Q3 2020 Glacier Bancorp Inc Earnings Call
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Oh, well begin momentarily. Thank you for your patience and please continue to standby.
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After the speaker's presentation that'd be a question answer session to ask a question during the session you'll need to press Star then one on your telephone please be advised that todays call is being recorded if you.
If you acquire additional system. That's studies do you want to reach an operator.
I like to hand, the call over to Randy Chesler, President CEO of Glacier Bancorp. Please go ahead.
Right. Thank you Michelle and good morning, and thank you for joining us today I wouldn't be here in Kalispell. This morning is Ron Copher, our Chief Financial Officer, Angela Doshi, our Chief Accounting Officer, Byron pollen or treasurer, and Tom Dolan, our chief credit administrator.
Don Chery, our chief administrative officer is on the road this week visiting our divisions and will not be joining us today.
Yesterday, we released our third quarter 2020 earnings and today, we're ready to review the state of the company and the financial results.
The third quarter results show another very solid performance from the Glacier gene and once again highlights the strong core of the company and the strength of our team and our business model. Despite the stiff headwinds generated by the global Cobot, 19, pandemic and the related economic and social impacts.
Coburn rates now appear to be spiking in some of our western states and while most of our business operations remain on interrupted this is a circumstance that we're watching closely.
We continue to navigate through the ongoing pandemic extremely well and I'm exceptionally proud of the glacier team our senior staff at the holding company as well as our 16 bank presidents and their teams for their commitment and leadership and their service to their communities that they have demonstrated.
This year.
The thought despite the pandemic, we are amazed at how well our customers have adjusted to the circumstances and our carrying on with business.
Residential mortgage volume is at record levels with refinancing and new home purchases, our commercial lending business is beginning to pick up and many of our business customers report they had a very good summer and early fall season, but.
The performance of our loan portfolio continues to show that our conservative approach to credit really pays off during times like these.
And we've seen some increase in digital transactions, what our branch transactions have remained steady we continue to watch the numbers, but have not seen a major shift in the mix.
Our markets were strong before the pandemic driven by high quality of life business friendly environment in low cost of living and we are seeing signs that the natural social distancing that comes with our more rural markets will only add to the attractiveness of our footprint markets.
Once again, the third quarter results highlighted the consistent strength of our core business.
We reported earnings per share of 81 cents, 842% or 24 cents increase from the prior year third quarter.
Net income was $77.8 million, which is an increase of $26.2 million or 51% from the prior year third quarter.
Highlighting the company's core earning stream the pretax pre provision net revenue for the quarter was 99.4 million, which was up 56% from the prior year third quarter.
Core deposits increased $868 million or 6.5% over the prior quarter with non interest bearing deposit growth of 436 million or 8.6%.
Noninterest bearing deposits were 39% of total core deposits at the end of this quarter compared to 35% at the quarter a year ago.
Deposits continue to flow onto the balance sheet as a result of customers reduced spending and unprecedented governmental fiscal stimulus and monetary policy.
We're pleased to see our cost of core deposits declined 11 basis points from 14 in the prior quarter to 21 in the third quarter a year ago.
Total debt securities increased $582 million or 16% during the quarter and increased $1.6 billion or 60% from the prior year third quarter.
The return on our debt securities reflected the impact of lower for longer interest rates ending the quarter at 2.72% down 45 basis points from the prior quarter due to purchasing new securities at current lower market rates.
Debt security income was 25 million, which was materially unchanged from the prior quarter and an increase of 19% over the prior year third quarter.
We're taking a cautious approach to new investments given current low rates and risk at some point of deposit outflows and we're targeting a short average life, while maintaining higher levels of liquidity.
The loan portfolio organically increased $165 million or 1% in the quarter as we saw an increase of activity.
You are markets that was driven by pent up demand from the first half of the year the growth.
The growth was well distributed across our footprint and the quality was reflective of our conservative approach to credit.
At the end of this quarter, we have made over 16000 triple B loans for.
For $1.472 billion as.
As part of this effort, we acquired over 3000, new customers, who receive triple b loans from us totaling close to 298 million in loans due to several competitors that were struggling with offering this program.
Expanding these new high quality relationships helped drive some of our growth in loans this quarter at the.
At the end of the quarter, we had 36.1 million the net deferred fees remaining on these triple B loans.
Net income was $151 million, which was an increase of 3.2% or.
