Earnings Labs

Glacier Bancorp, Inc. (GBCI)

Q1 2015 Earnings Call· Fri, Apr 24, 2015

$49.41

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Transcript

Operator

Operator

Good day ladies and gentlemen. Welcome to the Glacier Bancorp First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mick Blodnick, President and CEO. You may begin.

Mick Blodnick

Analyst

Thank you. Welcome and I appreciate you joining us today. With me this morning is Ron Copher, our Chief Financial Officer; Barry Johnston, our Chief Credit Administrator; Angela Dose, our Principal Accounting Officer; and Don McCarthy, our Controller. Yesterday, we reported earnings for the first quarter of 2015. For the quarter, we earned net income of $27.7 million that is an increase of 4% compared to the $26.7 million earned in last year’s quarter. We produced diluted earnings per share for the quarter of $0.37 that compares to $0.36 in the prior year’s quarter of 3%. As we assessed our first quarter performance, a couple of things stood out. It was the best first quarter we have ever had in regards to loan growth. Our net interest margin moved back above 4% as our banks continued to do good job maintaining a stable margin. And mortgage origination fees were much higher than we projected for this time of year, although like many institutions, we benefited from a drop in rates in the early part of the quarter. The quarter’s results did contain onetime acquisition and conversion expenses totaling $675,000. However, they were partially offset with proceeds we received from bank-owned life insurance policy totaling $336,000. Aside from these two figures, the quarter was void of anything else unusual. We again generated a very respectable return on assets for the quarter of 1.36% and return on tangible equity of 12.59%. For the past five quarters, our earnings have consistently been in that range. We’re very proud of our ability to consistently delivery this high level of performance to our shareholders. On February 28, we closed on the Montana Community Banks, Inc. transaction and its subsidiary community banking. We expect this will be a very good addition to our company as we…

Operator

Operator

Thank you. [Operator Instructions] Our first question comes from the line Jacque Chimera of KBW. Your line is now open.

Jacquelynne Chimera

Analyst

Hi, good morning, Mick.

Mick Blodnick

Analyst

Hi Jacque, how are you?

Jacquelynne Chimera

Analyst

I’m good. How are you?

Mick Blodnick

Analyst

Very good.

Jacquelynne Chimera

Analyst

I wonder if you could touch on the loan yield expansion in the quarter, I know you gave a little bit of color on your prepared remarks but I was just curious what the absolute amount in basis points of accretion was this quarter versus last quarter, if maybe there were some interest recoveries in there, maybe it’s a loan mix contributed, just any color do you have would be great?

Mick Blodnick

Analyst

You bet. As I mentioned in my formal remarks of the increase, there was a 12 basis point increase in loan yields during the quarter. Four of those came from purchase accounting adjustments, the other eight was really primarily just a change in mix, I think the banks did a very good job, I mean I think Barry was telling me that he is very pleased that as how the banks were able to take the loan volume we had, and maintain those yields and in some cases improve them Jacque. And then we did benefit about – the overall margin is benefited about two basis points from Community Bank. And as Angela and myself dug into that number it appears that probably about two of the 12 basis points was a function of Community Bank and a little bit higher overall loan yield will be proud for them. So in essence to give you even more color, there are probably four things that led to it, mix change, Community Bank, little bit better pricing this quarter from our banks and then purchase account adjustments.

Jacquelynne Chimera

Analyst

So, given the movement that we had in rates this quarter, how were your banks able to achieve better pricing?

Mick Blodnick

Analyst

Do you want to take that Barry?

Barry Johnston

Analyst

Yeah, I’ll take that. Basically we had an outstanding quarter in loan growth which especially for this time of the year is even more impressive. And frankly, a little surprise by but what ultimately I think led to a lot of them is just the mix of loans that we brought, not – it was, we’ve run in some C&I loans which traditionally have little better yields than some of our commercial real estate and some of our single family residential. And we have some draws on some existing lines that also have some yields that were above the mix, so that’s the bulk of it right there.

Jacquelynne Chimera

Analyst

Okay. So increased utilization contributed the sum of the C&I growth in the quarter?

Barry Johnston

Analyst

Yes.

