Q1 2024 Glacier Bancorp Inc Earnings Call

Participants

Randall Chesler; President, Chief Executive Officer, Director; Glacier Bancorp Inc

Byron Pollan; Treasurer; Glacier Bancorp

Ronald Copher; Chief Financial Officer, Executive Vice President, Secretary; Glacier Bancorp Inc

Tom Dolan; Chief Credit Administrator; Glacier Bancorp Inc

David Feaster; Analyst; Raymond James

Kelly Motta; Analyst; KBW

Jeff Rulis; Analyst; D.A. Davidson

Matthew Clark; Analyst; Piper Sandler

Andrew Terrell; Analyst; Stephens

Presentation

Operator

Thank you for standing by, and welcome to the Glacier Bancorp first-quarter earnings conference call. (Operator Instructions).As a reminder, today's program is being recorded.
And now I'd like to introduce your host for today's program. Randy Chesler, President and Chief Executive Officer of Glacier Bancorp. Please go ahead, sir.

Randall Chesler

All right. Thank you, Jonathan, and good morning and thank you for joining us today. With me here in Calgary. Well this morning is Ron Copher, our Chief Financial Officer; Angela Dose, our Chief Accounting Officer, Byron Paul, and our Treasurer, Tom Dolan, our Chief Credit Administrator, and Don Chery, our Chief Administrative Officer.
I'd like to point out that the discussion today is subject to the same forward-looking considerations starting on page 10 of our press release, and we encourage you to review this section. Yesterday, we released our first quarter earnings and an announcement regarding the approval of our purchase of six Montana branches. After the close of the market.
We experienced an increase in the net interest margin for the first time since the third quarter of 2022, the company's net interest margin as a percentage of earning assets on a tax-equivalent basis was 2.59% compared to 2.56% in the prior quarter and was primarily driven by the increase in loan yields outpacing the increase in deposit costs.
This was a very welcome result and arrived a quarter sooner than we expected. We believe this trend will continue throughout '24 and into '25. It appears that we are entering a higher for a longer period of interest rates. And that environment is good for the company as of lower rates.
Interest income of $279 million in the quarter increased $5.9 million or 2% over the prior quarter and increased $47.5 million or 20% over the prior year first quarter. The loan yield for the current quarter was 5.46%, increased 12 basis points compared to 5.34% in the prior quarter. An increase 44 basis points from the prior year first quarter.
The loan portfolio of $16.7 billion increased $534 million or 3% during the quarter, the core deposit cost was 1.34%, which increased 10 basis points for the quarter, which was the smallest increase since the fourth quarter of 2022. Total deposits of $20.4 billion increased $498 million or 3% during the core current quarter and increased $279 million or 1% from the prior year first quarter.
The $2.7 billion of Federal Reserve Bank term funding was paid off during the quarter through a combination of Federal Home Loan Bank advances and cash. Nonperforming assets of $25 million at quarter end decreased $206,000 or 1% from the prior quarter and decreased $6.6 million or 20% from the prior year first quarter.
Net income was $32.6 million for the current quarter, a decrease of $21.7 million or 40% from the prior quarter, net income of $54.3 million. However, the current quarter included a total of $13.3 million related to credit loss expense from the acquisition of Wheatland Bank acquisition related expense and increased expense from the Federal Deposit Insurance Corporation.
Special assessment, we completed the acquisition and core conversion of Community Financial Group, the parent of Wheatland bank, a leading Eastern Washington community bank headquartered in Spokane, with total assets of $778 million as you may remember, we consolidated our other Eastern Washington division, North Cascades Bank under Wheatland to create one brand in eastern Washington. The two divisions had been combined and the team has done an excellent job bringing our employees and customers together and focusing on building the Wheatland brand across the state.
In February, we announced a purchase and assumption agreement with Heartland Bank to purchase six Montana branches from its Rocky Mountain Bank division, including the deposits, loans owned real estate and fixed assets associated with the branches. I'm very pleased to announce that we received all regulatory approvals yesterday and expect to close this transaction in July.
It is a rare opportunity to purchase six branches of a well running franchise in good markets where we already had divisional branch leadership and a good knowledge of the customers. This transaction includes high-quality deposits and loans and a great team of employees to we expect to close and convert these branches in July, we also declared a quarterly dividend of $0.33 per share.
The company has declared a 156 quarterly dividends and has it increased the dividend 49 times in this quarter. We're very pleased to be recognized by J.D. Power to be number one in retail banking satisfaction in Montana, Idaho and Washington, and Forbes also announced that they ranked Glacier Bank as top 10 in the US of the world's best banks. And that now makes it five consecutive years we have achieved this recognition.
So Jonathan, that ends my formal remarks, and I would now like you to open the line for any questions that our analysts may have.

