Glacier Bancorp, Inc.

Good morning, ladies and gentlemen, and welcome to the Glacier Bancorp second 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 then zero on your touchtone phone. As a reminder, this conference is being recorded. I would now like to turn the conference over to Randy Chesler, President and CEO of Glacier Bancorp. Please go ahead, sir.

All right. Thank you, Shalon, and good morning to the group, and thank you for joining us today. With me here in Kalispell this morning is Ron Cofer, our Chief Financial Officer, Don Cherry, our Chief Administrative Officer, Angela Dosey, our Chief Accounting Officer, Byron Pollin, our Treasurer, and Tom Dolan, our Chief Credit Administrator. We finished the second quarter of 2021 pleased to see our divisions showing strong loan and deposit growth. Our markets are all beginning to show more strength as the national economy continues to recover and the summer season kicks into high gear. I'll touch on the business highlights and then provide some additional observations on the quarter. We generated net income of 77.6 million, an increase of 14.2 million, or 22% over the prior year second quarter net income of 63.4 million. Diluted earnings per share were 81 cents, an increase of 23% from the prior year second quarter diluted earnings per share of 66 cents. The loan portfolio, excluding payroll protection program loans, increased $249 million or 10% annualized in the current quarter and increased $517 million or 5% from the prior year second quarter. Core deposits increased $669 million or 17% annualized during the current quarter and and increased 3.4 billion, or 26%, from the prior year second quarter. Non-performing assets as a percentage of subsidiary assets was 26 basis points, which compared to 19 basis points in the prior quarter and 27 basis points in the prior year second quarter. Early stage delinquencies totaled 12.1 million or 11 basis points of loans and decreased 32.5 million from the prior quarter of 40 basis points of loans and decreased 13.1 million from the prior year's second quarter of 22 basis points of loans. A credit loss benefit of 5.7 million reflected the improvement in our loan portfolio and economic forecast. Non-interest expense was $100 million, which increased only $3.5 million, or 4%, compared to the prior quarter and increased $5.3 million, or 6%, from the prior year second quarter. Excluding deferred compensation from originating PPP loans, total non-interest expense was $102 million for the current and prior quarter compared to $103 million in the prior year second quarter. We declared a quarterly dividend of $0.32 per share, an increase of a penny per share, or 3%, over the prior quarter regular dividend. And the company has declared 145 consecutive quarterly dividends and has increased the dividend 48 times. Overall, the Glacier team delivered a strong quarter and wasted no time getting back to business. In-migration of new residents into our eight-state footprint continued in the second quarter. In addition, the summer season, tourist season, kicked off as well. Signs of increased activity were visible everywhere. Many hotels had the no vacancy sign lit for weeks and are raising prices to control demand. Rental cars are tough to find, restaurants are packed, and many national parks are again experiencing record crowds. Residential real estate prices continue to increase and the inventory of available homes for sale is very low. We saw solid loan growth in our markets with Montana, Wyoming and Nevada leading the growth across our eight-state footprint, with all markets growing $249 million, or 10% annualized, excluding PPP loans. We were pleased to see that almost all of the loan growth came from commercial real estate and CNI loans. We continue to build on the 3,000 new customer relationships we picked up as part of round one of PPP, with about $65 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 originated over 5,500 regular loans and over 1,900 PPP loans, along with processing PPP loan forgiveness. We hit a new loan production record in the second quarter, with over $1.6 billion in new loans. We still have some growth headwinds with borrowers using excess liquidity to pay down loans and the increasing level of competition for new business. That being said, we entered the third quarter of the year with very good momentum and over $140 million of unfunded new construction loans. Considering all this, we still believe our target of 4% to 6% growth for the full year is reasonable. Core deposit growth was incredibly strong across our footprint, driven by excess customer liquidity due to the unprecedented government stimulus, lack of spending due to the pandemic, and our success in establishing new deposit relationships. Core deposits increased $669 million and at the end of the quarter totaled $16.7 billion, and most importantly, at a cost of seven basis points. down one basis point from the prior quarter, and down seven basis points from the end of the quarter a year ago. Non-interest-bearing deposits increased $267 million, or 4% over the last quarter, and increased $1.3 billion, or 25% from the prior year second quarter. We know that this substantial growth in low-cost core deposits will continue to help our net interest income and position us extremely well to reinvest these stable, sticky deposits into new loans as we grow. Total debt securities of $7.2 billion increased $730 million, or 11% from the prior quarter, and are up $3.4 billion today. or 92% from the prior year second quarter. 