Good day, and thank you for standing by and welcome to the Investor Call Regarding the Acquisition of Altabancorp. At this time, all participants are in listen-mode. Following the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, please press star one on your telephone keypad. To reach the operator, please press star zero. I would now like to hand today's conference over to your speaker for today, Randall Chesler, President and CEO of Glacier Bancorp. Please go ahead.
All right. Thank you, Stephanie, and thank you for joining us today. I'm here in American Fork, Utah, with the talented associates of Altabank to announce our proposed acquisition of Altabank. On the phone with me in Kalispell is Ron Copher, our chief financial officer, and Tom Dolan, our chief credit officer. We view this transaction as being very consistent with our M&A strategy. At $3.5 billion, this transaction represents about 15% of our assets. Three years ago, in 2018, we closed two transactions in the Q1, Collegiate Peaks Bank at about $550 million, and First Security Bank in Bozeman at about $1.1 billion, which when combined, represented about 15% of our assets as well.
Altabank has been on our target list for almost a decade, and we evaluated this transaction the same way we have in the past with our very disciplined valuation approach, including our detailed and rigorous due diligence process. In this case, we extended our normal diligence timeframe by 15 days and conducted a significantly enhanced review process, particularly in credit and compliance. No, we don't see ourselves moving away from our core M&A target of banks between $500 million and $1 billion. As this transaction shows, we will act on larger transactions if they're actionable and make terrific strategic sense. We also like that Alta is a Jack Henry bank using the same core processing system just like us. We think this will significantly reduce the risk of a conversion when that time comes.
Alta uses many of the same software services for teller transactions, mortgages, digital banking, and other services that Glacier uses today. We believe that this transaction will significantly accelerate and lower our cost of our technology roadmap because many of the Alta services are a generation or so ahead of ours and are already integrated into the Jack Henry core. Altabank has been a community bank for over 100 years. Along the way, the company has been led by some terrific bankers and very much fits our model and our culture, and in this case, a good bank in great markets with great people. In many ways since going public, Alta had their sights set and strategy on being a lot like Glacier. That makes this entire transaction easier.
We posted an investor presentation on our website under News and Market Information in the Annual Reports Presentations tab. If you go to page three, you can see the outline of our strategic rationale for this transaction. Our transaction with Altabank will clearly solidify Glacier's continued leadership position in the Rocky Mountain West by firmly establishing us in the fastest-growing market in our eight-state footprint. This transaction also continues what we started over five years ago, a further strengthening of the company by diversifying our asset concentration to more states and establishing a presence closer to select higher-growth markets. Utah is hands down the fastest-growing market in our eight-state footprint, and you can see this on page four of the presentation.
Utah has been the second fastest-growing state in the U.S. from 2010 to 2020 and was ranked as the number one economy in 2020 by U.S. News & World Report. Forbes rated the state number one state for entrepreneurs in 2020. Utah just invested over $4 billion in the redevelopment of the Salt Lake City Airport, the first new U.S. hub airport built in the 21st century. We have said that we like markets with business-friendly environments, high quality of life, and lower cost of living, and Utah absolutely has all of these. We think these positive trends that we see here in this state are well-established and will be very long-lasting. On page five, you can see the overview of Altabank and their 25 branch locations.
On page six of the investor presentation, you can see that Alta has a leadership position in the best markets in the country with plenty of room for further growth. On page seven, we show that our two banks in Utah, First Community Bank Utah and Alta, will cover the major markets in the state with very little branch overlap. Alta significantly adds to our stable, sticky, low-cost deposit base as shown on page eight, and the combination improves our loan yield and NPA to asset metrics. Financially, as outlined on pages nine and 10, this transaction is a home run. It is immediately accretive to EPS of 5.2% in 2022 or 5.8% with full cost savings, and that's equal to a number of our past transactions combined.
It is immediately accretive to tangible book value, has an internal rate of return in excess of 15%, conservative cost savings of 17.5%. It represents a pay to trade ratio of just about 80%. Overall, we feel this will be an exceptional investment for Glacier shareholders, and one that will provide strong returns for years to come. That being said, we believe our conservative growth assumptions are prudent and will give us plenty of time to help Alta realize its full potential. Stephanie, those are my comments today, and I'd like you to now open the line for our analysts with any questions they may have.
Thank you. As a reminder, if you would like to ask an audio question, please press star followed by the number one on your telephone keypad. Once again, that is star one to ask a question. Your first question is from the line of Jeffrey Rulis of D.A. Davidson.
Thanks. Good morning.
Hey, good morning, Jeffrey
Randal, Altabank pre-pandemic had sort of a considerable de-risking effort, particularly running down construction exposure until recently and has shifted back into growth mode. I wanted to get your view of the segment concentrations you'd be taking on, and is the message to Altabank folks full support of growth or is there some further tweaking of the mix as you see it today?
