Glacier Bancorp - Q3 2024
October 25, 2024
Transcript
Operator (participant)
Good day, and thank you for standing by. Welcome to the Glacier Bancorp Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. 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, Glacier Bancorp President and CEO. Please go ahead.
Randy Chesler (President and CEO)
Good morning, and thank you for joining us today. With me here in Kalispell is Ron Copher, our Chief Financial Officer, Byron Pollan, our Treasurer, Tom Dolan, our Chief Credit Administrator, Don Cherry, our Chief Administrative Officer, and joining us on the phone is Angela Dossey, our Chief Accounting Officer. I'd like to point out that the discussion today is subject to the same forward-looking considerations outlined starting on page 13 of our press release, and we encourage you to review this section. The positive organic trends that emerged in our first and second quarters continued and became more pronounced through our third quarter. In addition, in the third quarter, we finalized the purchase of six Montana branches from Heartland Financial of its Rocky Mountain Bank division, including the deposits, loans, owned real estate, and fixed assets associated with the branches, totaling $403 million in assets.
We closed this transaction on July 19th and converted these branches to Glacier systems over that weekend. This quarter, we had strong EPS growth of 15% or $0.45, primarily driven by increasing interest income and higher non-interest income. Net income was $51 million, which increased $6.3 million or 14% from the prior quarter net income of $44.7 million. Net interest margin grew 15 basis points from 2.68% to 2.83%. Net interest income was $180 million for the current quarter, an increase of $13.8 million, or 8% from the prior quarter net interest income. The loan portfolio of $17.1 billion increased $329 million, or 2% during the current quarter, and organically increased $57.6 million, or 1% annualized during the current quarter.
The loan yield of 5.69% in the current quarter increased 11 basis points from the prior quarter loan yield of 5.58%. Total core deposits of $20.7 billion increased $613 million, or 3% during the current quarter, and organically increased $216 million, or 4% annualized during the current quarter. Non-interest-bearing deposits of $6.4 billion increased $314 million, or 5% during the current quarter, and organically increased $221 million, or 14% annualized during the current quarter. Our total cost of funding in the quarter, including non-interest-bearing deposits, decreased 1 basis point from the prior quarter to a total cost of funding of 179 basis points.
Core deposit cost, including non-interest-bearing deposits, was 1.37% for the current quarter, compared to 1.36% in the prior quarter. Total non-interest expense of $145 million was within our expected range, increasing $3.8 million in the quarter, or 3% over the prior quarter. While nonperforming assets to bank assets and net charge-offs to average loans and early-stage delinquencies increased slightly, our credit portfolio continues to perform at near record levels with no material negative trends emerging. The current quarter credit loss of $8 million included $3.6 million of provision for credit losses from the acquisition of Rocky Mountain Bank.
Excluding the acquisition of Rocky Mountain Bank, the current quarter credit loss expense was $4.4 million, including $4.2 million of credit loss expense from loans and $225,000 of credit loss expense from unfunded loan commitments. Non-interest income for the current quarter totaled $34.7 million, which was an increase of $2.5 million, or 8% over the prior quarter. Tangible stockholders' equity of $2.1 billion increased $68.1 million, or 3%, compared to the prior quarter, and was primarily the result of a decrease on unrealized loss on the available-for-sale debt securities, which was partially offset by the increase in goodwill and core deposit intangibles associated with the Rocky Mountain Bank acquisition. We also declared a quarterly dividend of $0.33 per share.
The company has declared 158 consecutive quarterly dividends and has increased the dividend 49 times. The Glacier team has done an excellent job taking care of our customers while growing the business organically and welcoming our new acquisitions. In 2024, we closed and converted two acquisitions during the year, totaling approximately $1.2 billion in assets. So that ends my formal remarks, and I would now like to ask the operator to open the line for any questions that our analysts may have.
Operator (participant)
At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by. We compile the Q&A roster. One moment for our first question. Our first question will come from the line with Jeff Rulis from D.A. Davidson. Your line is open.
Jeff Rulis (Managing Director and Senior Research Analyst)
Thanks. Good morning.
Randy Chesler (President and CEO)
Morning, Jeff.
Jeff Rulis (Managing Director and Senior Research Analyst)
I wanted to touch on the non-interest-bearing growth on the organic side. I think a real outlier and most simply looking to hold that balance, not show double-digit annualized growth. I guess, what occurred in the quarter with the non-interest-bearing growth?
Byron Pollan (Treasurer)
Yeah, Jeff, this is Byron. Yeah, we were really pleased to see, you know, that organic growth in the third quarter. Third quarter is typically a time when we see seasonal strength in our deposit base and particularly in non-interest-bearing. And that's what we saw this quarter, and our divisions, you know, really did deliver on that. So that was great to see. We are continuing to see a little bit of migration to interest-bearing accounts. That is still there, but it's not nearly at the level that we were seeing, say, a year ago. In terms of our outlook for the fourth quarter for non-interest-bearing, I do think that we could be flat to down a little.
