Q1 2020 Earnings Call

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I like to have the conference true Speaker today, Randy Chesler, President and CEO. Please go ahead.

Alright, Thank you Victor.

Hey, good morning, and thank you for joining us today with me here in Kalispell. This morning, as Ron Copher, Our Chief Financial Officer, Don Chery, or Chief administrative officer, Angela dose see our Chief accounting Officer.

We're in Poland, our treasurer, and our senior credit cheap, Tom Dolan and Barry Johnston.

We released our first quarter 2020 earnings yesterday, along with supplemental information.

We're ready to review and answer any questions. You may have a before we moved to your questions or a few points I'd like to cover.

First the global Cobot 19 pandemic I believe we're navigating through the pandemic extremely well.

I'm exceptionally proud of the glacier team their commitment and leadership and their service to their communities. During this time.

I also want to thank the people on the front line in all our markets that healthcare workers first responders and other essential service providers for older doing to help our communities get through this health crisis.

The Glacier franchise covers 1500 miles from Montana in Arizona, and the impact of the pandemic is different across that franchise.

Our unique business model with 16 different divisions, serving over 140 communities.

Hi, does with the unique capability to respond to our employees customers and communities in a way that best suits that local market.

[noise] or divisions have taken many actions and help our employees and most importantly to ensure their safety.

We have removed the caps on benefit time, so that our people can take care of themselves or family members without having to worry about using up benefit time.

And I'm proud to say that at the beginning of the pandemic, we decided not to lay off any employees. During this difficult time that was the right decision and it was will discuss later the turned out that we needed everyone on our team to help accommodate and take care of our customers.

The glacier team's been actively reaching out to our customers since early March at the very beginnings of this worsening pandemic in the U.S., we decided to proactively color loan customers and let them know that we work here to help them get through any difficulties.

We wanted to talk to customers about any concerns that they had about the their circumstances and also offer to work with them on business plans to help them get through the pandemic.

We provided a number of tools for our commercial lenders to deploy it needed forbearance modifications and later on SP, a paycheck protection or P.P.P. loans, we found that many of our customers really appreciated the dialogue and that helped to alleviate some of their stress and anxiety.

Most of our customers told us they had a balance sheet that could absorb a slowdown but they were worried about how long they would have to be idle.

The actions, we took with many customers, whether a deferral or a triple p. loan helps strengthen their balance sheet to provide the runway to return to more normal conditions.

Most of our customers entered this downtown with our downturn with good businesses, good staff and good opportunity to grow.

We think those conditions will still be there for our customers with some help as we work through reopening in Reenergizing our markets.

And then our communities we've been we've been doing all weekend to be a stable and steady source of calm and confidence.

We're supporting food Bank networks, and other basic needs nonprofits to help make sure everybody in our communities is cared for and also voluntary to work on various state and local committees on how to safely reopened and how to utilize cobot specific federal funding.

We realize we have a long way to go before we get back to the new normal but most of the states in the glacier footprint are well positioned to safely reopen soon a number of our states are poised to reopen in their future because they have the lowest rates of negative effects and already on a down.

Word trajectory of documented cobot cases.

In addition, we think our western states will become even more attractive once the country opens back up because our tourism is easily accessible by car and the natural attraction of the west with wide open spaces, maybe come even more sought after post pandemic.

I think our first quarter results really highlighted the consistent strength of our core business.

Many banks have adopted the current expected credit loss or Cecil accounting standard at the beginning of 2020.

And while the cares act would allow us to delay the adoption of the standard we are moving forward under Cecil as we are operationally prepared and already internally reporting under this method.

We really don't see much of an advantage of putting off the adoption of a standard that will ultimately be required.

However, Cecil is being adopted by the banks at the exact time when forecasting future losses to estimate reserves rather than relying on the past practice of incurred losses is extremely difficult.

We're all trying to understand the implications of a global pandemic and the almost complete shutdown of the U.S. economy.

That being said.

We believe the $19 million increase in our allowance for credit loss in the first quarter includes most of what we know related to the impact of Cobas 19 on our portfolio at this time and don't expect further material Hcl adjustments related to cope with 19, unless there are major.

New developments.

Model, we used as part of the Cecil process is the most current available and includes a to Q unemployment rate north of 15% and the G. D. P decline of close to 10%.

We are expecting to see a longer recovery, where unemployment stabilizes at about 10% for the full year of 2020.

And then slowly declines in 2021 and starts to normalize in the following years, we expect the same pattern for GDP.

The shape of our forecasted recovery is more Nike swim.

Slow and steady upturn.

This is a conservative approach to our allowance, but consistent with our history.

We run towards problems not away from them.

Early last year, when we started to prepare for C.. So we committed to building our Cecil process with best in breed partners or C.. So model was built in conjunction with Primax 13 of the top 30 banks rely on their evolved platform for financing credit functions we use.

