Glacier Bancorp Inc (GBCI) 2008 Q1 法說會逐字稿

Thank you for joining our conference call today. This is the Glacier Bancorp quarterly earnings call. At this time, I'd like to turn this call over to Mick Blodnick. Please go ahead, sir.

Thank you, and welcome, everyone. Thanks again for joining us this morning. With us this morning from Glacier Bancorp is Ron Copher, our Chief Financial Officer; Don Chery, our Chief Administrative Officer; and Barry Johnston, our Chief Credit Administrator. Last night we reported earnings for the first quarter of 2008. Earnings for the quarter were $17,399,000. That's an 8% increase over the same quarter last year. Our diluted earnings per share for the quarter were $0.32. That's an increase of 7% over the prior year's quarter. However, excluding last year where we had the sale of the Western Security Bank branch in Lewistown, Montana, our diluted earnings per share on an operating basis increased by 10% for the quarter. Our ROA ended at 1.46, that's down slightly from last year's 1.48 and ROE at 12.98 was also down from 14.02% last year in the quarter. We continue to increase equity within the company and stockholder equity into the quarter at 11.24% versus 10.6% at this time last year. Right now, until we get a clearer picture of what happens with this credit market, we're content to build our capital levels and, in addition, we want to make sure we have the capital resources to take advantage of opportunities that we think will eventually present themselves in the next couple years. So it's been by design that we have continued to, to grow our equity position.

The next point. Asset quality had mixed results in the first quarter. We did see an increase in our non-performing assets to 57 basis points of assets compared to 27 basis points last quarter and 25 basis points in the same quarter last year. Our net charge-offs for the quarter were negligible at less than 1% for the quarter, or 2% annualized. Our loan loss reserve ended the quarter at 1.54%. That's up from 151 the prior quarter. The next three months should give a better indication as to whether the real estate market is starting to stabilize or whether we have more downside ahead. It's been difficult to get a real good handle on how extensive the slow down is in housing because the winter months which, of course, all our markets definitely have winter. It is a little bit more difficult for us to see just how much of an impact, excuse me, how much of an impact weather has. But so far this year we do know that sales volumes have definitely slowed, although prices have held up pretty well to this point.

We would expect our non-performing assets, we expected non-performing assets this past quarter to increase. We've been saying that for the better part of the quarter based on the types of increases we were seeing in delinquencies in the fourth quarter last year. However, so far that increase in NPAs has not transferred into higher net charge-offs. That's really our goal is to keep the charge-offs low. Our long-term goal has always been to charge off less than 15 basis points a year and I don't know if that's achievable this year or not, but we sure got off to a good start during the first three months.

Sequentially, our net interest margin during the quarter increased by two basis points to 4.54. That's up from 4.52 at the end of the fourth quarter of last year or, yes, last year, and 4.47% in the March quarter of 2007. One thing we did do this quarter is we analyzed the impact of those loans that came on to non-accrual status and for the quarter those loans actually lowered our net interest margin by 5 basis points during the quarter. We ended up at 4.54, we figure that the non-performing, backing out the non-accrual loans probably decreased that figure by about 5 basis points. Our net interest income did increase by 1% on a link quarter basis and we were very happy to see where over the first quarter of last year our net interest income was up 13%.

The increase to our net interest margin truly was a pleasant surprise. I think a lot of you heard me say over the course of the last three to four or five months that we were actually projecting some compression to, to our margin. I've got to give a lot of credit to our banks and the senior staffs of those banks for the work that they did in controlling their funding cost during this quarter when the fed was lowering rates dramatically. Actually, our interest expense decreased by 11% during the quarter where we only gave up 3% in interest income. So you can see that we were able to maintain our, and actually even continue to lower our funding costs through the quarter at a time when the fed was definitely lowering rates at a rapid pace. Again, adjusting rates to keep pace with the fed reductions during a time of intense competition, this wasn't an easy task for the banks, but I thought they did a very, very good job.

In this current environment it's still going to be difficult to expand the margin, we think, going forward. Hopefully we won't experience a significant amount of contraction the rest of the year, but the chances of seeing further increases going forward, I think it's going to be tougher. Our loans grew in the quarter by $70 million or 8% annualized. This is about what we're projecting for the year, so, I'm not sure we're going to hold that type of growth throughout the next three quarters, but if we would, that's about what we were projecting in loan growth for 2008. Considering this is the first quarter, which is usually softer, we were pleased with that number and it was, again, not far better than what we produced last year. In the first quarter last year we actually saw our loan portfolio decrease.

