Q4 2019 Earnings Call
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Randy Chesler Glacier Bancorp, President and CEO .
Alright, Thank you Chris.
So I'm wondering if they ever joining us today with me here in Kalispell. This morning, as Ron Copher, Our Chief Financial Officer, Don Chery, Our Chief administrative officer, Angela dose see our Chief Accounting Officer, very Johnston, our Chief Credit Officer, Tom Dolan, our deputy Chief credit administrator and Byron.
On our treasurer.
Let me first thank you all for joining us today, and we hope you're all enjoying these winter months.
Yesterday, we released our fourth quarter and full year 2019 results.
Our divisions I think did a great job holding on margin with prudent pricing and fair, but full loan pricing or they also do with great job building deposits in a competitive environment.
We recorded a pause its 401 million or 4% in 2019.
And we also continue to grow or non interest deposits, which were up 305 million or 10% over the year.
Not including any of the current year acquisitions.
Non interest deposits now represent 34% of core deposits up from 32% at the end of 2018.
And most notably these divisions continue to do an excellent job with credit.
Non performing assets were down almost 20 million for the year or 34%.
We ended the year with nonperforming assets as a percentage of assets at 27 basis points.
The lowest level for us in over a decade.
We are a little light on loan growth for the quarter end the year up 4% in 2019 organically versus our expectations at the beginning of 2019 for 7% in loan growth.
This shortfall can be primarily attributed to consumer excess liquidity that is used to be a used to pay off debt submarket cooling and occasional money Center bank competition on larger loans, often was pricing that doesn't compensate for adequate return at risk.
Our view.
We are optimistic for growth in 2020, as we believe the glacier markets are strong and that that excess liquidity will find its way into more business investment.
And as a result, we expect to see a loan growth rate in 2020 of about 5% to 6%.
The glacier team once again delivered impressive results in 2019, our 16 divisions now serving eight states across the west and our senior staff did a terrific job.
And Forbes agrees with us having just published their ranking of top banks in the U.S. and putting glacier in the top 10.
Net income for the quarter was 57.4 billion, an increase of 7.8 million or 16% over the prior year fourth quarter, including current period acquisition related expenses of 4.4 million.
Without the acquisition related expenses and a benefit of 1.3 million reduction and regulatory assessments applied by the FDIC than income would have been 59.7 million an increase from the prior year fourth quarter of 9.8 million or 20%.
On a full year basis net income was 211 million a 16% increase over the prior year.
Crossing that 200 million income Mark on a full year basis was a great milestone to see achieved at year end.
Diluted earnings per share for the quarter were 62 cents, that's an increase of 5% over the prior year fourth quarter, including acquisition related expenses.
On a full year basis earnings per share were $2.38.
The increase of 10% from the prior year.
For the quarter organic core organic loan balances were essentially flat decreasing 30 basis points or 20 million to 9.5 billion.
On a full year basis, the warrant portfolio grew organically, 4% or 364 million.
Core deposit balances for the quarter were essentially flat as well declining 10 basis points or 10.8 million to 10.7 billion.
On a full year basis core deposits grew 4% or 401 million.
Return on assets was 1.67 for the quarter and 1.64 for the full year, that's up five basis points from 2018.
Tangible book value per share of 15.61 at quarter end increased eight cents per share from the prior quarter and increased a dollar and 68 cents per share from a year ago.
For the full year tangible equity increased 264 million or 22%.
And we declared a regular dividend of 29 cents per share our 139 consecutive quarterly dividend.
And declared a dollar an 11 cents in regular dividends per share for the full year, which was a 10% increase over prior years regular dividends.
We also declared a special dividend of 20 cents per share, which was sixtyv special dividend declared.
2019 was or.
Was a record year for acquisitions too.
We announced three transactions with combined assets in excess of $2 billion.
We've already closed heritage Bank of Nevada, and first National Bank of let Blaine with combined assets totaling 1.4 billion and have received all regulatory approvals to close date bank of Arizona with assets of 678 million at the end of February .
First National Bank of late and now named first community Bank of Utah.
