U.S. Markets open in 1 hr 22 mins

Edited Transcript of GBCI earnings conference call or presentation 21-Apr-17 3:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Glacier Bancorp Inc Earnings Call

KALISPELL Apr 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Glacier Bancorp Inc earnings conference call or presentation Friday, April 21, 2017 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Barry Johnston

* Randall M. Chesler

Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank

* Ron J. Copher

Glacier Bancorp, Inc. - CFO, EVP and Assistant Secretary

================================================================================

Conference Call Participants

================================================================================

* Jacquelynne Chimera Bohlen

Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research

* Jeffrey Allen Rulis

D.A. Davidson & Co., Research Division - SVP and Senior Research Analyst

* Matthew Reader Forgotson

Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research

* Matthew Timothy Clark

Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst

* Michael Masters Young

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Timothy Norton Coffey

FIG Partners, LLC, Research Division - VP and Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Glacier Bancorp First Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Randy Chesler, the President and CEO. Sir, you may begin.

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [2]

--------------------------------------------------------------------------------

All right. Thank you, Kaley. Well, good morning, and thank you all for joining us today. We -- with me here in Kalispell this morning is Ron Copher, our Chief Financial Officer; Barry Johnston, our Chief Credit Administrator; Angela Dose, our Principal Accounting Officer; and Don McCarthy, our Controller.

So yesterday, we released our first quarter 2017 results. Overall, we're very pleased to report very solid performance and good momentum driven by our continued growth in our loan portfolio, stable margins, good credit performance and moderating noninterest expenses.

So for the quarter, our earnings were $31.3 million. That's an increase of $2.6 million or 9% over the first quarter a year ago and 100 -- or 214,000 or 69 basis points over the fourth quarter of 2016. Diluted earnings per share were $0.41, an increase of $0.03 or 8% from the prior first year quarter and equal to the earnings per share last quarter.

Return on assets were 1.35% versus 1.28% in the first quarter of 2016. So a nice improvement there. Return on equity was up, coming in at 11.19% versus 10.53% a year ago.

We also declared our 128th consecutive regular dividend of $0.21 per share, an increase of $0.01 per share or 5% over the prior quarter and prior year first quarter as well.

Moving on to the performance for the quarter. Loan growth, as you've seen from our release, was very strong with an increase of $193 million for the quarter or 14% annualized. Other commercial loans grew the most, $120 million or 9%. Included in other commercial loans is an increase of $4 million in municipal loans. Excluding the Treasure State acquisition that closed in 2016, the loan portfolio increased $628 million or 12% versus the first quarter, with $351 million and $281 million of the increase coming from commercial real estate and other commercial loans respectively.

Loan production for the quarter was very good. We made $620 million in loans, had $427 million in liquidation for the quarter, which was pretty much consistent with prior trends. Pricing on the new loans is reflective of the higher interest rates we're seeing and we're coming in now with new loan pricing exceeding the yield on the existing portfolio. So we're happy to see that.

Credit quality remained relatively stable. Early-stage delinquency was up compared to last quarter and the quarter a year ago, but about half that increase was due to one loan we're -- that we're currently evaluating. Credit loss is still near historic lows, and we maintain a reserve level that provides strong support if the cycle begins to turn.

Nonperforming assets ended the quarter at $71.5 million, that's about the same level of the prior quarter and down $8.8 million from a year ago. NPAs as a percentage of assets were 0.75 at the end of the quarter, down 13 basis points from the quarter a year ago. Net charge-offs were $1.9 million in the first quarter compared to $4.1 million in the prior quarter and $194,000 in the first quarter 2016. The allowance for loan and lease losses as a percentage of total outstandings was 2.2% at the end of the first quarter, down from 2.28% at the end of the prior quarter.

Investments as a percent of total assets stood at 31% versus 33% at year-end, which is -- which shows a continuation of previous trends to move investment cash flows into funding new loans.

Core deposits increased very nicely with both interest-bearing and noninterest-bearing deposits increasing. Core deposits now stand at $7.1 billion, increasing $99.6 million or 6% annualized compared to the prior quarter. Excluding Treasure State, core deposits increased $390 million or 6% from the prior year first quarter. Noninterest-bearing deposits totaled $2 billion or 29% of core deposits and increased $7.6 million or 37 basis points from the prior quarter, and excluding Treasure State, increased $149 million or 8% from the quarter a year ago.

