Q2 2022 Glacier Bancorp Inc Earnings Call
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Yeah.
Good day and thank you for standing by welcome to the Glacier Bancorp second quarter earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised for today's call.
Is being recorded I would now like to hand, the conference over to your speaker today, Mr. Randy Chesler, President and CEO . Please go ahead.
Alright, well, thank you and good morning, and thank you for joining us today.
Here in Kalispell. This morning is Ron Copher, our Chief Financial Officer, Don Chery, our Chief administrative officer, Angela dose, our Chief Accounting Officer.
And pollan, our treasurer, Tom Dolan, our chief credit administrator.
So we ended the quarter the second quarter, feeling very good about the strength and health of our core business our leadership position in some of the best high growth markets in the country continues to be a strong tailwind for the company as we build one of the Premier community banks in the Western United States.
A few data points about our community banking markets, which include Montana, Idaho, Eastern Washington, and Wyoming, Utah, Colorado, Nevada, and Arizona.
The tax Foundation recently published the 2022 tax climate Index and all eight of the states in which we operate were in the top 20, most favorable markets.
U S Bureau of economic analysis measure.
Most domestic product growth since 2013 of each of the U S States and several of the states in which we operate.
20.
Once again, our markets continue to distinguish themselves as some of the best places to live and work.
I'll touch on some of the business highlights first and then provide some additional thoughts on the quarter.
Net income for the quarter was $76 4 million, an increase of $8 6 million or 13% from the prior quarter net income of $67 8 million.
Pre tax pre provision net revenue was $92 9 million versus prior quarter of 88.
An increase of $3 4 million or 4%.
The loan portfolio, excluding triple P loans had record organic growth during the quarter of $714 million or 21% annualized. This was a very strong quarter, which we will discuss in detail shortly.
Core deposits continue to flow into our divisions growing organically by $84 5 million or 2% annualized.
The cost of core deposits was six basis points, a decrease of one basis points from the prior quarter.
This is another area that separates our company from the reps, but I will discuss in more detail later.
Net interest income in the quarter on a tax equivalent basis was $199 million, an increase of $8 6 million or 5% from $190 million in the prior quarter.
Net interest margin for the quarter as a percentage of earning assets on a tax equivalent basis was 323% compared to 312% in the prior quarter.
Core net interest margin for the current quarter of $3, one 6% increased 90 basis points from three 7% in the prior quarter.
Noninterest expense of $129 5 million decreased 787000, or 60 basis points from the prior quarter.
Excluding the $2 1 million of acquisition related expenses noninterest expense was 127 5 million.
Credit quality continued to improve to near record levels.
Earnings per share for the quarter was 69 versus <unk> 61 in the prior quarter.
We declared a regular dividend for the quarter up 33 per share, which was consistent with our prior quarter dividend. The company has declared 149 consecutive quarterly regular dividends and has increased the regular dividend 49 times.
Overall growth in the loan portfolio, not including Triple P loans was a record $714 million again, 21% annualized for the quarter. We're very pleased to grow the portfolio this quarter, while consistently maintaining our strong credit discipline, we stuck to our risk appetite.
Hittite for loan types, we didn't spend on underwriting guidelines and we maintain the risk based pricing discipline.
With a quarter end loan to deposit ratio of 66% and increasing deposits. We're happy to have the opportunity to rotate cash out of investments and into loans.
The growth in the loan portfolio was driven by continued growth in our markets and a number of customers accelerating financing plans to lock in loans before anticipated rate increases.
Our gross new loan production for the quarter before payoffs was a record $2 3 billion a 27% increase.
Gross new production of one 9 billion.
Given the strength of our markets. We saw broad based contributions to this growth made by each of our divisions across our eight states.
Credit quality improved during the quarter with nonperforming assets. The bank has since assets improving to 16 basis points from 24 basis points in the prior quarter.
Early stage delinquencies as a percentage of loans ended the quarter at 12 basis points compared to 12 basis points in the prior quarter.
About 80% of the commercial loan growth was from the existing commercial loan customers, where we have a very good understanding of the quality of the borrower and the credit.