Yeah. I'm going to ask Tom to comment in a minute on the de-risking, but that's a very important part of this transaction because we're buying a great bank that has done a very good job of pruning the portfolio over the past years and not stepping on the accelerator for growth stakes. We feel that makes this transaction and the earning asset core, the loan portfolio, very positive for us, and we feel the risk is it's a very solid and well-performing portfolio. Our view here is, as you know, we buy good banks and good markets with great people. We like the path that the folks are on. Tom has spent a lot of time looking at it. He spent some time down here on the ground. We feel really good about the way they look at credit, the way they administer credit.
We don't see any changes until we close the transaction, but we would be able to direct them. Once we do that, Jeffrey, we don't see any change to their strategy and their direction. In fact, we feel that bringing our bigger balance sheet to the table in this hot growth market will help them because there's certainly some customers that may have grown away from them that they can now service with a $20 billion balance sheet. We also offer services that we think will be really beneficial to the commercial lenders with our municipal financing, our Low-Income Housing Tax Credit strategies, as well as some other commercial lending products that we think will be incremental to what Altabank offers today. Tom, did you have anything you wanted to add to that?
The only thing I'd add, Randall, is we did complete a very thorough and enhanced due diligence process that did include the construction and development portfolio. Given what we've seen going on in the market, it's not a surprise that that's grown in recent past. Through the due diligence process, the developers that they're working with really check all the boxes in terms of credit quality. They're longtime market experts, they're recession-tested, and they're financially strong. Their conservative underwriting style is very similar to how we look at construction and development loans as well. We were able to get very comfortable with that portfolio.
Great. Thank you. Maybe a couple housekeeping items that I believe Ron Copher's on. Did you have a goodwill number that you've identified as of now? First question. Second, looking at that $22 million fair value mark, could you break that out from the fixed assets versus the rate mark? Maybe I'll leave it at that. Those two. Thanks.
Yeah. The goodwill mark, I don't have that off the top of my head, but the fixed assets are about half of that $22 million. The time deposit stuff, put that at four million, the difference to the rate mark.
Okay. Do you have an amortization schedule of the rate mark?
Yeah. That'll be part of the discount, the overall discount on the non-PCD loans, and that'll go over five years, given some of the years they get.
Great. Okay. I'll step back. Thank you.
Your next question's from the line of Matthew Clark with Piper Sandler.
Hey, good morning, guys.
Morning.
Randy, can you help maybe fine-tune your expectations in terms of the closing in the fourth quarter? Would you think it's toward your end? What are your expectations in terms of the timing of the conversion as well?
Yeah. We're targeting closing at the end of October. Plenty of time to work with our regulatory partners and process and get this through. We feel very good about that. The conversion, sometime in 2022. I think that we're very comfortable with the Jack Henry core since we run the same core. We don't feel a particular rush given we're working with the Jack Henry folks as we speak on this and have a lot of optionality. Our focus is to make sure that when we do it, that we continue to move forward in all the products and services. We'll set that date as we get closer to closing. Right now, probably early to mid part of 2022. That is still open and we'll nail that down as we get closer to our closing date.
Okay. On the cost saves, 17.5%, I know there's not a lot of overlap with the branches, but you did already have some infrastructure in place with your Layton deal, I think back in 2019. I guess, what's your sense on that 17.5%? It seems conservative, and I think you mentioned that, but just trying to get a sense for what's embedded in that number and where we might see some upside.
I think that's a very good number, and I think it is conservative. This is a really well-performing bank, and there's so much revenue opportunity that we're in no rush to find cost saves. We think that 17.5% is a really good planning assumption.
Okay. Do you happen to know what the day one CECL impact might be? I think you gave us the provision, but not sure about the day one impact that might run through equity.
I think we're still working on that, Matthew.
Okay. Fair enough. I can follow up. Just on additional M&A, this was on your list for almost a decade. Was this among the larger targets on your list, or are there others out there? Where within your footprint would you like to gain a larger presence?
Yeah. No, this was among the larger ones on the list. Absolutely. I think we've, for years, have talked about $300 million-$3 billion plus, and this falls right in there. This checked a lot of the boxes very uniquely in that it gave us scale in a market that we very much wanted to grow in. It gives us presence in all the key markets in a key state on our eight-state footprint. That is the fastest-growing, and we think it will continue to experience very strong growth. We like the credit profile that we see. Matthew, there's of course some other larger ones on the list. I was going to say, threading the needle. It will take a lot of synergy, strategy, and financial contribution to make another transaction like this something that we feel comfortable with. We'll see.