Interest income of $87.6 million was down slightly when compared to the prior quarter, driven mainly by 2 less days in the quarter, but up compared to last year's first quarter by $3.2 million or 4%. Total cost of funding remained stable with interest expense increasing $152,000 for the quarter or 2% compared to a decrease of $309,000 or 4% from the prior year first quarter. The total cost of funding was 37 basis points versus 39 basis points a year ago. Our net interest margin was stable at 4.03% on a tax-equivalent basis and 4.02% in the prior quarter. You've seen the ongoing remix of investments into loan. This continues to be a very positive influence on our margin.

Noninterest income for the quarter totaled $25.7 million, down $2.3 million or 8% from the prior quarter. Really, the gain on sale of loans for the quarter decreased $3.4 million or 35% from the prior quarter, due primarily to seasonality. Compared to the quarter a year ago, noninterest income increased $1.4 million or 6%, and this was primarily driven by an increase in our core consumer checking accounts.

Noninterest expense decreased $3.4 million or 5% from the prior quarter and was up $988,000 or 2% from the first quarter last year. Now if you take out CCP-related costs, expenses decreased $2.6 million or 4% compared to last quarter and $1.8 million or -- or increased $1.8 million or 4% from the quarter a year ago.

The efficiency ratio for the quarter was 55.57%, up 49 basis points from the prior quarter of 55.08%, which is our low for last year. The current quarter efficiency ratio decreased almost 100 basis points from the prior year first quarter. So we expected the first quarter's efficiency ratio to be somewhat elevated, but feel very positive about our targeted 55% on a full year basis. Our 13 bank divisions are focused on evaluating the post-CCP environment and identifying efficiencies.

We expect to close -- kind of moving off the balance sheet and income statement, we expect to close Foothills at the end of the month. This will mark our first entry into Arizona. We're really excited about the Foothills team joining our company and are very optimistic about the growth potential in Yuma, Prescott and the Casa Grande markets.

With Foothills closed, we'll be very close to hitting the $10 million (sic) [ $10 billion ] asset milestone. And of course, with passing that milestone comes other things, the Durbin Amendment and DFAST requirements being the most primary. In order to avoid triggering the -- Durbin payment to retailers, we will proactively manage our balance sheet in 2017 and do not expect to exceed $10 billion -- of the $10 billion threshold until the first quarter of 2018.

So before I turn the call back over to the operator for any questions, I'd like to just thank our 13 bank divisions, our senior staff, all our employees for another very strong performance. So operator, I will be happy to turn the call back over to you, Kaley, and take any questions at this time.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Jeff Rulis with D.A. Davidson

--------------------------------------------------------------------------------

Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - SVP and Senior Research Analyst [2]

--------------------------------------------------------------------------------

Just a question on the really strong loan growth, I think you guys have mentioned it in the past few quarters that really you've kind of driven out some of the regular seasonality in terms of loan growth has sort of been steadied, used to typically Q1 to be pretty light. But I guess on that front, is there any -- given the strength in Q1, is there potential for sort of cannibalizing any what had been sort of a seasonal pop in Q2, given that just the strength of growth in Q1?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [3]

--------------------------------------------------------------------------------

That's a good question because that is -- we have seen that trend over the last couple of years where the first quarter really historically has been soft, but has strengthened, just as you point out. Looking at the numbers and what we funded and what we see in the pipeline, don't really see the first quarter as popping because we pulled a bunch of second quarter fundings into the first quarter. So to answer your question, no, I think we feel it was very strong quarter, but strong on its own and don't -- can't really attribute it to pulling in a bunch of business, either pushing it in from the fourth quarter or pulling it in from the second.

--------------------------------------------------------------------------------

Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - SVP and Senior Research Analyst [4]

--------------------------------------------------------------------------------

Great, that's great. And then, Randy, just a follow-up on the $10 billion discussion, if we do sort of push that out into '18. I guess maybe well further out than the actual impact would be back half of '19. But have you put any numbers or estimate out there on costs and lost fees for crossing that mark eventually?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [5]

--------------------------------------------------------------------------------

Yes, we did, Jeff. We recently updated the analysis for the expense of crossing over the $10 billion, and that's primarily interchange. So the way Durbin works is that it effectively takes about half your debit card interchange. And so for us, it's about $13 million gross and about $7 million net. So by carefully keeping an eye on the balance sheet in 2017 and pushing that into '18, we can pretty much save ourselves a year's worth of that expense because of the way the Durbin trigger is set. So by pushing it into '18, we won't have to pay that until July of '19.