Was converted over to our core processing system in the fourth quarter and the four Glacier Bank branches Party in Utah were added to the division as well.
We expect to convert state bank of Arizona and Heritage Bank in the first half of 2020.
Our key credit quality ratios improved in almost all categories across the board, reflecting the strength of our loan portfolio.
Early stage delinquencies as a percentage of loans at the end of the fourth quarter were 24 basis points decrease of seven basis points from the prior quarter and down 17 basis points from the prior year fourth quarter.
Net charge offs for the quarter were $1 million compared to 2.5 million in the fourth quarter a year ago.
And most notably nonperforming assets as a percentage of subsidiary assets at the end of the fourth quarter were 27 basis points, which is a third which is 13 basis points lower than the prior quarter and 20 basis points lower than the prior year fourth quarter.
At the ended the fourth quarter. The dollar amount of Npls were 37.4 million, a decrease of 17.7 million or 32% from the prior quarter.
A number of our divisions and their chief credit officers continue to do an excellent job working through these difficult for edits.
Many take years of work to bring to a resolution.
The allowance for loan and lease losses as a percentage of total loans outstanding at the end of this quarter was 1.31%, which is down one basis point from the prior quarter and down 27 basis points from the fourth quarter a year ago.
Provision for loan loss losses was zero in the quarter in the current quarter. This reflects our continued very positive outlook on our portfolio end markets.
We are nearly complete with our Cecil preparation and we'll disclose a range of loan loss reserves, we anticipate as part of our 10-K in February .
We don't expect to seasonal impact on our loan loss reserves, Devon material impact on the company.
The cost of funding for the from current quarter was 30 basis points down from 39 basis points in the prior quarter due to our balance sheet strategy, we announced in the third quarter, which resulted in lower borrowing costs due to the unwind of swaps and also due to the increased in lower.
Cost deposits.
Compared to a year ago cost of funding declined six basis points from 36 basis points to 30.
The cost of our core deposits was stable if 21 basis points in the current quarter and prior quarter and was up four basis points from the end of the prior year.
And we ended the year with a loan to deposit ratio of 88.92% up slightly from the 87.64% at the end of the prior year.
The current quarter interest expense was 8.8 million, which was down 2.1 million or 19% from the prior quarter due primarily to the third quarter balance sheets strategy.
Net interest income for the quarter was 136 million, which was up $5 million or 4% from the prior quarter and increased 20.6 million or 18% over the prior year fourth quarter.
Both increases were primarily attributable to an increase in interest income from commercial loans, which increased significantly due to acquisitions and organic growth.
Net interest margin for the quarter was 4.45% of earning assets, which increased three basis points over the prior quarter and was up 15 basis points from the prior year end.
The core net interest margin for the quarter, excluding six basis points or 2 million from discount accretion and six basis points or 2 million from non accrual interest was 4.33%.
Compared to 4.35 in the prior quarter and is up eight basis points from 4.25 and the prior for prior year fourth quarter.
We continue to be very pleased to see margin strength and resilience in our margin.
And for 2020, our view is the same as it was last quarter, we see the margin operating in a relatively tight band around current core margin levels with a slight downward bias based on interest on the current interest rate environment.
Noninterest income for the quarter totaled 28.4 million, which was a decrease of $14.6 million worth 34% over the prior quarter and a decrease of 77000 compared to the same quarter last year.
In the third quarter, we had a onetime gain of 13.8 million due to the balance sheet strategy implemented in the third quarter.
Gain on the sale of residential loans of 10.1 million increased $4.5 million or 80% over the prior year fourth quarter due to increased purchase and refinance activity.
The strength and durability of our residential mortgage business in our markets remains strong.
2019, we funded 1.4 billion in mortgage business compared to 1.2 billion in 2018.
We expect another good year for the mortgage business in 2020.
Non interest expense for the quarter was 95.3 million, which decreased 15.4 million or 14% from the prior quarter and increased $13.4 million or 16% over the prior years fourth quarter.
Competent compensation and employee benefits decreased by 7 million or 11% from the prior quarter, primarily due to the onetime 5.4 million accelerated stock compensation expense related to the heritage Bank acquisition.
