDRs at June 30?

Yes. It was $80 million. And it was flat from the quarter before.

[Operator Instructions] The next question is from Joe Morford of RBC Capital Markets.

Mick, I have to say that's probably the first time I've heard a banker said they'd had a fun quarter in a long while. So it's good to hear. I wondered if you could just give us a little more color in terms of kind of what may have driven the stronger loan growth in the quarter? Is it -- was it on the C&I side at least? Was there increased line utilization? Are you seeing more optimism among your business customers or just activity in the markets in general?

Well, I'll give you what I think led to it. And then Berry, who is much closer to it on a day-to-day basis, I'll let him chime in and give his 2 bits. But I still really feel that a lot of it has -- I mean, there's no doubt. The economy is getting better. We've been very blessed and very fortunate to be in some states where the economy is awfully good. And there's some good things going. Tourism is just really, really cooking right now in a number of our markets and states. And ag has been doing very well. So I mean I think that's led to some of the increase. But I also like to go back to May 1 of 2012 when we decided to do this reorganization. I think what it has done is that it's allowed a lot of our bank presidents and a lot of our senior lenders to refocus their attention back on their customers, reengage themselves back in their communities and get back on the street where I think before we were spending way too much time on at everyone of those banks on regulatory and supervisory issues, that obviously was taking away from an ability to get out there and serve customers. And I absolutely think that that's been one of the biggest things that has really helped us. Yes, the economy is improved and I think people are feeling a little more confident, but I tend to think that it's just that we have more boots on the ground, more people out there, from our presidents all the way down, looking to find good quality loan opportunities. And I think we're definitely doing a great job of finding them. Barry, you got any other thought?

Yes. The only other thing is there's probably some seasonality involved in it, too. We tend to have a lot of large contractors. Primarily some of them were working over in the oil field in the Bakken. And with the summer months, they're generating some jobs over there and drawn down on their lines to fund that. So that's probably in the C&I part of it. That's probably where most of that's coming from.

And I guess along with Barry's comment, too, you'd have to add ag to that also. We get, at this time of the year, we get a nice run-up in some of the ag lines. But those, Joe, won't stick around many times past November. So there is that lift that we're getting currently that may not be there by year-end. But there's a lot of other things that we continue to look at, that will be there, too.

The other thing is in some of our markets, why we don't see it in the single-family residential construction per se. But the housing market's improving. And we're starting to see some of that start trickling back into some of these balance sheets of our borrowers and now expanding in anticipation of that.

One of the things that Barry and myself talked about this morning before the call was -- and I know that for Joe, I mean I know you meant, you would probably remember me stating that a couple of months ago, and as well as everybody else on the phone, but I really thought that by now, we would start to turn the corner on residential construction and maybe see a few more outstandings there. But that area of our loan portfolio actually decreased even further this last quarter. So where I was expecting that if we're going to catch this lift in housing starts, and that we would also be able to see. And by now, maybe we would have seen a little bit better resi construction growth, but that just hasn't been -- it hasn't been the case yet. But maybe that's something we can still look forward to over the next 6 to 12 months. Or I don't know, maybe it's just going to be a little bit more difficult to come by this time around.

That's helpful. I guess, one follow-up would be, you talked about the competitive environment. Any color you can share in terms of some of the pricing you're getting on these new loans and kind of at least relative to where the portfolio yields are?

Well, I mean I'll let Barry comment there, too. But I mean, it's still competitive out there. I mean, it's very competitive, especially for good quality loans. I mean, you're going to really have, and I'm sure you all hear this over and over, but you have to really sharpen your pencil. I think that, and I've said this many times before, I think the deep relationships that we have with so many of our customers definitely helps us out. And it gives us maybe a slight edge. But at the end of the day, you're going to have to be competitive if you hope to get these deals done. Barry?