Going forward, the pressure on housing and development and those markets, the development markets, continue to persist. If they do continue to persist, we will continue to be very selective in our lending activity and that also could have an impact on the growth in our loan portfolio in 2008. Our efficiency ratio increased to 55% in the first quarter from 53% the prior quarter, but it was down from the same quarter last year we had where we had a 56% efficiency ratio. Last year our efficiency ratio improved during the year, during 2007 our efficiency ratio improved each quarter throughout the year and we hope we can duplicate that effort again this year. Now there's no doubt that the first quarter of the year we often do see a spike up over fourth quarter efficiency numbers but, again, we're hoping that we're starting from a lower level than we did last year and we hope that we can continue the same trend in the area of efficiency that we, that we saw in 2007.

And I guess finally the states and the economies that we are operating in continue to do very well. Unemployment levels are well below the national average in these states. There's still a high demand for many of the natural resources produced in our region and we continue to experience strong population growth in our markets. We like our footprint and believe it's one of the key reasons for the success that we've had to date. It continues to be a difficult operating environment for banks; however, so far we've done pretty well and hope we can maintain this performance level as we move throughout the rest of this year. And, with that, those are the end of some of my comments I wanted to make. We'll turn it over for questions now and entertain questions from the Analysts.

(OPERATOR INSTRUCTIONS) All right, it looks like our first question comes from Jim Bradshaw. Please go ahead.

Good morning.

Hi Jim.

Hi, Mick. Couple questions, could you talk about the change in non-performance this quarter? Where that came from on a geography basis?

Well from a geographical perspective we saw, we saw NPAs in not all the banks, of course not all 11 banks had increases, some actually had decreases in non-performers, but let me just grab my sheet here.

Jim--

Do you want to go through that with Jim?

Sure. You got your pencil ready, Jim?

I am ready, yes.

Okay. As noted and as we expected, as Mick mentioned, the past trends that we're seeing in the last quarter of 2007 definitely translated into some increase in non-performing assets as we've been mentioning, we fully anticipated the increase. Just by geographic area, I'll giving you last quarter's by bank and this quarter's by bank numbers and that'll give you a good idea where the growth is coming from. First Bank of Montana in Lewistown, Montana, went from 410,000 down to 163. Western Security Bank went from 2.3 million down to $1 million 985. Citizens Community Bank went from 432,000 to 1 million 307. Valley Bank of Helena went from 28,000 to 150,000. Big Sky Western Bank in Bozeman went from 1 million 186 to 4 million 137, that was primarily in one credit and we will talk a little bit about that later. First National Bank of Morgan went from 245,000 to 789. First Bank in Evanston, Wyoming, went from 753 to 3 million 5,000 and, again, that was centered all in one credit and we will mention that. Mountain West Bank, of course, is where we fully anticipated a large increase and that's primarily centered in a lot of small individual builders. They went from $1 million 876 to 9 million 411,000. Glacier Bank of Kalispel went from 598,000 to 358,000. Glacier Bank White Fish went from 256,000 to 2 million 349 and that increase was all again in one credit. First Security Bank went from, in Missoula, Montana, went from 5 million 233 to 5 million 720, and overall we went from the 13 million 288 to what my number is, 29 million 377. What you have in the press announcement is the number SPA guarantees. The difference is about 815,000.

Yes. The net number, Jim, is $28,562,000 but what Barry gave you was all the of NPAs, including SPA or any other guaranteed loans.

Got it, okay good. And then could you talk about loan growth. Mick, I usually I don't expect to see this solid a quarter in Q1. Was there a driver of it regionally or by product?

Jim, I can answer that question.

Okay.

Got your pencil ready again?

I'm ready.

Basically, the information that I'll be giving you is off our call reports. The only call report information I have, they're are not fully complete yet, but we do have the balance sheet items completed for the loans. So one to four family residential construction loans went down 11,908,000. Other construction and land development loans went up 43,636,000. Secured by farm land went up 2,475,000. Single family residential secured revolving went up 6,633,000. First lien single family residential went up 4,894,000. Single family residential secured junior liens went up 420,000. Multi-family five plus went down 1 million 89. Loans secured by owner occupied commercial properties went up 4 million 705. Loans secured by other non-farm, non-residential which is basically investment property, went up 1,297,000. Loans to Ag and farmers went down 1,974,000. Commercial and industrial loans went up 25,230,000 which I think is a reflection of where we'd hope to continue to go. Loans to individuals, credit cards went down by 48,000. Loans to individuals other revolving went up 274. Other consumer loans went down 2,738,000. Obligations to U.S. states and subdivisions went down 111,000. Other loans went up 1,386,000. And lease financing receivables went up 11,000. The next increase is 70,321,000.