Economic forecast from Oxford, Economics, glow, a global leader in forecasting and quantitative economics.

And our model was reviewed and validated by CRO global the eighth largest accounting and advisory network in the World. In addition to BK de our accounting firm and also by our own enterprise risk management Department.

Perhaps more important than the model is the historical credit performance of our loans that are used in that model. We've always believed that our loan portfolio is the backbone of the company.

And the company is a very geographically diverse loan portfolio spread out over 1500 miles in eight states and in rural as well as urban markets. In addition, our branch footprint encompasses some of the strongest growth markets in the country.

Our portfolio has further strengthened by its relatively small commercial real estate average loan size of 500000 with over 90% of these loans also secured with a personal guarantee.

And our credit Decisioning is made at the local market level, where our teams have a detailed local understanding of borrowers and properties.

Our adherence to rigorous portfolio concentration limits in annual reviews by an independent third party is an important part of our portfolio management process.

With this diversification and operational discipline comes tremendous strength.

And our portfolio is extremely strong as we enter this pandemic the strongest it's been in decades and as you know we've spent the last three years preparing for the next recession and we did this well times were good exiting weaker credits, while the supply of buyers was high.

This performance is reflected in our mph to total loan slowly declining over the last two years to now stand at 26 basis points, which is among the lowest levels in the company's history.

Net charge offs through the quarter to average loans was very strong ending this quarter at only one basis point.

As a result of our customer conversations and the tremendous publicity about the SBH Triple P. program.

We've received an approved almost 9000 triple B loans for about 1.1 billion in phase one of the program and have already closed over 800 million in loans and deposited those funds and our customers accounts.

We also picked up close to 700, new customers, who received PPP loans in excess of 100 million.

Due to a number of competitors that we're struggling with the PPP program.

The Glacier team did an incredible job getting these loans to the businesses that needed them and received numerous complements from customers on how we were able to take care of them.

Many on the Glacier team work 16 hour days and weekends to get through the tremendous amount of application that applications that we received.

With over 9000, Triple B application and an average loan size of around 150000, I believe the glacier team handle more applications per person than most banks our size. We serve main street and we're pleased and honored to be help so many in our communities.

We also made over 40 in order to modifications on loans totaling 716 million.

We've received regulatory flexibility to make these modifications and they give me a good way to help customers get through a severe but short term business disruption like we are now see.

Both the PPP loans and the modifications help customers maintain and build their balance sheets, while businesses wait to reopen.

In addition to relying upon the substantial inherent strength of the loan portfolio. We have implemented enhanced monitoring of the industries that we think post higher risk due to the pandemic.

The total amount of loans under enhanced monitoring is 703 million or 6.98% of our portfolio.

This includes loans in the following industries hotel motel restaurants oil gas.

Travel tourism in gaming.

The largest industry with risk in our portfolios, our hotel motel loans totaling 466 million or 4.6% of the portfolio.

Most of these hotel loans are smaller loans with less than one less than 1.5 million and have an LTV under 60%.

Most of you know we haven't materially increased materially increased our position in hotels for over three years. So many of these loans have a good amount of equity.

The hotel industry has been hit hard by the virus and we'll need some time to recover.

We believe our seasoned portfolio is led by a group of very good operators and they'll work through the current challenges. However, we need to stay close to these customers to work with them along the way.

The next largest exposure is the higher risk group in the higher risk group is restaurants, totaling 132 million or 1.3% of the loan portfolio.

Similar to hotel our hotel portfolio. These are smaller loans with an average loan size of less than 175000, and a group of solid operators. Many of these owners have already started to adapt to a new operating model by shifting to take out while they wait for the ability to reopened.

Fully.

Even with the required social distinct distancing requirements. It looks like most of the restaurant businesses will be able to get minimum back to minimum economics re established as a foundation.

Theres also been lot of discussion about oil and gas and this industry is also in the higher risk portfolio.

But only about 24 million or two basis points of the portfolio.

We never made too many loans directly in the energy industry, because we don't have the deep subject matter expertise needed to stay out of trouble most of our exposure here is the business is providing the secondary support for the primary producers.

Further supporting the enhanced monitoring portfolio that I just went through approximately 25% of the loans in this portfolio have modifications and a proud approximately 15% have triple p. loans.

So we'll continue to do with our enhanced monitoring process.

For these industries for the foreseeable future.

So for the quarter the loan portfolio grew 575 million from the last quarter or 6% and this included our acquisition of state Bank of Arizona without the acquisition, we grew 124 million or 5% annualized in the first quarter core deposits.

Increased 772 million or 7% from the prior quarter, including the acquisition and increased organically 168 million or 6% annualized.

