Bank of Idaho Holding Company (GBCI) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Glacier Bancorp Investor Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Now it's my pleasure to call over to the President and CEO, Randy Chesler. Please proceed.

All right. Thank you, Carmen, and good morning, everyone. Thank you for joining us today. I'm very happy to be here in Boise, Idaho today with many members of the very talented Bank of Idaho team and our Mountain West division leadership. Very excited to talk to you about our latest acquisition. Joining me on the phone from Kalispell is Ron Copher, our Chief Financial Officer; Tom Dolan, our Chief Credit Officer; and Byron Pollan, our Treasurer. So yesterday, after the market closed, we announced an agreement to acquire Bank of Idaho Holding Company, the holding company for Bank of Idaho, a regional community bank headquartered in Idaho Falls. Bank of Idaho is a high-performing bank with $1.3 billion in total assets and 15 branch locations across Eastern Idaho, Boise and Eastern Washington. The bank has been operating for nearly 40 years and has a strong legacy presence in Eastern Idaho, along with fast-growing franchises in Boise and Eastern Washington and, most importantly, great relationships with its customers across the footprint. This is a very unique opportunity for us as we are able to acquire a high-performing bank that is operating in our existing core markets. This will further improve our strong position in these markets and also provide strong earnings accretion, and we believe low integration risk. Bank of Idaho will become part of Glacier's 3 existing bank divisions in Idaho and Washington, which includes Citizens Community Bank, Mountain West Bank and Wheatland Bank. Glacier will remain with 17 individual bank divisions after closing. When combined with our Citizens Community Bank and Mountain West Bank divisions, Glacier will become the third largest bank in Idaho. We're extremely excited about the opportunity to strengthen our market-leading position in Idaho as it is the fastest-growing state in the country and has been a strong market for Glacier since we entered the state in 2000. With only 10 bank charters left in the state of Idaho, there are very few opportunities for M&A, and we feel we found the perfect fit. The addition of Bank of Idaho also provides new branches and customers in Eastern Washington, which will add to our Wheatland Bank division and position Glacier as the fifth largest community bank in the robust Eastern Washington market. Now I'd like to jump right into the investor presentation, which was posted to our website. Page 3 further highlights why we're excited about this opportunity. This transaction will be our 26th acquisition since 2000 and our 12th announced acquisition in the last 10 years. It's worth noting that at $1.3 billion in total assets, Bank of Idaho will be our second largest acquisition over the last decade and fits perfectly with our targeted M&A strategy. We'll discuss the transaction terms and metrics later on in the deck, but overall we feel the financial metrics of this transaction are very attractive and consistent with our long-term disciplined approach to acquisitions. Turning to Page 4. This transaction aligns with our long-term strategy of buying good banks in good markets with good people and provides an opportunity to deepen our presence in several of the most attractive and fastest-growing markets in the U.S. With Glacier's unique operating model, we will retain the Bank of Idaho's community banking experience while providing customers with expanded products and services. We also offer employees terrific opportunities to grow their banking career. Page 5 provides an overview of the history and performance of Bank of Idaho. Bank of Idaho was established in 1985 in Idaho Falls and has grown to become one of the largest banks headquartered in Idaho. Bank of Idaho's financial performance is among the best in the Rocky Mountain region with strong returns and solid credit performance. Historically, Bank of Idaho was an Eastern Idaho focused bank, but in 2019, the management team made the strategic decision to enter the Boise market. The bank has been extremely successful in this market over the last 5 years, taking share from large banks and attracting many talented bankers. Over the 5 years, Bank of Idaho has grown to 4 branches and approximately $290 million of loans and $220 million of deposits in the Treasure Valley. In '22, Bank of Idaho made the move into Eastern Washington with the acquisition of 5 branches from Home Street. This is a market Bank of Idaho management knew well and has since become one of the best-performing growth markets for the bank. Turning to Page 6. We wanted to highlight how well the Bank of Idaho footprint ties into Glacier. You can see that in the Eastern Idaho, the 6 new Bank of Idaho branches provide new locations and a great legacy core deposit base. In Boise, Mountain West picks up 4 new Bank of Idaho branches and a really terrific, high-performing team of lenders and bankers. And in Eastern Washington, Wheatland Bank picks up 5 new branches and at scale in the Acumen and Tri-City market. We're very excited about the opportunity to get quality scale in all 3 markets. And as you'll see on Page 7, these are all great growth markets that are important to Glacier. Eastern Washington is a key agricultural manufacturing and transportation hub in the Western U.S. with access to the Columbia River and expansive train system and international airport. Getting bigger in Boise has been a strategic objective for Glacier. We've been banking in Boise for nearly 25 years and know the market extremely well. Boise is the second fastest growing large MSA in the Western U.S. with a population of 850,000, is one of the largest markets in which we operate. There are billions of dollars of capital being invested in Boise from many large corporations and the dynamic regional economy is well supported by a strong and growing workforce. Eastern Idaho is another outstanding market for Glacier. The diverse Eastern Idaho economy has a strong legacy and agriculture production but is also home to 4 major universities in colleges along with the Idaho National Laboratory, which is one of the largest department of energy sites in the country. Page 8 of the investor deck outlines the transaction structure and assumptions, which, as I mentioned earlier, are consistent with our long-term conservative approach to acquisitions. The transaction is a 100% stock deal with Bank of Idaho shareholders receiving 1.1 shares of Glacier common stock for each Bank of Idaho share outstanding. Based on the Glacier closing price on January 10 of $47.40, the aggregate consideration is roughly $245 million. We performed an extremely comprehensive due diligence review, which included a 100% loan review and are very comfortable with the results. Our cost savings estimate at 30% is conservative and achievable given that the Bank of Idaho will be joining 3 existing bank divisions. The resulting transaction metrics are very attractive, as shown on Page 9, with very minimal tangible book value dilution and an earn-back period of under 1 year. So we expect EPS accretion of 3% in '26 with 80% cost savings realized and a 3.5% EPS accretion in 2007 as we realized full cost savings along with an above 15% internal rate of return. The transaction also has a very favorable pay-to-trade ratio of just under 76%. So to wrap things up, we're very excited about this unique opportunity that continues Glacier's long tradition of adding best-in-class banks that align with the Glacier community banking model. The pricing metrics and pro forma economics are very attractive and will further enhance Glacier's long-term history of creating shareholder value. We're very excited to have the Bank of Idaho join the Glacier team of banks and look forward to having Bank of Idaho's talented employees to join the team. So at this point, I will end my comments. I will turn the call back over to Carmen to open up the line for any questions.

