Glacier Bancorp, Inc.

Thank you for standing by and welcome to the Glacier Bancorp Third Quarter Earnings Conference. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. Should you require any further assistance, please press star zero. I would now like to hand the conference over to your host, CEO of Glacier Bancorp, Randy Chesler. Please, go ahead. All right. Thank you, Lateef.

Good morning, and thank you for joining us today. With me here in Kalispell this morning is Ron Cofer, our Chief Financial Officer, Don Sherry, our Chief Administrative Officer, Angela Dosey, our Chief Accounting Officer, Byron Pollin, our Treasurer, and Tom Dolan, our Chief Credit Administrator. We closed out the third quarter encouraged by our loan growth, which came on strong in the later part of the year. We think our company footprint covers some of the best growth markets in the country, and it's great to see those markets showing continued signs of increasing activity. Our people and our unique business model once again produced very strong results in all of our divisions across the West. So I'll touch on some business highlights first and then provide some additional thoughts on the quarter. The loan portfolio, excluding payroll protection program loans, had a strong growth of $382 million, or 14% annualized. The loan portfolio grew $711 million or 9% annualized from the beginning of the year. Core deposits continued the flowing to our divisions, growing $742 million or 18% during the quarter and growing $2.7 billion or 25% annualized from the beginning of the year. Net income for the first nine months of the year was $234 million, an increase of $50 million, or 27%, from the $185 million in the first nine months of the prior year. Pre-tax, pre-provision income was $285 million for the first nine months of the current year, an increase of $18 million, or 7%, compared to the $266 million in the prior year, first nine months. Net interest income, excluding PPP loans, in the current quarter was $154 million, an increase of $4.6 million, or 3% from the prior quarter. Net interest income excluding PPP loans for the first nine months of the current year was $452 million, an increase of $22.5 million, or 5% over the same period in the prior year. Our efficiency ratio for the current quarter was 50.17%. Excluding triple P loans, the efficiency ratio was 53.59% compared to 53.53% in the prior quarter. Non-performing assets of $51.2 million as of current quarter end decreased $1.9 million or 4% from the prior quarter. NDA to assets end the quarter at 24 basis points. Net charge-offs to average loans was two basis points for the current year-to-date period compared to three basis points in the prior year same period. and we declared a quarterly dividend of $0.32 a share. The company has declared 146 consecutive quarterly dividends and has increased the dividend 48 times. We saw excellent loan growth in our markets, with Wyoming, Arizona, and Idaho leading the growth across our eight-state footprint, with all markets growing a total of 382 million, or 14% annualized, excluding Triple P loans. We are pleased to see that almost all of the growth came from commercial real estate. New loan production for the quarter was strong, originated. We continue to deepen the relationship with the 3,000 new customers we picked up as part of Round 1 Triple P, with over 400 million loans made to this group so far. We now have about 370 million of Round 1 and 2 Triple P loans still on the books out of a total of over 2 billion that we originated starting in 2020. As I noted last quarter, we still have some growth headwinds with borrowers using excess liquidity to pay down loans and an increasing level of competition for new business. We continue to stick to our disciplined lending and risk management strategies and generally see most of the players in our markets still avoiding a race to the bottom on credit, but we see price competition continuing to heat up for the best loans. That being said, we are very happy to enter the fourth quarter of the year with very good momentum and a very strong pipeline of new loans. Considering all of this, our original target of 46% full-year growth for 2021, excluding PPP, is more likely to be closer to 8% to 10% when we close out the year. Core deposit growth continues to be surprisingly 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 $742 million at the end of the quarter and totaled over $17 billion. Most importantly, The core deposits have a cost of six basis points, down one basis point from the prior quarter and down seven basis points from the quarter a year ago. Non-interest billing deposits increased $325 million, or 5%, over the last quarter and increased $1.2 billion, or 21%, from the prior year third quarter. Noninterest-bearing deposits are now 38% of core deposits. Total debt securities of $8.5 billion increased $1.3 billion or 19% from the prior quarter and are up $4.2 billion or 97% from the prior year third 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 40% of total assets at the end of the quarter compared to 35% last quarter and 30% at the end of 20 and 24% a year ago. We will continue to fully invest excess deposits, buying highly liquid and high-quality investments with shorter duration, giving current low but increasing rates, with the plan of putting these deposits to work as we continue to grow. The company's net interest margin as a percentage of earning assets on a tax-equivalent basis for the current quarter was 3.39%, compared to 3.44% in the prior quarter and 3.92% in the prior year third quarter. The core net interest margin was 3.17%, compared to 3.33 in the prior quarter and 4.02 in the prior year third quarter. Earning asset yields have decreased from the combined impact of the significant increase in the amount of debt securities and the decrease in yields on both securities and core loans. The yield on debt securities ended the quarter at 1.62%. That's down 12 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 around 1%. The yield on the loan portfolio ended the quarter at 4.86%, down 16 basis points from the prior quarter. We added $1.6 billion in new core loan production with yields around 4.1%, which drove the total loan portfolio yield down. Given the interest rate environment, our focus continues to be on growing net interest income, which for the quarter increased $4.6 million, less triple P. Non-interest income of $34.8 million declined about 700,000 or 2% from the prior quarter, due primarily to the reduced gain on sale from residential mortgages, which decreased $2.2 million or 14% from the prior quarter. The housing market and refinancings slowed down a bit across our footprint, Our biggest concern in the real estate business remains the supply of homes available for sale. The efficiency ratio is 50.17% in the current quarter. 49.92% in the prior quarter, and 48.05% in the prior year third quarter. Excluding Triple P, the ratio would have been 53.59% in the current quarter compared to 53.53% in the prior quarter and 50.51% in the third quarter a year ago. Intangible book value per share increased in the quarter from $18.74 to $19.11, or 2%. Our combination with AltaBank Corp. is proceeding very well. We closed the transaction October 1st, a full month earlier than planned, as we received all regulatory approvals sooner than expected. I've been very impressed with the Alta team's focus on continuing to serve customers and growing the business. We continue to work closely with Alta on the planning for our core processing conversion in March of 2022. Alta has a very good technology platform, and we are studying many products that may be a good fit for our other divisions. I've received a lot of questions about M&A since a number of the recent MOEs were announced. And while we see the MOE banks embracing a new strategy, we intend to stick to our disciplined approach on M&A that has proven to be successful for us. Our focus today is on Alta, and we want to make sure we fully complete our integration before we look for another transaction, given the strong EPS that accretion that Alta will produce for Glacier. Remember, this transaction produces almost the same EPS as our last five transactions combined. The Glacier team accomplished a lot in the third quarter. While we are still dealing with COVID in many markets, the team achieved great results. The run growth we experienced in the quarter was great to see, and we think we are very well positioned to close out 2021 strong and be well positioned to continue to grow in 2022. So that ends my formal remarks.

I now like Lateef to open the line for any questions our analysts may have. Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Willis of DA Davidson. Your question, please. Yeah, good morning.