Jacquelynne Chimera

Analyst

And do you know what utilization was this quarter versus last quarter?

Barry Johnston

Analyst

I don’t have that exact number and those exact product lines but we have some draws on some lines that – and we have a fairly nice spring and weather conditions here that we haven’t seen. We have some draws on some agricultural credits down the quarter that we saw, so that’s basically some of those lines will price better than the average sort of, so that’s where we saw the yield mix.

Mick Blodnick

Analyst

We can sure get that for you Jacque, and in my comments I did mention that C&I was the highest dollar increase within the portfolio that we saw in the past quarter, and as Barry laid out, there is three or four benefits in that regard. But as far as the utilization, we could certain get you…

Barry Johnston

Analyst

Yeah, our C&I went up $40 million which the bulk of that is revolving lines of credit. And most of that is priced at time plus a half time plus one. So, it is in that ball park, so that was a big part of it.

Mick Blodnick

Analyst

I wonder if some of those also Barry have floors on them.

Barry Johnston

Analyst

Yeah, some of them will have floors, but also the other part of it is agricultural credits went up about close to $30 million and almost all of that is variable rate, it’s annual operating lines of credit. And for the most those probably do not have floors on them but we did see an increase there too. So that was, usually we have some pretty good rates on them, so that’s the bulk of it.

Jacquelynne Chimera

Analyst

Okay. So is it safe to say then that in addition to the benefit of the loan growth that you have in the quarter you also improved your interest rate position a little bit with line got down?

Barry Johnston

Analyst

Yeah, I think that would be accurate.

Mick Blodnick

Analyst

Yeah. I think that’s – that would be a good assessment Jacque.

Jacquelynne Chimera

Analyst

Okay.

Mick Blodnick

Analyst

And then as I mentioned, I don’t – it’s always hard to say and I hate to project and get too excited about some of these things but we do know for a fact that as I mentioned, that most of the growth in the loan portfolio and in the investment portfolio to most of those investments that I talked about were primarily all added in the second half of the quarter. So, as I look at the kind of the loan growth and investment growth we saw and then you’ll look at interest income that we achieved both on a sequential and year ago period basis, it seems like it maybe could have at least I thought I mean it could have been a little bit higher but when I looked at the timing of when those loans came on the books and when those investments were booked, we’ve as best got a half a quarter out of that, and in some cases only a third of a quarter. So I think that should help as we move into the second quarter, entering that quarter with much higher balances now.

Jacquelynne Chimera

Analyst

Okay. So outside of the lines ability that continued downward pressure on rates, the loan yield expansion that we saw in the quarter doesn’t accurately reflect the actual loan yield expansion at quarter end.

Mick Blodnick

Analyst

That – come again though.

Jacquelynne Chimera

Analyst

So, kind of with the – that some of the loans really on the books for a half a quarter, maybe even a third a quarter even though loan yields were up significantly in the quarter there is like we still more expansion to come.

Mick Blodnick

Analyst

Definitely, and not too much on the yield side but definitely on the absolute dollar side is the way I’m looking at that.

Jacquelynne Chimera

Analyst

Okay. Why not as much on the – I mean, so the new generation didn’t impact the yields in the quarter?

Mick Blodnick

Analyst

The new generation…

Jacquelynne Chimera

Analyst

I guess I was trying to understanding how it would impact the dollar that not necessarily, there wouldn’t be any further benefit to the yield.

Mick Blodnick

Analyst

Well, I mean I’m just looking in general terms that the yields are the yields but we only had, let’s just say 45 days to earn on these balances. In the second quarter we should have 90 days or 91 days to earn on those balances, even if the yields don’t change much at all I’m just saying that we will have a full quarter now of having a little bit over a $100 million in organic loans and $200 million in investments that were not on the balance sheet the first half of the quarter that now will be. So I mean just the fact that those balances have grown, we will be earning on a higher balance of dollars in the second quarter.

Jacquelynne Chimera

Analyst

Okay, well fair enough, that makes sense. Okay, thanks very much for all the color, I appreciate it.

Mick Blodnick

Analyst

You bet, Jacque.