--------------------------------------------------------------------------------

Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - SVP and Senior Research Analyst [6]

--------------------------------------------------------------------------------

Sure. And then have you quantified the DFAST maybe expense to ramp up for that preparation? Have you quantified...

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [7]

--------------------------------------------------------------------------------

I think we'll have -- yes, I mean we're -- obviously we're looking at that. We're right in the -- we have been working on DFAST for the last really two years. And I think in the next quarter, Ron and team are really working on fine-tuning a number for you. So I think we'll have that. I would tell you we're very, very pleased with kind of the progress we're making there and the efficient way that we're approaching it. We feel pretty good about it.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Our next question comes from the line of Matthew Clark with Piper Jaffray

--------------------------------------------------------------------------------

Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [9]

--------------------------------------------------------------------------------

Maybe just sticking with the loan growth in the quarter, can you quantify what the production was in the quarter? And as a follow-on, what was the weighted average rate on new production? That -- it sounds like it's above the portfolio yields, just curious what it was.

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [10]

--------------------------------------------------------------------------------

Yes. So we totally -- you're talking about gross loan production for the quarter? It was about...

--------------------------------------------------------------------------------

Ron J. Copher, Glacier Bancorp, Inc. - CFO, EVP and Assistant Secretary [11]

--------------------------------------------------------------------------------

475 million.

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [12]

--------------------------------------------------------------------------------

475 million. And I think a little bit higher than that, maybe put the whole thing closer to 6. But the -- yes, on the yield, we're -- so the yield was just a tad bit higher. I don't know if we've kind of quoted that in the past, but -- if you look at our portfolio yield, I'd say a couple of basis points higher. We saw that -- we didn't see that for all of 2016. And then in the fourth quarter of 2016 was the first time we start -- we kind of popped above the portfolio. So we saw it again in the first quarter, so we're very happy with that.

--------------------------------------------------------------------------------

Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [13]

--------------------------------------------------------------------------------

Okay. And then the amount of accretion in the quarter?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [14]

--------------------------------------------------------------------------------

Pretty minimal. I think I want to say 3 or 4 basis points. Yes, 4, 4 basis points, Matthew.

--------------------------------------------------------------------------------

Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [15]

--------------------------------------------------------------------------------

Got it. Okay. And then on your OREO, your other real estate owned and those related write-downs and costs came down pretty dramatically in the quarter. You still have some OREO though on the books that you're trying to work through. I guess how should we think about -- and I'm assuming it's going to be somewhat volatile and obviously depend on what you're working out. But would you suggest that it's an unusually low amount this quarter on the expense side?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [16]

--------------------------------------------------------------------------------

Barry, how would you...

--------------------------------------------------------------------------------

Barry Johnston, [17]

--------------------------------------------------------------------------------

I don't think it's anything out of the norm, so it's pretty much (inaudible). With what we have left in the portfolio, some legacy loans from the 2006, '07 and '08 is the bulk of it with one property down in Idaho. So we're still carrying that. But -- so that's about the only thing that -- other concern, the rest of it is just the run of the mill general single-family residential and the occasional commercial property in there. So I don't -- I can't see anything that was unusual per se.

--------------------------------------------------------------------------------

Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [18]

--------------------------------------------------------------------------------

Okay. Any merger charges in the quarter?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [19]

--------------------------------------------------------------------------------

Very minimal. You're talking about acquisition-related expense?

--------------------------------------------------------------------------------

Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [20]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [21]

--------------------------------------------------------------------------------

Pretty minimal this quarter.

--------------------------------------------------------------------------------

Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [22]

--------------------------------------------------------------------------------

Okay. And then last one, just on loan growth, I think you guided coming out of year-end to do 7%. You guys are obviously off to a great start, even excluding the acquisition. But on an organic basis, I mean are you still comfortable with that 7%? Do you think you have any desire to up that?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [23]

--------------------------------------------------------------------------------

Yes. Barry and I were just talking about that before the call. We obviously -- look, we're very happy with this start, and we think it's broad-based and good quality. We had a couple larger deals for the first quarter, which are not -- highly unlikely we'll see that happen again. So what we decided is we're going to wait and see how things go in the second quarter. And then if we see another very strong quarter, we'll go ahead and we'll readjust that 7%.