Or 2% over the prior quarter and increased $20 million or 15% from the prior year third quarter.
While the industry is dealing with the impact of lower for longer interest rates. We are encouraged by our ability to grow our balance sheet, even if at a slower pace to offset declining NIM with more net interest income.
We feel our strong geographic footprint and the economic and growth advantage to our market areas will enable us to weather the lower for longer.
For a longer period of time.
Net interest margin was tough to hold onto due primarily to the interest rate environment. As we saw margin drop again this quarter to 3.92% from four 4.12% last quarter.
Pricing on new production during the quarter was around 4.30% versus our portfolio rate of 4.54%.
The second quarter's new loan production yields averaged around 4.4.
The core net interest margin ended the quarter at 4.2 versus 4.21 in the prior quarter and 4.35 a year ago.
The pace of Triple B loan forgiveness could help the margin in the next few quarters as fee income will be accelerated upon forgiveness.
At the end of the quarter. The SP a had not begun to act on load submitted for forgiveness, but recently started approving those request so.
So far this quarter, we have received forgiveness from the FDA on 242 loans for $8 million.
It's unclear at this point how quickly the SP, a will process existing forgiveness requests and how quickly customers will push for forgiveness.
Longer term, we still expect lower for longer rates will continue to put downward pressure on our margin.
Non interest income was once again driven by record mortgage production we.
We booked gain on sale of loans of 35.5 million, which was almost 10 million over the prior quarter and an increase of $25 million over the quarter a year ago.
Mortgage purchase and refinance business continues to be very strong and.
In addition to local demand we continue to see an uptick in the number of out of state buyers accounting for 26% of purchases and 31% of construction loans in the third quarter.
Credit performance was better than expected with net charge offs.
At 826000, compared to 1.2 million last quarter.
Delinquent loans were 15 basis point of loans versus 22 last quarter and 31 a year ago.
Nonperforming assets decreased slightly by about $1 million and were 25 basis points of assets, which was down two basis points from the prior quarter and was 15 basis points less than the level a year ago.
For the quarter, excluding triple B loans, our NPS will be 27 basis points of assets, which was a three basis point decrease from the prior quarter.
During the second quarter, we made over 3000 loan modifications in response to covert concerns on loans totaling over 1.5 billion, representing about 15% of the loan portfolio.
Excluding triple B loans.
It's important to note that all these loans that received a modification we're performing as agreed before we gave them a modification.
In the third quarter those modifications decreased by 1.049 billion to 466 million or 4.6% of the total portfolio.
$105 million of these modifications were loans that re deferred and extended their original deal for deferral period for.
For Reed deferral rate of about 9% with no one industry accounting for more than 20%.
We continue our enhanced monitoring of industries that we think pose higher risk due to the pandemic that.
The total amount of loans under enhanced monitoring monitoring is 617 million or 6% of our total loan portfolio. This.
This includes loans do hotel motels restaurants travel tourism businesses gaming businesses and oil and gas industry related businesses.
We ended the second quarter with 400 million of these loans and modification status and ended the third quarter with only 77 million and modification a reduction of $323 million or 81%.
Despite the steep reduction we saw in modifications in the third quarter, we will continue with our enhanced monitoring process of the entire portfolio and these higher risk industries for the foreseeable future.
And we continue with our rigorous approach to managing and proactively addressing any credit issues.
In addition to our bank loan modification program. The state of Montana created a grant program for businesses, which was only available in the third quarter, where customers could get agreement.
Not requiring any repayment paying for six to 12 months of interest payments with little qualification requirements.
Customers with loans totaling 237 million took advantage of this program in the quarter.
Funding for this program was part of the federal government's Cares Act.
Credit loss expense of $2.9 million for the quarter brings us to $39.2 million for the year.
Allowance for credit loss stands at 164 million or 1.42% of loans, 1.62% of loans, not including Triple P. loans, which are 100% guarantee.
We believe this is a very adequate and prudent level given the uncertain circumstances caused by the code by the impact of coated and the uncertain political circumstances.
Total noninterest expense was $106 million, which increased $7.5 million or 8% over the prior quarter and decreased $5 million or 5% over the quarter a year ago.
Orders for the quarter the efficiency ratio was 49.16% an improvement compared to the prior quarter efficiency ratio of 49.29.
On a year to date basis, the company's efficiency ratio was 50.21.
