Glacier Bancorp, Inc. (NYSE:GBCI) Q3 2023 Earnings Call Transcript

Glacier Bancorp, Inc. (NYSE:GBCI) Q3 2023 Earnings Call Transcript October 20, 2023

Operator: Good day, and thank you for standing by. Welcome to Glacier Bancorp’s Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will 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 Chief Executive Officer of Glacier Bancorp. Please begin, sir.

Randy Chesler: All right. Thank you, Norma, good morning, and thank you for joining us today. With me here in Kalispell this morning is Ron Copher, our Chief Financial Officer; Angela Dose, our Chief Accounting Officer; Byron Pollan, our Treasurer; Tom Dolan, our Chief Credit Administrator; Don Chery, our Chief Administrative Officer, is on the road today visiting our Mountain West division. 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. So, we released our third quarter earnings after the close of the market yesterday, and the Glacier Bancorp team delivered another strong quarter. Net income was $52 million for the current quarter, and we generated earnings per share of $0.47.

Net interest income ended the quarter at $167 million. Pre-tax, pre-provision net revenue came in at $68 million. Interest income of $265 million in the current quarter increased $18 million or 7% over the prior quarter and increased $51 million or 24% over the prior year third quarter. The current quarter interest expense of $98 million increased $23 million or 30% over the prior quarter. Our net interest margin as a percentage of earning assets on a tax equivalent basis was 2.58% for the current quarter compared to 2.74% in the prior quarter. And although the net interest margin has been negatively impacted by the increase in interest rates in the current year, we experienced a slower pace in the decline in the net interest margin during the current quarter.

We like the positive trends on our interest income and expect some moderating trends on interest expense at this point, and believe this sets the stage for margin growth in 2024. During the current quarter, the team continued to focus on our diversified deposit and repurchase agreement products. Total deposits and retail repurchase agreements of $22 billion at the current quarter-end increased $530 million or 10% annualized during the current quarter. With the increased core deposits, we allowed $411 million of higher-cost wholesale brokered CDs to mature and not renew. Excluding these wholesale deposits, core deposits and retail repurchase agreements increased $941 million or 18% annualized during the current quarter. Noninterest-bearing deposits increased $7 million over the prior quarter, representing 32% of total core deposits at quarter-end.

We’re very pleased to see the strong deposit growth driven by all of our divisions. Our teams were able to leverage their strong existing relationships and market presence to achieve these impressive results. Total noninterest expense of $130 million for the current quarter decreased $1 million or 79 basis points over the prior quarter and decreased $484,000 or 37 basis points over the prior year third quarter. Our divisions continue to show great judgment in managing people and hiring positions only if needed and containing costs in other areas. The current quarter provision for credit loss expense was $5.1 million, which is a decrease of $160,000 from the prior quarter and a $3.3 million decrease from the prior year third quarter. The percentage of provision to loans was essentially flat to the last quarter at 1.19%.

Our credit performance continues to be excellent. Nonperforming assets to bank assets of 15 basis points was little changed from last quarter, as was net charge-off to average loans, which ended the quarter at only 4 basis points. Early-stage delinquencies of $15 million at the end of the quarter decreased $10 million from the prior quarter and decreased $6 million from the prior year-end. Early-stage delinquencies as a percentage of loans at September 30 was 9 basis points compared to 16 basis points for the prior quarter and 14 basis points for the prior year-end. The loan portfolio of $16 billion increased $180 million or 5% annualized during the current quarter with the largest dollar increase in commercial real estate, which increased $72 million or 3% annualized.

New loan production yields were 7.92%, up 55 basis points from the last quarter. Overall, the portfolio loan yield of 5.27% in the quarter increased 15 basis points from the prior quarter loan yield of 5.12%. Noninterest income for the quarter totaled $30.2 million, which was an increase of $1.2 million or 4% over the prior quarter. We added over 3,000 new retail and business accounts in the quarter with over $360 million in new relationship deposits. We declared a quarterly dividend of $0.33 a share. Glacier Bancorp has declared 154 consecutive quarterly dividends and has increased the dividend 49 times. And we announced the signing of a definitive agreement to acquire Community Financial Group, Inc., the parent of Wheatland Bank, a leading Eastern Washington community bank headquartered in Spokane, Washington, with total assets of $763 million as of September 30.

This will be our 25th acquisition since 2000. We’ve already received some of our regulatory approvals for this transaction and expect to close, as we previously indicated, by this year-end. Our capital levels are strong and growing with estimated CET1 increasing 13 basis points from the prior quarter to 12.55%. We believe this level of capital is more than 100 basis points greater than the average of the 21 peer banks listed in our proxy. So, with that, we remain confident in the dynamic Western markets we serve and our unique business model to continue to deliver strong results. So, Norma, that ends my formal remarks, and I’d now like you to open the line for any questions that our analysts may have.

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Q&A Session

Operator: Thank you. [Operator Instructions] And our first question comes from the line of Matthew Clark with Piper Sandler. Your line is now open.