Operator

Operator

Thank you. And the next question comes from the line of Joe Morford of JP – I’m sorry, RBC Capital Markets. Your line is now open.

Joseph Morford

Analyst

Thanks. Good morning, Mick.

Mick Blodnick

Analyst

Hi, Joe.

Joseph Morford

Analyst

I guess just first on upon Jacque’s kind of questioning, just to clarify on the loan yields, it’s not that you’re suggesting that the competitive environment has lightened up at all, it’s just more in the mix of credits that you were booking in the quarter.

Mick Blodnick

Analyst

Absolutely. Yeah, because I would argue that the competitive environment has maybe even gotten a little bit more challenging than it was last quarter or the quarter before. So yeah, you’re absolutely right, most of what we perceive as, and what we’ve analyzed is the increase is more coming from the change of mix though we’ve generated and as Barry pointed, the advances that we got in the quarter in the C&I portfolio as well as the [indiscernible] portfolio probably definitely help that yield. So, no I don’t want anybody to think that the competition is allowing us to price higher and higher, I don’t believe that to be the case at all Joe.

Joseph Morford

Analyst

Okay. And I was just curious on kind of what sectors within C&I were you seeing some of these better draw downs or what parts of that portfolio?

Mick Blodnick

Analyst

I just don’t have that detail, Joe.

Joseph Morford

Analyst

Okay.

Mick Blodnick

Analyst

In front of me, I can probably dig it out but…

Joseph Morford

Analyst

No, that’s okay, no worries.

Mick Blodnick

Analyst

Okay. But Joe, the thing is that we just start seeing, we’re seeing where we’re really seeing the competitor pressure is on the commercial real estate side. There is no doubt that there is some kind of a pressures in the C&I portfolio but especially on commercial real estate side and probably the term, I mean those – we’re seeing some of our competitors no longer out on the curve and what you’re seeing historically. And whether or not we go in there, we look at individual relationships to see if we want to follow the crowd but that’s where the real pressure is. And overall those rates, the new rates coming on just aren’t where we’re at historically.

Joseph Morford

Analyst

Okay, that’s much more consistent with what we’re hearing from others. I guess the other question is that obviously you did a lot to deploy excess liquidity in the quarter. Is there still some more work to do there or kind of cash balances now down to that you would consider more normalized levels where you’d like to see them?

Mick Blodnick

Analyst

Yeah, most definitely they’re more normalized now. I think we did what we set out to do Joe during the quarter, I mean honestly like I said we kind of probably heard on margin, there was no doubt it did in the fourth quarter, carrying those kinds of balances in cash, something we had never really seen to that level before. Once we’ve recognized that those balances were not going away towards the end of January or in February we made a conscious decision that we needed to do something different that holding needs, it seem like they were not going to roll out the door like we were worried about in the fourth quarter. One of the reasons we did not invested in the fourth quarter is we just didn’t know how stable some of these deposits work, coming from various municipalities, title companies some of our large customers. But as we started getting into the first quarter Joe, those balances just stayed very, very stead and solid. So we made the decision. We have gone about as far as we feel comfortable going as far as investing that cash. Again it was just about $200 million which is still not nowhere near where that the balances were, but at least we’re more comfortable now Joe, that we’ve taken a portion of that cash and redeployed it into better earning assets.

Joseph Morford

Analyst

Okay, that’s great. Thanks so much.

Mick Blodnick

Analyst

You bet.

Operator

Operator

Thank you. Our next question comes from the line of Matthew Forgotson of Sandler ONeill. Your line is now open.

Matthew Forgotson

Analyst

Hi, good morning, gentlemen.

Mick Blodnick

Analyst

Hi, Matthew.

Matthew Forgotson

Analyst

Just, so the liquidities has been deployed but how about cash flow from the securities portfolio kind of going forward, do you think that 37% securities to assets just kind of where you expect to run as we move through the year or do you still see that coming down in the periods ahead ultimately towards that 20% you’ve laid out for us in the past?