Excluding the impact of the from the Triple B loans, the efficiency ratio would have been 53.3%.
The company's capital levels remain very strong with C. E. G. One estimated to be in the quarter to end the quarter at 12.44% up compared to 12.35 at the end of the prior quarter and down slightly from 12.56 from the quarter a year ago.
Tangible book value per share was 17.64 at the end of the third quarter and increased from 17.08 at the end of the prior quarter and increased from 15.53 from the prior years third quarter.
Our access to liquidity remains robust with a growth due to an increase in core deposit and borrowing capacity.
At the end of the third quarter the company had access to over 12 billion in liquidity.
This includes $5.9 billion of unused capacity.
With 2.6 billion at the federal home loan Bank.
$2.7 billion in borrowing capacity at the federal reserve discount window, and Triple P. liquidity facility and $600 million of capacity at corn correspondent banks. In addition to $2.1 billion in Unpledged marketable securities and cash of 769 million.
An additional 3.5 billion in liquidity is available from other sources, including.
Broker deposits over pledged securities and loans eligible for pledging at the federal home loan Bank.
And in December we declared our 142nd consecutive dividend of 30 cents a share an increase of one cents per share or 3.4%.
Dividends have been and remain one of our preferred excess capital management strategies.
So overall the third quarter was another outstanding performance from the Glacier team.
And Michelle that ends my formal remarks and.
Now like you to please open the line for any questions that our analysts may have.
Ladies and gentlemen ask a question. Please press Star then one.
Thank you Chris.
The accounting.
Our first question comes from Jeff Rulis at Davidson Your line is open.
Good morning.
And Jeff.
Hi, Randy maybe just follow up on the last bit there clearly a unique year.
And certainly M&A is quiet for the for the time being or or maybe not but.
Looking at the dividend.
Last couple of years, you've put out, especially in the fourth quarter. So again, a different year, but any thoughts of entertaining that and.
Noting that the penny increase to the regular dividend.
Thoughts on on on the special and any sort of M&A that it could be percolating.
Sure So the special.
It's early that's always evaluate at the end of the year by our board and Thats a decision they make.
And I'd say in this environment you know.
We're going to have to just see what the landscape looks like.
At that point in terms of our current capital levels.
The feeling of.
How were feeling about going forward.
So I think that's you know aboard.
Reviewed the decision that will certainly take place at the end of the year, but difficult to tell that especially this year, Jeff with so much uncertainty, we'll just have to see at that time, we were pleased to increase the dividend a penny a share.
To 3.4% and you can see our dividend payout ratio.
Is quite low so we're very comfortable where we are and.
As I noted dividends will continue to be a very important part of our.
Excess capital management approach.
As it relates to M&A.
You're correct that the play.
The pause button was hit earlier this year, but across the board.
I think that we're beginning to really open dialogue.
With a number of entry.
A number of interested folks and we.
We are hopeful that you know in the beginning kind of middle of next year will be in a better position to hopefully.
Move forward or make an announcement.
We just don't know, it's still a little bit early but I think there is a lot of encouraging signs we feel a lot more comfortable with our and.
Understanding of our own portfolio on our ability to.
Evaluate a potential sellers portfolio so.
You know those conversations are beginning to read.
Reopen and we'll see where they lead us were.
What hasn't changed is our very disciplined approach to M&A.
And targets and so we'll pick up where we left off almost a year ago now.
Okay and a question on the mortgage side.
And be a forecast of Scott volumes down maybe 20% ish next year any reason to think that you.
Your experience will be any different in 21 seems like pretty good demand.
A different dynamic.
Footprint just thoughts on the more.
The mortgage outlook next year.
Yes, I think that the overall.
The overall trend in the industry is going to be down a bit after an incredible year. This year.
Especially for US I think we'll see that but probably maybe less so than the national because.
Our footprint and our location and the fact that we are.
We are seeing a fair amount of in migration into the extent that.
Rates stay low and net in migration continues.
Well, probably not be immune to a level of drop off but I would expect us not to be as much as the national average.
Okay. Thanks, I'll step back.
You're welcome.
Our next question comes from David Feaster of Raymond James Your line is open.
Hey, good morning, everybody.
Morning, David.
I just wanted to start on.
The credit you guys have done a tremendous job on on the deferral fraud, I guess as we look forward. How do you think about those borrowers that might need additional releases.