The prior quarter Lawson terminate termination of hedging activities totaling 13.5 million was specific to the third quarter.
Regulatory assessments and insurance decreased 1.2 million from the prior year fourth quarter as a result of a $1.3 million small bank assessment credit applied by the FDIC during the quarter.
We're just about out at the credits here and don't expect to see meaningful credits in this area going forward.
Other expenses of 19.6 million increased 4 million or 26% from the prior quarter and was primarily driven by an increase in acquisition related expenses.
Tax expense for the quarter was 12.2 million stable compared to the prior quarter and an increase of 556000 or 5% from the prior year fourth quarter.
The effective tax rate for 2019 was 19% compared to 18% in the prior year.
The current quarter efficiency ratio.
Was 54.9% and 97 basis point increase over the prior year fourth quarter efficiency ratio of 53.93, driven by increased operating expenses from acquisitions and the impact of being subject to the durbin among.
Which outpaced the increase in net interest income.
The efficiency ratio for the year was 57.78%, however, when removing the onetime impact of third quarter events, including the $10 million loss on the termination of interest rate swaps to $3.5 million write off for the remaining unamortized penalties.
Federal home loan Bank advance the 5.4 million of accelerated stock compensation expense related to the acquisition of Heritage Bank. The full year efficiency ratio would have been 50, 54.79%.
Represents a slight increase of six basis points from the efficiency ratio of 54.73 in 2018.
We are on track in 2020 to once again meet the full year efficiency ratio target of between 54 and 55%.
So the fourth quarter and full year 2019 represents another excellent performance by the company.
Our 16 division presidents and their teams across our eight states as well as our senior staff continue to produce market, leading results and I would like to thank them off of their commitment and drive to be the best.
That ends my formal remarks, and I'd now like Carmen.
Open the line for any questions that you may have.
Thank you Mr. reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone to withdraw your question first Uptown key please standby, while we compiled and Q and a roster.
And our first question is from Levi person with D.A. Davidson. Please go ahead Mike.
Hi, Good morning, this learning on for Jeff.
Morning.
After about credit.
Mid.
On the seeing improvements this quarter and I'm just wondering if there's anything larger in there or any segments that kind of.
Move.
Together just to kind of create that.
Lower MPS.
Yes, we're very very.
Noted very happy with the credit performance.
As it relates to end BA going forward, we don't see that level, increasing seats, saying about that same level and of course we.
We're always looking for.
Opportunities to improve it but I think you.
So.
Don't expect it to change much in the in the foreseeable future.
Okay.
Thanks.
So just to talk a little bit high level.
Heading into 2020 pretty soon here.
You will be the point, where.
Three deals that closed in the last 12 months.
Kind of being on the other side of that.
Or how many strategic in focus on strategy as it relates to capital deployment or.
Kind of where you're able to allocate.
Okay and direction.
No as it relates to M&A, our strategy and focus hasn't changed at all so we had a record year in 2019 with the three transactions that we announced.
Over $2 billion and assets, so that was a record year for us.
A lot all those transactions those three were very strategic for us So view.
I think about our acquisition in Utah that really gave US a division platform in that state. That's one of the fastest growing states in that country for years. So we're very pleased with that our acquisition. The heritage Bank in Reno gave us a platform and and with a terrific bag top performing community banks.
In the country in a very very strong market, where we like the.
The growth prospects very much and our announced deal in Arizona really positions us well I think in a very very.
Solid state.
With that franchise now that will cover pretty much all the core markets in the state so very happy with those and.
We're going to look to do more of that going forward.
Okay. Thank you.
So.
Youre welcome.
Thank you and our next question comes from Michael Young with Suntrust. Please go ahead.
Hey, good morning, everyone.
Michael.
Randy wanted to maybe start with the loan growth outlook.
You mentioned market cooling and I was curious if you could maybe give some geographic specificity to that and also if you could help us understand if any that's coming from either just.
Larger overall size of the balance sheet now or.
Any specific paydowns from any of the acquisitions have been made recently.
