M&A Announcement

May 19, 2021

Slides

Good day and thank you for standing by and welcome to the investor call regarding the acquisition of AltaVancorp. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand today's conference over to your speaker for today, Randy 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. And on the phone with me in Kalispell is Ron Cofer, our Chief Financial Officer and Tom Dolan, our Chief Credit Officer. We view this transaction as being very consistent with our M and A strategy. At $3,500,000,000 this transaction represents about 15% of our assets. 3 years ago in 2018, we closed 2 transactions in the Q1, Collegiate Peaks Banks at about $550,000,000 and First Security Bank in Bozeman at about $1,100,000,000 which when combined represented about 15% of our assets as well. Aldebank 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 evaluation 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. And no, we don't see ourselves moving away from our core M and A target of banks between $500,000,000 $1,000,000,000 but as this transaction shows, we will act on larger transaction 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. And 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. And Alta Bank 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. And 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. And if you go to Page 3, you can see the outline of our strategic rationale for this transaction. Our transaction with Ultibank will clearly solidify Glacier's continued leadership position in the Rocky Mountain West by firmly establishing us in the fastest growing market in our 8 state footprint. And this transaction also continues what we started over 5 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 8 state footprint and you can see this on Page 4 of the presentation. Utah has been the 2nd fastest growing state in the United States from 2010 to 2020 and was ranked as the number one economy in 2020 by U. S. World News World and Report. And Forbes rated the state number 1 state for entrepreneurs in 2020. And Utah just invested over $4,000,000,000 in the redevelopment of the Salt Lake City Airport, the first new U. S. Hub airport built in the 21st century. And 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. And we think these positive trends that we see here in this state are well established and will be very long lasting. On Page 5, you can see the overview of Alta Bank and their 25 branch locations. On Page 6 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 7, we show that our 2 banks in Utah, First Community Bank of 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 8 and the combination improves our loan yield and NPA to asset metrics. Financially, as outlined on Pages 910, this transaction is a home run. It is immediately accretive to EPS of 5.2% in 'twenty two 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 percent and it represents a pay to trade ratio of just about 80%. So overall, we feel this will be an exceptional investment for Glacier shareholders and one that will provide strong returns for years to come. And 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. And Stephanie, those are my comments today. And I would like you to now open the line for our analysts with any questions they may have. Thank you. And your first question is from the line of Jeff Rulis of D. A. Davidson. Thanks. Good morning. Hey, good morning, Jeff. Randy, Alta pre pandemic had sort of a considerable derisking 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 Alta folks full support of growth or is there some further tweaking of the mix as you see it today? Yes. I'm going to ask Tom to comment in a minute on the derisking, 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, for growth stakes. And we feel that that makes this transaction and the earning asset core, the loan portfolio very, very positive for us. And we feel the risk is, there's 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. They're on we like the path that the folks are on. Tom has spent a lot of time looking at that. 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. So we don't see any changes until we close the transaction, but we would be able to direct them. But once we do that, Jeff, we don't see any change to their strategy and their direction. And 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 $20,000,000,000 balance sheet. And we also offer services that we think will be really beneficial to the commercial lenders with our municipal financing, our low income housing credit tax strategies as well as some other commercial lending products that we think will be incremental to Alta offers today. Tom, did you have anything you wanted to add to that? The only thing I'd add, Randy, is we did complete a very thorough and enhanced due diligence process that it did include the construction and development portfolio. And given what we've seen going on in the market, it's not a surprise that that's grown in the recent past. But through the due diligence process, the developers that they're working with really check all the boxes in terms of credit quality. They're long time market experts, they're recession tested and they're financially strong. And their conservative underwriting style is very similar to how we look at construction and development loans as well. So we were able to get very comfortable with that portfolio. Great. And maybe a couple of housekeeping items that I believe Ron's on. But did you have a goodwill number that you've identified as of now? First question. And then second, looking at that $22,000,000 fair value mark, could you break that out from the fixed assets versus the rate mark? And maybe I'll leave it at that. So those 2. Thanks. Yes. The goodwill market, I don't have that off the top of my head. But the fixed assets are about half of that $22,000,000 And then the time deposits put that at $4,000,000 The difference goes to the rate mark. Okay. And do you have an amortization schedule of the rate mark? Yes. So that will be part of the discount, the overall discount on the non TCV loans, and that will go over 5 years using some of the year's digits. Great. Okay. I'll step back. Thank you. Your next question is from the line of Matthew Clark with Piper Sandler. Hey, good morning guys. Good morning. Randy, can you help maybe fine tune your expectations in terms of the closing in the Q4? Would you think it's toward the year end? And then what are your expectations in terms of the timing of the conversion as well? Yes. We're targeting closing at the end of October. Plenty of time to work with our regulatory partners and process and get this through. So 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. So we think that's 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 do it that we continue to move forward in all the products and services. And so we'll set that date as we get closer to closing. But right now, probably early part of early to mid part of 2022. But that is still open and we'll nail that down as we get closer to our closing date. Okay. And 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 of that on that 17.5%. Does that it seems conservative, and I think you mentioned that, but just trying to get a sense for what's embedded in that number and what where we might see some upside? I think that's a very good number. I think it is conservative. But this is a really well performing bank and we're there's so much revenue opportunity that we're in no rush to find cost saves. We think the 17.5% is a really good planning assumption. Okay. And then do you happen to know what the day 1 CECL impact might be? I think you gave us the provision, but not sure about the day 1 impact that might run through equity. I think we're still working on that, Matthew. Okay. Fair enough. I can follow-up. And then just on additional M and A, I mean, this was on your