Glacier Bancorp, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Glacier Bancorp Fourth Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, the conference is being recorded. I would now like to turn the conference over to your host, Mr. Randy Chesler, President and CEO. Please go ahead.

All right. Thank you, Angela. Good morning, and thank you for joining us today. With me here in Kalispell this morning is Ron Cofer, our Chief Financial Officer, Angela Dosey, our Chief Accounting Officer, Byron Pollin, our Treasurer, Tom Dolan, our Chief Credit Administrator, and Don Cherry, our Chief Administrative Officer. Yesterday we released our fourth quarter and full year 2020 earnings, and today we're ready to review those results. The fourth quarter and full year results really demonstrate the quality of the Glacier team, the strong core of the company, and the attractiveness of our business model. We are navigating through the ongoing pandemic extremely well, and I am really 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, leadership, and service to their communities that they have demonstrated this year. Despite the pandemic, most of our customers have adjusted to the circumstances very well and are carrying on with business. Our residential mortgage volume is at record levels with refinancing and new home purchases, and our commercial lending business continues to improve. The performance of our loan portfolio demonstrates the strengths of the markets in which we operate and the value of our conservative approach to credit. Our markets were strong before the pandemic, driven by good quality of life, business-friendly environments, and low cost of living. And we are seeing signs that the natural social distancing that comes with our less urban markets will only add to the attractiveness of the West. Once again, the fourth quarter and four-year results highlighted the consistent strength of our exceptional people, customers, and markets. For the quarter, we reported earnings per share of 86 cents, a 39% increase from the prior year fourth quarter. Net income was a record $81.9 million. which is an increase of $24.5 million or 43% from the prior year fourth quarter. Highlighting the company's core earning strength, the pre-tax, pre-provision net revenue for the quarter was $99.3 million, which was up 43% from the prior year fourth quarter. Core deposits increased $579 million or 4% over the prior quarter, Non-interest-bearing deposits were 37% of total core deposits at the end of this quarter compared to 34% at the end of the quarter a year ago. The loan portfolio, excluding payroll protection program or PPP loans, organically increased 43 million or 42 basis points in the quarter. Bank loan modifications related to COVID-19 decreased 371 million in the quarter to 94.9 million or 93 basis points of loans excluding Triple P loans. Non-performing assets as a percentage of assets was 19 basis points compared to 27 basis points a year ago. The team was very busy submitting Triple P loan forgiveness applications to the SBA which resulted in a $539 million decrease or 37% in the Triple P portfolio and $14 million of acceleration of net deferred fees due to the loan forgiveness. The efficiency ratio was 50.34% compared to 48.05% last quarter. If you take out the impact of the Triple P loans this quarter, The efficiency ratio increased 106 basis points compared to the fourth quarter a year ago, primarily due to performance-based compensation. We declared and paid a regular quarterly dividend of 30 cents per share. This represents our 143rd consecutive quarterly dividend and the 46th dividend increase. We also declared a special dividend for the year of 15 cents per share, our 17th special dividend. On a full-year basis, we earned a record $266 million of net income, an increase of 27% over the prior year record net income of $211 million. Pre-tax, pre-provision net revenue for the full year increased 42%. to a record $368 million versus $259 million in 2019. Earnings per share were $2.81, which represents an 18 percent increase from the prior year earnings per share of $2.38. The SBA's Triple P loan program took a lot of our time during the year as we originated over 16,000 loans for almost $1.5 billion. And we recently began the forgiveness process for customers and have received SBA forgiveness for $539 million in PPP loans for our customers, with $909 million in PPP loans remaining, the bulk of which we expect to be waived in the first half of 2021. We've started the Triple P Phase II program, as we're calling it, and expect a fair amount of interest in the program, but not at levels we saw with the initial Triple P program. Loan growth was 17% for the year, including organic growth, Triple P loans, and our Arizona acquisition. It was an unprecedented year for deposit growth. primarily due to the record federal stimulus with deposits organically increasing $3.4 billion, or 32%, with non-interest deposit growth of $1.6 billion, or 44%. The housing market and refinancings were at record levels across our footprint and resulted in a record gain on sale of loans of $99.5 million. which was an increase of $65.4 million, or 192% over the prior year. The regular and special dividend that we declared resulted in $1.33 per share dividend, an increase of 2% over the prior year. And early in the year, we closed the acquisition of State Bank of Arizona with assets of $745 million, materially adding to our Arizona Community Banking franchise. Deposits continue to flow onto the balance sheet as a result of customers' reduced spending and unprecedented government fiscal stimulus and monetary policy. Core deposits now stand at $14.8 billion, which is an increase of $4 billion, or 38 percent, from the end of the prior year. We believe Some of these deposits will be spent and invested by our customers later this year if we see the pandemic circumstances improve. Total debt securities increased $2.7 billion, or 97%, from the prior year. We continue to purchase debt securities with the excess liquidity from the increase in core deposits and the SBA forgiveness of PPP loans. Debt securities represented 30% of total assets at year-end compared to 20% at year-end 2019. The return on our debt securities reflected the impact of lower for longer interest rates, ending at 2.29%, down from 3.15% at the end of the prior year. Debt security income was $99.6 million. which is