So the I'm going to ask Barry to fill in a little loan growth.
Because he.
Has been that we've been talking about that quite a bit.
Market cooling.
I think we're seeing on across the board.
And I think Thats, just no sign of a slowdown, but I think that we've been operating on a pretty good pace.
I think that Theres been.
You know there's been sales of properties and that the our core customers are looking for the next transaction, but a little more cautious and there's just less.
Immediate opportunity there than there has been in the past as some of the pricing has has increased so very did you have anything on AG.
Thanks.
For the coming year.
We projected 7% this year, we're just underneath or so.
We really had a soft fourth quarter understandably or.
First quarter is always probably one of those quarters that due to some seasonality weather.
Is softer in relationship to the other quarters, but for next year, we're looking at I think fairly.
On a point to point basis around 5%, maybe just a little north of that.
Based on what we're seeing in them and in the production schedule as we sit today.
But we're looking across the system I don't see any one area, that's going to generate a lot of growth.
Our any.
Area, that's going to produce.
In a concentration level, we always do have the advantage of bringing for those new acquisitions, a bigger balance sheet, but they can look at larger transactions than they have historically as the small community bank. We tried to take advantage of that try to repurchase some participations that they've sold take advantage of that and we bring.
Products and some expertise and other type of.
Products that they haven't used before that they can take advantage of that but overall I think it's going to we're looking at between five and 6% growth for next year.
Okay and any shift in areas that you're that you are kind of pressing pause on are watching more closely I knew I think hotels and multifamily had been area in the past that you were.
Not growing very robustly, just any update there.
Yes, we.
We.
Several years ago took a those two product lines.
And determine given all of the.
Respective concentrations, we had in certain markets that we we were going to look at any additional product in that.
In hotel properties basically hospitality in multifamily we would we would look at as in that on an exception basis.
Look at maybe strengthening.
Underwriting or participating absolute dollars out or enhancing with some type of government guarantee.
We are still continuing that trend.
And we anticipate that we will still generate that product, but for the most part we are either looking too.
Enhance it when the government guarantee or participate those dollars out on a on a percentage basis and take a servicing fee.
And last one for me just Randy you also mentioned kind of the build and consumer liquidity.
That was maybe hurting loan growth, but wanted to look at the opposite side of that should we expect maybe deposit growth outpaced loan growth since early this year.
I think that.
We'll see where things go I when I was talking about Exelis liquidity.
Both business and consumer but more on the business side, that's what's driving some of the liquidation.
Just balance sheets are pretty flush people, making.
Balance sheet decisions deciding to pay off debt.
We're just seeing an uptick in that based on that the health of the customers, which is which is a good.
Good thing from a trihealth sandpoint, not such a great thing from a standpoint of so much access that they're able to to pay down some of the loans, but.
So I think that.
That will continue I think as.
Deposits I would expect.
Pretty much as similar.
Performance, we saw in 2019 in 2020.
Okay. Thanks, that's all for me.
You bet.
Thank you and our next question comes from Matthew Clark with Piper Sandler. Please go ahead.
Good morning.
Matthew.
Maybe we can just start on.
On production and payoffs in the pipe in the pipeline just wondered how much.
The way of production and payoffs you had this quarter how that compared to.
Last quarter and then maybe.
The size of the pipeline relative to a year ago.
The fourth quarter in regards to production as always softer than the other quarters. When we looked at the numbers side was relatively close to where we have been but definitely there was some seasonality there.
As we entered in the winter months.
You look at our balance sheet single family residential construction loans down, which which makes sense you got commercial industrial along those lines are driven off of operating lines for heavy.
With that street paving.
Construction.
We have some decrease their agriculture as always we're going to get Paydowns in the third and fourth quarters, and probably that continues a little bit into the first quarter by production. Overall was was was was reasonable.
Where where where we really saw the.
Something unique we have.
Dozen or so fairly large paydowns or some of those were.
On properties that were being constructed.
We are taken out by term financing.
Either.
On.
With life insurance companies Freddie fact.
Freddie Freddie and Fannie.