Okay. Great. Thank you very much. That fits the bill. Congratulations, guys, on guidance through the touch markets out there.

Thank you, Jim.

Okay. I am showing that our next question comes from Brad Milsaps. Please go ahead.

Hi Brad.

Hey good morning guys. Mick, just a little more color on the margin. You're up to 116% loan deposit ration. It looks like you're typical with the lowest cost source of funding this quarter as you guys typically do and let higher cost CDs, things run off. Just curious how much more repricing you've got to do and just a little more color on where you think your margin's headed?

I think, as I mentioned in my comments, the margin surprised us because we were coming into the year looking to see some compression. I wasn't thinking it was going to be noticeable or a significant amount of compression, but we didn't think we would actually grow the margin; however, as we really drilled down into the balance sheet, we saw that in the first quarter we did have more liabilities repricing than we did assets over the first 90 days of the year. Now that will normalize out to whereby the end of the year it will just about, what benefit we got in the first quarter from more liabilities repricing, these next three quarters we've got just about that exact same amount in assets, repricing over liabilities.

So we expect that would put a little bit of pressure on but, again, we continue to look and I think Ron Copher and his staff have done a very good job working with the banks on, on continuing to reduce our wholesale funding and at the same time, like I said earlier, the banks have done a very good job of stepping up to the plate and making some tough decisions in a downward rate environment to do what they needed to do and yet we haven't seen a lot of deposit runoff and yet I think we were probably, our banks were probably as aggressive as any in their markets of trying to at least somewhat keep pace with what the fed was doing. But, again, to answer your question, I would suspect that are compression somewhat will take place during the rest of this year as we stay in this low rate environment, as we continue to get more pressure from borrowers to adjust their payments and that, of course, will be offset with this consistent each month renewal of higher cost CDs, but I'm not thinking that the repricing of maturing CDs is going to be quite enough to offset the pressure from the other side.

Okay, and Barry, I may have missed your comments but wanted to see if you could give us the 30-day past due numbers and then also you gave us great color on the loan portfolio and asset quality. You mentioned maybe some additional color on some of the larger loans at Big Sky and maybe Glacier and White Fish I think that you are going to talk about?

Yes. Past due totals at quarter-end 30 to 59 and still accruing was 28,636,000. 60 to 89 and still accruing is 4 million 249. 90 plus and still accruing interest is 4,717,000 for total past dues of 37,603,000 and then, of course, non-accrual loans gross again is 22,842,000 for a total past due non-accruals of 60,445,000. The three credits that I mentioned, there's, as you would expect, they're all acquisition and development loans. We had a lare credit up in northwestern Montana out of the Glacier Bank White Fish affiliate for 1.9 million as a development five and ten acre tracks. Ran 90 days past due and was placed on I non-accrual prior to year end. We fully anticipate there's very little if any loss in that credit given the current market conditions as they stand today. The other credits that went on non-accrual status was one out of northern Wyoming, up in the Star Valley it was on a development up there and that was 2.1 million. We are working diligently trying to get that resolved with the estate of the borrower. And hopefully --

Let me interject. That was somewhat of a unique, I have been mentioning, I think, to a lot of you that the Wyoming market has still been awful robust and it has. Unfortunately, you run across these deals from time to time. This ended up in an airplane accident and the principle was killed and we're having to deal through this thing. I don't think that's so much a function of that Wyoming market as it is, it's a unique situation but, nonetheless, like Barry says, we're going to have to work through this.

And, Mick, the last one was a loan in our Bozeman market, it was 2.5 million. It went 90 days past due. It's before cured through the sale of real estate. But we're still watching that one closely given the real estate markets. On a positive note, we had a million dollar reduction out of Western Security Bank after quarter end, but given the trend that we're seeing we would fully expect, hopefully in the upcoming quarter that we could hold non-performing assets at least steady and hopefully maybe a small reduction but, again, things seem to be moving fairly quickly in our markets and we wouldn't want to sit here and indicate that things would get any significantly different from where they are at today.

I assume the loans out of Mountain West are C and D related as well?

Actually most of the credits in Mountain West, of that increase, split about 50/50 north and south. There's one small development, relatively small for us, a $900,000 development in northern Idaho and one small commercial building for about 700,000 to one borrower. That's the largest NPA in their portfolio. The rest of it is spread out between consumer, single family residential default and there is some builder defaults home loans and it's spread out among 40 50 borrowers. Really nothing really of a heavy concentration other than that one real estate development and that one commercial building.

Okay.