We'll keep the door open. Our focus is not changed. We continue to look at banks from $300 million- $1 billion- $3 billion. On a deal like this, it has to hit a lot of the right notes for it to make sense. This one did significantly. We were very comfortable moving forward with it.
How about timing? When do you think you would feel comfortable doing another deal?
It's day one.
Sorry.
The door is always open. We are always having conversations. We really would like to spend our time with this transaction for the next year, ideally. There's so much opportunity here that we'd just prefer to do that. That being said, we hold conversations. There's a lot of interesting things going on out there, and we have no reluctance to kind of stage and work with a partner to get ready for the next time that we're ready to do M&A. These things take a lot of lead time. We'll still be talking to folks, but our focus right now is to just focus on this transaction, given the tremendous opportunity we see here.
Sounds good. Thanks.
You bet.
Your next question is from the line of David Feaster of Raymond James.
Hey, good morning, everybody. Congrats on the deal.
Thank you.
I just wanted to start on growth. You highlighted the strength of the Utah market really well. The Altabank team had really positioned the bank well for accelerating growth going through 2021 and into 2022. Just curious your thoughts on the organic growth in Utah for you all on a pro forma basis. Do you have any ways to tweak their strategy at all? I know they were planning to retain more mortgage production. Is that a strategy that you'll keep as well, or maybe return more of that to saleable production?
Yeah. First on the mortgage, I think that's a very important part of our strategy. More synergy here. They operate on the Encompass system, as do we. Talking to the leadership of the mortgage business, we think that's an area with a lot of opportunity, given the amount of growth in the state and the significant shortage of housing and the deficit. We're very encouraged by that. We think it'll be additive, David, because there's things that we can do because of our scale, being north of $2 billion now in originations on the secondary side, that will help with the profitability of this business. Some of our efficiencies, in terms of mandatory delivery versus best efforts, will bring some significant opportunity. We're very bullish on the mortgage business. They've got a very strong team and a great offering.
See that as continuing the path they have it on and then some. On the commercial side, and the strategy of growth. Back to our model, we buy banks that are doing well, and our focus is to help them continue do well and give them more products and services. On the commercial side, I think our bigger balance sheet in these transactions is always very interesting to the commercial lenders because they inevitably have relationships that outgrew the smaller bank. A $20 billion bank can help serve some of the customers, and there is a lot of growth happening down here with companies. We think that will be helpful. We also think our municipal lending strategy has been very good for us and can help them serve their communities in a way that they're not being able to do today.
Some of our low-income tax credit transactions that Ron is very good at putting together, we think will be added in and will be helpful to people. They're on a really good path. We like the quality. Our focus is going to be how to help accelerate that and give them more tools to take out to the market and to customers.
It kind of sounds like the high single-digit run rate that they were kind of tracking towards is at least achievable, if not conservative, given the combined companies.
Well, exactly. I would stay with that, David, because when we come in, one thing we tell the new team is, "Look, we don't want you to take this and run out to places you haven't been. Just keep doing what you're doing." They've had a very good approach on credit, a very good approach on targeting. That kind of mid-single-digit growth rate on the commercial side, if you take out the mortgage retention, is, we think very solid, where we want to be. We're not looking to push that significantly higher. That will happen over time. Out of the gate, we just keep doing what you're doing. Don't press for growth. You don't need to impress us. You already have impressed us. Let's just keep doing what you're doing. That's our focus.
That makes sense. Why fix it if it ain't broken? The other thing is Altabank had done a really good job over the past couple of years investing in technology and some new systems. You talk about in the slide deck about potentially leveraging some of that across the rest of your footprint. I'm just curious where you see opportunity, what you see that they did specifically really well, and maybe whether it's on the efficiency side or it can help with the growth side. Just curious what you see how this can accelerate your technology.
Sure. We think this will likely help us take a couple years off our technology roadmap and possibly help us deliver it at a lower cost. For example, they have a commercial loan origination system. It's integrated already into the Jack Henry core, so a lot of the heavy lifting has been done. We share the same core. The way Jack Henry SilverLake has been updated, the core is very transportable. The integration is something that we're studying. That's an example of a technology platform that they have up and running to a level that we don't. We're going to study that. We will make decisions as to whether we expand that out to our divisions, whether we build another product, leave them on what they have, and then ultimately migrate to another software service.
I would tell you that there's a lot of momentum around these services that they already have integrated and are using. That is a huge opportunity for us because we can see it up and running. We can see it integrated into the Jack Henry core. For us, it makes expanding it very, very easy if we like the product and the service. They have a construction loan software platform that's state-of-the-art, very solid. Another thing that we'll look at. They're doing some things with their Encompass mortgage system with surrounding technology that we don't utilize. It's very interesting. All those things that you noted, David, we're studying. I think this gives us an opportunity to evaluate them in a way we couldn't have done without doing this transaction.