Do you plan to grant additional modifications that of the carriers that are probably address those this is head on and put those on non accrual and TR and then.
Maybe how does that translate into thoughts on on the reserve.
Going forward.
Yeah, David This is Tom.
Yes, I think.
Yes.
Every bank is.
Turning to their modification coach little bit differently I would say, we were we take a little bit more of a lenient approach and in an effort to make sure we're helping our borrowers to uncertainty though.
While we take a very prudent approach from our credit risk management standpoint by adequately assessing the risk rate and the.
Well the appropriate hurdle termination.
If a customer comes to us.
And says Hey, there's still a lot of uncertainty.
You know its troubled.
The trouble of the meeting even though I may be do okay, now, we would likely for a concession and rightly so.
Yes, I think if oil early as Randy said this there's a lot of meant that especially in the fourth quarter with.
You know in some key events happening and.
I think we'll continue to look at each one of them on a case by case basis and apply our our ongoing consistent prudent manner.
Management process.
Once we get past the end of the year barring any type of extension of the carry back.
We we may look at these a little bit differently from.
From a TDR designation as we will be required to buy by our regulators our account.
So you know it may look a little bit different next year than it was in the fourth quarter, but again I think we will take between on a case by case just like we have been.
Okay, We thing I'd add David is that.
Tom and team in that cheap and the credit officers in each division haven't stopped there staying portfolio grading and analysis and so they're still pro proactively managing knees as.
Yes.
There were no modifications in place.
Okay.
And then just.
Just on the I want to get your thoughts on the margin you guys have done a great job on deposit cost despite that parity. So low there's only so much room left there.
We got declining new loan yield given that you guys have done a great job on that.
Lower reinvestment rates just contemplating the earning.
Earning asset remix of deployment of excess liquidity I guess, how do you think about the NIM near term and maybe when and at what level do you think we could draw.
Yes, I'm going to let Ron.
Who studies or margin carefully everyday kind of talk to that but I'd just say overall.
Where would that margins are going to drop across the industry lower for longer.
Is is something that is you cant defy gravity.
However.
On the net and on the net interest income side, we feel our growth our ability to grow both deposits and loans is very favorable for us because.
The way to offset.
A declining NIM is through and our view growing your balance sheet and a strong strong balance sheet difficult to cut your way to success.
We've got the engine in the markets that I think will position us very well to to offset that low.
Lower for longer but Ron did you have any comments on the NIM, yes. They have it right here so the.
Think about the fourth quarter, you know we are estimating PPP loan forgiveness could be as high as 30% and so when you look back over the second quarter third quarter PPP loan being a drag.
Recognizes that.
That yield was about to 60 to 65 and over 30% loan forgiveness.
Our yield defined that could pick up to just under 6%.
So that'll influence the the margin, but if we exclude PDP.
Just looking the same trend that's happening with the core margin, we backout discount accretion.
Yeah.
That trend could certainly continue to occur.
And.
Actually if we do well.
We're going to increase the bag.
The balance sheet.
Hopefully, it's going to be low.
To the extent in our lives.
Beth and the security lower yielding I think we picked up 90 basis points the yield on the securities purchases that we picked up in the third quarter.
I'd love for that to change I'd love for the curve to steepen, but probably going to just add to that though to randy's point, we cant defy gravity for just pleased that we're starting higher than our peer much higher.
Okay that makes sense and then just I want to go back to the production new loan production.
I know, it's not as high as you'd like but.
So when we look at some of your peers, it's 50 to 75 basis points better.
Then from the other banks as I've spoken to I guess, how do you think about the competitive landscape for new credits in your ability to hold yields around these levels.
It just truly relationship pricing and then maybe where are you seeing the most growth across your footprint.
Just and within theory, what segments are strong as just your thoughts on that.
This column I'll take that one.
Yes, the way were able to maintain our pricing advantage is you know when you when you look across our footprint a lot of the smaller markets that we serve where we have a much larger market share we're able to hold at better there where we face the greater competition is in the larger metropolitan areas.
You know like Denver, and and and.
And kind of the Tucson area in Arizona, but outside of that.
Given given the long standing relationship we had that Thats a benefit as well and then just the overall.
Market share allow the 32 year goal that pricing a little bit and.
In terms of in terms of growth.
The growth really is kind of it's been across the board. This quarter I would say some of our newer markets have have grown a little bit at a faster pace that.