We continue to focus on responsible growth with a through the credit cycle underwriting loans.
We remain very optimistic about the future of our markets and the appeal of our model with a mid to low double digit loan growth outlook.
That being said, we are well prepared in the event of an economic downturn with strong capital strong reserves and a very healthy franchise, which will continue to generate high quality earnings.
Core deposit growth was strong across our footprint as the team continued to maintain existing customer relationships. While also while also building new ones.
This quarter core deposits increased by $85 5 million or 2% annualized year to date deposits are up 4% annualized.
Noninterest bearing deposits increased $71 3 million or 4% annualized during the quarter and now account for 37% of core deposits.
And our cost of core deposits in the quarter dropped by one basis points to a total of six basis points.
The net interest margin as a percentage of earning assets on a tax equivalent basis for the current quarter was 323% compared to three 2% in the prior quarter.
The core net interest margin was 316% compared to 370.
7% in the prior quarter.
The core net interest margin increase of 90 basis points in the current quarter was a result of increased core loan and investment yields.
The tax equivalent yield on debt securities ended the quarter at 181% compared to one 6% in the prior quarter.
New investments in debt Securities were added on a tax equivalent rate of 355%.
The yield on the loan portfolio ended the quarter at 434% down seven basis points from the prior quarter.
The core loan yield.
441% increased seven basis points from the prior quarter core loan yield of 434%.
We added over $2 billion of new core loan production with yields around four 5%, which was an increase of about 39 basis points versus the prior quarter.
We have now reached an inflection point with both our investment and loan portfolios were new investments and new loans with higher yields or increasing the portfolio yields.
This will drive margin expansion through the rest of the year.
Noninterest income of $28 $3 million declined $5 3 million or 16% from the prior quarter, primarily due to the reduced gain on sale income from residential mortgages.
Gain on sale of residential mortgages of $5 million for the current quarter decreased $4 million or 45% from the prior quarter.
Rise in interest rates has a substantially reduced residential mortgage refinance activity.
Rising interest rates are taking a toll on the residential real estate market.
The MBA now forecast a market in 2022 that will be down by 40%.
We expect our business to reflect the same trends.
Excluding the second quarter acquisition expenses non interest expense was 127 5 million.
We continue to see very effective expense control at the divisions. The increase in our expenses was driven primarily by corporate technology service firms that were needed to bridging staffing gap, while we brought on new hires.
The Glacier team did another great job in the second quarter.
We successfully managed a record level of new business, while we work through a very volatile interest rate environment.
The health of the Glacier franchise is very strong with a robust capability to source high quality loans funded with a best in class stable and sticky deposit franchise.
We are very well positioned to continue to grow in 2022 and set the stage for a strong 2023.
So that ends my formal remarks, and now I would like Latanya to please open the line for any questions that our analysts may have.
Certainly as a reminder to ask a question you need to press star one on your telephone please standby, while we compile the Q&A roster.
Okay.
And our first question comes from Matthew Clark.
Piper Sandler your line is open.
Hey, good morning, guys.
Good morning.
Maybe just starting on the deposit growth kind of outlook from here.
2% annualized 4% I think year to date.
I guess, how does what does your pipeline look like on the deposit side.
Do you think you can actually maintain growth this year.
Sure Yeah, we're very happy to see the growth that we did experienced year to date.
And.
I think binary in our treasury. We've obviously spent a lot of time looking at that so maybe Brian you want to comment on the outlook sure from.
From a balanced expectation I think we're looking for deposit balances to be roughly flat we could see.
Some attrition at some rate sensitive balances run off but.
We are willing to let some rate sensitive balances.
We're not going to chase rate and this rate cycle.
And and.
We think we'll be very successful in being able to keep our deposit costs flat. If you look back to what we were able to achieve in the last rate cycle. We are very successful at keeping our deposit costs down we expect to be able to achieve similar success.
This time around we don't see any reason to deviate from that strategy. So I think we're looking for balances to be.
Roughly platform.
Okay, Great and then.