an increase of 17% or $14.1 million over the prior year. We are taking a cautious approach to new investments, given low current rates and risk at some point of deposit outflows, and as a result, we're targeting a short average life while maintaining higher levels of liquidity. Our loan portfolio ended the year at $11.1 billion, which was an increase of 17% over the prior year. Pricing on the new and renewed loans was lower due to the interest rate environment, and as a result, the yield on the portfolio ended the year at 5.04% compared to 5.23% at the end of 2019. Interest income was $627 million. which was an increase of $81 million or 15% over the full year 2019. We recognized $38 million of interest income, including the 1% note rate and net deferred fees and costs from the Triple P loans in 2020, which included $14 million of accelerated income from the SBA forgiveness of loans. Net deferred fees remaining on the balance of the Triple P loans at the year end were $17.6 million, the bulk of which we expect to recognize in the first half of 2021 as the remaining qualifying Triple P loans from Phase 1 are forgiven. With all the deposit growth, we're pleased to see our cost of core deposits decline nine basis points to nine basis points from 11 in the prior quarter and 21 at the end of 2019. Total cost of funding was 14 basis points, down 16 basis points from the prior year end. Net margins continues to be difficult to hold due primarily to the interest rate environment, as we saw margin drop to 409 from 439 at the end of 2019. The core net interest margin ended the year at 405 versus 430 last year. And while we were successful in reducing the total cost of funding, it wasn't enough to outpace the decrease in yields on loans and debt securities. Non-interest income was driven by record mortgage production. We booked gain on sale of loans of $99.5 million, which was $65 million or 192% over 2019. Mortgage purchase and refinance business continues to be very strong. In addition to local demand, throughout the year we saw an uptick in the number of out-of-state buyers, which was a factor in our record. originations. Credit performance was much better than expected during the year with net charge offset 7.7 million or seven basis points of loans compared to 6.8 million or seven basis points of loans last year. Delinquent loans were 20 basis points of loans versus 24 at the end of last year and non-performing assets decreased to 35.4 million and were 19 basis points of assets, which was down from 27 basis points a year ago. During the year, we made over 3,000 loan modifications in response to COVID concerns on loans totaling over $1.5 billion, representing about 15% of the loan portfolio, excluding PPP loans. It's important to note that all the loans that received the modification were performing as agreed before we gave them a modification and were all short-term modifications. At year-end, modifications decreased by $1.4 billion to $95 million, or 93 basis points of the portfolio, excluding PPP loans. We continue our enhanced monitoring of industries that we think pose higher risk due to the pandemic. The total amount of loans under enhanced monitoring is 642 million or 6.29% of our loan portfolio, not including triple P loans. This includes loans to hotel, motels, restaurants, travel, tourism, gaming, oil and gas businesses. We ended the year with only 23 million of these enhanced monitored loans in modification status, or only 3.65% of the enhanced monitoring portfolio. Even with the steep reduction we saw in modifications at year end, we will continue with our enhanced monitoring process of the higher risk industries for the foreseeable future. And we continue with our rigorous approach to managing and proactively addressing any credit issues across the total portfolio. Credit loss expense was $40 million for the year, driven by the increased economic risk caused by the global pandemic. Our total allowance for credit loss stands at $158 million, or 1.42% of loans, 1.55% of loans not including triple P loans, which are 100% guaranteed. We believe this is a very adequate and prudent level given the uncertain circumstances caused by the impact of COVID, and we expect to maintain these approximate levels until we see a more certain economic environment. Total non-interest expense was $405 million, which increased 29.9 million or 8% over 2019. The increase was driven by compensation and benefit expense due to more employees, mainly from our acquisitions, as well as increased performance-related compensation as a result of our record year. For the year, the efficiency ratio is 49.97%, an improvement compared to the prior year efficiency of 57.77%. Excluding the impact from the PPP loans and the impact of the termination of the cash flow hedges in 2019, the efficiency ratio decreased 109 basis points versus the prior year. Tangible book value per common share of $18.21 at year end increased $2.60 or 17% versus prior year. Our access to liquidity remains robust with growth due to an increase in core deposits and borrowing capacity. At the end of the fourth quarter, the company had access to over $12 billion in liquidity. This includes $5.1 billion of unused borrowing capacity with $2.4 billion at the Federal Home Loan Bank, $2.1 billion in borrowing capacity at the Federal Reserve discount window and Triple P liquidity facility, and $600 million of capacity at correspondent banks, in addition to $3.3 billion in unpledged marketable securities and cash of $633 million. An additional $3.2 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. Overall, 2020 was another outstanding performance from the Glacier team, and even more so given the extraordinarily difficult operating environment in 2020. The team, all 3,000 from Montana to Arizona, once again demonstrated the commitment strength, leadership, and performance that sets them far apart from other bankers in their communities and in the industry. And underscoring this, just yesterday, Forbes announced America's best banks for 2021. And Glacier Bancorp was once again in the top 10, moving up to number three. So those end my formal remarks. And I'd now like Angela to open the line for any questions that you may have.

Ladies and gentlemen, if you have a question at this time, please press the star and the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Matthew Clark with Piper Sandler. Please go ahead.