Certainly not significantly outpacing some of our other markets. So we've seen some strength in Arizona and Nevada.
You saw.
So.
That's been a benefit as well and then of course is Randy alluded to in his opening remarks, the new customers, we obtained through Triple B, which really was.
Diversify across the footprint.
Was beneficial to us in the third quarter, so just as well.
More color on that just with those 3000 customers. Thus far we've granted an additional $47 million and loan. So that was a pretty good portion of our third quarter growth as well.
How how much penetration do you think you've gotten in that TPP from those PPP borrowers and how much do you think is left there.
I think there is more there.
You know I would say, we were probably not even half a way there to be honest with you. So weve definitely got some upside there and and the division banks are doing a great job with their life that making sure that we're fostering those relationships to not only bring the rest of their credit relationships over but also the rest of the deposit relationship as well so we want to make sure that.
Where where the where their primary bank and I think we saw the way to go on it.
Okay, all right that's helpful. Thanks.
You're welcome.
Our next question comes from Matthew Clark of Piper Sandler Your line is open.
Hi, good morning, everyone.
Morning.
Maybe just starting on mortgage how much in the way of.
Mortgage production did you sell this quarter versus last so we can.
Back into our gain on sale margin.
You know I believe it was pretty consistent.
But I want to double check to make sure Matthew.
Okay. It's yes, it's very.
Pretty safe to say, it's pretty consistent to the prior quarter.
We sold most of our production.
Okay and then.
On expenses.
Up a little bit here, even adjusting for the Fas 91.
How much of that expense run rate is mortgage related and of that mortgage expense. How much is fixed versus variable. So that that would help us model going forward.
Yeah, Matthew Ron Hertz on that.
The fixed versus variable on the on the mortgage I would say that.
No more than 25% of it is variable.
To the production level.
And then.
The.
Other expenses.
You backed out the $1.9 million, but just to get to the point that the run rate.
For the fourth quarter that they would.
They would be a $102 million to $103 million or.
For the full run rate.
Okay.
Okay and then.
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I guess, along those lines is that third party expenses.
Consulting expenses is that something that we're going to see more of as you kind of continue along the path.
Technology front and kind of.
Upping our game there or is it or is that truly onetime.
Yes. It is.
Largely at one time.
The bulk of that 1.9 million was.
We engage a third party to help us manage the green.
Renegotiation of various technology contracts that were coming due and.
And so the real point of that story that the good news is that.
Just over the next five years.
We could save 6 million to $8 million over that time period that 20 quarter. So it'll ramp up so just thinking unit for the fourth quarter could be a 400000 dollar reduction and the reason its not.
Flatline straight line is that we have to hit certain benchmark certain usage and as we do then we will pay save more so thats the bulk of it in any given quarter, we have small time believe.
Third party, but the magnitude of that 1.9, it will be much lower.
We normally don't call it out in the press release implied.
So I don't expect to have that happen again in the fourth quarter certainly.
Okay, and then do you happen to have the average PPP loan balance in the quarter.
Yes.
Okay.
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The second here, Matt we've got that.
Correct.
Tom is in that report.
Hang on that.
And why do we get back to is just to make sure. We give you the right.
Number okay.
Okay. All right. That's all for me. Thank you.
Were I mean, our average loan that's going.
It's going to come in pretty low because 60% of our loans are below the 150 bright.
So, we'll we'll get to the actual number but we most of our lending was what I'd call main street lending and so our average loan sizes.
Can be on the smaller side, but we'll get that to you.
Our next question comes from Jackie Boland of KBW. Your line is open.
Hi, good morning, everyone wanting.
Good morning.
Well take into new customers, a little bit more from both the.
Yes.
Mortgage perspective, Ive been fees and then also in numbers and just to clarify you said that 26% of purchases and 31% of construction where fan out as well I guess this is a really new customers that were from out of state.
Yes growers.
Okay. So.
So my question with that is that none of that is PPP related is that true.
Well these are all residential mortgage so but those were the figures on the.
Residential mortgage.
But to my understanding there is no relationship to triple pianos, okay.
Okay.
I think it would be little if any better.
Okay. So you got two factors at work here, where Youve got out of state people coming in that are either purchasing second homes are looking to live and then you've also got this new customer base from new PPP.
Firewall correct.
Right.