Our investment portfolio increased 834 million in the quarter or 30, or 30% due to a 142 million of investments from our state Bank of Arizona acquisition, and our purchase of 723 million of municipal and corporate bonds.

Securities represent 24% of the total assets at the end of the first quarter compared to 20% at the end of the prior quarter and 23 at the end of the prior year quarter.

Margin was also strong our core net interest margin ended the quarter at 4.3%.

Down from 4.33, or just three basis points from the end of the prior quarter and was up seven basis points from for 26 from the prior years first quarter.

The yield on the loan portfolio was 5.1%, which was down 13 basis points from the prior quarter and was driven by lower yields on new loans, which dropped about 20 basis points from the last quarter to about 4.8%.

Core deposit pricing.

Was down one basis point from the prior quarter.

And the total cost of funding was down one basis point as well.

So overall, we're very pleased with the resiliency and the stability of our core margin and our mortgage business experienced record volume in the quarter with over 600 million in loans locked versus $250 million locked in the first quarter of 2019.

Gain on sale of mortgages was almost 12 million for the quarter compared to about 5.8 million in the first quarter a year ago.

Our mortgage business is still active but it's a bit too early to see clearly what cobot 19 will due to the business.

And the company capital levels remain very strong with CE T one ending the quarter at 12.89%.

Compared to 12.58 at the end of the prior quarter and up from 12.2 from the quarter and a year ago.

Tangible book value per share was 16.35 at the end of the first quarter and increased from 15.61 at the end of the prior quarter and increased from 14.35 from the prior years first quarter.

Our access to liquidity remains robust.

With growth due to an increase in core deposits and borrowing capacity at the end of the first quarter. The company had access to over 5.5 billion in liquidity.

This includes 3.4 billion of unused borrowing capacity with 1.8 billion at the federal home loan Bank.

1.3 billion in borrowing capacity at the Federal reserve.

And 400 million of capacity a correspondent banks. In addition to 1.8 billion in Unpledged marketable securities in cash of 273 million.

In March we declared our 140 consecutive dividend with a robust with our robust capital and liquidity position, we don't see any change in our dividend strategy. At this time dividends have been and remain our preferred excess capital management strategy.

Yeah.

And finally before we move on to questions are PPNR pretax pre provision net revenue for the quarter.

With 75.7 million, an increase of $6.1 million or 8.8% compare to the prior quarters PPNR of 69.6.

Compared to the year ago quarter, the company's pp and our increased 14.9 million or almost 25%.

We believe this clearly demonstrates our exceptionally strong core business.

And we also welcome to employees and the board from State Bank of Arizona to the Glacier team and are very excited to expand our foothills division to now cover all the major markets in the state of Arizona.

On top of everything else going on we completed this acquisition and converted it over to our core system in the first quarter.

So Victor that ends my formal remarks, and I'd now like to turn the call back over to you to open the line for any questions that are analysts may have.

Thank you as a reminder to ask a question do we need to press star one on your telephone.

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We sometimes when we can find account a roster.

Yes.

Our first question will come from the line of Michael Young from Suntrust Robinson, you may begin.

Hey, good morning, everyone. Good morning.

Okay, everyone's doing well and healthy and safe one did that maybe just start off Randy I heard your comments, obviously about potential tourism snapping back more quickly than your markets given the lack of.

Next Gen et cetera.

Can you maybe just talk about current trends what you guys seen early on.

At the current stage and maybe any expectation desi kind of start to get into tourist season, and some of your your core markets.

Sure, it's still a little bit early.

And I think that we expect in announced from from the Governor of this date Monday, that's going to start to reopening process.

We know that Glacier National Park unlikely Yellowstone are also making plans to open up as well.

So I think the process has begun.

And you know a little too early to tell exactly.

What kind of flow that will come in but you know I think.

I said the process has begun and the point a made was that we feel well position because.

Our markets are really well accessible both by car.

Which is kind of the ultimate social distancing tourism.

To take where you can drive in your car through many of these national monuments and also by Air, which I think what's going to take a little longer to see exactly.

How that.

We will pan out.

I will tell you I noted there was a story that billings, Montana now has more air traffic than JFK. So that tells you a little bit about what's happening in this this market versus other markets.

Okay.

And I think one differentiator for glacier versus lot of other banks that we look at as just the preponderance of really small businesses. You guys are really tight on keeping your your loan amounts very small and granular.

You kind of mentioned some of the things that are going on but in general could you maybe just trying to compare and contrast.

The thought process or give us some insight that you're hearing repeat it back to you through 16 presidents on the small businesses.

Optimistic that they're going to come back or are they.

Holding onto two employees just kind of what are you actually seeing on the ground.

Yes, I would say surprisingly optimistic that we've talked to the 16 division presidents, they're talking to their customers I think.

