Glacier Bancorp, Inc. (NYSE:GBCI) Q2 2023 Earnings Call Transcript

Glacier Bancorp, Inc. (NYSE:GBCI) Q2 2023 Earnings Call Transcript July 21, 2023

Operator: Good day and thank you for standing by. Welcome to the Glacier Bancorp Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there’ll be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Randy Chesler, President and CEO of Glacier Bancorp. Please go ahead.

Randy Chesler: All right, thank you, Kevin, and good morning, and thank you for joining us today. With me here in Kalispell this morning is Ron Copher, our Chief Financial Officer; Don Chery, our Chief Administrative Officer; Angela Dose, our Chief Accounting Officer; Byron Pollan, our Treasurer; and Tom Dolan, our Chief Credit Administrator. I’d like to point out that the discussion today is subject to the same forward-looking considerations found on page 12 of our press release and we encourage you to review this section. We remain very optimistic about the long-term position of the company, despite the lingering headwinds impacting the banking industry today. The eight Western States in which we have a presence are among the strongest economies in the U.S. We have ample liquidity, a high quality loan portfolio, a proven banking model, and M&A expertise that is well positioned to take advantage of the market when conditions are right.

Four of our eight Western States, Idaho, Montana, Arizona, and Utah were in the top 10 states for highest net in migration according to street.com’s analysis of Census Bureau Data. All of our eight Western States were in the top half of the country for highest net in migration. And we are once again recognized by Forbes as one of the best banks in the U.S. Some business highlights for the quarter include: total deposits and retail purchase agreements of $21.3 billion at the quarter-end increased $25.5 million or 12 basis points during the current quarter. This momentum continues into the third quarter with deposits continuing to grow. Interest income of $247 million in the current quarter increased $15.5 million or 7%, over the prior quarter interest income of $232 million.

Interest income in the current quarter increased $47.7 million or 27% — 24% over the prior year second quarter. Net income was $55 million for the current quarter, I’m sorry, net income was $55 million for the current quarter, a decrease of $6.2 million or 10%, from the prior quarter net income of $61.2 million. Total non-interest expense of $131 million for the current quarter, decreased $4.4 million or 3%, over the prior quarter and increased $1.1 million or 1%, over the prior year second quarter. Non-interest income for the current quarter totaled $29.1 million, which was an increase of $1.2 million or 4% over the prior quarter, which was primarily driven by an increase in service charges and the gain on sale of residential loans. The loan portfolio of $15.9 billion increased $436 million or 11% annualized, during the current quarter.

The loan yield for the current quarter was 5.12%, that increased 10 basis points, compared to the prior quarter, increased 60 basis points from the prior year second quarter. New loan production yields for the quarter were 7.37%, up 41 basis points from the last quarter. And credit quality continued to perform at near-record levels. Non-performing assets as a percentage of subsidiary assets, was 12 basis points in the current and prior quarter, compared to 16 basis points in the prior year second quarter. Net charge-offs, as a percentage of total loans were 3 basis points. We completely paid off $335 million of higher cost borrowings at the Federal Home Loan Bank, stockholder equity of $2.927 billion, increased $83.2 million or 3%, during the first six months of the current year.

Tangible book value per common share of $17.16 at the current quarter end, increased 2 basis points from the prior quarter. The company’s liquidity position remains strong, with solid core deposits, customer relationships, excess cash, debt securities and access to diversified borrowing sources. The company’s available liquidity of over $15 billion, including cash borrowing capacity from the Federal Home Loan Bank and Federal Reserve facilities, unpledged securities, brokered deposits and other sources. The company declared a $0.33 per share dividend in the quarter, and the company has declared a 153 consecutive quarterly dividends and has increased the dividend 49 times. So we’re very pleased to see the growth in deposits and repurchase agreements this quarter.

Our 17 Bank divisions, clearly demonstrated the effectiveness of our unique business model, by leveraging their local customer relationships to grow deposits. Our focus has been primarily to maintain and grow deposits, with existing business and retail customers by offering attractive rate options. Most of this outreach was done strategically by leveraging the technology of our marketing platform. We also kept our focus on opening new core relationship accounts, totaling a net add for the quarter of over 4,000 net new retail and business accounts with over $260 million in new deposits. And we have continued to reinforce the importance of asking for a strong deposit relationship with all commercial and residential loans. More than 80% of the loan customers in the quarter maintain deposits with us.