So when I think about those two trends and can then on end to really round broad numbers are perfectly fine here, but how much of your growth assumptions and 2021 are based on a tick back Eric and both continue.
Continued in migration and we need and second home purchases and then also you mentioned that you are not quite 50% of the way through your converting other PPP customers.
Yes, so we're still we're still working on our 21 plan.
But I would say those are two very important.
Growth aspects.
And so.
You know that did this quarter, we saw on the commercial side about 20% of the growth was related to the.
To the new customers that we brought on through Triple peaks, that's got some limitation because we you can only penetrate.
So many of those loans that as they come due but.
I think it's early to put an actual number on a free but I think those trends are very.
Important in our markets those people coming in buying homes.
We think that that is from outside the market.
No not something that's a flash in the Pan we think that the part of a longer term trend and like many things with Cove is it accelerating things that were there and so we had a migration prior to co bid.
It's accelerated.
Under now that we're in the middle of Cove, It and we think that with the changes in technology and work at home that day.
Those things those are longer lasting and sticky so those.
Those will be with kind of the third leg to growth is.
Our very.
Successful model in the markets that we're very well positioned in.
And we think our model of tracks good quality growth because of our ability to meet local decisions in the market for people.
So I think those three things Jackie or are going to be very good I think against the backdrop of very high.
Very uncertain economic growth and probably a little less than we.
Seeing over the prior years, but.
No I would say, it's the two factors you pin.
Pinpoint it.
Both the in migration and the growth of new from new customers that we brought in.
We will be an important part of our numbers next year, just too early to tell exactly how much though jackie.
Okay.
And if I, if I'm interpreting the comments related to balance sheet side versus net interest margin in this rate environment. It sounds like the goal is to keep your core net interest income and what I mean by that is excluding people team and excluding accretable yield the goal would be to keep that flat to up in 21 versus 20.
Yes.
Okay.
Okay. Thank you.
Right good welcome.
Again to ask a question. Please press Star then one our next question comes from Michael Young of tourist Security. Your line is open.
Hey, Randy.
I have only late so if I, if I'm repetitive and any sense, just let me know, but yes, I guess just on the big picture basis could you just cover kind of what the messaging is to the to the respective bank president.
Are you really kind of focusing more on cost rationalization and profitability maintenance or is this a go acquire all these new customers moving into our markets and get them locked and just kind of how how's that messaging going out.
Point and what are you telling people display.
Yeah, No I think.
Messaging as a couple points.
Points to it number one is you know we're keeping a very close eye on deposit costs. So we have a lot of discussions about lower for longer and how we need to be positioned on those things and thats really.
You know very much a foundational.
Concepts that will affect just our total franchise and so thats been out there has been a fair amount of discussion to make sure hey, let's keep up with lower for longer and make sure. We're keeping pace with a very very low interest rate environment in terms of the.
Deposit cost.
In terms of growth.
I think the messaging is we're open for business, we're not afraid to make good loans to good borrowers were going to be cautious given the code issues.
And but we are interested in looking at good loans from good borrowers and.
I think that.
We we want to be there for our customers.
And I think Thats why you are seeing.
Some of the growth coming in this quarter.
In terms of pricing on those loans Thats. Another discussion in terms of you know how do we maintain our margin as strong as we can.
In the marketplace. So we.
Talked quite a bit about that and probably the last thing is you know we do.
We've spent a lot of time earlier this year.
Talking training focused on.
How to.
Successfully.
Go after the 3000, new customers, we brought on through Triple B and get their full relationship in the bank. So those are the areas we're stressing Michael.
And we'll probably continue on those themes for the next quarter as well.
That's helpful and one other kind of Big picture question just on the net interest margin as I look back at the company operating three year rate environment.
Yeah coming out of the last financial crisis for several years you you always maintain kind of a net interest margin of around 4%.
Excluding kind of the period of higher premium amortization. So is there anything structurally different in terms of the size of the organization or competition or just maybe the lower fee.
Five year rate now that would that would potentially change that on a go forward basis.
Yes, Michael right here, so that I think back over the.
The time period, you have referenced in the 4% respectively.
The loan book is the primary driver for our margin and so we typically price off the FHLB five year and certainly you know that.
Pretty low, but we've been able to increase the spreads but the just allow me 20% of that ball turned over.
So we're both steady up or slow steady down and I don't see that happening you know lower for longer will be the.