We have obviously a lot of customers weathering. This these.

Closures in each market.

But many of them feel very good about getting back to business in terms of rehiring their employees that is really very.

Very business specific.

Some of shifted to different.

Modes of operating where they're still up and running but they're doing it all through delivery.

Rather than even retail stores.

Rather than Avenue shop open.

From what we hear it's been a combination of.

People getting coming back to work as a result of the the PDP program.

But in other customers we've heard the unemployment is very attractive and so thats.

Thats less so but.

As things.

Evolve I think getting the.

I think they'll be.

There will be fine in terms of their ability to attract the employees back back to do the work.

Okay and just on the PPP program I heard your comment I think you said 9000 applications 1.1 billion and then 800 close was 800 million close yes yep.

And given that a lot of your customers are smaller I seen these are kind of smaller.

Ticket loan sizes as well.

Should we expect a little higher maybe fee rate as we kind of look just modeling earnings into Q3, Q or is this more like a 4% sort of fee rate blended.

Yeah. The average loan size was under a 150000, so I think that's probably a pretty good pretty good assumption.

Okay.

And then I guess, maybe the pipeline for around two could you speak to how many new applications, you're seeing or how many maybe or pending.

Any color there would be helpful.

Yes, I'm going to let Barry talked to that he has been leading our effort on the Triple B program. So very maybe you can.

Just talk about how we're poised for phase two here yes.

Pretty straight forward, we had about 700 and.

Just underneath 800 loans.

We're not funded in the processor funded in the in the first round of funding. So we have those cued up we've received close to about another thousand applications.

So we all have probably close to come Monday, I think as a projected date one funding for the second phase of the funding will start so we have probably 2000 applications.

We're looking out for close to about 700 million yes.

Where we're looking.

Little less than that depending on.

A little pans out.

Yes.

We are ready to go.

And thats been working really hard I want to complement them all up all of the team members all the bank divisions.

But with support from.

All of the GBCI.

Management groups and operating groups, it's been really concentrated effort to generate that kind of volume in a little less over 10 base. So he's done a great job.

After the past the second phase of the funding.

Okay. Thank you for all the color I'll step back.

You're welcome.

Thank you and our next question it sounds like importing Maguire from Stephens may begin.

Good morning, Werent Gordon.

Maybe up probably start with Tolmar Barry Randy I do appreciate your comments on the high risk sectors, you identified in the deck, but I wanted to to focus on some of the sectors listed in the Pie chart on the modification chart on I guess slide three of your deck.

Particularly healthcare accommodation and retail I was wondering if you could provide some color on those.

Sure.

Going to ask Tom Who's done a lot of work on that to cover that.

Okay.

Gordon Let me get clear on your question some color on the accommodation foodservices component of that is that what you're asking.

Well I guess I'm just looking at the high risk segments that you listed on slide two but then it does look like you had a couple other categorizations on slide three that took a chunk of your your modifications and.

But seemed to apply those might also be a little bit higher risks.

I was just wondering if as far as health care accommodation or retail if you could provide some color.

Yes, the health care side of the deal. It's typically the smaller providers that are within that.

The the serious pretty widespread Gordon combination of both owner and non owner.

So in the in the Seery portfolio there is theres no one.

Pacific segment that stands out.

Gordon on health care.

And I think this is the same across a lot of markets that all the elective surgery was postponed and so.

There's a perfect example of a group meeting a little bit more runway.

We postponed.

The elective surgeries.

Now that things are being turned back on I would expect a significant surge back into these providers because there's been a lot of medically deferred maintenance that now needs to be taking care of and.

But again, a perfect example of a customer a good customer just meeting little more runway to the weather.

The downturn.

Do you have the total portfolio balances in that in that segment and then I guess second to that is.

The accommodation in food services is is that just related to the hotel in restaurants that you you talked about earlier or is that a separate categorization.

The accommodation Foodservices. That's listed there is really the see an eye component of those.

Portfolios, where the real estate credible would be reflected on the series side.

Okay.

Then balance just.

Outstanding balances and on the scene I side.

Im sorry outstanding balances.

For what sector specific.

I I guess, if the seat CRP is disclosed on slide two do you have the related outstanding balances for the Cnine segments that are are listed in the Pie chart on slide three okay. Gordon I'll have to get back to you on the specific numbers for that.

Okay.

And then just just trends on a modification requests so.

So these balances are as as of April 21st just curious whether they're accelerating stabilizing slowing down just just how should we think about.

With your Crystal ball, maybe the next few weeks few months where that trends too.

Yes, we've really seen that level off in terms of request Theres theres some still.

That had been approved and not yet, but but we've really seen the request more or less level off in the last week or so.

Okay.

