Glacier Bancorp, Inc. (GBCI) Q1 2008 Earnings Report, Transcript and Summary

Okay thank you for joining our conference call today. This is the Glacier Bancorp Quarterly Earnings Call. At this time, I would like to turn this call over to Mick Blodnick. Please go ahead sir. Michael Blodnick – President and Chief Executive Officer: Thank you and welcome everyone and 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 was $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 were we had the sale of the Western Security Bank branch in Louis Town, Montana, our diluted earrings per share on an operating basis increased by 10% for the quarter. Our ROA ended at 1.46, that’s down slightly from last years 1.48 and ROE at 12.98 was also down from 14.02% last year in the quarter. We continued to increase equity within the company and stockholder equity end of 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 or so. It's been by design that we have continued 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 1.51 the prior quarter. The next three months should give us 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 slowdown is in housing because the winter months which of course all of our markets definitely have winter, its little bit more difficult for us to see just how much of the impact the 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 quarter, this past quarter to increase. We've been saying that for the better part of the quarter based on the types of increase that we’re seeing in delinquencies in the fourth quarter of last year. However so far that increase in NPA's has not transferred into higher net charge-offs and that’s really our goal is to keep those charge-offs low. Our long term goal is 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 2 basis points to 4.54 that’s up from 4.52 at the end of fourth quarter of last year and 4.4 and 7% in the March quarter of 2007. One thing we did do this quarter is we analyze the impact of those loans that came on to a non-accrual status. And for the quarter those loans actually lowered on net interest margin by 5 basis points during the quarter. So we ended up with 4.54, we figure that the non-performing backing out the non accrual loans probably decrease that figure by about that 5 basis points. Our net interest income did increase by 1% on a linked quarter basis and we are very happy to see where over the first quarter last year our net interest income was up 14%. The increase to our net interest margin thoroughly was a pleasant surprise and we think a lot you accordingly say over the course of the last three the four five months that we were actually projecting some compression to our margin. I have got to give a lot of credit to our banks and the senior staff with those banks for the work that they did in controlling their funding cost during this quarter, during the Feb it was lowering rate dramatically. Actually our interest expense decrease by 11% during the quarter where we only give up 3% in interest income. So you can see that we were able to maintain our and actually even continue to lower our funding cost to the quarter at a time when the Fed was definitely lowering rates at the rapid pace. Again adjusting rates to keep pace with the fed reductions during the time of intense competition this was an easy task of the banks but they have to do a very, very good job. In its current environment its still going to be difficult to expand the margin we think going forward, hopefully we wont experience a significant amount of contraction rest year, but the chances of seeing further increases, going forward I think its going to be tougher. Our loans grew in the quarter by $70 million or 8% annualized. This was about what we’re projecting for the year. So I am not sure we’re going to hold that type of growth throughout the next three quarters, but if would that’s about what we were projecting in loan growth of 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 where in the first quarter last year, where in the first quarter last year we actually saw a loan portfolio decrease. Going forward the pressure on housing and developments and in those markets, the development markets are continue to process and if they do continues to process we will continue to be very selective in our lending activity and that also could have an impact on the growth you know loan portfolio in 2008. Our efficiency ratio increased to 55% in the first quarter from 53% of the prior quarter and it was down from the same quarter last year 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 is no s no doubt that the first quarter of the year we often do so a spike above the fourth quarter efficiency numbers, but again we are hoping that we are stating 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 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 is still a high demand for many of the natural resources produced in our region and we continue to experience strong population growth in our market. And we like our foot prints and believed its one of the key reasons the success that we’ve had today, 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 through out the rest of this year. And with that those would end of my comment that I want to make. However, I will urn it over for questions now and entertain questions from the analysts.

(Operator Instructions). Alright, it looks maybe our first question comes from Jim Bradshaw. Please go ahead.

Good morning.

Hi Jim.

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

Well on a geographical perspective we saw NPA's in not all the banks of course, not all 11 banks had increases, some actually had decreases in non-performers, but let me describe my CD rate. Barry, you want to go through that with Jim or…

Sure I can go through that. You got game for ready Jim.

I am ready, yes.

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

Yeah, did not number Jon is 28 million 562. What Barry gave was all of the NPA's including SPA or any other guaranteed loan.