--------------------------------------------------------------------------------

Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [24]

--------------------------------------------------------------------------------

Okay, and maybe just one quick one. How would you compare the pipeline at the end of the first quarter versus year-end?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [25]

--------------------------------------------------------------------------------

End of the first quarter versus year-end.

--------------------------------------------------------------------------------

Barry Johnston, [26]

--------------------------------------------------------------------------------

I looked it last year, we were -- the pipeline versus last year was up, of course, dollar, absolute dollars, of course. We've grown since then. But probably since year-end, I would say the pipeline is a little better than what we saw at year-end so...

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [27]

--------------------------------------------------------------------------------

We looked at it two ways. One was we went back a year and looked at the end of the first quarter of '16 and compared it to '17. And it's pretty consistent if you look at it that way. That's the commercial lending pipeline. The mortgage pipeline is down a little bit, but we're seeing a pretty strong start to April. So that one looks a little softer, but in the last couple of weeks, we've seen pretty good mortgage activity.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Our next question comes from the line of Jackie Bohlen with KBW.

--------------------------------------------------------------------------------

Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [29]

--------------------------------------------------------------------------------

Picking up again on the mortgage pipeline, given that it's down a little bit, and understanding that 1Q had seasonality and you're starting to see some pickup in April, what are your expectations for that platform this year?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [30]

--------------------------------------------------------------------------------

Well, we still feel very good about it. We have -- are forecasting for a repeat of last year, so $1.3 billion. I think the -- we've seen a shift. We are doing almost 80% purchase now, 20% refi. So we're seeing that, but in some of our markets, purchase has really picked up pretty well. I'd say I'm still a little cautious about the $1.3 billion only because of the interest rates going up, refi kind of moving off, purchase picking up, which is good. I think we'll know a lot more after the second quarter. But Jackie, I think the one -- so I'd say overall, that's, I think, a very aspirational goal, the $1.3 billion. But looking at how we're starting off in April, we're seeing some pretty good strength. So we'll just have to watch that.

--------------------------------------------------------------------------------

Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [31]

--------------------------------------------------------------------------------

Okay. And how is gain on sale margin's been this year compared to last year?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [32]

--------------------------------------------------------------------------------

Very good. We've been pretty stable there. We are doing some things. So in the end, well, if production is off a little bit, our strategy coming into the year was to try to create some efficiencies on the gain side to make up for that. And so we are looking at ways of shifting the mix and the delivery mechanism to get a little bit -- improve the gains. So the gains so far had been very stable. I haven't really seen a lot of movement there and we're hoping to improve that as a way to offset any shortfall on the production side.

--------------------------------------------------------------------------------

Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [33]

--------------------------------------------------------------------------------

Okay. That's helpful. And then looking at deposit cost, obviously, no real movement in the quarter. Was there any impact from March's rate increase? And how are you thinking about those portfolios just in light of the rising rate environment?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [34]

--------------------------------------------------------------------------------

Well, yes -- no, we didn't see a lot of flow into the deposit rates. We're happy to see that the loan rates moving up a little bit. We are not feeling a lot of pressure at this point across the board there. And so I think we're very mindful of our margins. And to the extent that we can keep that posture, we will. And -- we stay close to our customers and read that often. But at this point, Jackie, we're just not seeing a lot of pressure on that side.

--------------------------------------------------------------------------------

Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [35]

--------------------------------------------------------------------------------

Okay. And that's inclusive of the March increase?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [36]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

And our next question comes from the line of Matthew Forgotson with Sandler O'Neill.

--------------------------------------------------------------------------------

Matthew Reader Forgotson, Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research [38]

--------------------------------------------------------------------------------

Just on expenses. I guess $63.3 million or so of operating this quarter. I know CCP is out of the run rate, but how much of expense related to crossing $10 billion did you accrue in the 1Q? And how should we be thinking about those accruals as we move throughout the year?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [39]

--------------------------------------------------------------------------------

Yes, we -- so as I said before, I think we're tuning that up. There really is a -- in terms of new expense that hit in the first quarter from the fourth quarter, there really is very little in there -- in new. You will -- so I think in the second quarter, you'll see a little bit more expense. We're going to be licensing some software to get ready for the -- DFAST. That will increase our expenses slightly, but that's -- that is about it. So I think there will be -- so we've talked about it and I'm hesitant to put a number out there because I think we want to refine it a little bit more. But I would tell you, to answer the first part of your question, going from the fourth quarter to the first quarter, we're actively working on it, but a lot of the expense for DFAST is already in the expense numbers. So if you think about enterprise risk function that's built and operating, that's already baked into the numbers. We hired a treasurer last year. That's already baked into the numbers. So I think we've got some cost to license some software and do some other things to prepare for DFAST. So we'll have that. We'll have that number for you a little bit more refined in the next -- probably at the end of the next -- at the end of this quarter.