Financing or HUD financing on some.
Low income housing tax credit properties, and we have some municipal.
Loans that were refinanced into long term bonds. So it was but wasn't so much the production side. It was pay off site that we have the challenges with those scores, but then again every loan has made to be repaid and.
A lot of those repaid as program.
Okay, and then just on.
<unk> expenses can you speak too.
Sure.
Tech spending demand this year and how that might impact.
<unk> expense growth for the year.
Yes, I think.
We're very cautious on.
Spending too.
Have that phased in commensurate with our revenue growth. So I think that we look at that back to the efficiency ratio operate in that 54, 55% range I think you'll continue to see that.
In.
In this year I don't see a change there.
And is up 54% to 55% Inc. include merger charges are now.
Yes.
Okay. Okay.
Okay. That's it for me thanks.
Yes.
Thank you.
Our next question is from Luke Woodson with KBW. Please go ahead.
Hi, good morning, guys.
Morning.
I just wanted to start with some housekeeping things just on the expense line items. The other expense back after backing out the the merger expenses for 4.4 million is still seemed a little bit high I think it's up 3 million from from one Q.
In a similar level from Fourq you last year, just didn't know if there was that was kind of just.
The increase spend due to the due to the excess personnel or I Didnt, just wanted to kind of get a little clarity on that.
This is Ron Luke.
So the.
Looking at what we've got here I.
I think the run rate that we have in the fourth quarter really will continue on into the into the fourth quarter. It may be up no more than 1%.
Our.
Taking a look at it but.
You're talking total total defense as it relates to other.
It was up.
The bulk of that was acquisition related.
And there is some other small charges in there some consulting fees and some other things but.
I think thats going to you're going to see that normalize back down and then as Ron said kind of an overall.
Total expense raise of somewhere around 1% in the first quarter, yet because that'll exist or some of the acquisition expenses.
Related to closing of.
State Bank of Arizona.
Okay. That's helpful. And then just kind of continuing on that type of expense line just.
The FDIC credit, we should expect that to return to.
Q levels next quarter or is that is still going to be somewhat muted from the credit.
There's really not maybe credits left there so it's going to go back to a normalized level.
Okay.
Yes, that's definitely helpful and correct me, if im wrong, but one Q is usually seasonally higher.
Just due to payroll.
Total expenses.
Exactly.
And then just on the fee income lines.
A lot of growth and the gain on sale line this year.
That.
Partially due to acquisitions you acquiring some of those.
Kind of four platforms or is that really just kind of organic growth just looking for next year kind of how we shoot out of that no the acquisitions.
Have been a very nice.
Way for us to continue to increase our business because typically the banks were buying have not been in the mortgage business on and so we're able to.
Increase.
The amount of production by bringing those folks into the into the mortgage business.
So thats been a nice add for us as well.
The activity across our markets has just been very strong.
And so there's still a bit of a shortage of housing.
So that's that's been very positive and many of our markets.
We are well positioned to serve the communities. So we're taking advantage of that so.
It's a base of a very strong fundamental business and then.
One of the reasons, we're able to maintain the level and grow it.
Is because one as a result of these acquisitions, we're bringing on.
New markets that haven't and new banks that haven't been in the business. So for example in Utah, we're gearing up with our mortgage operation there are great market with a lot of potential Reno.
Dave and they were in the business, but we're going to bring them more products and services. So we're excited about that state bank of Arizona has got a very healthy mortgage business were actually.
Going to flip it around there and take advantage of some of their experience, but we think theres good opportunity grow there. So the M&A has been provided a nice underpinning to what's already a good business across our core markets, but that helps continue to grow it.
Okay.
That's really helpful. Thanks, So it seems like I mean.
Obviously, it's kind of seasonal in that line item just due to to.
Kind of seasonal trends, but it should see make that should trend up just due to the larger kind of production capacity.
Well, we're calling for pretty much like I said in my comments you know before we funded about a billion for in 19, we funded about a billion to an 18, we're expecting 2020 would be somewhere in that range. Okay.
Very helpful. And then just wanted to switch to the margin quickly.