Question and Answer Session

Operator

(Operator Instructions)
David Feaster, Raymond James.

David Feaster

Hey, good morning everybody.

Randall Chesler

Morning, David.

David Feaster

And just on starting on the margin, you were able to like to talk about drive the core margin higher quarter over quarter. You've been pretty vocal about calling the bottom and we're able to do it earlier than expected. And then you talked about the higher for longer environment being a positive, which makes sense. Just given the earning asset remix. I guess I was just hoping that you could help us think through the margin trajectory over the course of the year, assuming rates do stabilize here and then and we stay in is higher for longer environment and just remind us expectations for the benefits of each rate cut if they do.

Byron Pollan

Sure, David, this is Byron, I can touch on margin. I would say first of all, we're very pleased to see that our margin did grow in the first quarter. I think that was that was that was huge. And as you mentioned, a little sooner than we anticipated, I would say the trends are there for growth throughout the year, whether the Fed cuts or not we do a little better if the Fed cuts, but higher for longer is still good for us.
I would say in this rate environment with fewer cuts pushed back later in the year, we do give up a little bit of the margin upside. However, our branch acquisition that Randy talked about gives us some of that back. So I would say net-net, we're pretty much in the same place even with fewer expected rate cuts this year. I would say overall, I would see our full year margin margin coming in at the low end of our previous guide. That's at 280.
And that does include the benefit of the branch acquisitions that Randy noted. I would say I would caution you on that though there is a potential headwind in that, which is with non-interest bearing migration, if we can if we see some some outflow in our noninterest-bearing deposit balances that could pressure deposit costs and margin if that comes through.

David Feaster

Absolutely. And maybe just kind of staying on that topic, you know, could you talk about the trends that you saw in the quarter, especially on in IB and core deposits and how that progressed throughout the quarter and just kind of early read on the second quarter so far and just how you think about core deposit growth as we enter into the seasonally stronger month.

Byron Pollan

Non-interest bearing balances did that we did on a core from a organic perspective, non-interest bearing balances did outflow. I would say if you break that down within the quarter, all of our outflow happened in January followed by slight growth in February and March. Again, with the acquisition of free when they brought it, you know, a $250 million of non-interest bearing balances that was that was a significant boost to the balance sheet.
I do think we could continue to see some some additional outflow in future quarters. And for example, we do see some tax that seasonal tax outflows this time of year. So that's something that that we've seen. So far in April. That's consistent with prior years as well.
Overall, in terms of in terms of core deposits, you know, I do think we could we could see a little bit of outflow in the second quarter. I do think we will be returning more toward seasonal trends, which means very strong inflows during the summer months and early fall. And then as we get later in the year, we could see a little bit about outflow. So I see our overall kind of getting back to some of the normal seasonality that we see year to year. And so that's that that's I think that's a positive for us overall.
In terms of where I see the balance ending, I think I think we'll end up at the end of '23, pretty close to where we ended. And this is organically and close to where we ended the year last year with growth coming from the acquisitions of frequent intervention and events.