Mick Blodnick

Analyst

Matthew, now that we’ve redeployed that cash, and of course, we didn’t expect that run up in cash and that was not necessarily a function of us getting a bunch of prepayments that we just stored on the balance, that – in the fourth quarter that was truly more a function of our customer base adding deposits to the company. We’ve made that shift now, we’ve adjusted our cash positions, redeployed those dollars. Now, it’s all going to be depended Matthew, on the kind of loan growth we see the rest of the year. If loans growth at the kind of pace we saw in first quarter throughout the rest of year, there is a good chance you could see that start that investment portfolio start to decline again. If by some chance the loans that get shuts off then my guess is that the reduction investments will probably not take place or take place in any great percentage amount.

Matthew Forgotson

Analyst

So if we were to just assume that loan growth remain strong in the second quarter and through the back half of the year, kind of where would you like to see that securities to asset ratio be by the time we step into 2016?

Mick Blodnick

Analyst

Then, you would almost hope that it would be somewhere in that 30% to 35% range because it’s more difficult without just selling securities, which we’re not – that’s just not our MO, we never had been a big buyer – we buy lot of securities, we just don’t sell them. And now that prepayments speeds and some of those slow down, it’s not like it was two or three years ago where in the course of one month you could let $200 million run off the investment portfolio just from CMO prepayments. Those have slowed way down, of course, the portfolio is nowhere near the same sizes of one’s either. So, from that perspective we just don’t have the same opportunities that we have a year or two ago, Matthew to really make those major reductions, unless we were going to again sell pieces of portfolio, and that’s never been even these last two or three years as we taken that investment portfolio from 48%, 49% of assets down to 35% at the end of last year. We never did that through the sale, we did that just through normal amortization, prepayments, pay offs, calls those kinds of things. And it’d be my expectation we would continue to do that going forward, its’ just that we do have some hard wired securities with fixed maturities, not spitting off any cash flowing thing ever each quarter. So when they come due, yes, there is always that opportunity to let goals move off of the books, but even there it was always about CMO and mortgage back security cash flow, and we just don’t have that same amount of dollars coming due anymore.

Matthew Forgotson

Analyst

Okay, okay. Transitioning to expense and then I’ll hop out. I know we’re going to observe a full quarters worth of kind of Community Banks in the second quarter. But given this dynamic and the conversation which I expect is still scheduled for June, how should we be thinking about the expense trajectory as we move through the year?

Mick Blodnick

Analyst

Well, that’s a great question and I wish I had a really great answer. I mean I think that we’ve got a couple of initiatives internally to, among all 13 of the bank divisions, the whole line on expenses but at that same time it takes resources to get through these platform conversions. We’ve got a couple of other internal projects that we’re working on right now that long-term we think are going to have tremendous benefits to the entire company but those kinds of projects they take additional resources right now to get them completed. So, it’s very good question, I mean all I can say is that we’ve laid out a goal out there of 53% efficiency for this year, that’s what we are targeting, that’s what we have budgeted for. We think we’ve got some good revenue quarters in front of us, at least if history is any indicator. And then as I said in my remarks, I think it’s up to us to try in all the banks to really drive a whole new line on the expense side but we got to be realistic, some of these initiatives that we have underway in the near term that you are going to come with some additional costs, and that’s just – there is just no way getting around, and if we’re going to do it right, if we’re going to get them completed on time, some of these things just take more resources and more dollars. But overall, you’re doing it for only one reason that is to make the entire company more efficient, more productive, more streamline going forward.

Matthew Forgotson

Analyst

Thank you very much.

Mick Blodnick

Analyst

You bet, Matthew.

Operator

Operator

Thank you. And our next question comes from the line of Jeff Rulis of D A Davidson. Your line is now open.

Jeff Rulis

Analyst

Thanks. Good morning, Mick.

Mick Blodnick

Analyst

Hi, Jeff.

Jeff Rulis

Analyst

Matt didn’t believe at the loan yield discussion but I guess that was, a lot of that was just Q1 alone I guess I’d be interested in Q2 the first kind of several weeks here. How that loan mix and loan yields has transitioned? You said there is some carry forward benefit but I guess production so far in the quarter, has that continued on to where you could see continued loan yield increase?