And then just any color on the past dues in non accruals not not sorry, not non accruals that the TD yours. It looks like they stepped up a little bit maybe a few chunks of two to 5 million in a few bucket.

Notice AG was in there a couple times. So I was wondering if you had any color on on that doesn't migration.

Yes Gordon.

It's Ron so with the Stifel.

Certain categories of loans that were not TDR.

In prior periods are now designated TDR. These are performing tdrs with above market rates that are and so it's a technical.

Designation, so nothing nothing significant.

Got it.

Good I'm in the last one Randy.

Recognizing this might be a little bit premature but.

On the acquisition front last recession, you Didnt really step on the playing field for struggling banks I'm curious if the uniqueness uniqueness of this being a pandemic situation changes you're thinking around that.

No we're still in the market for good banks, some good markets with good people and I think there there's still going to be there.

When that when this when the dust settles here.

We're still.

Other conversations on both both buyers and sellers were put on pause across the board here because of the velocity. This thing unfolding in the implications of it I think as things.

Ill get back to little bit closer to normal will still be looking for good banks good markets good people and.

I think that.

We will see a very strong pipeline coming out of us.

Sounds good thank you.

You're welcome you.

Thank you and our next question comes off line of Jeff Rulis from D.A. Davidson.

You may begin.

Thanks, Good morning.

And Jeff.

Just a question on.

Well, if you had you had asset yields held up pretty well in the quarter and I assume that was from.

Some of the remix you did a cash into securities, but but if you could just speak to sort of.

As we.

Kind of fell off a cliff in March here, just sort of margin related questions. Thank you addressed your fact that margin.

On the way up was was it measured pace and I think you've alluded to kind of in the way down how that could.

Also be moderate.

But any any commentary on the margin outlook.

Yes, Jeff is bond here I'm going to have fire and talk about the before but.

Everything is as we said before so.

The study up and then.

The down but over and over time and that contribute to the to the loan book and so the.

Just on the saw the earning Jimmy the yield on the loan come down and part of that was we had 520 for yield on the fourth quarter that came down five and principally that was driven by lower yield on the.

Loans that were.

Coming onto production.

And then also.

Just to the investment side.

We did by the $723 million of.

Combination of Muni, 770% of that and then 30% work.

Corporate.

I think back I think everybody where on the call that during that third week of March there was to.

Lot of forced selling due to the massive redemption requests so what happened obviously they sell their best assets for so these are assets securities, we would've otherwise bought but we've got great yield.

And so that will bode well for the.

For the future temporarily funded by federal home loan bank sand less than 25 basis points. So that'll that'll go a long way to increase the net interest income the net interest margin to I Shouldnt say to hold it up for it that way.

We're thinking the rest of the year will be flat in terms of loan production I'd say that knowing that we talked about 700.

New customer that came over and we believe theyre going to be bringing deposits and.

And their loan book to lots of that will bode well, but even.

We're already seeing through the first 23 days of April.

Our deposits are outstripping loans, and so we've already been able to meaningfully pay down the federal home loan bank advance and more importantly, there's room to lower the cost of our core deposits. We came down one basis point, but we will be able to do.

More with that as well.

So overall, we feel pretty good about margin.

Doing well.

Great. Thanks, and maybe just to just looking at expenses.

I would have state bank on for for a full quarter in the second quarter, but some moving pieces to it if you could just speak to kind of.

Remote working or other added expenses and where do you may.

Trim expenses, if its corporate travel or or other.

Just any thoughts on the expense.

Line as it whatever 92 million this quarter.

With some with some merger costs in there.

Sure No I was just going to say.

Hi.

I think theres.

Your question is opportunity to reduce expenses may be TNT, we certainly have haven't done a lot of traveling and.

One of things I.

Should note that the conversion of.

Fort Hills was our first virtual conversion, we had about 10 people on the ground.

Turned out to be among one of our best So we are learning from this is well rather than having 20 to 30 people on the ground.

That theres ways to operate so there may be some some pickup there, Jeff but little early to tell but.

Business as usual for the most part other than the things going on that we talked about but the TD is the one that we probably see the most change in.

Okay. Thanks, Randy.

Thank you.

Our next question was comes from the line of Matthew Clark from Piper Sandler you may begin.

Hi, Good morning, guys morning.

Just on expenses the decline unfunded commitment expense I, just can you remind us what drove that decline I would've thought that would have gone up with.

Well taken.

Yes, pulling down on lines in this environment, but can you remind us what drove the decrease in should we think of it has been transitory or permanent.

No I would say where it's at this time Dolan I'd say, we're at today is probably where you'll see it for the time being.

In terms of line does we havent seen the material uptick in our line of credit draws, especially the revolving lines. They remained fairly constant over the past 60 days one like some of the.

Other banks that we've seen and reported so I think thats really attribute to our bankers.