No.
Loans and securities being accretive to.
The portfolio from here do you happen to know or happen to have the month. The average margin in the month of June .
We will have to get back to you with that I don't have that right in front of those Matthew we can get that to you.
Okay.
And then just shifting to expenses I think.
Last quarter.
We talked about kind of a glide.
Glide path.
<unk> fourth quarter run rate of $128 million to $130 million just wanted to get your updated thoughts on the outlook there too.
Yes Matthew.
Sean.
The.
As Randy said in his remarks.
We remove that.
Merger related expenses, but we have 127, 5% which was.
Three $3 4 million compared to where we were at the FERC quarter and I want to address that.
The bulk of that call it $292 1 million.
The corporate technology server farms.
We're hiring looking for.
People to help us.
Had to hire the firms to help us with our data warehouse that cuts across all of our technology platform. So what we expected.
That's a temporary use of the vote.
That expense would come down just by way of example, $10 million or whats kind of that youre going to see if youre going to see a rotation.
Other expenses outside firms will come down but compensation will grow.
Yet.
Put all that together I'm comfortable saying that in Q3.
Range would be from Fei.
$127 million to $1 28.
And that is consistent with what I had guided in the FERC quarter and you repeated will be.
$128 million to $130 million, so got there a little quicker but.
We wanted to keep the engine going.
Great.
And then just on the loan growth outlook I, just want to clarify your comments Randy it sounded like mid single digit.
Double digit.
Is the outlook.
Yes.
Any additional color on where you expect the slowdown to occur I assume it's.
Somewhat commercial real estate related but Tom.
And resi, but just any additional thoughts there too.
Yes, Matthew this is Tom.
The outlook, we gave at the beginning of the year with low double digit I think we've moved that up to low to mid double digits. I think we're probably looking at somewhere between <unk>.
12% to 15% for the year so.
Which obviously is a slowdown in the second half of the year, which is consistent with what we're seeing in our pipeline overall and as Randy mentioned in his comments, we had a lot of pent up demand right at the beginning of the movement in the rates.
Trying to get their deals and one way to get at it a little bit more reasonable renewal rates, though.
I think for the second half of the year will be slower quarterly growth, but.
Sure Phil kind of finish up the year somewhere between low to mid double digit.
Okay and is that excluding PPP I just wanted to double check.
That would be excluding currency.
We have I think $15 million of Triple T y.
Almost not a factor anymore.
Yes, just thinking about the comparison to last year. Thanks.
Youre welcome.
One moment.
Okay.
Our next question comes from David Feaster, Raymond James Your line is open.
Hey, good morning, everybody.
Morning, David.
I just wanted to follow up staying on the growth front. It sounds like we did have some pull forward of demand I'm just curious how the pipeline stands as we head into the back half of the year maybe.
And maybe how the composition has changed and just any thoughts on the pulse of your clients. At this point are you starting to see some more trepidation just given the economic outlook.
Any commentary on that would be helpful.
And David This is Tom again.
Volumes are coming down.
I had to put a percentage on it I'd say, they're down by about a third.
From where they were towards the first couple of quarters of the year.
To your point.
We already had.
Borrowers were trying to get ahead of the rate cycle, a little bit so moving forward from a trepidation standpoint.
There is certainly some concern out there with our borrowers with what impact long term impact of interest rates and inflation youre going to have.
But.
When the metrics make sense.
In terms of the return they're looking for their projects. They are still moving forward regardless so.
I would call our pipeline today is still very healthy I would say the prior several quarters was quite frothy.
But we are still maintaining a pretty pretty healthy healthy pipeline.
The growth that we're forecasting for the latter half of the year.
Quite frankly, probably a little bit more normalized.
Yes, okay.
That makes sense and then maybe just digging into the CRE.
Obviously that was a huge driver of growth this quarter.
Just are there any segments, where youre seeing more demand or better opportunities or is it markets and then as we look at as we look forward. Obviously, there is some headwinds in certain sectors right and higher rates are weighing on cap rates I'm. Just curious as we look at CRE maybe are there any segments that you are more focused on that you see.