Was the kind of pay down for the wholesale deposits and then increase in the FHLB balances was that kind of just.
A replay just given what youre seeing in the market or were those unrelated.
Well really unrelated I mean, we had the big move in the third quarter, where we.
We did the balance sheet strategy, and we got rid of the swaps and pay down the federal home loan bank quite quite significantly.
I think.
You're probably looking at a point that's a point to point measure if you look at the average for the federal home loan bank it would be almost half of that number so.
Youre going to I think going forward C.
Suming loan growth stays in kind of the range, we're talking about that kind of staying in that current current kind of in that current range.
Okay. That's helpful. And then just lastly from me on the I know you mentioned it a little bit in your in your opening comments, but just on the.
The large banks moving downstream kind of on the loans is kind of having an adverse effect on the on the growth.
You might just talking about that a little bit more and.
What the significant that is to net loan growth in 2020.
Yes, I would say overall, it's been more anecdotal it hasn't really been what I would call significant ridge's observing it.
And thats something relatively new where they are they come down below 10 million.
So these are the large money center banks and try to compete on some of these credits.
They.
No they have a cost of funds that they put out there. We don't think thing they really compensate themselves for a return in risk.
In some cases.
And it really comes down to the borrower the customers that have the long term relationship tend to understand the value of working with the community bank versus a money Center bank.
But not all customers see that in.
We noted it because we saw we've seen enough uptick in it.
And it seems to be appetite driven so I think as they get to the quarter end and decide they need to.
Move their loan growth total as they come down market to try to top at off don't know, they're going to continue to do that I can't say I don't believe it's had a.
Material impact as a business don't expect it to but we do occasionally.
Yes.
Expect to see them swoop in and and try to take some business, probably more driven by their less strategic and more tactically driven by their own need to build their balance sheet.
But that's really helpful and that's all the questions for me thanks for taking.
You bet.
Thank you and as a reminder, ladies and gentlemen to ask a question just press Star then one on your telephone keypad.
And our next question is from Gordon Maguire with Stephens. Please go ahead.
Good morning.
Gordon.
I hopped on late so I hope this wasn't asked earlier are addressed earlier.
With the closing in the first quarter will there be any one time provisionings related provisioning related to seasonal.
So yes, obviously that's.
Something we've been spending a lot of time with since.
This will be our first transaction closed under Cecil So we're going to ask Ron just to comment on that he's been looking at this closely rights or were aware the seasonal impact the double count issue and so right now we're continuing to look at the portfolio to judge what are the performing loans.
Non PCD for those who are the technical side of it.
And so we're still working through that so yes, there will be.
Some additional provision and that will go through TNL, but well isolate that.
In the press release.
Okay and then just.
Date to provisioning levels I, just kind of on a run rate basis, how should we think about Cecil provisioning relative to your provisioning this year where you.
We're releasing reserves.
Right. So what what Randy said in his formal remarks is we are pretty far down the path. We have given the results of what we're doing to our.
Terminal accounting firm on tight now and so in the.
10-K, which will be probably really somewhere around February 20 for that's where we'll provide the range, but don't want to release a number yet given our auditors are looking at it.
Okay. So the 10-K will provide a provisioning ranges wells they won't impact.
Yes, you will see the implementation and the.
To the extent of adopting that will affect capital.
Given that we expect there'll be some.
Increase in our.
Bad debt reserve, but.
As Randy said, it we're not expecting a big impact the big increase the day, one impact Gordon State Bank, Arizona won't you won't see that till we released the quarterly the first quarter results because we're going to close that at the end of February right.
Right right I guess.
Maybe I misunderstood will you provide provisioning range for next year with the 10-K.
Yes, yes, okay. Okay.
Thats all had thank you.
Thank you and im not showing any further questions and thank you I would like to turn the call back to Randy Chesler for any final remarks.
Well, thank you Carmen.
Those are we appreciate all your questions. We know you guys have a busy earnings season.
And we do want to thank you for.
Dialing in today, and we hope you have a great great Dane and fantastic weekend. So thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Oh.