Yes. There's no doubt there's a lot of competitive pressures out here. But so far, we've been able to stem the tide as far as going out on the curve. We haven't had to go out over much over 10 years on a few deals. Yes, we went out 10 years, but we were looking at match funding loans where we get out there that longer. So we're trying to mitigate any interest rate risk. So we've been able to sell a few of those. We've been able to go back to borrowers who traditionally we haven't gone out there, pick up a few loans that we lost over the last few years because of challenges of trying to maintain a fixed rate period of 5 years or less. And so we brought in some new business where we've been able to offer a product, but at those rate and some terms. But so far, we haven't taken on a lot of interest rate risk going over the 10-year mark. So we're pretty pleased with that. So that's been a bulk of it. We've actually -- as far as pricing goes, I think we're in the market. I don't think we went -- have done anything that's irrational per se. I know we -- there are some competitors out there that we just shake our heads every now and then where they're going, but nothing of any significant size that we've had a challenge with. So we're pretty pleased where the quarter ended up, especially on some of that growth in the term commercial real estate sector.

That's a good point that Barry brought up because it's been, by us, I think we've well-documented the fact that in January, we were no longer going to continue to lose good customer relationships because of the terms that we were going to have to commit to. And if nothing else, we were going to start matching some of these offers that some of our good customers were getting and then look to somehow offset the interest rate risk. What has been most surprising to us is we track our numbers every month. It's the very few times that we've had to do that. So even though we may have polled all of our banks that they have that -- they had that ability to go out there and compete on some of these longer fixed rate loans, they've been able to, at the end of the day, work some of those customers back to shorter fixed price periods. And so we probably should've done it maybe a couple of years ago if we knew the outcome was going to be this good. But what -- I guess I'm saying is even though we changed our strategy the 1st of January, we really have not had to commit to very many long term fixed rate loans. And that's really been a very, very pleasant surprise to us. We track all of those numbers every month. So that's been good. And like Barry says, I think most of our deals still are in that 3- to 5-year where -- most that are fixed for 3-to-5 years.

The next question is from Daniel Cardenas of Raymond James. Daniel E. Cardenas - Raymond James & Associates, Inc., Research Division: Just a quick question on the pipelines. Could you maybe tell us how today's loan pipeline compares to say, the one 3 months ago?

I think it's looking positive. I chair the executive loan committee, and which is comprised of the bank divisions. And what we're seeing coming through is positive. It's not only positive in regards to production, but the quality of the borrowers that we're seeing out there has been exceptional. And that's boding well for us, too. So we anticipate that we're going to continue to grow loans through the second half of this year. As Mick mentioned in his formal comments, the 2% was our goal. I think based on what we're seeing this quarter, that's definitely achievable, if not something north of there. So, yes, it's positive. We just don't see anything that's negative at this point as far as loan growth. Daniel E. Cardenas - Raymond James & Associates, Inc., Research Division: Good. And then a question on credit quality. As you kind of work towards your goal of getting your nonperformers down to that $100 million level, do you think you would have to be taking some additional maybe aggressive charges? Do you kind of get some of this properties off your books?

Dan, we talked about that this morning. I mean, that's the goal and something we certainly hope to achieve. But it was never our intent to achieve that goal at the expense of blowing out credits for the sake of getting them off of our books. I think we're going to be very methodical just like we have for the last 4 or 5 years. I mean, as you all know, we've been one entity that never wanted to do any type of bulk sales. We don't believe that, that was economically the prudent way to go. We didn't do it during the dark days of the financial crisis. I don't believe we're going to do it now just to hit a goal that we established this year. Would it be nice to get our NPAs below $100 million? Absolutely. Of course, we would. But we are not going to -- we're not going to do anything too much different than what we've done the last 3 or 4 years. Now with that said, I know Barry has been stepping up his discussions with our Chief Credit Officers of all the banks. We may have, I don't want to say took our eye off the ball, but we've had a number of other good things happening this quarter as far as loan production. I'm not so sure that maybe as our OREO balances have come down and some of our NPL balances have come down that, that hasn't been as much of a focus as it was the last 2 or 3 years. I mean, I think that's just almost a given. But I think Barry, right now, is trying to make sure that each and every one of the banks understand that, "Hey, we still have some work to do here. There's still $130 million worth of NPAs." We want to get those disposed of. And I think more than anything, in the second half of the year, we may focus a little bit more on that. But Dan, for us to go out now, and especially as real estate values seem to be getting better, the economy seems to be getting a little better, for us at this point in time, to go out there and bulk sale this, no. No, I can guarantee you that won't happen. Daniel E. Cardenas - Raymond James & Associates, Inc., Research Division: Okay, perfect. And then maybe with North Cascades coming to a close here in a week or so, kind of maybe give us some indication as to what your appetite for additional M&A looks like?