Getting out in front of our customers early on this thing.

What really drove the decrease on the unfunded size will just the a change in historic loss rates, whereas the forecast really has a little bit more of an impact on the C and ibook rather than construction development.

Those types of.

Portfolios.

Yes.

Okay.

And then on loan pricing have you seen any uptick in loan pricing I know rates have come down in general, but credit spreads have widened.

But in any incremental improvement in loan pricing or is it still pressure.

I'd say, we saw one thing I think them our ability to get margin over the base rate has gotten a little bit better.

And so certainly.

On over the last.

Quarter, we've started to see that so.

Where we're able to price a little bit wider over the most of our business price of federal home loan bank five year, and so I think we have seen our ability to get a wider spread on that than we had in the past.

Okay, and then just on the organic loan growth outlook Im coming into the year earn January you talked about 5% to 6% you guys hit it this quarter.

I was pretty impressive in this environment, how do you feel about that level of growth for the year.

Yes, we talked a lot about that we still expect to be slightly up the flat for the full year.

It's just a little I think we need a little more time this quarter to see.

How activity flows in but right now were which is we're looking slightly up to the flat for the full year.

Relative to the side this exercise.

On a well starting point at the beginning of the year will be up slightly.

And slightly to flat if you take are going to beginning year starting point.

Well go a little less but the numbers yes.

Thank you know we're going to.

One to possibly to flat.

Okay.

And then just on.

And then just on the.

The PPP the new customers. The 700 I know its has probably a small dollar amount it at 150000 on average but.

So when you're going to add some additional new customers with the.

The second TPP Traunch, how do you feel about the quality of those new customers Arctic the types of small businesses that you'd like to bank longer term or you just.

Helping you obviously want to help out local communities during this contract.

I'd say the majority of those were people that we had been calling on for quite awhile.

To get into the bank and.

Yes, the PPP and some of the larger banks inability to respond to them was the stronger broke the camels back in and brought a number of these customers over to us so quiet.

Less random and more result of long term, calling efforts and this particular as you're all aware of that all the some of the problem. Some banks had in and administering this program work to our advantage and gave the customers have reason to just say, okay I'm ready to move my relationship.

Okay great.

Thank you.

You bet.

And our next question comes from the line of David Feaster from Raymond James You May begin.

Hey, good morning, everybody good morning.

Just wanted to start on security purchases.

No.

Great to see guys opportunistically in the market just any detail around what's about what kind of yields you were able to maybe just.

Additional.

Opportunistic purchases coming up in the future just given the ongoing disruption.

Well, Okay. Let me just speak to what we did in March.

So the.

The muni purchases.

Liquid high quality all of the Muni and were.

Eight QL eight high quality liquid assets that technical definition in fact on entire ball, 99% of immediate that we owner HQ outlay. So on the purchase it again, 70% of that 723 million, where the muni there.

Double a plus or higher.

So the yields on that tax equivalent yield are for 12.

On the corporate.

At 30%.

We were buying the the G. SIB bank. Thank a true with JP Morgan Bank of America.

Morgan Stanley.

Reside bright note that those are rated split rated.

I think delay hi, Triple B.

The yield on that for 32.

And your blended.

All in tax equivalent yield just about 420.

And again, we're financing that temporarily.

The federal home loan Bank I would tell you I don't expect our cost of funding that to be hired 25 basis point, we can always go to the discount window. The mix we have been in the borrower in custody program at the discount windows on the great recession. So we're very very comfortable with that.

Okay, perfect Thats helpful and kind of along with saying the same ones. How do you plan to fund the PB T program.

So initially the loans will go up and then we're putting the money the money is coming into our.

Customer account here at the bank. So the funding will be more as they begin to draw that out say over the next eight week and 12, what however long it take obviously.

Everybody wants to get the debt forgiven as soon as possible. So we will have no problem whatsoever funding the draws of that money out as we have to continue to fund the balance sheet. So it.

Pretty straightforward process Randy in his comments talked about our liquidity and so I mentioned earlier that deposits are now outpaced loan growth. So we will absolutely have no problem funding.

Terrific last question for me instinct stay beds, Arizona I got the systems integrated just curious how much of the synergies from that deal are already in the run rate.

Yes, how much he realized what have you identified any additional synergies that you're going through.

Yeah.

No. There is a little we just did it this quarter, so I think theres, a little bit of the little bit of.

Additional.

Kind of adjustments to staffing and other things that were.

Part of the announcement, so you'll see those unfold prob, probably over the next quarter or so and then I think we'll be on a pretty good run rate.

Okay. So not much has been realized to date no no because a lot of those changes you know we converted.

At the end of February and we have pulled a lot we hold onto a lot of staffing until we're comfortable that we have everything in good shape. So like I said second quarter, probably second and third quarter, you'll see more of that.