Mick Blodnick

Analyst

Well, I guess Jeff, we’re coming from there, I mean if we could have a replication of what we did in the first quarter volume wise in the second quarter we would be ecstatic. Now, and I’ll say is that, and I mentioned this in my formal remarks, we carried fair amount of momentum and I mentioned that at last quarter’s call in January that we knew we were carrying a fair amount of momentum. There was a couple of larger deals that got closed in this quarter that we knew about last quarter, we just knew they wouldn’t have closed until the first quarter but we were confident that they were going to close. That obviously helped the numbers. It wasn’t the whole reason though I mean like Barry said, we still had and I certainly believed we had an exceptional quarter from the loan growth perspective, even excluding a couple of those larger transactions that we kind of knew about last quarter. As we entered this quarter, we don’t have as many of those to look forward to, but at the same time, it is the second and third quarter of the year. Like Barry said, we will start to see [indiscernible] lines be being advanced upon, there wasn’t – there was some of that as Barry said in the first quarter but it’s a very tail end. I mean I think the most part, most of those advances are going to be a second quarter event. And yet the activity I think Barry you said, the activity level stays pretty solid, it’s not a run away, I mean we’re not seeing just being flooded but with request, but I think the activity level that we’re seeing right now as were – like you said Jeff, three weeks…

Jeff Rulis

Analyst

Right. So I get you on the volume side, I guess specific to the loan yield it was relative to Q1 so far in Q2 how is the loan yield changed if at all?

Mick Blodnick

Analyst

Yeah, I don’t think there has been too much.

Jeff Rulis

Analyst

Okay.

Mick Blodnick

Analyst

I’m not saying that this quarter, I would not necessarily expect that we’re going to generate 12 basis points of additional loan yield in the second quarter, no. I mean that probably, if I was a [indiscernible] person, I’d say, no that’s not going to happen, can we hold the yields. I mean we’re always looking, when we have quarter like we did, we sit back and say, wow that’s great, now can we hold it, or is there something this quarter that’s going to cause a six or seven basis point reduction in yield. I don’t think we’re seeing anything like that yet, certainly it’s early in the quarter Jeff but I don’t believe that anything is coming to our attention I wouldn’t say that, but right now we finished the second quarter in loan yields that we delivered – the increase we delivered in the first quarter stays constant, we’d be happy with that, very happy.

Jeff Rulis

Analyst

Okay, thanks Mick.

Mick Blodnick

Analyst

You bet, Jeff.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Daniel Cardenas of Raymond James. Your line is now open.

Daniel Cardenas

Analyst

Good morning, guys.

Mick Blodnick

Analyst

Hi, Dan.

Daniel Cardenas

Analyst

Just changing subject to just a little bit. Maybe if you could give us an update on the CEO search and whether or not if you think an announcing would still be a Q2 event?

Mick Blodnick

Analyst

Yes, the announcement – I’m confident the announcement is going to be a Q2 event Dan, and right now I mean the expectation is that in August we would have my successor onboard and working. So we see no reason to deviate from what I’ve been mentioning in the past that second quarter will have that individual remained and hopefully by early to mid third quarter have the person on the ground.

Daniel Cardenas

Analyst

Excellent. And then maybe just some color on the M&A environment, whether there has been any big changes from when we last spoke?

Mick Blodnick

Analyst

No, not really. There are still things that we’re definitely looking at. We put in a – we put a bid couple of weeks ago on one, I don’t think that’s going to happen, that’s fine. There is other things that we’re certainly constantly working on. I would say from that this – for the first quarter this year versus as I remember back the first quarter of last year, seems like it’s not quite that frothy. I mean it seems like last year about this time, I mean it was hard to even keep track of all of the requests, enquiries that were coming in. I would certainly say it’s not like that anymore, but there – once a month there seems like there is another opportunity that’s being presented to us. And for us, we’re still keeping our fingers crossed, we’re still certainly hoping that we can announce two more deals yet in 2015. But we’ll see, I mean it’s got to be – they got to be good for everyone concerned and we’ll see if we can put a couple of these together, we certainly hope we can but only time will tell. But I would get back to your question Dan, I just sense that there is things that we’re currently working on, but it’s not like there is eight or nine things that have been presented to us within the last quarter, that’s not the case.