Well, as I said in the prior quarter when we made the announcement, I think we're going to be very thoughtful as to the integration process. I mean, we brought in -- we were about to finish next week with 2 excellent franchises, ones that we worked for over a year to get to this point. And now we've got to get the integration done. We've got to get it done right. And not only do we have to integrate both of our new banks, but we've also got 11 existing bank divisions out there that are expecting new products, new services and new technology. So we just can't shift gears now and go into integration mode. We've got to be, again, mindful and very thoughtful of making sure that the other 11 banks are getting the attention and the resources they need. So with all that said, I think we're probably, through the rest of this year, we'll probably continue to further integrate our 2 new banks. I get a lot of phone calls, as you can probably imagine. And I suspect that there's going to be some additional excellent opportunities. But probably, at least through the rest of this year, I think most of our time is going to be spent getting these 2 new banks fully integrated into the family of GBCI bank. So I don't necessarily envision any announcements the next 2 quarters.

Next question is from Jennifer Demba of SunTrust Robinson Humphrey.

This is actually Michael Young in for Jenny. I was just curious. As you look out into 2014, you actually provided a nice segue for me with the M&A commentary, just kind of what you see as the magnitude of opportunities out there in terms of what you all will be willing to bring on? And then also how you kind of view that strategy against the $10 billion asset mark and your willingness to go over that next year?

Well, there's a couple of good questions there. I mean, as far as I think the best way I have been able to sum up is, and maybe this will give you all some color. I think the opportunities, the M&A opportunities out there right now far exceed our capacity. What I mean by that is there are a lot of individuals that made contacts with us, a lot of companies, a lot of things that are interesting to us. But again, as I just mentioned to Dan, we're going to be very, very methodical in the way we do this. And we're not going to go out there and have 5 or 6 deals pending and trying to get these things converted and integrated in that. That's just not the way we operate. So I think right now, we're limited more by our capacity after the deals are closed to get these integrated. And we are actually going out and doing deals and getting them to the closing table. That's a good problem to have. I mean, there's a lot of interesting and I think worthwhile targets to be looking at right now. But we're going to be -- again, we're going to be very, very methodical in the way we go about doing it. As far as -- let's see. You had -- it was about 2 other questions involved in, yes, the $10 billion, Michael, that I think we got quite a bit of room. Because number one, most of the transactions we do are just like the ones we've done this year. I mean, they're the community banks, they're the size that we like, the size that we can grow those franchises over time. And it's never really been our strategy to go out there and do that transformational type of deal. And I don't see us doing that in the near term either. Now you never say never. But I mean those are not the kinds of transactions that are being presented to us right now. And so with the investment portfolio still the size of it is, I mentioned it in the last couple of quarters, I believe we still have some levers there that's going to allow us to stay under that $10 billion mark. And at the same time, still do a number of additional transactions over the next couple of years if those transactions are of the size that they have been this year. And I would suspect that that's kind of the range of size of banks that we're getting inquiries on right now.

Okay. My second question is just trying to get a sense of the size of the premium remaining on the CMO books? Or maybe if there's like a weighted average, like if it's 1.09 or 1.05, something in that range?

