Good day, ladies and gentlemen, and 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 and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Randy Chesler, President and CEO, of Glacier Bancorp. Sir, you may begin.

All right. Thank you, Joelle. Good morning and thank you for joining us today. With me here in Kalispell this morning is Ron Copher, our Chief Financial Officer; Barry Johnston, our Chief Credit Administrator; Angela Dose, our Chief Accounting Officer; and joining us by phone is Don Cherry, our Chief Administrative Officer. So let me first thank you all for joining us today and let you know that we will try to keep -- we will try to avoid scheduling this call on a holiday going forward. So I'll try to keep my comments brief this morning. Yesterday we’ve released our first quarter 2019 results and this was a solid quarter with well-balanced business performance, and we announced two acquisitions, First National Bank of Layton in Utah and Heritage Bank in Reno, Nevada, that one being one of the largest transactions in the company's history. These transactions will add over $1.1 billion in assets by year end. So, some highlights and some details from the quarters -- from this quarter. Earnings for the quarter were $49.1 million, an increase of $10.5 million or 27% over the prior year first quarter. Diluted earnings per share for the quarter were $0.58, an increase of 21% over the prior year first quarter. Average loan balances increased 4% annualized from the prior quarter and 2% annualized point to point. We also had core deposit growth of $70.1 million or 3% annualized. Notably, non-interest deposit growth was $49.9 million or 7% annualized. Our net interest margin of 4.34% of earning assets was up 4 basis points over the prior quarter and up 24 basis points versus a year ago. Our yields on earning assets increased 10 basis points from the prior quarter to 4.74%. And our loan yields increased 13 basis points from the prior…

Thank you. [Operator Instructions] Our first question comes from Jackie Bohlen with KBW. Your line is now open.

Hi. Good morning, everyone.

Good morning, Jackie.

We -- I wondered if you could provide us with a -- just a reminder an update on what's the impact of Durban will be on July 1st, outside of the two acquisitions just on the legacy Glacier?

Yes, look, it's really the same, so it does start to kick it in this July. And then for the first -- for 2019, about $8 million impact and then going forwards between 2017 and 2020 is what we're estimating in 2020.

And then that -- is that related to acquisitions or just expectations for growth at the combined franchise that jump because if I double that 8, I get 16…

Yes, it's a little both. Yes.

Okay, that's helpful. Thank you. And then outside of seasonality understanding, it was a cold winter and everything that happened was there anything unusual in fees that occurred in the first quarter?

No. And we hate to bring up -- we had a long discussion about it, but it was just such a cold February with record breaking temperatures and record breaking snowfall. And our customers builders tell us that when the temperature drops below zero, where it was for more than half the month or about half of that month, they stop all activity, equipment breaks, people get injured. So things really stop at that point. And that had a bit of an impact on our volume.

Yes, no understood that's not a condition anyone should be working again. And then, I guess, when you think about the go forward volume, particularly in terms of mortgage banking, how are you thinking about 2019 versus 2018?

Yes, we feel very good about our mortgage business. We're having a very strong start to this quarter. So we're happy to see that. We see refinances starting to actually pick up, given the interest rates drop a bit. So on a full year basis, once again, we feel it's going to look a lot like 2018. Just about the same kind of range of volume. So very, very stable.

Okay. And is there a possibility that if refinance volume independent on rates obviously continues to pick up we might see, even a little bit higher in 2019 or are there other forces that might offset some of that pickup?

Well, our own -- a bit of a headwind here is just supply. So we continue to wrestle with in many of our markets lack of supply. And so -- and also labor to build is in tight supply. So that's a bit of a limiter on really over performing against the prior year. And I think when we look at the amount of refis, rates would have to drop a little bit more for that to open up significantly. So I would say there's a possibility Jackie, but we just don't see that as being a material change to the outlook.

Okay. No, that's great color. Thank you, Randy. I'll step back now.

All right. You're welcome,

And our next question comes from Gordon McGuire with Stephens Inc. Your line is now open.

Good morning, gentlemen.

Good morning, Gordon.

So maybe just to start on the NIM, Ron, do you have how much the accretion in the quarter was? And then maybe also the yield on the new originations this quarter?

Yes. So, on the new origination that's north of 5.50. And that hopefully will continue. When you say the accretion you're talking to purchase accounting discount accretion.

Yes.

Yes, that's same as it was in the fourth quarter, 5 basis points.

Got it. And then maybe just talking around the NIM outlook for this year, in January, you sounded pretty positive just getting your loan repricing dynamic and how it really takes kind of a second year following rates to reprice. In the same vein, though, I think most of your loans are priced off the five years. So I'm wondering, just with the five year where it's at if your NIM versus kind of where it was three months ago has that moderated any and maybe if you could just talk about the repricing dynamics in your loan book and just the expectation for those yields throughout the year.