[Operator Instructions] It comes from the line of David Feaster with Raymond James.

What are the -- look, this is a very Glacier deal. I'm just curious, you talked about -- this is a high-performing bank already. I'm curious, maybe as you dug into this, where you see the most opportunity to add value? Are there any core competencies that Bank of Idaho has that you can leverage across the rest of your footprint? Or conversely, anything that you see that you've already got that you could leverage across theirs? Just kind of curious any of the opportunities you see.

Sure. So where we can add value, they've got a very talented team of commercial lenders and bankers. And I think giving them extended product set, so the Glacier product set with new market tax credit low income housing, municipal financing, other products, things they don't do today will be very helpful to them plus a $30 billion balance sheet versus a $1 billion balance sheet, very meaningful to the larger customers. There's a number of participations that were done because of loan sizes, that can be looked at and brought back to the bank. So I think there's quite a bit of value that Glacier is going to bring to the table. I think in terms of what Bank of Idaho brings really a lot of new energy into these existing divisions and areas where they fill a perfect need. So more core deposits, more lending capability expansion in some markets that we wanted to get into specifically, Yakima and parts of the Tri-City. So those are probably the main things, David, that this will -- both what we bring and what they're going to bring to this.

Got it. Terrific. And then just wanted to get a sense for some of the process of integrating this across 3 different divisions and maybe some of the challenges or the time line there. Just if you could help us think through maybe how that works a bit and the time line for expense savings?