I might have to get that back. I don't have that right at my disposal. I mean, we've got that number. I don't have it right here, though.

The next question is from Jacquelynne Chimera of KBW. Jacquelynne Chimera - Keefe, Bruyette, & Woods, Inc., Research Division: I apologize if I missed this in your remarks earlier. I was a little bit late hopping onto the call. But I just wanted to see the little securities sale in the quarter. Was that your legacy portfolio or is that FSB?

That was the legacy portfolio. Jacquelynne Chimera - Keefe, Bruyette, & Woods, Inc., Research Division: And how do you think, just in the rate environment and now that changes and obviously as we've been discussing, there's the premium amortization and everything. How do you think about those securities sales going forward?

Well, I mean we have never been, and it's never been our philosophy or our strategy to be much of a creating type of institution or an institution that actively buys and sells securities. I mean, we bought a lot of securities. We usually don't sell them much. I mean, there's always, and that was the case this last quarter, Jacque. There's always a case where municipal bond's going to get prefunded or something like that and we just decide to get rid of it at that point in time, take -- if there's a gain or loss, do whatever we need to. I think the prior quarter we had, I think there was about a $260 million gain this quarter. The first quarter we had about 130 -- I mean, $260,000 gain. This quarter. There was $130,000 gain, I mean loss in the first quarter. So we had a loss of $130,000 in the first quarter, a gain of $260,000. These are being, more than anything, driven by just unique securities that for one reason or another, we choose to sell. It's, again, I would not expect that we're going to do any wholesale sales trying to protect what could be an increase in rates and a decrease in market value on that portfolio. I mean, clearly, this quarter, as so many banks around the country, I mean we lost a fair amount of unrealized value in our loan portfolio -- I mean our security portfolio also. And if rates head further north, we're going to see some more of that. But we're just -- and we never have been that type of institution to do a lot of training and do a lot of buying and selling within the portfolio. We've primarily been a buy and hold. And I would suspect that's what we're going to continue to do. Jacquelynne Chimera - Keefe, Bruyette, & Woods, Inc., Research Division: Do you ever think about a movement in the held-to-maturity?

I'm sorry. What was that, Jacque? Jacquelynne Chimera - Keefe, Bruyette, & Woods, Inc., Research Division: I know that historically speaking, at least for the last 10 years, your portfolio has always been available for sale and not held-to-maturity. Do you ever look at held-to-maturity bonds or think about a movement from one portfolio into the next?

Yes. I mean, Ron and myself, we've had those discussions a number of times. I guess other than just having the discussions, we haven't done anything. And the likelihood is probably not that great that we would do something like that. But the one thing we did do back in late 2011, and then again in 2012 is obvious. We did put some interest rate swaps on to offset. And I think the plan was to offset about 30% of the exposure in the investment portfolio, especially on the longer-dated municipal bonds with those flops. So I mean we've tried to do some hedging in that respect. But as far as, Jacque, moving from AFS to HDMI, I just don't see that as probably something we would look to do.

At this time, I would like to turn the conference back to Mr. Mick Blodnick for any further remarks.

Well, thank you, all, today for taking some time and listening in. Again, I want to reiterate my comments. It was, as Joe said, we had a lot of fun here this quarter. And we have some nice things going for us. And I think we're pretty excited. We've got a big President's Meeting next week. And I think we'll bring a fair amount of momentum into that meeting next week. And we're going to try to do our best to figure out ways of carrying these trends forward over the next 6 months and finish 2013 even stronger than what we've been able to accomplish during the first 6 months. So with that, I'd like to wish all of you a great weekend. I hope you'll have some fun and stay safe in these summer weekends. And we'll look forward to talking to you later. Bye now.

Ladies and gentlemen, thank you for your participation in today's presentation. This does conclude the program, and you may all disconnect. Everyone, have a good day.