Yes, so there's certainly momentum and really upward bias. But you're correct. Most of our portfolio is tied to the five year federal home loan bank advances and pulls the rate this morning. So just from 930 of last year, we've dropped through last night, basically 50 basis points. Now we're starting to see that come back up, but that's one of the key drivers. So we still feel there's upward bias. But two things we're also observing. The credit unions have certainly done part of those irrational characters, and we've spoken to it they're not everywhere, but where they are they act up, if I may say that. But we're also seeing it in some of the bank space as well. And, we're not going to compete with irrational pricing. So I'll borrow the word, Randy, said the headwinds are there, but we really feel that with the addition of Layton and Heritage that we will see expansion on our net interest margin. In fact, collectively, they'll bring 2 basis points to the margin. So we still feel good about it. But I don't want to hazard a number. It's too early to do that.

Got it. And then just on taxable securities yields, I think they were up 19 basis points this quarter. I'm wondering if anything changed as far as your strategy around the investment portfolio, with the change in rate outlook this quarter, maybe can you talk about what you're buying at this point, and whether maybe that investment was early in the quarter, late in the quarter, just how can I think about maybe any carryover into the second quarter?

Yes, so on the taxable investments we've been buying selectively commercial mortgage backed security, and then just going out a little bit longer with the duration, but nothing meaningful. And so the impact of that was really during the fourth quarter last year. We started buying the securities that we thought we’d want to have and decided to put them on. And so we’re having for the full year. So that's really the impact there.

Got it. And then just lastly, the tax rate guidance, are you still thinking around a 20% level, just given you’re coming below that this quarter if that's still good.

Well, as I went back and looked at the transcript, so what I said was for the full year 20% would be the rate and truly that's in connection with the fact when you bring on that much income from Heritage and Layton, they don't have a big muni portfolio. And so our municipal investments are trending down. We actually sold some of the lower yielding ones in the first quarter. So 20% for the full year, and then you could ramp up quarter-over-quarter it's going to get steady, higher to where it will average out 20% for the full year.

All right. That's all I had. Thank you, guys.

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

Thanks, good morning.

Good morning, Jeff.

Just wanted to touch on -- and not to focus too much on the weather, but the -- and you did reiterate the target for loan growth of 8%, but any sense that there was a little bit of pent up sort of potential that they'd be translated or pushed into the second quarter given whether kind of a lumpier, I guess early returns on the second quarter you’re seeing some pretty good activity on that front from a loan growth perspective.

No, I wouldn't call it pent up demand, I actually think that what we're seeing is a little digestive capacity that projects have been built. They're being utilized, they're being filled, they're being sold, but the economies are still good. But I think the velocity there's a bit of a digestive period. And that I think is what we see a little bit now with our customers and that's why I say, we still feel good about the 8%. But I don't think we're going to overachieve that.

Okay. So it was more I think you said $615 million in paydown. So maybe just timing it was kind of a lumpy.

Yes.

Okay, fair enough.

Yes, yes. The construction loans paid off and because of that both the digestive capacity and the weather, we didn't see a lot of new activity startup.

Got it. Okay.

We’re seeing it some of it now, but I want to give you the right color, I wouldn't call it a surge of activity.

Got it, okay. Other income that line item was up a little over a million sequentially, I don't know if that was a function of Q4 being a little light, but anything in that line item to note?

Yes, Gordon, -- I'm sorry Jeff, forgive me. Just gain on sale of OREO income we had some income come in from our equity investments and that can vary from time to time, but nothing that really sticks out.

Okay. Maybe just one last one for Barry on the provisioning level lighter net growth credit certainly trending well. Just any thoughts on the provisioning level it's a wide range, but any commentary on that front.

As always, we looked at it every quarter and depending on our credit metrics and growth in the portfolio or non-growth we make the adjustment accordingly and given some improvement in PLs and minimal loan growth we adjusted the provision accordingly.

Okay, thank you.

Thank you. And our next question comes from Michael Young with SunTrust. Your line is now open.

Hey, good morning, everyone.

Good morning Michael.

Wanted to start with a quick follow up actually on the provision question, just as we look forward to maybe 2020 and kind of a post CECL environment and you guys are still at over 1.5% reserve and now the NPAs being so low. It just doesn't seem like there'd be any upward pressure from kind of the implementation of that in terms of a onetime hit or even in maybe your provision run rate going forward. But I don't know if you have any early indications that you're willing to share at this point, just qualitatively?

Well, so CECL we're still -- we're proceeding with it. We're pulling it all together. We are starting to do our run. So I think it's a little early to tell. But I think at a gut level, I think you're probably directionally correct. But I can’t tell you that we have the numbers to support that at this point. But that feels about right. We feel we're very well positioned, very well reserved. We don't expect a lot of surprises to come out of CECL.

Okay. And then, just maybe switching gears to the deposit front. You guys have very good demand deposit inflows this quarter that's been pretty light, I would say generally across the industry with a lot of people having demand deposits go down. I know you guys have obviously stayed focused there. But I was wondering if there were any additional benefits from just some of these projects that did payoff and on the loan side with some cash flowing back into the Bank from those or was it really just kind of core growth?