One thing Barry sort of alluded to I wanted to mention is the non-performing numbers that Barry gave to you earlier in the call. As we sit here today, that number is the NPAs are down about $4.5 million from that number, but we're not, we're not naive. We've made some progress in April by knocking about $4.5 million off that, but that's not to say that we couldn't see another $4 million come on by the end of this quarter. We would be right back to where we were at the end of the first quarter. So bottom line though is I think Barry's statement about so far what we've seen there, we haven't seen a lot of loss. I guess that could change if valuations really take a nose dive or this market gets a whole bunch worse. But let's hope that, again like we said last quarter and like we've been saying all this quarter, I think that the underwriting that the banks did, sticking to their, their standards, let's hope that that's what's keeping our net charge-offs at low levels and the non-performings that are out there, we're sure hoping that we can manage through those and they don't result in significant losses.

Final question, the provision this quarter, was it spread evenly amongst all your banks? I know we'll see in a few weeks when you file your call reports, but didn't know about Mountain West, it sounds like NPAs there are pretty granular. Didn't know if they would be bringing their loan losses up closer to the consolidated total or if you have additional color there on your thoughts on sort of the individual banks.

I can give you those numbers. First Bank Montana was 15,000. Western Security Bank which is at about 2% reserve level did not provide anything. Citizens Community Bank in Pocatello provided 55,000. Valley Bank in Helena 120. Big Sky Western, 300. First National Bank Morgan 85,000. First Bank in Evanston, 225. And, as you indicated, Mountain West Bank 900,000. Glacier Bank Kalispell 400,000. Glacier Bank White Fish 250,000. First Security Bank in Missoula 150,000.

Okay. Thank you. Very good quarter.

Thanks, Brad

I'm showing that our last question at this time comes from [Joe Gladue]. Please go ahead.

Hi [Joe].

Hi. Good morning. I guess I just have a few short questions left. Just wondering any change in the mix of loans fixed versus variable? Is that pretty much the same as it was or?

Barry did you get a sense of fixed versus variable? Some of this is obviously driven by customer demand. Have you noticed lately whether more of our borrowers are requiring fixed rates at these lower levels or --

What we have, see I can't really guilt a flavor for a transition between fixed or variable. Of course those customers that were on variable are loving the last 90, 120 days, but what we're, what we are seeing and I can comment to is that as rates have come down we are getting a lot of requests for those borrowers that were available to convert to fixed and we have been trying to accommodate those as best we can without basically giving away the, giving away the towel. What we are doing is we are taking a fairly strict line or very mandated line on getting or doing any kind of conversions from variable to fixed. Generally about half a point to a full point, and the term of the fix, we're trying to hold firm anything less than five years.

One thing, [Joe], that I did take a good hard look at here a couple weeks ago, I thought in my own mind that we were a little bit higher of the variable rate commercial type loans, I thought that we probably had floors on about 75 to 80% of those, but come to find out it's about 50%. So about 50% of the commercial loans out there that are floating rates, we do have floors on about 50% and Barry would probably be able to give you a little bit more color here, but my guess is that a fair amount of those have already hit their floors now because my guess would be that that 5.5% range was probably a pretty, a pretty active floor level. Barry, do you have anything more?

Yes. Mick, that's right. When rates were going up, we did institute a lot of floors. Anything new that we're putting on now in prime, given 5.25, we're setting a floor of 5, that's pretty much standard across all our affiliates right now so, and most of our borrowers are agreeable with that. So we'd fully anticipate that's where that's going to settle in at.

Okay and just last question, just, I know it's a smaller part of the portfolio, but what sort of delinquency trends are you see seeing on the consumer and home equity type loans?

In anticipation of this question, [Joe], I solicited all of our consumer loan department managers and specifically asked them about delinquencies in their portfolio and more, even more detailed, the home equity lines of credit and across the board we have not seen a change in delinquencies. And frankly that surprises me a little bit. I was anticipating we'd see increase, but they all came back with negative response that delinquencies are holding steady which is, I think, really positive.

Okay, well thank you, that's all I had.

Okay. And at this time I'm showing there are no further questions.

Okay, well again, thank you all of you for your time and your interest today and I guess as we continue through 2008 it's sure not getting any easier, but I like what, I like the way we're positioned. Again, I like the model that we run. I think the markets that we are in are still very stable and solid and we can only hope that we can continue to manage and control the asset quality within the company. I think if we do that over the next three quarters, I think we'll, we'll do just fine in 2008. So with that, again, thank you all very much for joining us this morning. And don't hesitate to give us a call if you come up with any other questions or information you need. Thank you.