Got it, okay good. And then could you talk about long growth cash Mick, usually I don’t expect to see this follow the quarter and in Q1, was there a driver of it regionally or by product?

Jim I can answer that question.

Okay.

We got game for ready again.

I am ready yeah.

Okay, basically the information that I will be giving you after the call reports and the only call report information I have fully complete yet, but we do have the balance sheet items completed for the loan. So wonderful family residential construction loans went down 11 million 908,000, other construction and land development went up 43 million.636, secured by farm land went up 2 million 475, single family residential secured revolving went up 6 million 633, single family residential went up 4 million 894, single family residential secured junior lands went up 420,000, multifamily five plus went down a 1.89 million, loan secured by owner occupied commercial properties went up 4 million 705, loan secured by other non-residential which is basically investment property went up 1 million 297 million, loans to egg and farmers went down a 1.974 million, commercial and industrial loans went up 25 million 230 which is I think is a reflection of where we hope to continue to go. Loans to individual credit cards went down by 48,000, loans to individual other revolving went up 274, other consumer loans went down 2 million, obligation in the US states and subdivision went down 111,000, other loans went up a 1.386 million and lease financing receivable went up 11,000 and net increases 70 million 321.

Okay great thank you very much that’s it and congratulations guys on guidance through this tough markets out there.

Thank you, Jim

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

Hi Brad

He good morning guys. Mick just little bit more color on the margin you obviously are at 116% loan deposit ratio, it looks like your – its typical with the lowest cost source of funding this quarter as you guys typically do and let the higher cost CDs things went off, just curious how much will reprising have got to do and kind of just a little bit more color on where you think your margins added?

You know I think as I mentioned in my comment, the margins surprised us because we’re really coming into the year looking to see some compression and I wouldn’t think it was going to be a noticeable or a significant amount of compression, but we didn’t think we would actually grow the margin. However, as we really drill down into the balance sheet, we saw that in the first quarter we did have more liabilities repricing then we did assets, over the first 90days of the year, now that will normalized out throughout by 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 some 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 had done a very good job working with the banks on continuing that reduce our wholesale funding, and at the same time I just said earlier the banks I think have done a very good of stepping up to the place 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 that deposit run off, and yet I think we were probably -- our banks will probably as aggressive as any in there market of trying at least somewhat key pace what the fed was doing. But again the answer to your question, I would suspect that that compression somewhat will take place during the rest of this year as we stay in this low rate environment as we continue to give more pressure from borrowers to adjust the payments and that of course will be offset with this consistent each month we needle up higher cost fee, but I am not thinking that the repricing of maturing CD’s is going to be quiet enough to offset the pressure from the other side.

Okay and I may have missed your comment, but I wanted if you could kind of give us the 30 day pass-through numbers, and then also you gave us great quality on the loan portfolio, the asset quality, but you mentioned maybe some additional color on some of the larger loans at Big Sky and may be Glacier and Whitefish I think that you are going to talk about?

Yeah just a pass-through totals at quarter end, 30 to 59, I am still occurring with 28 million 636 million 60 to 89 is still occurring as 4 million 249, 90+ and still occurring interest is 4 million .717 or total pass throughs of 37 million 603 and then of course non-accrual loans grows again is 22 million 842, but our total pass through and non-accruals of 60 million 445. The three credits that I mentioned there is answer to you would expect at all acquisition and development loans we have had a large credit up in Northwest or Montana out of the Glacier Bank, Whitefish for 1.9million of development, 5 and 10 acre tracks, 90 days pass through was placed on non-accrual prior to year end. We fully anticipate that there is very little of any loss in that credit given the current market condition as they stand to date. The other credit that went on non-accrual static is went out Northern Wyoming and star valley is on the development up there and that is 2.1 million, we’re looking diligently trying to get that result with the state of the borrower and hopefully….

I mean that’s (Inaudible) that was somewhat of a unique, because I have been mentioning it into a lot of use views that he Wyoming market is still being also robust and it has – unfortunately, you run across these deals from time to time this ended up in a airplane accident and one of the principle was killed and we haven’t deal through this and you know I don’t think that’s so much of function of that Wyoming market as it is – the unique situation, but nonetheless like Barry said, we’re going to have to work through this one.