Yes, it seems to be pretty spread out and I'd have to say more core growth. I don't think there was any particular, kind of one source. So it seem to be spread out and pretty much just consistent with our long-term strategy of building those kind of brick by brick. And increased I think, Barry, turned up the discussions around loans and making sure deposit relationships follow.

Okay. Good. And then last one for me, maybe just Ron on the duration kind of on that five year loan book, is it pretty close to five years or is it much shorter, more like a three year kind of duration? I'm just trying to think about the vintage and pricing of the loans that are running off versus as you make these new loans at higher pricing dynamics like kind of when the shift in the five year rates going to actually start to flow through into loan yields?

Yes, it's closer to five years. And anything it's come down a little bit, but it’s hovering around five year duration.

Okay. So even with the decline in the five year rate over the last six months, as you mentioned, I mean, we still got multiple years of repricing higher on the loan front going forward, is that fair?

Yes, very fair.

Okay, all right. That's all for me. Thanks, guys.

Thank you. And our next question comes from Matthew Clark with Piper Jaffray. Your line is now open.

Hi, good morning.

Good morning, Matthew.

Just on deposit rates, do you happen to have the spot rate on your interest bearing deposits at the end of March relative to the 34 basis points in the quarter?

Interest bearing. The overall core was up too and most of that was in money market and CDs. So I don't know if that's getting at your question.

Yes. Well, I guess what I'm thinking about is just with the Fed on hold from here. Is there less pressure to price up at this point? And, maybe we start to see some stabilization of deposit costs and do you feel that because you're still below the market, you're just going to need to continue to kind of play a little bit of catch up here for the foreseeable future.

There's an -- it stick to where it is a whole and all our markets are at a very interesting point, where yes the Fed has signaled stable probably no change to possible decrease. Yet at the same time banks in the market are -- many of them are loaned up past the 100% loan to deposit and need deposits. And so that's a bit of a headwind. But, our core -- what we're seeing as our core deposits remain very, very good and especially our transaction accounts really not subject to a lot of pressure. In some markets and in this quarter is really, we price individually the 14 divisions, two in particular had a little more pressure where they decided to make some changes to their pricing. And, I think where it will depend on the actions of the Fed and kind of where I think loan demand goes in the industry to really tell us where if there'll be continued pricing we don't expect a material change. I think it's more degrees of pressure on it.

Okay. And then when you look at your criticized classified trends, I mean, charge-offs were low this quarter non-performers down, provision obviously lighter than expected, but can you give us a sense for any migration in your criticized classified loans, and what if there is some migration or some deterioration what -- where it resides?

Yes, the only the only challenge that we're seeing right now is with our some of our agricultural credits, primarily hard grains. Prices have moved up recently, but not to a point where those borrowers are able to clear their operating lines, depending on the location, and other factors, weather being one of the biggest ones of. That's about the only place that we're seeing it, the rest of the portfolio is we're very pleased with the performance there and have seen some improvement across the other product lines.

Great. And maybe, Barry, as well on just the discount on the loan portfolio so that we can adjust the reserve or gross it up this quarter for the acquisitions.

Okay, it's $24 million.

Okay, thank you.

Thank you. [Operator instructions] Our next question comes from Tim Coffey with FIG Partners. Your line is now open.

Great, thank you. Good morning, everybody.

Good morning, Tim.

Hey. Randy, in your prepared remarks you talked about having optimism on forward trends and credit quality for your markets, and I'm wondering what markets and/or data points you're using the kind of support your optimism.

Well, two things. I'll let Barry follow, but I mean, our NPAs, we continue to improve with NPAs. A lot of these projects are being sold to developers who intend to develop those properties. I think that's very positive. They're buying at a very attractive price. But then most are -- they intend to make investments into and I think that's a pretty good indicator. In addition, you've seen our delinquency percentages drop down quarter-over-quarter. So we're showing better performance than we did a year ago. And then, when we look at our customers and see the health of the balance sheet, at this point, we're constantly looking to see if there are red flags, we just see a very good environment at this point. Barry, did you have anything to add.

Yes. With across the markets, all the markets are still active. We have some good markets with some pretty strong growth, we're going to be coming into two new more markets with in Utah, and Nevada, which I think are going to bode well for us. So, we're staying on the positive side as far as market growth and respective production from those markets.

Okay, great. Another question was, can you remind me what the magnitude or the seasonality is within the non-interest expenses?

Let's see. So non-interest expense for the first quarter, we usually see a bit of an uptick because all of reset that the comp hits really that starts to hit in the first quarter. So that's pretty typical, I think what we saw this quarteris pretty much what the past pattern has been.

Okay. All right. Yes, rest of my questions have been answered. Thanks.

You bet. Thank you.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Randall Chesler for any closing remarks.

Well, thank you, Joelle. So I want to thank everybody for dialing in today on what's a holiday for a number of folks on the call. We want you to all have a great day and a wonderful weekend. So thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.