We could see a little bit of an unwind of that seasonal inflow that just came in.
Jeff Rulis (Managing Director and Senior Research Analyst)
Okay. And Byron, the timing of maybe the timing of that non-interest-bearing build in the quarter and additionally the timing of bringing borrowings down. My guess is, and I'm ultimately giving you a question here, the impact to deposit costs, maybe if you have an exit or spot deposit cost at the end of the quarter, would also be helpful?
Byron Pollan (Treasurer)
Sure. In terms of the timing of the non-interest bearing build throughout the quarter, we saw every month, July, August, September, saw growth on an organic basis in our non-interest bearing, so it was, you know, really spread very nicely throughout the quarter. In terms of the timing of our FHLB pay down, the overnight portion of our FHLB funding, that did happen in July earlier in the quarter. And in terms of a spot rate, our spot rate for total deposits, this is the rate on September thirty, was 1.35%. Did I cover all your?
Jeff Rulis (Managing Director and Senior Research Analyst)
Yeah.
Byron Pollan (Treasurer)
Questions?
Jeff Rulis (Managing Director and Senior Research Analyst)
Yeah, that was a lot. No, thank you. Maybe if I could hop to expenses, you know, I think really at the low end of the guide, and I think it include merger costs. So I guess I'm hesitant to kind of ask about the run rate ahead. It seems like, Ron, we've beat that number a little bit each quarter. So what should we expect in terms of, I guess you'd have the branches for a full quarter? I think you missed a couple of weeks in the third, but any thoughts on expenses ahead?
Ron Copher (CFO)
Yeah. So just to recognize, yeah, the divisions really did a stellar job being very focused on, you know, controlling expenses, and so hats off to them, and that's where it's happening. Yeah, it's a pleasant development. So if you do exclude the gain on the sale and the M&A, the core non-interest expense came in at $143.4. And we think that that can be maintained into the next quarter, and we need to go back and understand what's really driving that. You'll see that our compensation is very well controlled, even picking up folks from the Rocky Mountain Bank branches, very controlled. And again, that's in part, in large measure to our technology I've spoken about in the past.
You know, we've cut the time in half to open an account. We've got closing on each day now. Instead of a batch submission, it's real time. The point of all this is that we're doing things very well, but with less people. The divisions have strongly embraced the technology, so they're able to do more with less, and that's been a theme that we started talking about really last year. And so that continues to happen, and that will then help understand the guide I will give for core non-interest expense. When I say core, it means reported less gain on sale or losses. It means excluding the M&A, so I'm gonna lower the guide. We're gonna lower the guide by $2 million on each end, so it'll be $143 million-$145 million for Q4.
Jeff Rulis (Managing Director and Senior Research Analyst)
Thank you. I'll step back.
Operator (participant)
Thank you. One moment for our next question. Our next question will come from the line of Kelly Motta from KBW. Your line is open.
Kelly Motta (Director of Equity Research)
Hey, good morning. Thanks for the question. Maybe piggybacking off that expense question, again, it's compared really favorably to where you've been guiding now for a couple of quarters, I think. Just as we look ahead, I know you may not be ready to look at 2025 yet with where you are in the budget process, but as we think about the natural kind of expense growth rate of your company, like, what's a good run rate for growing expenses, just on a normalized basis? And it seems like most of the room and fat has been cut, given what you've done. But any additional thoughts there?
Byron Pollan (Treasurer)
Yeah, Kelly, appreciate the question. I would go with 3%. That's slightly better than what we've had on average this year and last year. And in part, that's the efficiency gains we're getting there. We're still using third-party consultants to help build out our control functions. And in large measure, when I say control functions, that reflects the heightened continuing regulatory expectations. And so we want to make sure as we grow, that we're staying on top of that, staying ahead of it. But coming back to the answer, it's 3%.
Kelly Motta (Director of Equity Research)
Got it. That's, that's helpful. And then, maybe turning to loan growth, you've been excluding the deals you've done this year, you're running in the low single-digit range. Just wondering if you've seen any, you know, pent-up demand ahead of rate cuts and how to think through that, as well as, you know, where you're seeing opportunities in the state of the pipeline as it stands today?