And Mick the last one was alone in the Bozeman market it was 2.5million, it went 90days pass through, its been cured through the sale of real estate and that’s. we’re still watching that one closely you given the real estate. So the other on a positive note we did have a million dollar reduction out of our Western security bank after quarter end, but given the trend we would fully expect hopefully in this upcoming quarter that we could hold non-performing assets at least steady and hopefully may be 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 today.

And I assume that loan in the Mountain West are C&D related as well?

Its actually most of the credits in Mountain West – all that increase in spit of 50-50 north and south, and it is – there is one small development relatively small for us on $900,000 of 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 primarily between consumer single, family residential, default and there is some builder defaults home loans and it’s a split out among 40-50borrowers.

Okay

And really nothing really of the heavy concentration other than that one real estate development and that one commercial building

Okay

One thing that Barry someone alluded to and I want 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 NPA’s are down about $4.5 million from that that number. But we are not naïve, I mean, 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 and we would be right back to where we were at the end of that 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. Now what I guess that could change if valuations really take a nose dive or this market gets a whole bunch worse. But lets 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 that it sticking to their standards. Lets hope that’s what's keeping our net-charges-offs at low levels and the non-performing that are out there, we're sure hoping that we can manage through those and they don't result in significant losses.

And the final question. The provision this quarter was it spread pretty evenly amongst all your banks. I mean I know we will see in a few weeks when you file your car reports. But didn't now if Mount West it sounds like the NPA's there are pretty granular, but I did know if they would be bringing their loan losses are above closure to the consolidated total or maybe kind of – if you any additional color there on your thoughts on some of the individual banks. Thanks.

Brad I can give you those numbers. First Bank of Montana was 15,000 less than Security Bank which is at about 2% reserve level didn't provide anything. Philippines Community Bank in Pocatello provided 55,000, Valley Bank in Helena 120, Big Sky Western 300, First National Bank Morgan 85,000, First Bank stood 225, NSU indicated Northwest Bank 900,000 in (Inaudible), Glacier Bank Kalispell 400,000. Glacier Bank, Whitefish 250,000 and First Security Bank in Missoula 150,000.

Okay thank you, a very good quarter.

Thanks Brad.

And I'm showing that our last question at this time comes from Joe (Gladue). Please go ahead.

Yeah hi. Good morning.

Hi Joe.

Hi. Well I guess I just have 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 what?

You get a sense on fixed verus variable if we really hadn't much of a – I mean some of this is obviously driven by customer demand. If you have noticed lately whether more of our borrowers are requiring fixed rates at these levels or…

What we have see – I really can't get a flavor for the transition between fixed or variable. Of course those customers that were on variable are loving the last 90-120 days. But what we are seeing and I can comment to is that as rates have down we are getting a lot of request for those borrowers that were variable to convert to fixed and we have been trying to accommodate those as best we can without basically giving away the count. What we are doing is, is we are taking a fairly strict line or very mandated line on giving it of doing any kind of conversion from variable to fixed and generally about a 0.5 point to a full point. And the term of the fix is we trying hold firm anything less than 5 years.

You know one thing Joe, that I did take a hard look at here a couple of weeks ago. I guess because 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 loans 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 our floating rates. We do have flows 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 5.5% range was probably a pretty active flow level. Barry?

Mick that’s right. When rates were going up we get into institute order flows anything new that we are putting on that and time that given the five quarter we are setting four or five, and that is pretty much standard across all of our affiliates right now. So – and most of our borrowers are applicable with that. So we would probably anticipate that’s ruled out, that’s going to settle in there.

Okay. And just last question I have, just and that’s smaller part of the quick follow-up. But what sort of delinquency trends that you are seeing on the consumer and home equity type loans?

We wished in anticipation of this question, you are right, I suggest that all of our consumer loan department managers and specifically asking about delinquencies in their portfolio and even more detail on the home equity lines of credit. And across the board we have not seen a change in the delinquency. And frankly that surprises me a little bit and I was anticipating we would see some increase, but they all came back with negative response that delinquencies are holding their study. So let's just I think remained positive.

Okay. Well, thank you. That’s all I had.

Okay. And at this time I am showing that there are no further questions.

Okay. Well, again thanks all of you for you time and your interest today. And I guess, as we continue through 2008 is that you are not getting any easier, but I like what -- I like the way we are 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 will 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 call if you come up with any other questions or information you need. Thank you.