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 35% of total assets at the end of the quarter compared to 33% last quarter and 30% at the end of 2020. We fully invested 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. The company's net interest margin as a percentage of earning assets on a tax-equivalent basis for the current quarter was 3.44%. compared to 3.74% in the prior quarter and 4.12% in the prior year second quarter. Our core net interest margin was 3.33% compared to 3.56% in the prior quarter and 4.21% in the prior year second quarter. The core net interest margin decreased due to a decrease in earning asset yields. Earning asset yields have decreased from the combined impact of the significant increase in the amount of lower-yielding debt securities and the decrease in the yields on debt securities and loans. Debt securities increased 11% or $730 million from the prior quarter to 39% of earning assets from 36% in the prior quarter and 32% at the start of the year. The yield on debt securities ended the quarter at 1.74%, down 21 basis points from the prior quarter. Fueling the decline in the investment portfolio yield was the addition of over 1 billion of new debt securities in the quarter at a rate of 1%. The yield on the loan portfolio ended the quarter at 4.7%, down 19 basis points from the prior quarter. We added 1.6 billion in new core loan production, with yields around 4.15%, which drove down the portfolio yield. Although our net interest margin continued to experience downward pressure because of adding a substantial amount of new debt securities and loans, our net interest income for the quarter, less triple P, increased $1.9 million in the quarter while the net interest margin fell. Our focus continues to be on growing net interest income, and for most of this year, our margin will continue to be impacted by the incoming flow of new deposits, loan growth, PPP forgiveness, and the yield curve. Non-interest expense for the quarter was $100 million, which was an increase of only $3.5 million from the prior quarter. Non-interest expense, less the deferred compensation from originating new PPP loans, was $102 million, which was flat to the last quarter and down $1 million from the prior year's second quarter. The minimal expense growth was driven by good expense management by our divisions as they are making do with less as increased hiring takes longer than we expected as the markets get back to normal. Non-interest income declined to $36 million from $40 million, or 11% in the prior quarter, due primarily to the reduced gain on sale of residential mortgages, which decreased $5.5 million, or 26%, from the prior quarter. The hot housing market and refinancing slowed down a bit across our footprint. Gain on sale margins were relatively steady in the quarter. And our biggest concern in the real estate business remains the supply of homes available for sale. Core fees, including service charges and miscellaneous loan fees and charges, increased $1.1 million to $17 million, or 7% from the prior quarter. The efficiency ratio was 49.92% in the current quarter. 46.75% in the prior quarter, and 47.54% in the prior year of second quarter. Excluding Triple P, the ratio would have been 53.53% in the current quarter compared to 52.89% in the prior quarter and 53.92% from the second quarter a year ago. Our combination with Ulta Bancorp is proceeding very well. We are working closely together on planning for a closing at the end of October and a conversion sometime in the first part of 2022. I've been very impressed with Ulta's focus on continuing to serve customers and growing the business. Ulta Bank was honored with the Utah Best of State Bank Award for the second consecutive year. And Glacier Bank was also honored by Bank Director Magazine with a top five finish in their 2021 ranking of the top performing banks between five and 50 billion. This is the second consecutive year that Glacier had a top five finish. And the Glacier team, once again, did an outstanding job taking care of our customers while working hard to get back to normal and grow the business. Their performance continues to set them far apart from other bankers in their communities and in the industry. So that ends my formal remarks, and I'd now like Shalom to open the line for any questions that our analysts may have.

Thank you. Ladies and gentlemen, if you have a question at this time, please press the star, then the number one on your touchtone phone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. One moment for your first question. Your first question comes from the line of Jeff Rulis from D.A. Davidson.