David Feaster

Okay. That's really helpful color. And then maybe just last one for me. Touching on credit. No mean broadly, credit remains pretty benign. You guys are aggressive managers and credit NPAs still are low, but early stage delinquencies did tick up and it sounds like it's primarily on one credit. I'm just curious if you could touch on what drove that? And then your thoughts on credit more broadly, what you're seeing and what you're watching more closely and your thoughts on credit as you stress your book.

Randall Chesler

Yes. Like you said, the increase this quarter was was primarily one relationship. We should have some resolution this quarter, second quarter on that transaction of more broadly on the portfolio. We're not seeing any specific industry asset class or geography.
That's that's showing any trends and stress. So no material cracks in the portfolio yet. Certainly we keep watching. We still regularly stress test the portfolio not only for economic trends but also interest rates. Those results continue to be favorable. And you know, we just continue our strong disciplined credit risk management.

David Feaster

So that credit or what industry was it in? And it sounds like you're expecting a resolution with no losses or anything pretty quickly?

Randall Chesler

Yes, the industry that is it is in the hospitality and the what's behind it. It's really more like a heartbeat cabin type structure. And you know, it's a the sponsors just involved in some other transactions and and some that are coming out of the ground. And so instead of being aware where these projects are typically slow in the winter, some funds left there to support some other projects, and we expect it to return back to its normal trends of some of.

David Feaster

That's great color. Thanks, everybody.

Operator

Kelly Motta, KBW.

Kelly Motta

Good morning. Thanks for the question, ongoing. Maybe just starting with expenses, it looks like you came in late, you know, right down the middle of where you said you had last quarter. I'm just wondering as we look ahead, if there's any sort of puts and takes cost savings we should be incorporating with Wheatland as well, as you know, how we should be thinking about any of the arms associated cost with the Heartland bridge transaction you've announced?

Ronald Copher

Yes, Kelly, Ron here. Yes, thanks for the recognition we hit it right down the middle there. So that that's pretty good. And the point I want to make is on the divisions, corporate departments, everybody continues to focus on that the the guide that I want to give for Q2, I'm going to stick with the [144] to [146], but we're going to be on the high end of that, I think as we get through the second quarter, but speaking to Wheatland, we do expect to see that about another $2 million of cost savings that will we'll have there and those will be spread out over the three quarters.
Probably one thing to keep in mind.
Another reason why I say the high end of that range closer to the one 46. We only had two months of Wheatland in there, and now we're going to have a full three months. So and that helps explain why it would be at the high end of that of that range. And then let me pause there. Any questions on that information?

Kelly Motta

No, I think that was explained quite well into it. Thanks, Sharon.

Ronald Copher

Okay. But let me then get into the branch acquisition of Rocky Mountain and everybody should take away. As you know, we're going to on an operating basis for the five months of 2024. We're factoring in the $0.03 per share that's operating, but we've got the transaction related expenses that will largely be expensed in the sense that the third quarter. Again, we're going to close that in July.
So the operating will be $0.03 over that five months. There's a penny and a half in each quarter. If you will. But then the transaction expenses on an after-tax basis, that's $0.05. So that'll it show up primarily in that the third quarter and then very little effect will show up in the in that in that fourth quarter, but the we felt pretty good about it.

Kelly Motta

Got it. That's helpful. And maybe maybe turning on as to loan growth and Jay, can you just provide an overview of what pipelines look like right now, how they're how they're forming, where you're seeing the most opportunities and your outlook as you look ahead through the balance of this year?

Tom Dolan

Sure, Kelly, this is Tom. Yes, just kind of rewind the clock a little bit. We saw pipelines muted pretty much throughout 2023. Now that you know, there's been a little more stable guidance around where interest rates are going. We've seen our pipelines pick up a little bit in the first quarter, which is encouraging. And so, you know, items our guidance for the full year, we're going to we're still at the low to mid single digits. I think we'll probably see some stronger growth in Q2, Q3, Q4 tends to be a little bit slow.
So for the overall overall year, you know, low to mid single digits. And then in terms of specific industry or geography. It's pretty it's fairly widespread across industries and across our eight-state footprint. So nothing's really panning out as the outlier.