Daniel Cardenas

Analyst

Then on the loan growth side, maybe some color as to what percentage of the first quarter growth was market share grab versus maybe just people coming off the side lines and starting to invest for future growth.

Mick Blodnick

Analyst

No, we have some – I had an interesting discussion with one of our bank presidents just yesterday that they commented that it was very, very – this was one of, this was in Colorado, so Mark was the one who is telling me that he thought it was refreshing that mainstream businesses, he was seeing a bigger and bigger increase in mainstream businesses coming to the bank and looking to do something. Something that he says that’s been a number of years since even during the downtown where a lot of those mainstream businesses kind of pulled in their horns and didn’t do a lot. He says he is seeing more and more of that, so he is feeling that they’re getting a little bit more confident, they’re getting little more comfortable, there seem some opportunities to expand their businesses and he is seeing opportunities from our perspective to lend them more money. That averages one bank, one bank president that commented but Barry, are you seeing that, I mean do you that’s happening across the footprint or?

Barry Johnston

Analyst

No, not really. It’s a kind of hit-and-miss, but nothing is steady.

Mick Blodnick

Analyst

So, I mean here again maybe that’s just a function of that market, that economy. So there again Dan, I guess we can’t assume that that is taking place in all the other states and all the communities. That was just the comment that we would have in that discussion yesterday and he was pretty upbeat about the fact that mainstream businesses were in his markets were coming back to borrowing more money. So, but it sounds like from what Barry seeing is certainly not systemic and we’re not seeing it across the footprint.

Barry Johnston

Analyst

We – it’s just being borrows what we’re seeing is debt performance but its’ probably based on kind of out of the down cycle. So, already back to hidden in the cover the fall I’m not sure if that’s definitely back from when times were tough.

Daniel Cardenas

Analyst

Thanks, great, thanks for the color. Good quarter guys.

Mick Blodnick

Analyst

You bet. Thanks Dan.

Operator

Operator

Thank you. And we have a follow-up question from the line of Jacque Chimera of KBW. Your line is now open.

Jacquelynne Chimera

Analyst

Hi again, I just have one quick follow-up. And I wondered if you could shed a little bit of color on if there was any change in premium amortization between 4Q and 1Q, and then just your expectations for 2Q?

Mick Blodnick

Analyst

No, that really wasn’t in the first quarter Jacque, that’s a great question. Whether there could be a slight uptick in the second quarter that could be possible because obviously we did see a little bit better refinance volume in the middle part of the first quarter. And as you know, once those refinances take place it’s usually six or eight weeks before they flow through the security portfolio. But two things there that probably based on our analysis are not going to move the needle much one way or another is, our CMO portfolio is number one, it’s smaller, much, much smaller than it was a couple of years ago, first and foremost. Number two, the premiums that we purchased some of these CMOs are not the same as they were two or three years ago, so you don’t have that same dollar amount of premiums to amortize. And then it just appears as though as we look at the numbers every week that we’re not seeing any kind of real spike up in prepayment speeds. Now, where the prepayment speeds in margin little bit higher than they were in January, yes but it’s probably insignificant. So, we’re not expecting that premium amortization is going to be much of a story for us anytime soon and forever because I can see that portfolio continues to get smaller and smaller. Certainly not the story it was for us in 2012 and 2013.

Jacquelynne Chimera

Analyst

Okay, great. Thanks Mick, that’s very helpful.

Mick Blodnick

Analyst

You bet, Jacque.

Operator

Operator

Thank you. And I’m showing no further questions at this time.

Mick Blodnick

Analyst

Okay. Well, thank you all very much for joining us today. As I said, I think we’re off to a good start for 2015. We’re excited thinking that at least historically the three best quarters for us lie ahead of us, so I certainly hope that history in that respect repeats itself this year. And I hope everyone has a great weekend and thank you very much again for joining us this morning. Good bye now.

Operator

Operator

Ladies and gentlemen, thank you participating in today’s conference. That does conclude today’s program, you may all disconnect. Have a great day everyone.