Sure. Okay. So I would say because this is -- so this is different than a whole bank acquisition. So different than acquiring a whole bank. And so I think this is a little more complicated upfront. But in the long run, we have lower integration risk. And that's because we have 3 of our very strong bank presidents very involved in this process. So they've already looked at all the people. They've worked with the Bank of Idaho management team to really determine how this will fit into their organization. And like I said, it's very additive to the existing infrastructure. And so we gain because we've got a very talented group on the ground, very granular, knows the people, knows the customers. And I think we'll start the training, and once this closes, the preparation for the ultimate conversion. And so that kind of hands on part of this is I think where we get lower integration risk because we have a lot more very talented eyes on it than we normally would.

Do you -- tentatively, when do you think the conversion would be set for?

Yes. We have to have a discussion with their core provider. But we think probably in the early fourth quarter, tail end of the third, early fourth quarter.

Okay. Perfect. And obviously, you did a pretty extensive review of their credit portfolio, looked through 100% of the loans, had some consultants come in and help as well. I'm curious your thoughts on their credit book as you dug into it. Obviously, their loss content and NPAs all seem pretty well controlled and high quality. Just curious how similar their underwriting is relative to yours. And what you learned maybe as you dug a bit deeper?

Yes, David, this is Tom. I can answer that. Yes, their culture, their credit appetite, the types of deals that they look for and even the portfolio composition is very similar to GBCI. And so ultimately, I think the transition into the GBCI family is going to be fairly straightforward me, before them, very -- a lot of similarities there.

One moment for our next question, it comes from the line of Kelly Motta with KBW.

Congrats on the deal. I think kicking off, one thing that struck me was you're actually writing up the loan portfolio here. We don't see that too much. The yield on their loans is quite high. I'm wondering if you could provide any color as to what might be causing that. If there are certain industries that might -- or types of loans that might have higher yields, the competitive environment, mix of maybe fixed versus floating.

Yes, Kelly, this is Tom. I can take that. Kelly, a lot of their growth has taken place in a higher rate environment as well. So I think that's helped push the overall yield up. There's a little higher percentage of prime-based floating loans that has pushed that up as well. They've got a very strong SBA book of business that's helped fuel that, plus they've got a higher percentage of their individual portfolio of ag loans than GBCI does and typically, those operating lines are prime based.

Okay. That's helpful. And putting together the 2 balance sheets and also thinking through the cadence of your repricing of loans is, yes, as we look through next year, maybe a question for Ron or Byron, how should we be thinking about how this -- any early indications of the 4Q margin of next year as we look for your repricing story plus now the impact of this deal?

Kelly, this is Byron. I can speak to the margin and the repricing aspect of it. As Tom noted, they do have more prime-based loans. And so that is one factor. From an interest rate risk perspective, they are modestly asset sensitive. And so it's just going to nudge us in a little bit more of that in that direction. I would say before this acquisition, our -- the Glacier loan portfolio has about 8% prime-based loans. After this acquisition, we'll have about 9% prime-based loans. So it moves us -- it nudges us in a little bit of that direction. It's not, I wouldn't say, a material shift. But their margins, if you look at the loan yields, very strong. So we would expect this to be very helpful to our own margin story and growth story going forward.

Okay. Got it. And lastly, in terms under 1 year earn-back, all very good. With the pricing of it, I know there'll be more information when the S-4 comes out, but I'm assuming this was competitively run process, but maybe if you could provide any high-level view on how this came together here.

Yes, happy to. This actually was a negotiated transaction. And so we've been talking to the Bank of Idaho for years. Timing wasn't just quite right for either side for a while. But I think they got to a point where they were very interested in trying to see we could come together on a transaction, which we did. So very consistent with how we ended up with Wheatland in terms of a long conversation leading to a negotiated transaction, the same circumstances here.

Our next question comes from the line of Andrew Terrell with Stephens.

This is Jackson Laurent on for Andrew Terrell. If I could just start off on the approval time line. 2Q '25 is a pretty quick time line. What gives you guys confidence in that projected time line? And then if I could just piggyback on that, could you guys also talk about the changes you guys have seen or are seeing from a regulatory perspective that are easing constraints on pursuing M&A?