Kelly Motta

Got it. That's helpful. And then maybe last one for me. I appreciate the color around margin and your expectation now that that, you know, on the lower end of the previously provided range. Just wondering as you think ahead, there is a lot of moving parts this quarter with the BTFP repayment.
And just should we be thinking about the size of the balance sheet portion? Do you still expect the balance sheet to it grow through the balance of the year? Or is loan growth mostly going to be funded with securities flows and whatnot?

Randall Chesler

I do think loan growth will be funded with the securities outflow. We do continue to see about $250 million of cash flow coming off of our securities portfolio. I think that's going to be enough to fund the loan growth that that Thomas and his side of the balance sheet.
So and I think overall ag and our cash balance will probably maintain at in the range that you see it now somewhere between $700 million and $800 million or so likely to see a fairly stable balance sheet. That's that where we ended the quarter organically and from there just at the and the branch acquisitions that will happen later in the year.

Kelly Motta

I thought I'll step back.

Operator

Thank you.
Jeff Rulis, D.A. Davidson. Your question, please.

Jeff Rulis

Thanks. Good morning, manager. Byron, sorry to get back on the margin, but I just wanted to clarify, I think you said kind of low end to 80. We're talking about trajectory towards that at year end. Is that is that correct way to think about that?

Byron Pollan

Yes, we do think it will be growing at quarter over quarter and on the full year end up on that in that two areas. So I would just I would say from here, you know, continued growth quarter over quarter. And we have we have a lot of positive dynamics in the structure of our balance sheet and the repricing of our assets that are not dependent on Fed cut. And so that's really where you're going to see the growth in our margin for the rest of it.

Jeff Rulis

Okay. With that, I mean, I think we were talking last quarter about potentially kind of Q4 exiting the year, you could?Yes, 3%. I think that included maybe some rate cuts.
And you talked about this time around no rate cuts would be better understanding it's still trending up. So is that am I thinking about that, right, that even with the 280 low guide, maybe not high end exiting at three with cuts if that doesn't play out. But it is that I mean that without cuts, let me put it this way. It's probably something north of two, 80 in the year. Is that bear if we're getting an average for the full year at two 80?

Byron Pollan

That's right. Yes, we'll be approaching the high high to the high twos. You know, as we exit the year. And as I mentioned, what we give up here with fewer Fed cuts, we kind of get back with the addition of the branches that are coming onto the balance sheet. So some puts and takes there.
But overall, I do see us continuing to grow margin. And I think on the year will be close to that low end of the previous guide, as I mentioned.

Randall Chesler

Okay, so that the margin does Jeff and you know, reaches that almost 3% in the fourth quarter, but then the full year margin is closer to what Byron saying that's the low. When you take the full year margin, that's going to be closer to the to a net range.
Okay.

Jeff Rulis

And Randy, as you mentioned on this call, and I think prior calls that there's momentum into '25 as well as we kind of prior discussions that. That's correct as well.

Randall Chesler

Yes.

Jeff Rulis

Okay. And then sorry for the follow on to the expense side, Ron? Yes, I just wanted to kind of range by appreciate that the one-time expenses with the branch deal. But if we think about and maybe in 2Q run rate of one 46, what does that head to in if you get some cost saves, but then you bring on HTLF. or the whatever division they call that.
Where does that hit in the third quarter in terms of quarterly kind of run rate ex the the transaction costs more core?

Ronald Copher

So in the third quarter, of course, of the Rocky Mountain branch branches that will pick up only him for four or five months. So we I've said we'll have a 38% cost savings overall, but we're only going to have 50% of that occur and then you only got five months. So it won't be a big cost savings.
And in that respect, it will show up in '25 because we're going to have 100% cost saves there because of that being in the market of having the convert right away. It's not a typical stock deal. So there will be some slight trending up up in the third but in the fourth quarter. But I'm not ready to quantify it just yet. I want to see what we're going to get when we actually close on the deal.