The real challenge because the curve, where we're starting after the AD.
Pandemic versus where we were during the great recession at different night, we had a higher deeper curve compared to the black line effectively that we have right now so that the steepness of the curve I fit.
Not in the safety about the flatness of occur that's really going to affect the.
Relative to holdup.
Net interest income certainly, but the margin as a direct result.
Okay that makes sense and.
But it does sound like you've been able to get some higher spreads. So maybe maybe there are some defense opportunity there more so than maybe what the curve would imply is that fair.
Yes, it ready to get back to that the relationship pricing driven and it could be a drama over and over here, but for the bigger bank in the smaller market and where we're able to.
The.
Price the relationship.
We're not the mercenary we want the whole relationship we certainly want the deposits we want the funding with the customer for whom are going to make alone and that really is what help help credit to our division the ability to.
The ability to hold those.
Higher yields on those on those loans.
Fantastic.
Okay.
Okay, Great and just last one for me and I apologize. If this was asked and I missed that or if you already alluded to this but just.
Implications for for the tax rate. If there is the increase in the tax rate to 28% you guys were pretty low taxpayer before that so if you could just talk about any kind of.
Kind of what the gearing ratio would be to to that increase in terms of your effective tax rate and then any detail or DTA applications as well.
Yeah on the DTA Albert just a modeling out a tax rate federal or 28% versus the 21.
Yup.
Just meant that would flow through the different repricing of Pmeight revaluing, the deferred tax asset that could be as big of a 10 million dollar favorable adjustment again.
Again this is the opposite of what we live at the.
At the end of 17, when they lower the rate we had to write down the deferred tax asset a onetime adjustment and now we're going to do the opposite will write it up we'll get a onetime adjustment and then we'll get that back over time, because we will suffer the higher tax rate marginally and then on the MBS the effective tax rate I could vehicle.
In up to 23.
No more than 24%.
If the.
Federal rate goes to 28%.
I am more copper paying 23%.
From the 19% we have right now.
As you know, Mike we feel we're well positioned for both environments.
Certainly if tax rates go up we'll feel a little less because of our significant.
Over supply or over share every municipal securities in the investment portfolio. So we have a built in kind of hedge.
Has there is providing good returns today.
We'll get better if theres some tax rate change. So that you know that's the other thing that we in addition to the onetime adjustment that we think we're pretty well as well as you could be positioned for increasing taxes.
And I guess, maybe as a follow up to that just I know you guys had some really strong growth in municipal originations. The couple of years ago kind of a competency that you built and had a good product offering there.
Yes, we I don't know if you've seen more demand for that and.
New borrowings there generally just with rates being so low and maybe some cash for shortfalls for municipality and or do you think that would increase under a higher tax rate regime.
We're very careful about the municipal securities that we do buying in terms of the types.
And location, we tend to pick what I call mission critical Uni.
Loans or investment.
Infrastructure things that are supported.
And Ron can kind of fill in but in the first quarter.
We saw a very significant opportunity to.
Pretty much make our full plan year of municipal purchases at a very very attractive time.
Yeah that and that was the.
Strong.
Strong redemption the panic in the market that did about the third week of March and were able to comment.
Come in and buy.
Kim or the exact number, but just say out of that $720 million with what we bought.
70% of that work.
Municipal but they were rated double a plus or better and the yield for just very very attractive because people were selling the redemption for coming out at ultra low prices that we were able to the step at all in including the corporate.
Speaking of corporate the true it tight bank.
We were able to pick up the tax equivalent yield of four 420 on.
On that $723 million that we.
Collectively put in at about a week.
And then just on the on the Muni loans Weve built the still do see bottom demand.
Many of the municipalities I think there are a bit reluctant right now to to borrow we now project our.
Our being put on hold.
We've expressed.
Strong interest and and so we still have about $600 million of muni loans in our portfolio.
They are not really re.
Re pricing they are holding up quite well, it's the new production, that's really really pull it down.
Okay. Thanks appreciate it.
Sure.
Welcome.
There are no further questions I'd like to turn the call back over to Randy Chesler for any closing remarks.
Great.
Well, we appreciate everybody spending time with us this morning and.
Questions and we wish hope everyone. You know stays that manages through this pandemic and.
Please stay safe and we wish everyone a great great weekend and thank you for joining us and Michelle. Thank you for helping US host this call.