Okay terrific. Thanks, guys.

Thank you.

Our next question comes line of Tim Coffey from Janie may begin.

Thank you good morning, everybody wanted and Tim.

Yes.

I was wondering with the with a list of loans that are enhanced monitoring have you seen any deterioration in those credits the last 30 45 days.

No Tim I think it's little too early to tell we haven't seen any deterioration as of as of yet.

Okay.

Given that Barry you didn't see this country cycle before.

What makes this was different than the one where we saw between Oh wait and 2012 actually this is the.

Cycle insane.

Okay, all right and every year for another one.

But.

Deferred the big differences is the background the reason for.

The.

The 2008 to 2010 was all single family residential acquisition and development lending was predicated on.

Certain amount of speculation.

Uh huh.

Minimize minimal if no underwriting docs, no docs and based on the premise that all the loans and be securitized and sold in the secondary markets, where where they were at and things that were caught with volume on their books, primarily for us that was single family residential.

750 million close to 450 million in acquisition and development.

So different product types for impacted.

Say that this turn.

Time around we just don't have those concentration.

Levels.

Those products.

So it took a lot longer I think as we took a lot longer from 2008 to 2000 tend to work our way out of those.

Those product types, we have negative loan growth for almost five years as we downsized the portfolio rebalancing.

The balance sheet.

Basically worked on cleaning up our asset quality.

This is totally different scenario.

Yes caused by something that external.

For the most part.

King quickly.

It was the black Swan it.

We'll.

And.

Based on what we see it's not going to be.

As long as Leo.

Recession.

Which generated by downturn in single family.

Yes, and as the.

Shelter in place in them.

Business closure mandates are with it I think people are going to get back through work ethic.

Silver confidence is going to improve.

And.

You should return to something.

A little more normal I would say six months to nine months, maybe a year.

But we do have the ability than whether it.

We do have the ability to help those borrowers that are impacted at least on a short short term basis.

By extending payments generating additional funds for operating costs as they transition.

To increase occupancy rates increased.

Restaurant revenues increased travel travel increase tourism and a general increasing the overall economy is just a different feeling that that's going to happen this time versus.

What happened there so.

I I believe that once the pandemic.

The fact seeing orders testing.

Lot of things are going to return to normal where people are going to go back out.

Things that we've always done so it's going to be a different different environment.

Okay.

Accelerate color.

Kind of my follow up question would be.

Is the liquidity of your current borrower different than it was in the last cycle.

Yes, I think it is most of them.

We're.

Pretty well position to say that they are all working down the road when you have hotels up 15, 20% occupancy level.

They are adjusting staff accordingly, there some hotels have opted to close operations entirely.

During the transition so they are there.

Reserving as much cash as they care.

And.

In a lot of cases, where we have deferred payments some of the borrowers that word.

Tightness circumstance.

We could differ principal and interest they just opted for principal and which bodes well I think tells us that they have the resources liquidity.

A downturn now for 345 months, maybe one or two years now, but I think the returned to normal operations.

Before we get into a point where.

Where.

We we have to take pretty conservative majors that the clicked on hurdle.

And Tim made the point early on that coming into this pandemic the portfolio in the borrowers where if you look at the not by the numbers are among the strongest than the company's history in terms of their their shape. So.

Lot of number a good years, leading up to this relatively conservative.

That.

Individual customer balance sheet management, so we come into it very well positioned you have just one thing like they have it.

2008.

2000 twice the 12.

Basically 12, it was for your recovery.

The regulatory environment was a little bit difference it was predicated on asset base.

You have assets.

Jingle mail lot of foreclosures.

Losses were just straight forward.

Great. So let's take your loss where in this case, that's going to be more on the operating them.

And not so much on the collateral and that's going to be ensuring that these businesses get back up and running.

Start generating revenues.

And profits and.

So the regulatory environment of looking at this portfolio I think is going to be a little more.

Conducive to working with borrowers and.

Previously where it was truly.

Got the asset back you have to liquidate it take your loss in this case I think.

We've already come out with guideline that said work with the borrowers we understand where your app.

Once in a generation type of van.

So I think that's going to bode well for us.

Forward.

Okay, and then in order to kind of executing that Nike swim type of recovery in some sounds like you're somewhat dependent on the rest of the country to open right and if montana's can be able to open on Monday.

You're able to social distance anyway.

Sounds like you're going to need more of the rest of the country get going to really kind of execute that swift my reading that correctly.

Yes, I think.

Step one is we have to we have to be open for business I think we're on the path to that.

I think some of our neighboring states are on a similar path.

And then step too.

We have.

The rest of the country I think at different stages, following behind that and Thats. The reason for the longer term.

Term view that I tried to lay out which is yes, we see things getting better it's just going to take time, and we're not expecting a big.