Sure. We do a lot of work to try to make these transactions shape them in the way that they're able to go through the process. We have a lot of dialogue with our regulators. And so we feel that this transaction, it's a really well-run bank and fits nicely within our footprint. It's a size that tends not to attract outsized attention. The people side of this that we're keeping most of the people. And so that all tends to lower kind of friction in the regulatory process. So we feel good about that. It's always an unknown, but we feel pretty good about the early second quarter time frame, but that's up to getting through the regulatory process. In terms of changes, we have not seen really any kind of material changes at this point. There's been a lot of talk about it. I would also say that for the kind of transactions that we do, I'm sure there will be some changes, but it's not really going to be material to our business because of our strategy and the way we approach M&A and the size of the deals plus we're a very friendly acquirer. I think all that has helped us in the past get through the regulatory process and so it may become a little less -- with a little less friction, but we think overall we'll continue to have the same process that we've experienced in the past and don't expect significant changes, but we'll see. There's a lot of questions about just exactly how that may change. I think it's a little early to tell at this point.

Great. And then if I could just ask on your guys' additional ability or interest to do more than one deal in 2025?

Well, we're always talking to more people. One step at a time, we have to get this one through, get it approved. And I think we will. And so we'd be very open to that if the right opportunity presented itself. And that's just dependent on the sellers and when they think their -- the time is right for them to enter into a more detailed discussion.

Got it. And then if I could squeeze one more in. The securities portfolio is around 14% of assets for Bank of Idaho. Should we expect you guys to reposition this portfolio, either preemptively or on the other side of the transaction? And is there anything else of interest from a repositioning standpoint?

Yes. This is Ron. With respect to the securities portfolio, no reposition. It's likely we're going to sell most of that off. We may keep some of the CRA eligible securities. But in getting that cash that gives us the flexibility to pay down higher cost borrowings. We can park it at the Fed. And so that's very likely what will happen. And then in terms of other repositioning, we're very pleased with how they've managed their balance sheet and what we're acquiring and don't see any need to restructure.

[Operator Instructions] Our next question is from Matthew Clark with Piper Sandler.

On the growth side, at Bank of Idaho, what are you assuming in terms of loan and deposit growth in your accretion outlook?

Yes. So as you can see from the presentation, this is a very strong grower, 20%-plus growth rates on loans, 15% plus on deposits. We've dialed that back for our assumptions, Matthew, I'd say, around half of those rates going forward. And hopefully, we'll see how things go, but we didn't want to get too far out over our skis. So kind of about half of the historical growth rate.

Okay. Makes sense. And then just on future M&A. Can you speak to any change in inbound activity since the election. And then maybe help us with where you might be prioritizing your efforts from maybe a geographic and size perspective.

Sure. As it relates to inbound, I know there's been a lot of chatter about the activity level picking up, et cetera. We just have not seen that. And from what I hear, there's a lot of boardroom discussions. But in terms of incoming phone calls, I would say the pace of that post-election has not really changed materially. And so we continue primarily just as we have with Bank of Idaho, with discussions directly with folks that we think could be a good fit, hopefully leading to a negotiated transaction where we think both sides win. So we'll see. But yes, I know there's a lot of the press talks about big increases and a lot of excitement. We just at least from our chair haven't really seen the incoming increase materially. In terms of the strategy, we'll continue with our strategy, good markets, good banks, good people. Range, this is kind of right in our wheelhouse up to $3.5 billion to $5 billion. There are some larger ones that are also very interesting. So we're continuing to not draw a line at the bottom or at the top, but look for good strategic fits for banks across our landscape.

Ladies and gentlemen, this concludes the Q&A session for today. I will pass the call back to Randy for closing comments.

Well, thank you, Carmen. I appreciate everybody dialing in. As I said, we're very excited about this transaction. I think it will be a great fit. If you haven't taken a look at it, please take -- go to our website, look at the investor presentation, I think it really lays this out very, very well. And of course, if there's any questions along the way, just reach out, we'd be happy to give you more information. Thank you for spending time with us this morning. Appreciate it.

And this concludes today's conference call. Thank you all for participating, and you may now disconnect.