Better opportunities and Conversely are there are there some that maybe you feel frothy or that we might be avoiding.
Yes.
I wouldn't say, we're avoiding any particular industry.
Just by each of the industry really look at every deal on a case by case basis and look at the totality of the request including.
Equity is coming into into the deal how strong our inventories are.
Et cetera. So.
For example, and I've mentioned this on prior calls, but we underwrite as one of our components.
That yield.
Which were with where cap rates have come in the last couple of years of as they come down as a result of our debt yield requirements that ultimately required more cash equity into the deal.
Coming into the pandemic, our borrowers are pretty good shape and with the significant migration a lot of our borrowers have become even stronger with the demand characteristics, we see throughout the footprint.
In a multitude of segments from multifamily all the way through various theories segments include warehouse industrial.
We exceed the demand pretty pretty steady across a lot of different segments, but ultimately we've seen more cash equity income.
Okay.
And then maybe just touching quickly on the Securities book, just kind of taken the deposit commentary and the growth outlook together.
Would you expect that the securities books, probably peaked here just given the organic growth outlook and cash flows probably reallocated towards loans and then the new securities that you are putting <unk>. Just curious what you guys are buying or are you starting to shorten up duration.
Just any commentary on that would be helpful.
From a from a.
Balance perspective in the securities portfolio I do think it feeds and so likely to see some remix where that securities cash flow coming in will be allocated to that to the loan portfolio in terms of in terms of what we're buying.
Very limited.
Limited right now so I don't know that we're really.
Shortly duration.
For the most part what we're buying is targeted pool CRA related.
CRA related to that.
Okay Alright.
Alright, thanks, everybody.
Welcome.
Omar.
And our next question will come from Brandon King of tourists Securities. Your line is open Brandon.
Good morning.
And then Brandon.
Yes.
Yes.
We agree with you.
Growth in the quarter.
Deposit growth lagging.
I noticed that borrowing increase boots.
Hello again.
Second half of the year with slower loan growth deposits.
I'm wondering what is the average.
To use borrowings to fund loan growth.
There are certain limits event, where we play.
And kind of.
Richard.
So constrained Barnes.
No borrowings on the balance sheet.
Brandon This is by our Nike I can adjust the borrowing.
So I think what we're seeing here is just a temporary mismatch in the timing of cash flow and so as we see we did have some very strong growth in the second quarter.
With lighter deposit growth.
We're back filling that with the <unk> one is the runoff of the securities portfolio that's funding.
Some of the loan growth, but also we are using FHA advances to kind of plug any any gap, we do think that that.
Somewhat of a temporary cash flow mismatch and so as we progress through the year are likely to see some of that securities certain securities cash flow.
Be able to pay down the short term borrowings.
Okay, and could you remind us do with cash.
Yes.
Yes.
We're getting about a $1 billion five a year and so that breaks down to about $375 million a quarter. It has slowed a little.
I think previously we were looking at about $1 $8 billion, a year that moderated to about $1 5 billion a year so that.
I do expect that will be a consistent.
The amount of cash flow through the rest of the year.
Okay.
Great.
Moving on.
Right.
I'm curious.
Great.
Top line growth.
I know you manage.
Thank you.
I'm wondering if that's a potential.
Sure.
So closer to 50%.
Yeah.
Thank you.
No Brandon.
Brandon I think that $54 55 range is one that we intend to stick with we'll revisit it maybe towards the end of the air we've got a lot of initiatives.
In place.
Dress efficiency so.
Some of this role will revisit but for right now we feel like that.
It's a very solid range that will continue to be in.
Okay.
Questions.
You're welcome.
Yeah.
One moment.
Our next question comes from Andrew Charles Stephens incorporated your line is open.
Hey, good morning.
Good morning.
I apologize if I missed this in.
Remarks, but did you provide an expectation for mortgage banking for the year.
No.
Did.
I did say that NBA us and is calling for a 40% drop in the market.
And.
That we're expecting.
Similar trends in our business, but I think Ron King can give you a little more color we've talked about it.