--------------------------------------------------------------------------------

Matthew Reader Forgotson, Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research [40]

--------------------------------------------------------------------------------

Perfect. I guess just to frame that up a little bit. If you did 4.3 million last year related to CCP Gold Bank, is it still fair just to put rough numbers around it, that any incremental accruals associated with planning to cross $10 billion would be lower than that?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [41]

--------------------------------------------------------------------------------

Yes. I think we'll -- we've talked about, as you know, it's -- we don't see it being half of that number. So that's a good broad kind of guideline.

--------------------------------------------------------------------------------

Matthew Reader Forgotson, Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research [42]

--------------------------------------------------------------------------------

Right. Okay. And then just on crossing $10 billion, in terms of managing the size of the balance sheet as we move through '17, is it possible that you could pop above $10 billion at any one quarter-end and then kind of limbo below it at the end of the year? Or are you managing below $10 billion throughout the whole year?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [43]

--------------------------------------------------------------------------------

Yes. Well, our plan is to manage below $10 billion for the entire year. And we -- I think we feel pretty good about being able to do that.

--------------------------------------------------------------------------------

Matthew Reader Forgotson, Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research [44]

--------------------------------------------------------------------------------

Okay. And then one last question for me then I'll hop out. In terms -- on credit, can you just comment a little bit about the steep decline linked quarter in accruing TDRs? Looks like they were down about $13 million this quarter. Could you give us a little color there? And then also on the uptick in 30-day, 90-day delinquencies, specifically that one problem credit.

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [45]

--------------------------------------------------------------------------------

Sure. Well, let me just touch on the TDR. And Barry's here. I think he can -- we -- he'll give you a little bit more color on the early stage. But the TDR, a fair amount of that is just some accounting where loans start to perform. They come out of there. So it's a little volatile if they slip back. They're going to go back into TDRs. So that -- we just have a lot of loans that started to perform from an accounting standpoint, get moved out. But we're still -- we're not out of the woods yet. Barry, you want to talk about the early stage?

--------------------------------------------------------------------------------

Barry Johnston, [46]

--------------------------------------------------------------------------------

Yes, early stage definitely went up $13 million this quarter, as mentioned in the press release and Randy mentioned in his opening remarks, $7.1 million of it is one credit. It's in land, lot and other construction -- it's a regulatory category. It is a commercial real estate property. It came out of -- the property is fully completed. Construction is complete. And the stabilized occupancy, just isn't at a number where it needed to be coming out of there. So the borrower's been facing some financial difficulties and resultingly is sitting in the early-stage delinquency buckets at this time. Borrower is doing some positive things, liquidating assets in lieu of the operating performance of the property, trying -- keeping the loan at that delinquency period. So we are fully anticipating that with the other actions that we're taking and what the borrower's doing, we hope to have that brought current by this quarter-end.

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [47]

--------------------------------------------------------------------------------

You want to comment -- I mean, it was a little lumpy in that bucket. So I mean that -- we don't feel it's really reflective of any kind of a trend because you have the one big loan that Barry just talked about, and then you had two others in there as well that were very large.

--------------------------------------------------------------------------------

Barry Johnston, [48]

--------------------------------------------------------------------------------

Yes, 4 other ones, 1 million to 1.8 million, 2 of which were about 2 million were brought current so -- currently this month-to-date so...

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

Our next question comes from the line of Michael Young with SunTrust.