Jeff Rulis

Okay. One last one, Randy, kind of high-level question at the I guess were a year removed from and have the liquidity crisis or the peak of that. And I think in early '23, kind of circled the wagons with your team in terms of bringing customers back.
And I guess just the high level, you feel like you've sort of reestablished the bank with those customers in terms of maybe some lead away, it's late in '22 and just kind of feeling where you are competitively on the deposit side and kind of a year removed, if you will.

Randall Chesler

A lot's happened since '22. I think the team did an excellent job of going back out after that. If you go back to some of the turbulence we had in the market, both with rates moving up quickly and people are moving based on market rates and then the fear around them of the Silicon Valley Bank failure, the gene, I think of all the customers we want to bring back and have done a very good job of bringing them back in.
In fact, I think that the current status right now is there are some very good customers you know, kind of up for grabs in the market on and based on what other banks are doing. And so I think we're not only feel good about holding on to the good customers that we had back in '22, but growing some relationships with some new customers.
So right now, it looks very favorable on. I still think the banking environment overall could be a bit fragile. But as of right now, Jeff looks some looks very favorable.

Jeff Rulis

So thanks for the perspective. Appreciate it.

Randall Chesler

Thanks, welcome.

Operator

Thank you.
Matthew Clark, Piper Sandler.

Matthew Clark

Your question please say good morning. Thanks for the questions, Flemming, and just to close the loop on the margin, if you could give us the spot rate on deposits costs at the end of December and then the average Neumune I'm sorry, at the end of March and then the average in the month of March?

Ronald Copher

Your spot rate on total deposits on March 31st was one 36.
And then the spot margin in the month of March was to 61 61.

Matthew Clark

Okay, great. Thank you. And then on the Heartland branch deal, can you help quantify the loans and deposits that are expected to come over even if it's or somewhat of a range? And then the related margin on those combined balances?

Ronald Copher

Yes, Ron here. So on the deposits will pick up $463 million. I'm going to throw as $7 million in there for repo, but the deposits pure are $463 million. And the yield on that that we're getting of just on the coupon is $437 million foot coming over. I'll get to the fair value mark and accretion. And second on the loans of $296 million coming in, again, a yield from $537 million on the deposits.
The yield on average cost is of 1.59% because in order to retain deposits, they've had to price up and also some migration, as you can imagine. So on the loan marks, the accretable dollar amount is $17 million. That includes both the rate mark and the credit mark and combined $17 million fully amortize that over five years. So that margin should be should be pretty healthy, both actual and then the with the purchase accounting, Mark's as well.

Matthew Clark

Okay, great. Thank you. And then just on your efficiency ratio, it turns higher than I'm sure you'd like it to be, I think, on an operating basis, about 72% well above kind of your longer-term goal, 54, 55.
What do you think that efficiency ratio can get to by the fourth quarter this year and then into next year?

Ronald Copher

I would say just to give you a range, I would say again, we're going to have to factor in the fact that we have those transaction costs coming into that faxes and even items favor M&A.
So I would tell you it'll probably be 69%, 70% is realistically the best that we can do that all in. And if you pull out the operating, I would say we could get to 74%, 75% range.

Matthew Clark

You mean lower, if it's slower?

Ronald Copher

Yes, yes.

Matthew Clark

Okay. So lower than the 69%, 70%, not higher with the ex merger charges?

Ronald Copher

Okay, that's right.

Matthew Clark

And that's is that by the fourth quarter this year, is that what you're suggesting? How are you thinking about next year?

Ronald Copher

That will be for the full year for this year?

Matthew Clark

Yes. Okay. Okay. All right. That's it for me.