With the gains that's obviously, what's driving the noninterest income.
A big part of it but I think Ron can give you a little more color about your question Andrew to try to fine tune that a bit.
That would be that'd be very helpful.
Okay, Andrew Yes, Ron here so.
You saw the growth in the residential portfolio and the <unk>.
Second quarter was 12%, 48% annualized and compare that to the first quarter, 7%.
<unk>.
The gain went down because the portfolio with a higher amount of loans and that was more due to the what I'll call the disruption.
Spike in interest rates, whether youre looking at a fixed rate product R&R and so we elected to.
To help our customers get the mortgages quicker so that resulted in putting those into the.
Our loan portfolio. We also have we can't sell construction loans, but you see some of that growth being in there as well, but coming to the outlook.
Would be that our growth in that portfolio would be more close to the first quarter run rate, 7%, but then getting into the gain on sale. So we had $5 million in the second quarter, we could see that stepping up.
$7 million to $8 million in each of Q3 and Q4.
And then that's how we'll get to the what.
Randy mentioned from the MBA perspective.
Okay great.
It's very helpful. I appreciate it.
<unk>.
And then just given the kind of really quick.
And kind of the mortgage market I'm curious.
One win win.
When volumes are really high back in 2000, 22021 did you alter staffing or anything within your mortgage division and then kind of going forward in a more kind of normalized mortgage market and any changes you're looking to make in the business.
Yes.
Very.
Happy with our mortgage business, a core offering for us being a community bank to serve the markets with a high level of service.
We are getting more efficient there and we have allocated as the volumes have changed our approach is more we reallocate those people within the company. So you can see our FTE quarter to quarter is flat part of the reason for that is we're able to take reallocate people working in the mortgage business and.
Have them.
Reallocated to other parts of the business. So we are giving.
Improving efficiency and expense management through really managing in that way.
Okay perfect.
Perfect. Thanks for the color and thanks for taking my questions.
Thank you.
Yes.
Again, ladies and gentlemen, if you do have a question. Please press Star then one our next question will come from Jeff for a list of D. A Davidson your line is open.
Thanks, Good morning.
Good morning.
Ed.
Really just a question on maybe a couple of housekeeping items.
On the maybe just the tax rate expectations on that and then.
I missed the new production loan yields this quarter versus last.
Yes.
Yes, Ron here, let me speak to the tax rate.
Last quarter that it would ramp up somewhere between 19, and 20% I could see it routine.
It'll be a ramp up.
Hitting.
2019 to 19, 5%.
That down a little bit as we get closer to the year.
That's the outlook.
Yes.
The.
So on new production.
This quarter.
New production on loans.
We're right around $4 59, and Thats about 39 basis points over the prior quarter.
Got it.
Thanks Randy.
Great and just switching gears.
Yes, I think economic concerns in a market correction.
And I think leads to some M&A caused by by nature, but.
Any kind of update on conversations on that front and I guess your appetite.
Do you seek partnerships.
Sure.
Sure.
Our time our outlook remains the same I think we did we have been saying we wanted to get through the.
Altra conversion nature of that that went well.
As well as.
Making sure.
A number of technology projects, we have perceived all that's gone really well so we talked about at the earliest ended the year.
And or next year that we would make an announcement.
One thing that I think is obviously.
Change is certainly are.
View on credit I think we're going to be taking a deeper look.
Given some of the uncertainty there.
But in terms of our interest in pursuing that as a strategy that hasnt changed.
Fair enough. Thanks.
Thank you I would now like to turn the conference back over to Mr. Kessler for closing remarks.
Right well very good I appreciate the questions I know, it's a busy season for our analysts. So we appreciate you taking the time with us and as always in asking some great questions.
Thank you everyone else for dialing in today and hope you have a great great Friday and a great weekend. Thank you.
This concludes today's conference. Thank you for participating you may now disconnect.
Okay.
The conference will begin shortly to raise Johan during Q&A, you can dial stolen.
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Yes.
Yes.
Okay.
Okay.
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Okay.
<unk>.