Glacier Bancorp, Inc.

Good morning, 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. If anyone should require assistance during the conference, please press star zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Randy Chesler, President and CEO. Please go ahead.

All right. Thank you, Carol, and good morning, and thank you all for joining us today. With me here in snowy Kalispell 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 first quarter 2021 earnings, and today we are ready to review them. We finished the first quarter of 2021 well positioned for the rest of the year. We do business in some of the strongest markets in the country, have record liquidity, and our business model and people continue to attract new customers. I'm also happy to report that most of our 193 locations are now fully open for business across our eight state footprint as COVID cases decline and vaccination rates increase. I'll touch on some of the business highlights and then provide additional observations on the quarter. Net income of $80.8 million, an increase of $37.5 million, or 86% over the prior year first quarter net income of $43.3 million. Diluted earnings per share of $0.85, an increase of 85% from the prior year first quarter diluted earnings per share of $0.46. Gain on sale of loans of $21.6 million. an increase of $9.8 million or 82% compared to the prior year first quarter. Non-interest expense of $96.6 million, a decrease of $14.6 million or 13% compared to the prior quarter, and an increase of $1.1 million or 1% from the prior year first quarter. Bank loan modifications related to COVID-19 decreased $13.5 million from the prior quarter, and decreased $1.4 billion from the second quarter of 2020 to $81.3 million, or 79 basis points of loans, excluding the payroll protection or PPP loans. Non-performing assets. as a percentage of subsidiary assets was 19 basis points, which compared to 19 basis points in the prior quarter and 26 basis points in the prior year first quarter. Core deposits increased $1.3 billion, or 35% annualized during the current quarter and increased 4.5 billion, or 40%, from the prior year first quarter. The loan portfolio increased 147 million, or 5% annualized in the current quarter, and increased 1.1 billion, or 12%, from the prior year first quarter. The company funded 6,500 Triple P loans in the amount of $487 million during the current quarter. The company received $426 million in Triple P loan forgiveness on 6,800 loans from the U.S. Small Business Administration during the current quarter. We declared a quarterly dividend of $0.31 per share, an increase of $0.01 per share, or 3% over the prior quarter regular dividends. The company has declared 144 consecutive quarterly dividends and has increased the dividend 47 times. Further highlighting the company's core strength, pre-tax, pre-provision net revenue for the quarter was $100 million, which was up from the prior quarter of $99 million and up $28 million or 39% from the first quarter a year ago. We think this is a very good measure of the health of our core franchise. We saw loan growth in most of our markets with Montana, Wyoming, and Washington leading the way, and we are trending to our 46 growth forecast that we've talked about previously. Our pipeline of customer relationships larger than 5 million grew significantly in the first quarter. and now stands at almost twice the level it did at the end of the first quarter a year ago. As I noted, the loan portfolio of $11.2 billion grew $147 million, or 5% annualized in the current quarter. If you exclude the liquidation of our residential mortgage portfolio, the loan portfolio grew $252 million, or 9%. We continue to build on the 3,000 new customer relationships we picked up as part of Round 1 PPP, with about $135 million of this quarter's commercial loan volume coming from this group. All of this growth is even more impressive when you consider that the Glacier team processed over 4,300 regular loans and over 13,000 PPP loans, including new and those forgiven. Core deposit growth was incredibly strong, driven by excess liquidity due to the unprecedented government stimulus and lack of spending due to the pandemic. Core deposits increased $1.3 billion and at the end of the quarter totaled $16 billion, most importantly at a cost of eight basis points, down one basis point from the prior quarter. Non-interest-bearing deposits increased $586 million, or 11%, over the last quarter. We know that this substantial growth in low-cost core deposits will continue to add to our net interest income and position us extremely well to reinvest in new loans as the economy recovers. Total debt securities of $6.4 billion increased $900 million, or 17% from the prior quarter, and are up $2.8 billion, or 77% from the prior year first quarter. We continue to purchase debt securities with the excess liquidity from the increase in core deposits and the forgiveness of PPP loans. Debt securities represented 30% of total assets compared to 30% at the end of 2020 and 24% a year ago. The return on our debt securities reflected the impact of lower for longer interest rates, ending the quarter at 1.81%, down from 2.12% at the end of the prior quarter due to purchasing new securities at lower market rates. Debt security income was $27.3 million, which is about flat to the prior quarter. We continue to fully invest excess deposits, taking a cautious approach to new investments given current low rates and risk at some point of deposit outflows, and as a result, are targeting a short average life with high quality and highly liquid investments. Non-interest income was strong due to our better-than-expected mortgage business performance. The hot housing market and refinancings continued at a stronger-than-expected pace across our footprint. It was a record first quarter for new locked volume, and our gain-on-sale margin was up slightly over the prior quarter. We expect those margins to decline in the next quarter slightly based on interest rate trends. Our biggest concern in our mortgage business is the availability of an ample supply of homes for sale. Non-interest expense was lower than expected due to the $5.2 million of deferred compensation expense from new PPP loans and good expense management by our divisions. Some of our expense saves were due to COVID. We have open positions due and not able to find a ready supply of new hires, and our travel and branch expenses reflect less activity. But we expect these saves to subside and expenses to return to a more normal run rate as the economy gets back to normal. The company's net margin, interest margin, as a percent of earning assets on a tax-equivalent basis for the current year was 3.74%, compared to 4.03% in the prior quarter and 4.36% in the prior year first quarter. The core net interest margin of 3.56% compared to 3.76% in the prior quarter and 4.30% in the prior year first quarter. The core net interest margin decreased due to a decrease in earning asset yields. And earning asset yields have decreased from the combined impact of the significant increase in lower yielding debt securities and the decrease in yields on both loans and debt securities. Debt securities comprised almost 36% of earning assets during the current quarter, compared to 32% in the prior quarter and 24% in the prior year first quarter. Going forward, our margin will continue to be dependent on the incoming flow of new deposits, loan growth, and the yield curve. The efficiency ratio was 46.75% in the current quarter and 50.34% in the prior quarter. Excluding Triple P, the ratio would have been 52.89% in the current quarter, which was a 300 basis point decrease from the prior quarter efficiency ratio of 55.96%. So the Glacier 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. So that ends my formal remarks today, and I'd now like Carol to please open the line for any questions that you may have.

Thank you, Randy. If you have a question at this time, please press star, then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And we'll pause for just a moment to compile the roster. Your first question comes from the line of Mike Young with Truist.