--------------------------------------------------------------------------------

Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - Associate [50]

--------------------------------------------------------------------------------

Randy, I wanted to start off dovetailing on your comments about $10 billion asset threshold. I would assume then that portends that M&A is sort of off the table near term, but you may sort of reengage later in the year. Could you maybe just talk about your plans there and maybe what you're seeing in the market?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [51]

--------------------------------------------------------------------------------

Sure. So yes -- no, I -- M&A -- so I would -- starting with top -- the first part of your question, no, we are actively engaged in discussions, but making it clear that any transaction will be a 2018 transaction. And we're at a point now where that's going to -- if you're starting a discussion now, that's pretty much where you're going to end up anyway. So we're really not too far off it. We call it the Durbin delay. And so -- but from a pipeline standpoint, the market's been very active. I was just looking at it yesterday, talking to one of our investment bankers. And I think in the first quarter, we've seen pretty much about as much as we generally see in a full year. So there is a lot of activity. I would tell you from a quality standpoint, it's kind of a mixed bag and from a strategic standpoint. So even though there's a lot of activity, we're being very picky and sticking to our disciplined strategy of -- that served us very well over the years. So there's a lot to look at. I mean, it's been an incredibly busy quarter. We've turned away a lot. There's some good things out there as well that we're looking at. But anything we do, we are communicating and planning on funding, closing that in 2018.

--------------------------------------------------------------------------------

Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - Associate [52]

--------------------------------------------------------------------------------

Okay, great. And just one more on credit. Could you just give as an update maybe on the ag book and kind of are things moving positively there versus maybe where they were at year-end or just big picture thoughts?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [53]

--------------------------------------------------------------------------------

Yes, let me comment on that and then we'll see if Barry has anything to add. I mean, remember, our ag book is really well diversified from tree fruit, on I think, kind of eastern Washington down to wheat and cattle further south overall. And then to some extent if you're ag in commodities, those are probably the two areas, you're talking about some oil and gas as well. The tree fruit business is doing very well. Prices are stable, apples and cherries. The main tree fruit crops are doing very well, very stable. Really happy with how that's performing. Wheat, still down around $4 a bushel, we -- that's pretty close to breakeven. Yields have made up for that in the -- last year. We still just have our concerns about wheat. So we're keeping a close eye on it. Cattle, I think is kind of in the same boat, a little bit better. It's moving up. We are hoping that's going to continue. So we feel pretty good about that. That piece and -- we're under exposed to oil, so we don't have a lot of exposure there. Natural gas with our 1st franchise down at Evanston is probably the bigger component for us. That's actually starting to look a little bit better, getting a lot of demand on natural gas. So we feel pretty good about that. Barry, do you have anything you want to add there?

--------------------------------------------------------------------------------

Barry Johnston, [54]

--------------------------------------------------------------------------------

No, from a material standpoint, not much has changed since first quarter. So we're feeling that we're going to get through this cycle if -- where we're at or if commodity prices were to increase only slightly so...

--------------------------------------------------------------------------------

Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - Associate [55]

--------------------------------------------------------------------------------

Okay, great. And one last kind of small one, just on the New Market Tax Credits. Can you give me an idea of what the expense was this quarter? And is that the run rate we should expect going forward?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [56]

--------------------------------------------------------------------------------

I'm going to hand it over to Ron, who's our New Market Tax Credit expert, and see what's mixed in the numbers.

--------------------------------------------------------------------------------

Ron J. Copher, Glacier Bancorp, Inc. - CFO, EVP and Assistant Secretary [57]

--------------------------------------------------------------------------------

Yes, Michael, give me a minute. I'm just looking up the number here. Tell you what, let me get back to you offline with that number.

--------------------------------------------------------------------------------

Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - Associate [58]

--------------------------------------------------------------------------------

Okay. That's fine.

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [59]

--------------------------------------------------------------------------------

Yes, it's -- the fact we have to search for it tells you it's not a big one. But to give you the exact number, we'll -- Ron will get back to you on that.

--------------------------------------------------------------------------------

Operator [60]

--------------------------------------------------------------------------------

And our next question comes from the line of Tim Coffey with FIG.

--------------------------------------------------------------------------------

Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP and Research Analyst [61]

--------------------------------------------------------------------------------

Randy, as we kind of look at the growth in the quarter and the kind of commercial real estate construction portfolios, and compared to the declines in the residential mortgage portfolios and the multifamily portfolios, what's going on there? Is that a philosophical shift, a market opportunity or maybe both?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [62]

--------------------------------------------------------------------------------

Yes, well, I think what you're seeing is we hit a concentration limit on multifamily. And we've been very disciplined to kind of stick to their -- to our concentration limits. And so we haven't really increased our position significantly in quite a while because we're -- we feel like from a diversification standpoint, we like to keep the portfolio diversified. We set the exposure limits at sober x's [ times ]. We could have booked a lot more, but we just decided that we're at the point we're comfortable with and we're really not growing that portfolio.