You're welcome ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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Ladies and gentlemen, thank you for standing by welcome to the Glacier Bancorp third quarter earnings Conference call at this time all participants.
After the speaker's presentation will be a question answer session.
Good question during <unk> session, you will need to press Star then one on your telephone.
Please be advised that todays call is Dale Corning.
If you acquire additional systems, thus far this year all switched operator.
I've been called Randy Chesler, but they feel Glacier Bancorp. Please go ahead.
All right. Thank you Michelle and good morning, and thank you for joining us today I wouldn't.
I wouldn't be here in Kalispell. This morning is Ron Copher, our Chief Financial Officer, Angela Doshi, our Chief Accounting Officer, Byron pollen or treasurer, and Tom Nolan, our chief credit administrator Don.
On Chery, our chief administrative officer is on the road this week visiting our divisions and will not be joining us today.
Yesterday, we released our third quarter 2020 earnings and today, we're ready to review the state of the company and the financial results.
The third quarter results show another very solid performance from the Glacier gene and once again highlights the strong core of the company and the strength of our team and our business model. Despite the stiff headwinds generated by the global Cobot, 19, pandemic and the related economic and social impacts.
Coburn rates now appear to be spiking in some of our western states and while most of our business operations remain uninterrupted. There's just a circumstance that we're watching closely.
We continue to navigate through the ongoing pandemic extremely well and I'm exceptionally proud of the glacier team our senior staff at the holding company as well as our 16 bank President and her team for their commitment and leadership and their service to their communities that they have demonstrated this.
This year.
Despite the pandemic, we are amazed at how well our customers have adjusted to the circumstances and our carrying on with business. Our residential mortgage volume is at record levels with the refinancing and new home purchases, our commercial lending business is beginning to pick up and many of.
Our business customers report they had a very good summer and early fall season.
The performance of our loan portfolio continues to show that our conservative approach to credit really pays off during times like these.
And we've seen some increase in digital transactions, what our branch transactions have remained steady we continue to watch the numbers, but have not seen a major shift in the mix.
Our markets were strong before the pandemic driven by high quality of life business friendly environment and low cost of living and we are seeing signs that the natural social distancing that comes with our more rural markets will only add to the attractiveness of our footprint markets.
Once again, the third quarter results highlighted the consistent strength of our core business we were.
We reported earnings per share of 81 cents, a 42% or 24 cents increase from the prior year third quarter.
Net income was $77.8 million, which is an increase of 26.2 million or 51% from the prior year third quarter.
Highlighting the company's core earning stream the pretax pre provision net revenue for the quarter was 99.4 million, which was up 56% from the prior year third quarter.
Core deposits increased $868 million or 6.5% over the prior quarter with non interest bearing deposit growth of $436 million or 8.6%.
Noninterest bearing deposits were 39% of total core deposits at the end of this quarter compared to 35% at the quarter a year ago.
Deposits continue to flow onto the balance sheet as a result of customers reduced spending and unprecedented governmental fiscal stimulus and monetary policy.
We're pleased to see our cost of core deposits declined 11 basis points from 14 in the prior quarter to 21 in the third quarter a year ago.
Total debt securities increased $582 million or 16% during the quarter and increased $1.6 billion or 60% from the prior year third quarter.
The return on our debt securities reflected the impact of lower for longer interest rates ending the quarter at 2.72% down.
Now 45 basis points from the prior quarter due to purchasing new securities at current lower market rates.
Security income was 25 million, which was materially unchanged from the prior quarter and an increase of 19% over the prior year third quarter.
We're taking a cautious approach to new investments given current low rates and risk at some point of deposit outflows and we're targeting a short average life, while maintaining higher levels of liquidity.
The loan portfolio organically increased $165 million or 1% in the quarter as we saw an increase of activity to our markets that was driven by pent up demand from the first half of the year.
The growth was well distributed across our footprint and the quality was reflective of our conservative approach to credit.
At the end of this quarter, we had made over 16000 triple P. loans for $1.472 billion.
As part of this effort, we acquired over 3000, new customers, who received triple B loans from us totaling close to 298 million in loans due to several competitors that were struggling with offering this program.
Expanding these new high quality relationships helped drive some of our growth in loans this quarter.
At the end of the quarter, we had $36.1 million net deferred fees remaining on these triple B loans.
Net income was $151 million, which was an increase of 3.2%.