Tom Dolan (Chief Credit Administrator)
Yeah, Kelly, this is Tom. You know, we're seeing continued optimism from our customers, you know, especially after the recent rate reduction, but we have yet to see it translate to, you know, significant deal flow. You know, to answer your question on the pipeline, it was fairly stable throughout the third quarter, but you know, I think there's still a little bit of uncertainty that's keeping that pent-up demand on the sidelines till there's a little bit more clarity, you know, over the next quarter, so you know, for the rest of the year, I think you're probably going to see more of the same. Fourth quarter is typically a little slower growth quarter for us anyway, particularly due to the agriculture paydowns.
So, you know, like I said, in the fourth quarter, I think we'll probably see a little bit more of the same.
Kelly Motta (Director of Equity Research)
Got it. That's helpful. I'll step back. Thank you.
Operator (participant)
One moment for our next question. Our next question comes from the line of Matthew Clark from Piper Sandler. Your line is open. Matthew, you may be on mute. Your line is open. We'll move on to our next question. One moment. Our next question comes from the line of David Feaster from Raymond James. Your line is open.
David Feaster (Managing Director)
Hey, good morning, everybody.
Tom Dolan (Chief Credit Administrator)
Morning, David.
David Feaster (Managing Director)
Maybe touching on the growth side. I mean, organic growth was a bit lighter. I'm curious, maybe some of the drivers behind that. I mean, how much of that's a function of weaker demand or higher payoffs and paydowns? Just curious kind of how the pipeline's shaping up, what you're hearing from clients, and where you're seeing opportunity to drive growth, and just kind of how you think about the pace of organic loan growth going forward?
Tom Dolan (Chief Credit Administrator)
Yeah, David, this is Tom. You know, yeah, there's still some pent-up demand. There's continued optimism, but you know, pipelines were relatively stable throughout the quarter, so you know, to answer your question on the drivers behind the growth, it was a little bit of both. You know, there's not quite the strength of demand that we would normally see. And then in addition to that, we've seen elevated payoffs. As you know, some of these construction and development projects either sell out or hit stabilization, and either the asset is sold or is refinanced into the secondary market, so we're continuing to see that as well.
And so that's another reason why you've seen the construction balances come down for another quarter, that those things move into either the term portfolio or are sold, and you know, the volume is just not replacing the outflow.
David Feaster (Managing Director)
Okay. And then maybe touching on some of the repricing and remixing dynamics within the earning asset base. I'm curious, how do you think about cash flows from the securities book and the roll-off rates there? And similarly, with the upcoming maturities in the loan portfolio, where new loan yields are relative to roll-off rates, and just how do you think about the repricing dynamics there in the near term? And, you know, you know, just the opportunity to continue to remix the earning asset base.
Randy Chesler (President and CEO)
Let's take the first part of that, the new loan piece, and what your thoughts are on that, and then maybe, Byron, we can move on to the investment portfolio and cash flows.
Tom Dolan (Chief Credit Administrator)
Yeah. So the loan yields, you know, we're still seeing, you know, mid to upper sevens in our top line production. So, you know, as a relation to the coming off yield, I'll pass it on to Byron.
Byron Pollan (Treasurer)
Sure. We continue to see strong cash flow off of our securities portfolio. $250 million a quarter for the next couple of quarters, I think, remains a good guide. That cash flow includes principal and interest. The yield of that cash flow is coming off at, you know, it's about 1.5%. And so, you know, as we move that and reinvest that into the loan portfolio, that yield that Tom just mentioned, you know, that repricing lift creates a lot of momentum for us. I will say, we do start to see some additional securities maturities in 2025.
And so, in the second quarter, we start to see some treasury bonds come back to us. We have $50 million in the second quarter of 2025, and then in the fourth quarter of 2025, we have $270 million mature. So we have been running at a pretty consistent, you know, $250 million dollar pace. Look for that to begin to increase next year.
David Feaster (Managing Director)
Okay. Okay. And then maybe just kind of thinking high level, how do you think about your footprint, right? I mean, you've got a really broad network, and footprint and some massive density in some key markets, but maybe smaller footprints in some of the other, other markets. I'm curious how you think about expansion priorities, where you're focused on driving growth, and how you think about organic growth relative to, you know, supplementing that with M&A, and just kind of how some of those conversations are going?
Randy Chesler (President and CEO)
Yeah. So, I think the, you know, the outlook is very, very good. The eight states we're in are some of the fastest growing states in the United States in terms of GDP growth. So very encouraged by that. In terms, it's really both strategies, Dave. So we have an organic strategy with each division, where they're looking at their markets and expanding as they see opportunities. Across the 17 divisions, that takes place at quite a few of them. At the same time, we're looking at M&A opportunities to fill in and grow scale in a lot of these fast growth markets. So as we talk to people and look at opportunities, you know, those are the things that we see.
