Glacier Bancorp, Inc.

Good day, and thank you for standing by. Welcome to the Glacier Bancorp Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's 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. I would now like to hand the conference over to your speaker today, Mr. Randy Chesler, President and CEO. Please go ahead.

All right. Well, thank you, and good morning, 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 Dolman, our Chief Credit Administrator. So we ended the second quarter feeling very good about the strength and health of our core business. Our leadership position in some of the best high-growth markets in the country continues to be a strong tailwind for the company as we build one of the premier community banks in the western United States. A few data points about our community banking markets, which include Montana, Idaho, eastern Washington, Wyoming, Utah, Colorado, Nevada, and Arizona. The Tax Foundation recently published the 2022 tax climate index and all eight of the states in which we operate were in the top 20 most favorable markets. The US Bureau of Economic Analysis measured the gross domestic product growth since 2013 of each of the US states and seven of the states in which we operate were in the top 20. Once again, Our markets continue to distinguish themselves as some of the best places to live and work. I'll touch on some of the business highlights first and then provide some additional thoughts on the quarter. Net income for the quarter was $76.4 million, an increase of $8.6 million or 13% from the prior quarter net income of $67.8 million. Pre-tax, pre-provision net revenue was 92.9 million versus prior quarter of 88.8 million, an increase of 3.4 million, or 4%. The loan portfolio, excluding Triple P loans, had record organic growth during the quarter of 714 million, or 21% annualized. This was a very strong quarter, which we will discuss in detail shortly. Core deposits continued to flow into our divisions, growing organically by 84.5 million or 2% annualized. The cost of core deposits was six basis points, a decrease of one basis points from the prior quarter. This is another area that separates our company from the rest that I will discuss in more detail later. Net interest income in the quarter on a tax equivalent basis was 199 million, an increase of 8.6 million or 5% from the 190 million in the prior quarter. Net interest margin for the quarter as a percentage of earning assets on a tax equivalent basis was 3.23% compared to 3.20% in the prior quarter. The core net interest margin for the current quarter of 3.16% increased nine basis points from 3.07% in the prior quarter. Non-interest expense of 129.5 million decreased 787,000 or 60 basis points from the prior quarter. Excluding the 2.1 million of acquisition related expenses, non-interest expense was 127.5 million. Credit quality continued to improve to near record levels. Earnings per share for the quarter was 69 cents versus 61 cents in the prior quarter. We declared a regular dividend for the quarter of 33 cents per share, which was consistent with our prior quarter dividend. The company has declared 149 consecutive quarterly regular dividends and has increased the regular dividend 49 times. Overall growth in the loan portfolio, not including PPP loans, was a record $714 million. Again, 21% annualized for the quarter. We're very pleased to grow the portfolio this quarter while consistently maintaining our strong credit discipline. We stuck to our risk appetite for loan types. We didn't bend on underwriting guidelines, and we maintained a risk-based pricing discipline. With a quarter end loan deposit ratio of 66% and increasing deposits, we're happy to have the opportunity to rotate cash out of investments and into loans. The growth in the loan portfolio was driven by continued growth in our markets and a number of customers accelerating financing plans to lock in loans before anticipated rate increases. Our gross new loan production for the quarter before payoffs was a record $2.3 billion, a 27% increase in gross new production of $1.9 billion. Given the strength of our markets, we saw broad-based contributions to this growth made by each of our divisions across our eight states. Credit quality improved during the quarter with non-performing assets to bank assets improving to 16 basis points from 24 basis points in the prior quarter. Early stage delinquencies as a percentage of loans ended the quarter at 12 basis points compared to 12 basis points in the prior quarter. About 80% of the commercial loan growth was from existing commercial loan customers, but we have a very good understanding of the quality of the borrower and the credit. We continue to focus on responsible growth with a through the credit cycle underwriting lens. We remain very optimistic about the future of our markets and the appeal of our model with a mid to low double-digit loan growth outlook. That being said, we are well prepared in the event of an economic downturn with strong capital, strong reserves, and a very healthy franchise, which will continue to generate high-quality earnings. Core deposit growth was strong across our footprint as the team continued to maintain existing customer relationships while also building new ones. This quarter, core deposits increased significantly by 85.5 million or 2% annualized. Year to date, deposits are up 4% annualized. Non-interest bearing deposits increased 71.3 million or 4% annualized during the quarter and now account for 37% of core deposits. And our cost of core deposits in the quarter dropped by one basis points to a total of six basis points. The net interest margin as a percentage of earning assets on a tax equivalent basis for the current quarter was 3.23% compared to 3.20% in the prior quarter. The core net interest margin was 3.16% compared to 3.07% in the prior quarter. The core net interest margin increase of nine basis points in the current quarter was a result of increased core loan and investment yields. The tax equivalent yield on debt securities ended the quarter at 1.81%, compared to 1.66% in the prior quarter. New investments in debt securities were added at a tax equivalent rate of 3.55%. The yield on the loan portfolio ended the quarter at 4.34%, down seven basis points from the prior quarter. However, the core loan yield of 4.41% increased seven basis points from the prior quarter, core loan yield of 4.34%. We added over two billion in new core loan production with yields around 4.5%, which was an increase of about 39 basis points versus the prior quarter. We have now reached an inflection point with both our investment and loan portfolios where new investments and new loans with higher yields are increasing the portfolio yields. This will drive margin expansion through the rest of the year. Non-interest income of $28.3 million declined 5.3 million or 16% from the prior quarter. primarily due to the reduced gain on sale income from residential mortgages. Gain on sale of residential mortgages of $5 million for the current quarter decreased $4 million, or 45%, from the prior quarter. The rise in interest rates has substantially reduced residential mortgage and refinance activity. Rising interest rates are taking a toll on the residential real estate market. The NBA now forecasts a market in 2022 that will be down by 40%. We expect our business to reflect the same trends. Excluding the second quarter acquisition expenses, non-interest expense was $127.5 million. We continue to see very effective expense control at the divisions. The increase in our expenses was driven primarily by corporate technology service firms that were needed to bridge a staffing gap while we brought on new hires. The Glacier team did another great job in the second quarter. We successfully managed a record level of new business while we worked through a very volatile interest rate environment. The health of the Glacier franchise is very strong. with a robust capability to source high-quality loans funded with a best-in-class stable and sticky deposit franchise. We are very well positioned to continue to grow in 2022 and set the stage for a strong 2023. So that ends my formal remarks, and now I would like Latonia to please open the line for any questions that our analysts may have.

Certainly, as a reminder, to ask a question, you need to press star 1 on your telephone. Please stand by while we compile the Q&A roster. And our first question comes from Matthew Clark of Piper Sandler. Your line is open.