Investment Thesis

Headquartered in Kalispell, Montana, Glacier Bancorp, Inc. (GBCI) is a $14 billion regional bank holding company and parent to Glacier Bank. GBCI provides commercial banking services to communities throughout Montana, Idaho, Utah, Washington, Wyoming, Arizona, and Colorado.

About 5 years ago, GBCI’s management team decided to clean out most problem assets (which took about two years to complete) and instituted a more disciplined credit culture which limited concentrations in oversupplied or higher credit risk areas.

Today, the loan book is very granular and GBCI’s markets may actually benefit from people fleeing cities for more space and a cheaper cost of living as remote work becomes more normal. GBCI has a robust loan loss reserve and very high capital levels, allowing them flexibility to weather any challenges that may arise.

With respect to GBCI relative to community bank peers, GBCI’s earnings should prove more stable due to greater net interest margin (NIM) defense, more consistent loan growth, and lower credit losses. Over its storied history, GBCI has been a preferred acquirer with limited competition from other banks across its Mountain West footprint.

On a longer-term investment horizon, I am fairly neutral on the name. GBCI has historically had a well managed expense base, but revenue headwinds are looming and likely to put downward pressure on profitability. While the current valuation is not overly expensive, I would not be surprised to see the shares stay steady near current levels before working higher in lockstep with peer banks.

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Revenue Outlook

While GBCI has historically held pricing power advantages through the Rocky Mountain States, due to limited competition, overall loan growth has usually lagged national peers. Following historical trends, after backing out the $1.4 billion PPP loans, the entire lending portfolio of $11.5 billion decreased $61.6 million from the

Investment Thesis

Headquartered in Beverly Hills, California, PacWest Bancorp (PACW) is a $27 billion asset bank holding company for Pacific Western Bank. PacWest focuses on relationship-based commercial banking to small, middle market, and venture-backed businesses across the United States rather than your more typical retail community bank. That said, PAWC does provide traditional banking services to over 70 branches throughout California and one branch located in Durham, North Carolina. Its main executive offices are in Denver, Colorado. While the past few years have been relatively quiet, PACW has historically supplemented organic growth with strategic acquisitions, successfully completing almost thirty acquisitions since 2000.

When I review PACW, I find that it has built an attractive franchise with unique asset and deposit generating capabilities across many different commercial segments. Following significant balance sheet de-risking, I believe earnings are becoming less volatile with a more sustainable net interest margin (NIM). In addition, the strong profitability due to a lean operating cost structure has also enabled a sustained strong dividend payout ratio, even though it was lowered earlier this year.

While I do believe the company is on a more stable footing now, upside catalysts pretty limited, in my view. While the current valuation might seem enticing, the loan portfolio is pretty opaque and PACW does have a history of larger than average net charge-offs ((NCOs)).

Personally, I would recommend staying on the sidelines due to the possible credit problems. I am waiting until third quarter earnings to re-review the credit profile. That said, PACW does have a great earnings profile and should earn multiples more than its peer bank counterparts once interest rates work themselves higher again.

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Revenue Outlook Looks Strained

In the second quarter, the net interest income of $256 million was up just slightly relative to first quarter