Matthew Clark: Hey, good morning.

Randy Chesler: Good morning, Matthew.

Matthew Clark: Just a few questions around the margin to start and try to get some visibility going into the next quarter. Do you have the spot rate on deposits at the end of September and then the average margin in the month of September?

Randy Chesler: Byron, do you want to take that?

Byron Pollan: Yeah, Matthew, this is Byron. The spot rate at the end of September for total deposits was 1.17%. The margin for the month of September was 2.59%.

Matthew Clark: Okay. Great. And then the BTFP comes due in March, I think it’s about $2.7 billion. What’s your plan on that front? You added some cash or build some cash this quarter. Is that the plan to continue to accumulate cash and pay the whole thing off? Or do you expect to refi some portion of it?

Randy Chesler: Yeah. Right now, we’re creating options for ourselves. And I think we’re in a very good position, as you noted, with that level of cash over $1.7 billion in cash. So, we’re evaluating our options, looking at other funding alternatives. And really, at this point, Matthew, our main goal is to get us in a good position to take care of that. So, we’ll see how we — what kind of position we are at that time. But certainly, our goal is to bring that down. At what level, that remains to be seen.

Matthew Clark: Okay. And then shifting gears to expenses. Any updated thoughts on the run rate outlook here for 4Q and into net year?

Ron Copher: Ron here, Matthew. Yeah, so the guide will be $132 million to $134 million, and we feel very comfortable with that as an estimate. Fourth quarter, typically, we’ve got some cleanup and just leaving room for that as well.

Matthew Clark: Okay. And then the uptick in non-performers. I know it’s coming off a small base, and it’s only $10 million, but any color around what drove that increase in terms of the types of borrowers and geography and kind of plans to resolve them?

Tom Dolan: Sure, Matthew. This is Tom. Yeah, as you said, starting off with a low number, so any movements going to move the needle. Really, what this quarter was about was really just a business-as-usual situation, just the ongoing ebb and flow of NPAs. There’s no common theme. And both of them are non-owner CRE. One is the student housing, the other one is self-storage were really the larger drivers.

Matthew Clark: Okay. Thank you.

Operator: Thank you. [Operator Instructions] Question comes from the line of David Feaster with Raymond James. Your line is now open.

David Feaster: Hey, good morning, everybody.

Randy Chesler: Good morning, David.

David Feaster: Maybe just touching on the core funding side. It’s great to see the stabilization in the noninterest-bearing deposits. Obviously, seeing a decent amount of growth in the interest-bearing side. I’m just curious maybe if you could help us understand some of the underlying trends that you’re seeing on the core funding side. And where you’re having the most opportunity to drive core deposit growth? And then just digging into the new account growth, where are you having success driving those — attracting new relationship clients today?

Randy Chesler: Yeah. Let me take a shot at that, and we’ll see then if Byron wants to add. So, the core funding, no, we’re very, very happy to see the growth that we put forth in really, at the core, it’s back to the divisions and the model. They’ve got the relationships. They’ve got the customers, and I think we saw a lot of existing customers just moving deposits back into our banks from other places. So, we’re very, very pleased to see that. I think that’s very positive. We don’t have to go too far outside of existing relationships that show the kind of growth that we did. In terms of new, very happy with that as well. We still are seeing a decent amount of in-migration. And then as we build scale in a lot of our markets, becoming the largest institution or one of the larger institutions delivering really good service as some competitors take their eye off the ball, it just creates an opportunity for us to bring new people in.

And as you know, Dave, we have a machine really that we focus on, meaning all our divisions, the one thing — one consistent theme across all of them is the drive for good quality new customers in the marketplace. And they’ve got a pretty good process to do that. So, starts with taking care of existing customers and bringing more of those relationships back to our balance sheet. And then, we also continue to have a fairly robust new account strategy that’s working well for us.

David Feaster: That’s great. And then maybe following up on the margin commentary. I’m just curious, how do you think about — look, it’s increasingly likely, it seems like that we’re going to be in a higher for longer environment. I’m curious how you think about the margin in the NII trajectory as we look forward in a higher for longer environment. I mean, funding pressures probably persist near term. It seems like given the larger balance sheet, maybe we can see NII stabilize and maybe a bit of margin compression into the first or second quarter of next year. But I’m just curious, if rates do stay high, how do you think about the margin and the NII trajectory as we look forward?

Byron Pollan: Yeah, David, this is Byron. I can address that. I think higher for longer sets up really well for us. We’re already seeing signs of slowing deposit cost increase. And so that’s going to be very helpful. Every month, we have loans that are repricing higher into this rate environment. We’re getting the remix of cash flow from investments into loans. And with the pace of deposit cost increase slowing, we’re — I think that’s going to be helpful long term for the margin. And as that deposit cost really levels off, I think we’ll see growth next year, as Randy noted in his comments in ’24. The timing of that, we’re still trying to pin down. We’re right in the middle of our budgeting process. And so, a lot of it has to do with our outlook for growth in loans and deposits.