That's where we think by having this use case, it'll accelerate our own roadmap, and if we adopt some of these things that are already integrated, we'll lower the cost of rolling these programs out because the integration investment has already been made.
That's terrific. Thanks, everybody.
You bet.
Our next question is from the line of Jacquelynne Bohlen with KBW.
Hi, good morning, everyone.
Morning.
I just wanted to touch on the new division that you'll be adding. Understanding that Altabank obviously has a much larger presence in Utah than you already have, I just wanted to see how that's going to layer in with First Community and I know there's limited branch overlap, but just how you plan to manage through any potential market overlap that might be there.
Sure. First Community Bank, they're very busy with what they currently have and the business they're doing and doing it very well. We really want to study. There's not a lot of overlap. We don't feel an immediate need to rush to conclusions. This is a great opportunity for us to learn more about the Altabank company, talk to the First Community folks, and then we'll collectively figure out, hey, what's the best way to win in Utah? We're going to embark on that, but we're keeping our options open because we think there's a lot of possibilities that we can put together here that will be really effective. We'll work on that, and we'll see over time what we learn and how we think we can optimize with these two entities.
Okay, great. All my other questions were already answered. Congratulations on realizing a 10-year dream.
Thank you, Jacquelynne.
Thank you once again. If you would like to ask an audio question, please press star one. Your next question is from the line of Tim Coffey with Janney.
Great. Thank you very much for taking the question. Randy, Legacy Glacier has a lot of experience and success working with economies and markets in and around national parks. Is this something you think Glacier can bring to the table to help maybe perhaps complement Altabancorp's operations in Utah and maybe enhance that?
That is a thread that runs through many of our divisions. Certainly, our experience in hospitality and travel will be something, I think, that might be additive to Altabank in terms of some of our experience there. That's the benefit of having this bank in the Glacier family is part of our process that Tom Dolan heads up on credit is a collaborative approach on larger credits where all divisions get to see the transactions that are being considered. It'll give Altabank insight into transactions maybe they haven't seen in the past and provide some opportunity to perhaps realize some things that may be opportunities for this bank.
No, that makes sense, especially given kind of the so far realized and expected population migration that we're starting to see in the West towards some of those areas. Given the size of this deal, does this allow you to be a little bit more selective on some of the smaller deals that you might be looking at going forward?
I think over a longer term, I don't see this really changing our strategy at all. We're still going to look at smaller banks, and if they make strategic sense for us, we're going to act on them. If they're good, high-quality banks, that's going to be interesting to us. Don't really see it changing the M&A path that we've been on and that we believe we'll stay focused on going forward.
Okay. Just to kind of clarify for myself, how much tailwind do you think this acquisition and entering this market specifically is going to give to your organic loan growth going forward? Is it a percent or two?
Yeah. I don't know if I can put a number on it. You can see our earnings. It's immediately accretive. You can see the lift we're getting from the earnings. The growth, we're going to be conservative about the growth. We've outlined that. I do think that if you look at the growth in these markets, especially where Altabank's got leadership presence, it's going to be, I think, coupled with their go-to-market strategy, which we talked about in terms of their approach to the market and their kind of mid-single-digit growth rate that we see. I think that will be very favorable for this bank and also for the company. There will be some, once we get up and running, and again, we're going to be closing at the end of October and get into 2022, I think this will provide a nice tailwind on the growth rate.
Absolutely.
Fantastic. Thank you very much. Those are my questions.
You're welcome.
Your next question is from the line of Andrew Terrell with Stephens.
Hey, good morning.
Morning.
The founding family of Altabank owns about 30% of the company, and I think about 4% or 5% of the pro forma company. I guess, just with this transaction, do you think anything changes in terms of commitment to owning shares of the combined company moving forward?
Well, we've met with the family. We've spent a lot of time with management. I think all parties are aligned around this business combination as clearly being the best path forward. I think the individual family decision on how they proceed is up to them. I would tell you, I believe we're very much aligned, the founding family, the management team, and Glacier, that this is a terrific transaction and represents just an incredible path forward for the bank.
Perfect. Okay. All of my other questions were asked and answered. Congrats on the deal.
Thank you.
At this time, we have no further questions. I'll turn it back over to the host for any further presentation or closing remarks.
All right. Thank you, Stephanie. I want to thank everybody for taking your time out of your busy day to hear about this exciting development for us, for Glacier and Altabank. I want to make sure we wish everybody a great rest of the week and weekend. Thank you again for joining us.
Thank you. This does conclude today's conference call. You may now disconnect.