Ronald Copher

Welcome the Q.

Operator

(Operator Instructions)
Andrew Terrell, Stephens. Your question, please.

Andrew Terrell

Hey, good morning. Tom, if I could just follow up quickly on the expenses, though, the 144 to 146 and maybe kind of higher end of that for the second quarter. I just want to clarify, is that on an operating basis, so excluding any merger charges or is it kind of fully loaded on a GAAP basis?
I don't know if they're not meeting merger expectations in 2Q?

Ronald Copher

So I it is excluding the merger-related expenses in the second quarter. So we'll still have some trailing on estimated to be no more than $2 million trailing M&A expenses.

Andrew Terrell

Okay. Got it. And then I don't know, I might have I might have missed this, but are you able to provide the just the operating expense add, we should expect in the third quarter from the branch acquisition we can we can probably get there with the accretion math, but I think it'd be helpful if we had the operating expense figure.

Ronald Copher

Yes, I would say it's going to be including the limited cost savings. Again, just because it's a matter of time. I would go with some $3 million additional non-interest expense for pickup from that.

Andrew Terrell

That's helpful. I appreciate it. If I go back to just the margin briefly. If I look at the taxable securities yields in the quarter, it was, I think, 2.13%, but looks like the cash position normalized along with some of the BTSP. repayment. Can you maybe just provide the spot securities yield at March 31st or just share kind of expectations for how the reported securities yields should trend in the second quarter?

Randall Chesler

Yes, yes, we'll just double checking the the numbers here to give that to you. And just while Byron is some checking at the expenses that Ron gave you for the branch acquisition and is on $3 million for the for the for the two till the end of the year, right on hand at

Byron Pollan

July 31, through the end of the year, five months

Andrew Terrell

Okay, got it.

Byron Pollan

Yes. And circling back to the investment yield on our tax-exempt securities at the 332 and our taxable investments are at a 1.60% yield

Andrew Terrell

1.60%. Okay, perfect. And then maybe just a reminder on I understand that the repricing story on the loan side, can you just remind us on the bond book side, just how much in kind of quarterly cash flow you expect there?

Ronald Copher

Yes, we're getting about, $250 million a quarter in cash on a securities book that then includes the principal paydown and interest.

Andrew Terrell

Okay. Very good. Thank you for taking the questions.

Operator

(Operator Instructions)
Kelly Motta, KBW. Your question, please.

Kelly Motta

Hey, thanks so much for letting me jump back in and we wanted to follow up on two related questions on the margin. First, can you remind us on the fixed loan repricing coming off over the course of this year and next?

Ronald Copher

Sure. Give me a quick second here. So a fixed rate loans maturing at this year? Well, I would say in from March 31 to December 31, just under $900 million of fixed rate loans, our mission.

Kelly Motta

Got it. That is helpful. And then last last question for me and I hate to beat a dead horse. I just want to make sure I'm understanding the guidance correctly. And Byron, you said you now expect margin at the low end of the provided range of call it to 80.
Is that assuming last quarter you assumed three rate cuts. Is that assuming some you know, the higher for long or no change in rates here. I just want to make sure I'm understanding the provided guidance on that for sure.

Byron Pollan

In the in that margin guide, we do have to cut in our forecast one in September one in December. I would say because we do assume that there will be a lag between when the Fed cuts and when our deposit pricing will be able to come down.
We're not getting a lot of benefit from a September December cut in that current that current forecast. So the difference between you know, higher for longer?
No cut. And you know, September December is not that big in our model. It's a basis point or two at this point.

Kelly Motta

Got it. Thank you so much. I well, that's all for me.

Byron Pollan

Thank you.

Operator

This does conclude the question and answer session of today's program. I'd like to hand the program back to Mike Tessler for any further remarks.

Randall Chesler

Well, Jonathan, thank you. And we want to thank everybody for dialing into the call today. Have a great Friday and a great weekend. Thank you.

Operator

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.