--------------------------------------------------------------------------------

Barry Johnston, [63]

--------------------------------------------------------------------------------

Yes, we had one large loan for $22 million payoff during the quarter. It was a property down in our First Security Bank property in Missoula, so we anticipate we'll probably refund a portion of that to some of our existing borrowers who have been knocking at the door.

--------------------------------------------------------------------------------

Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP and Research Analyst [64]

--------------------------------------------------------------------------------

Okay. And then that $22 million is in multifamily?

--------------------------------------------------------------------------------

Barry Johnston, [65]

--------------------------------------------------------------------------------

Yes, it was.

--------------------------------------------------------------------------------

Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP and Research Analyst [66]

--------------------------------------------------------------------------------

Okay, great. I just want to make sure.

--------------------------------------------------------------------------------

Barry Johnston, [67]

--------------------------------------------------------------------------------

It was a sale of the property, so we did not have an opportunity to refinance it.

--------------------------------------------------------------------------------

Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP and Research Analyst [68]

--------------------------------------------------------------------------------

Okay, okay. That's helpful. And then the difference in the yield between kind of the residential mortgages and multifamily mortgages, is that substantially lower than what you would get on the commercial real estate or I'm assuming it would be on a construction loan but kind of nonresidential mortgage type loans?

--------------------------------------------------------------------------------

Barry Johnston, [69]

--------------------------------------------------------------------------------

That's a good question. I don't know how to answer that. Generally, a multifamily would be priced similar to any other commercial real estate income-producing property. So it typically would be higher than a single-family residential loan. So -- but in general terms, that's how we priced historically. As far as -- okay.

--------------------------------------------------------------------------------

Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP and Research Analyst [70]

--------------------------------------------------------------------------------

Yes, I didn't mean to cut you off there. Was there something else you wanted to add?

--------------------------------------------------------------------------------

Barry Johnston, [71]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP and Research Analyst [72]

--------------------------------------------------------------------------------

Okay. And then on managing under $10 billion, we've seen companies do this before, and what it comes down to it, kind of all options are on the table. Randy, is that how you're approaching managing under $10 billion through the next 3 quarters?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [73]

--------------------------------------------------------------------------------

Well, I'm not sure what all options on the table are, but I'll tell you a couple of things. We looked at this and kind of used it as a framework. Number one, we don't want to slow down this franchise because it's doing extremely well. And you can see from our growth that we've got a lot of people working hard and doing a great job bringing in good business. So I think what you'll see from us is more balance sheet activity to make some room and allow just organic growth. We're going to close Foothills, and that's going to get us pretty close. We don't plan to close any more deals this year, so we can kind of use that as one lever. And then just on the balance sheet, we've got a couple levers to use to kind of carve out some room. And I guess our other principal: One is we don't want to slow down some of this great momentum that we have. And the other is, this is a short-term problem. We don't want to create long-term consequences by trying to solve a short-term problem. So we're very mindful of that. It really is just the limbo bar at the end of the year, get under it. And then we'll certainly go over in 2018, but we've got a couple actions identified that we feel we'll be able to manage through that.

--------------------------------------------------------------------------------

Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP and Research Analyst [74]

--------------------------------------------------------------------------------

Okay. One of the things I was looking at was the balance of CD and wholesale deposits. What are the kind of maturity schedules on those for this year?

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [75]

--------------------------------------------------------------------------------

Well, the wholesale deposits are primarily there because of our swap. So those are short term, but they're going to -- those will likely stay there. CD roll-off, I think, there's nothing extraordinary, just kind of historical trends for the CDs. As you know, that's been a long-term liquidation, but we don't see that changing.

--------------------------------------------------------------------------------

Operator [76]

--------------------------------------------------------------------------------

And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Chesler for closing remarks.

--------------------------------------------------------------------------------

Randall M. Chesler, Glacier Bancorp, Inc. - CEO, President, Director, President of Glacier Bank and Director of Glacier Bank [77]

--------------------------------------------------------------------------------

All right. Well, we certainly thank you for taking the time. I think there's some great questions. We're pretty excited about the first quarter; feel like it was a lot of good things happening. We see that continuing throughout 2017. So we look forward to our next call. Sure we'll we have some more things to talk about, and I appreciate you again for taking the time to dial in. Thank you.

--------------------------------------------------------------------------------

Operator [78]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.