And more and more, we see opportunities to add on to existing divisions and build scale with some of the things that we're looking at. So really both, David, it's both organic. We don't wait for an acquisition to appear. If there's markets we think are good markets to go into, we'll go into them organically. And then an acquisition that might be available to us, we look at as just building scale in the markets that we're in today.
David Feaster (Managing Director)
Are there any of your markets where you see the most opportunity at this point, or where you'd like to, you know, drive more density in, or is there opportunity for market expansion that maybe looks attractive to you at this point?
Randy Chesler (President and CEO)
Yeah. There, across the eight states, they all have areas that we'd be interested in growing through acquisition. So I can't say there's one that, you know, that we would put at the top, and I think that's one of the strengths that we have, is we have multiple options across those eight states, and so we're not really pinned down, waiting for something in one particular area. Keep our options open, look across those eight states, and where the good opportunities occur, that's where you'll see us go.
David Feaster (Managing Director)
Okay. All right. Thanks, everybody.
Operator (participant)
Thank you. And as a reminder, to ask a question, that's star one one, star one one. One moment for any further questions. We have a question. One moment. Our next question will come from the line of Jeff Rulis from D.A. Davidson. Your line is open.
Jeff Rulis (Managing Director and Senior Research Analyst)
Thanks. Just had one other, and I know we're splitting hairs on the credit side, but just wanted to kind of check in on the small increase in... It's a fraction of peers, but just on the looked like some ag and one to four family. And Randy, I think in your opening comments, you know, didn't sound anything systemic, and at these low levels, you know, we're gonna see it bumping around. But anything to speak on and what you saw in terms of the quarter?
Tom Dolan (Chief Credit Administrator)
Yeah, Jeff, I appreciate the context around the change. So that's, that's very appreciated. But, you know, just as Randy said, there's, there's no specific industry, asset class, or geography that's showing some, any level of outsized risk. I think what we're seeing, Jeff, is just continued signs of normalization in overall asset quality. We're obviously coming off of a very, very strong position of asset quality, so, you know, it doesn't take much to move the needle. You know, and getting into the particulars, you know, you mentioned agriculture. That, that was basically kind of one relationship that we had been working with for some time now. You know, the challenge there is more on the management side, not, not market. So, you know, we'll be working through that over the next couple of quarters.
Outside of that, there's nothing of, you know, particular concern. It's pretty well spread out.
Jeff Rulis (Managing Director and Senior Research Analyst)
Okay. Thank you, Tom.
Operator (participant)
Thank you. I'm not showing any further questions in the queue. I would now like to turn it back over to Randy for any closing remarks.
Randy Chesler (President and CEO)
Great. Well, thank you very much for dialing in today.
Operator (participant)
We do have.
Randy Chesler (President and CEO)
Yes.
Operator (participant)
One question. Do you wanna take it?
Randy Chesler (President and CEO)
Sure. Absolutely.
Operator (participant)
Our next question will come from the line of Matthew Clark from Piper Sandler. Your line is open.
Randy Chesler (President and CEO)
Hey, Matthew.
Matthew Clark (Managing Director and Senior Research Analyst)
Hey, how are you? Sorry about that. I thought I was in the queue, and I guess I wasn't. First question, just on the core loan yields. I think they were up, you know, excluding accretion by 12 basis points to 561. Can you just remind us how much of your loan book is truly floating? And then assuming we get some additional rate cuts here in the fourth quarter and into next year, what are your thoughts on just the trend in loan yields with the, you know, the benefit of the back book and, but also, you know, the pressure on floating?
Byron Pollan (Treasurer)
Yeah, this is Byron. I appreciate the question. In terms of floating, truly floating, about 7% of our loan portfolio is indexed to prime. We really don't have much indexed to SOFR, so that is the floating component of our loan portfolio. Trending into next year, as you mentioned, the back book and the repricing of that is that is going to be a very powerful dynamic for us. So I think I would continue to expect our loan yields to increase as that repricing happens. About 20% of our loan portfolio will reprice in any given year.
We do expect some lift in that repricing at rates where they are and at rates where we see the market expectations going. So we do see continuous lift.
Matthew Clark (Managing Director and Senior Research Analyst)
Great. And then just the average margin in the month of September, if you have it, you know, either core or reported?
Byron Pollan (Treasurer)
Sure. Our margin in the month of September was $288.
Matthew Clark (Managing Director and Senior Research Analyst)
Got it. Okay, great. Thank you.
Randy Chesler (President and CEO)
You're welcome.
Operator (participant)
Thank you. Now, we don't have any further questions. Randy, over to you.
Randy Chesler (President and CEO)
All right, Victor. Appreciate it, and thank you everybody for dialing in. Appreciate the interest, and want to wish everybody a great, rest of the day, Friday, and weekend as well. Thanks for joining us this morning.