list for almost a decade. Was this among the larger targets on your list? Or are there others out there? And where within your footprint would you like to gain a larger presence? Yes. No, this was among the larger ones on the list, absolutely. And I think we've for years have talked about $300,000,000 to $3,000,000,000 plus and this falls right in there. Right now and 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 8 state footprint. That's one of the that is the fastest growing and we think it will continue to experience very, very strong growth. We like the credit profile that we see. But Matthew, there's of course some other larger ones on the list, but it's a I was going to say threading the needle, but it will take a lot of synergy, strategy and financial contribution to make another transaction like this something that we feel comfortable with. But we'll see. We'll keep the door open. Our focus is not changed. We continue to look at banks from $300,000,000 to $1,000,000,000 to $3,000,000,000 But on a deal like this, it has to hit a lot of the right notes for us for it to make sense. And this one did significantly. So we were very, very comfortable moving forward with it. And how about timing? I mean, when do you think you would feel comfortable doing another deal? It's day 1. The door is always open, and we are always having conversations. We but we really would like to spend our time with this transaction for the next year ideally. And there's so much opportunity here that we 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 and A and these things take a lot of lead time. So 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 Fester of Raymond James. Good morning, everybody. Congrats on the deal. Thank you. I just wanted to start on growth. I mean, you gave a lot of highlighted the strength of the Utah market really well. And the Ulta 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 form a basis, do you have any ways to tweak their strategy at all? And then 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? Yes. No, I first on the mortgage, I think that's an important very important part of our strategy. The more synergy here, they operate on the Encompass system as do we. And 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. So we're very encouraged by that. We think it will be additive, David, because there's things that we do we can do because of our scale being north of $2,000,000,000 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. And so we're very bullish on the mortgage business. We've got a very strong team and a great offering. So 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 to do well and give them more products and services. And 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 a smaller bank. So a $20,000,000,000 bank can help serve some of the customers and there is a lot of growth happening down here with companies. So 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. So they're on a really good path. We like the quality And 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. So 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. And 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. And 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, very solid where we want to be. We're not looking to push that significantly higher. That will happen over time. But 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? So the other thing is Alta had done a really good job over the past couple of years investing in technology and some new systems. And you talked about it 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. So we think this will likely help us take a couple of years off our technology roadmap and possibly help us deliver it at a lower cost. So 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. So and the way Jack Henry Silver Lake has been updated, there's the core is very transportable. So the integration is something that we're studying, but that's an example of a technology platform that they have up and running that to a level that we don't. So we're going to study that. And 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. But 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. And so 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, 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. So all those things that you noted, David, we're studying. And I think this gives us an opportunity to evaluate them in a way we couldn't have done without doing this transaction. And that's where we think by having this use case, it gives it will 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 investment, the integration investment has already been made. That's terrific. Thanks everybody. You bet. The next question is from the line of Jackie Bohlen with KBW. Hi, good morning everyone. Good morning. I just wanted to touch on the new division that you'll be adding. Understanding that also 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 if there's I know there's limited branch overlap, but just how you plan to manage through any potential market overlaps that might be there? Sure. So First Community Bank, they're very busy with what they currently have and the business they're doing and doing very, very well. We really want to study. We don't see there's not a lot of overlap, so we don't feel an immediate need to rush to conclusions. This is a great opportunity for us to learn more about the Ulta company, talk to the First Community folks, and then we'll collectively figure out, hey, what's the best way to win in Utah? So 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. So we'll work on that and we'll see over time what we've learned and how we think we can optimize with these two entities. Okay, great. And all my other questions were already in for it. So congratulations on realizing a 10 year dream. Thank you, Jackie. Thank you. And 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 Alta Bancorp's operations in Utah and maybe enhance that? That is a thread that runs through many of our divisions. And certainly, our experience in hospitality and travel will be something I think that might be additive to Ulta 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 each all divisions get to see the transactions that are being considered. And so it will give also 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. 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. And then given the size of this deal, does this allow you to be a little bit 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. And if they're good, high quality banks, that's going to be interesting to us. So don't really see it changing the M and A path that we've been on and that we believe we'll stay focused on going forward. Okay. And then just to kind of clarify for myself. Would you 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 1% or 2%? Yes. So 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 Ulta has 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. So 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 'twenty two, I think this will be a 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. Good morning. So the founding family of Alta owns about 30% of the company and I think about 4% or 5% of the pro form a 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 a family. We've spent a lot of time with management. And I think all parties are aligned around this business combination as clearly being the best path forward. And I think the individual family decision on how they proceed is up to them. But I would tell you, I believe we're very much aligned, the founding family, the management team in 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. And 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. And 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 Alta. 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.