Big surge, it's just a low low slaw a longer slow back to normal pace.

Okay. All right. Those are my questions I appreciate the color and definitely appreciate the supplemental to your earnings release today.

Thank you very much you bet.

Thank you and our next question comes from line of Jackie Bohlen from KBW.

You may begin.

Hi, good morning, everyone. Good morning.

Another quick follow up question on the the change in the unfunded commitments was that the.

Change that related to the historical loss with any of that impacted by the application of Stifel.

No.

It had to do with.

Really the change in the economic forecasts, which shifted more towards different segments of the portfolio.

Okay. Okay that may I, just wanted to double check on that and then.

And I realize there's a lot of meeting people going in here with acquisition charges and deal closing and everything else, but the.

Delta between the other expense line for Q1, Q with a lot more significant that Jeff Jeff that piece of it was there anything unusual or was it all jets the moving parts of the acquisition.

Yes, Jack it's Ron so certainly the.

Reduction and the acquisition expenses linked quarter 4.4 in in Q4 versus the two point.

Two.

In Q1, but the 3.6 million dollar reduction relating to the unfunded commitments that went through other expense non interest expense.

So that that existed in Tom mentioned earlier that we see that that where we are right now we should see that again that that should stabilize.

So that would have the delta.

And then so it sounds like other line item variances in there just normal course of business, yes Yep.

Okay.

And I just wanted to clarify one conversion during the quarter or tail.

Just one so we just.

Yes, So we closed state bank of Arizona.

In the first quarter and also converted.

Okay, So and I apologize that I somehow missed when did the heritage acquisition close because I have for some reason I have that am I know that that was a late one key a conversion.

The bank of various analysts later in here, yes, we shifted things around so you're you're.

Recollection is correct in that.

We decided to.

Kind of substitute the spot we had for heritage.

And do state bank of Arizona in the first quarter, because when we do an acquisition, where we have two brands in the market foothills and state bank of Arizona, and we make an announcement.

Sometimes customers. The next day show up in the branch wanting to do business.

If their state bank of Arizona customer in a foothills branch et cetera, and and the opposite so we wanted to get that converted so we were all on one system.

And so we did shift it we're going to convert heritage in June. So that's that's the next one.

Okay. Okay. Thank you. That's that's really helpful and just in terms of cost savings related to heritage.

There's still obviously a little bit surrounding the conversion, but is it anything.

Meaningful that are come out or have you already realized a lot of that.

Yes, well, let's start with heritage. It when we acquired it was running at a sub 40 efficiency ratios of highly highly efficient we didnt model in a lot of saves there.

And I think it until we get through the conversion.

That's those what we did have in there which was pretty minimal will really start.

We will start to come through but.

That's a very very efficient bank and so our our modeling on that was pretty minimal expense save on top of how they were already running.

Okay.

Okay, great. Thank you very much.

Okay.

Thank you and our next question comes the line of Michael Young from Suntrust. Robinson, you may begin.

Hey, Thanks for the follow up question Ron wanted that really quickly just touch on the tax rate. It was a little bit lower I assume that's related to the securities purchases.

Maybe a little lower income projection for the year, but is that the level, we should expect going forward at 18%.

Yes, yes, yes.

We've also got.

Foreign tax credits coming on from the investments we did.

Last year low low income housing tax credit that will start to show up as well.

Okay, perfect and then.

Two quick follow up questions rainy just generally given the timing of when this is hey, this is kind of I would assume the shoulder season for much of your footprint anyway. So is this really been much of an impact to current performance so far and it's more about how long this last through more of the busy travel tourism season into kind of.

June July August.

Yes, I think you have exactly right.

It it hit at a time.

When I want to places this is their slowest this the slowest part of every year.

So yes, it's all about getting back in business for the summer.

Okay.

I guess just the last question would be just sort of you're pulling more in touch politically with what's going on in your markets, but it sounds like there is a willingness to open up there's not a lot of backlash or concerned about sort of importing the virus so to speak.

That would prevent.

More of a reopening.

I think the governor has done a terrific job here.

And I think the.

People are behind the plan.

And.

We've got a good plan for a staged reopening.

And I haven't heard or seen of a lot of you know kind of backlash that plan I think it's measured at very well laid out.

And I think that.

It relates to other people coming in you know I think I think a lot of the other markets aren't too far behind where we are it's just going to take a little bit more time, but in terms of reopening here and probably in Wyoming.

We just I think the folks are ready for that and I think theres. Some some good plans to to move forward with it so no I don't I haven't seen any kind of material.

This agreement with that approach.

Okay. Thank you.

Thank you and nationally any question at this time.

Right Victor well, thank you and I want to thank everybody for dialing in today have a great day and.

Terrific weekend. Thank you.

Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.

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