The Federal Reserve’s historic rate increases have changed the deposit mindset for many customers, our through the cycle beta at the end of the quarter, for core deposits was 10%. And while the beta will continue to increase until the Fed stops raising rates, we still expect to significantly outperform the industry beta. Our NIM continued to show signs of pressure from the increasing cost of deposits and funding, and we expect the rate of decline in the net interest margin to moderate going forward, given the forecast for interest rates and the resulting impact on deposits. In addition, our higher loan yields on new production and renewing loans, will continue to generate interest income growth. Once again, loan growth was strong across all of our divisions.

Most of the commercial loan growth in the quarter was due to construction draws on previously approved loans. A majority of the construction projects are residential, housing related, either multifamily or new residential. And we are very confident in the ongoing viability of the underlying projects, the borrower’s ability to meet the loan requirements, and the vibrant markets in which they are located. Our capital levels are strong and growing with an estimated CET1 increasing, 13 basis points from the prior quarter to 12.47%. We believe this level of capital is more than a 100 basis points greater than the average of the 21 peer banks listed in our proxy. We remain confident in the dynamic Western markets we serve, and our unique business model to continue to deliver strong results.

Thank you to the Glacier team for delivering another strong performance this quarter. So, Kevin, that ends my formal remarks and I would now like you to open the line for any questions that our analysts may have.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Jeff Rulis with D.A. Davidson. Your line is open.

Jeff Rulis: Thanks, good morning.

Randy Chesler: Good morning, Jeff.

Jeff Rulis: Just a question, I guess first I wanted to ask about the — timing of when FHLB advances were paid off, throughout the quarter, looks like the average rated 533, you’ve got about a — you’re trading nearly a 100 basis points cheaper on the BTFP. But trying to get a sense for when that was pushed off the balance sheet?

Randy Chesler: For sure, well we were happy to pay that down and Byron watched that carefully. Byron, do you want to provide the timing for that pay down?

Byron Pollan: Yes, I want to say, Jeff that was in June. So that was the timing of the FHLB payment.

Jeff Rulis: Got it. Okay, so presumably you haven’t seen a full quarter of that trade, and I guess that would be baked into, Randy your commentary about margin continuing to be pressured but– at a declining rate, is that fair?

Randy Chesler: That’s fair. That’s fair. That’s correct.

Jeff Rulis: Okay. What was the spot rate interest bearing deposit costs at quarter end, and how does that compare to is to the end of March?

Byron Pollan: Yes, Jeff, this is Byron. The spot rate at the end of June for interest-bearing deposits, that was 1.27%. Looking back at March — March 31 spot rate for interest-bearing deposits was 70 basis points. So, 57 basis point increase March 31 to June 30.

Jeff Rulis: Got it, okay. And maybe if I can hop to the expense line, we clearly pulled a lever there to offset some of the top line pressure. Wanted to see if there’s anything, kind of, one-time in that [$130 and change million] (ph) level? And maybe just expectations for the back half of the — did we grow off that base or any commentary on costs.

Ron Copher: Yes. Hi, Jeff, this is Ron. Appreciate the question. Nothing really, one-time in that $130.6 million and I just want to shout out to the divisions the corporate departments is doing a great job very mindful of hiring. And we had a reduction in our FTE between Q1 and Q2 of 20. But more importantly over the year, we had a reduction of 70 year-over-year in the FTE. So appreciate their focus on that. The guide is, I’m going to take us — from to $132 million to $134 million for Q3, simple reason there is persistent inflationary cost pressures. Even though I think we do a very good job managing the vendors. We’re still seeing pressure that, I think will show up, certainly in the third quarter and probably continuing into the fourth. So pretty confident in that.

Jeff Rulis: Ron, just to clarify that was $132 million to $134 million range for Q3?

Ron Copher: Correct.

Jeff Rulis: Okay. And presumably within that ballpark in Q4?

Ron Copher: Yes, right now.

Jeff Rulis: Okay, okay, fair enough. And maybe just a last one from me on the beta. Randy, you mentioned that, I guess any update to both the, kind of, terminal beta expectation on total beta or interest bearing beta or both?

Randy Chesler: Yes, I think we’ve spent a lot of time looking at that, because of some of the changes in the Fed, and there’s been a lot of activity there. So, Byron, maybe you can walk Jeff through the current thinking on that.

Byron Pollan: Sure. Yes, Jeff, last quarter when we reiterated the 15% through the cycle beta on total deposits, we noted at the time it was a good estimate, but really dependent on what the Fed does. If you go back to where we were in April, the market was looking for Fed cuts in the back half of the year, and now we’re looking for one maybe two more hikes in the back half of 2023. So if you look at market expectations for year-end Fed funds is now a 100 basis points higher today than it was in April. So clearly that has had an impact on our deposit pricing outlook. So, given the rate environment, we do need to adjust our deposit beta assumption. We are now using a 25% as our through the beta — through the cycle beta, for total deposit costs.