Glacier Bancorp, Inc. (NYSE:GBCI) Q1 2023 Earnings Call Transcript April 21, 2023
Glacier Bancorp, Inc. misses on earnings expectations. Reported EPS is $0.55 EPS, expectations were $0.61.
Operator Good day and thank you for standing by. Welcome to the Glacier Bancorp First 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, Mr. Randy Chesler, President and CEO of Glacier Bancorp. You may begin.Randy Chesler All right, thank you, Catherine, and good morning, and thank you all for joining us today. With me here in Kalispell this morning is Ron Copher, our Chief Financial Officer; Don Chery, 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 10 of our press release and we encourage you to review this section.The failure of Silicon Valley Bank and Signature Bank last month created a lot of concerns about the banking industry.
Overall, I’m pleased to report the Glacier team did an excellent job managing through the rapidly changing environment over the past few weeks, and we believe our unique business model weathered the storm very well. Our local relationship based approach to community banking proved to be extremely stable.Our 17 separate and distinct bank brands operating in 222 locations across eight Western states provided further insulation from the events unfolding outside our markets. Deposits grew during March, which was when the banking crisis started, and was the period when the system was under the most stress. While many customers were concerned about safety of their deposits, talking about it with their banker who they know and trust resolved most of the concerns.Our deposit base has a high degree of balance and granularity.
We have over 600,000 retail accounts with an average balance of 14,000; over 150,000 commercial accounts with an average balance of 63,000. These relationships are spread out over eight states, 75% in rural markets, and 25% in metro markets with about 60% of the accounts with us over five years.Our liquidity is strong with close to 15 billion available through multiple channels. And this quarter we tested most of these channels, confirmed their operational status and ability to provide us with ready liquidity. Out of an abundance of caution, we used our liquidity to increase available cash to over $1 billion, so we had more than enough cash on hand if needed.We don’t have a significant amount of uninsured deposits, only about 32%, totaling $6.4 billion.
If you remove public funds that are collateralized with high quality investments from this number, it’s closer to 26%. We have more than enough ready liquidity to cover in excess of 100% of these balances and still exceed regulatory minimum capital requirements.Our investment portfolio is structured to be shorter in duration and to generate cash flow. As a result, this portfolio produces enough cash to finance our expected lending growth. And in the event we wanted to sell these investments to reduce borrowing, the current after tax unrealized loss on both the held-for-sale and held for investment portfolios totaling $685 million could be absorbed by a capital which would still exceed regulatory minimums.Our capital levels are strong and growing with CET1 increasing 13 basis points from the prior quarter to 12.47%.
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. Credit continues to perform at record levels and we see little signs of deteriorating credit. There’s been some concern about commercial real estate exposure in the industry, primarily in larger cities. Our commercial real estate portfolio is primarily comprised of small properties outside of the city centers with an average loan amount of $600,000. While there are a number of headwinds impacting the banking industry, we are optimistic about the current position of the company. The markets in which we have a presence are among the strongest economies in the U.S. We have ample liquidity and a balance sheet that now has a bias towards being more liability sensitive, a very high quality loan portfolio, a proven banking model, and M&A expertise that is primed to take advantage of this current environment.Some of the specific highlights for the first quarter include stockholders’ equity of $2.9 billion, increased $83.6 million or 3% during the current quarter.
Tangible book value per common share of $17.16 at the current quarter end increased $0.76 per share or 5% from the prior quarter or [7.6 – 7 cents a] (ph) share, excuse me.Interest income of $232 million in the current quarter increased $6.8 million or 3% over the prior quarter and increased $41.4 million or 22% over the prior year first quarter. Total deposits and retail repurchase agreements of $21.3 billion at the end of the current quarter increased $289 million or 1% during March and decreased just $213 million or 1% during the current quarter. The loan portfolio of $15.5 billion, increased $272 million or 7% annualized during the current quarter. The loan yield for the current quarter of 5.02%, increased 19 basis points, compared to the prior quarter and increased 43 basis points from the prior year first quarter.New production yields for the quarter were 6.96%, up 62 basis points from the last quarter.
Available liquidity of $15.1 billion including cash, borrowing capacity from the Federal Home Loan Bank and Federal Reserve facilities, unpledged securities, brokered deposits, and other sources.Credit quality continued to improve to record levels. Non-performing assets as a percentage of subsidiary assets was 12% or 0.12 basis points in the current quarter and – in the current quarter and compared to 0.24% in the prior year first quarter. Net charge-offs as a percentage of loans was one basis point.The company declared a quarterly dividend of $0.33 per share in the quarter, and the company has declared 152 consecutive quarterly dividends and increased the dividend 49 times. Core deposit funding of $20 billion, almost 85% of total funding liabilities ended the quarter at a cost of 23 basis points versus eight basis points in the prior quarter.
Noninterest bearing deposits were 35% of core deposits at quarter end compared to 37% in the prior quarter.We expect deposits to perform more consistent with historic growth trends going forward with some growth in the second quarter and second and third quarters of the year, followed by some outflow in the fourth quarter. Competition for deposits and the cost to attract and retain them will continue to increase. And we still anticipate borrowings to slowly decline throughout the year and plan to fund our growth for 2023 primarily by using the quarterly cash flow from our investment portfolio.So we remain confident in the dynamic western markets we serve and our unique business model to continue to deliver strong results. The Glacier team did another excellent job in the first quarter.
Despite the market turmoil, they once again kept their focus on shareholders, customers, and communities. So that ends my formal remarks and I’d now like Catherine to open the line for any questions that our analysts may have.
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Question-and-Answer Session Operator Thank you. [Operator Instructions]
Our first question comes from David Feaster with Raymond James. Your line is open.David Feaster Hey, good morning, everybody.Randy Chesler Good morning, David.David Feaster Maybe if we could just start talking about on the deposit flow side, some of the drivers this quarter, I know last quarter flows are primarily isolated to some of the top 100 clients or so, was that the case again this quarter? Are the outflows – how much, could you – maybe just talk about to how much is just from normal seasonality versus clients paying down higher costs debt or capital purchases or some of the retail borrowers looking for higher rates versus actual fallout from the recent bank failures?Randy Chesler Sure.
Yes. So obviously, we’ve spent a lot of time looking at deposits and studying inflows and outflows. Byron has done a lot of analysis there. So I’m going to hand it over to Byron to kind of walk you through your responding to some of your questions. So, Byron, go ahead.Byron Pollan Sure, David. Appreciate the question. So when we look at our deposit flows, one of the things that I’ll include when we talk about a core deposit flow, I’ll be including repo, our retail repo in this discussion. Those retail repo accounts are not wholesale funding, they are collateralized accounts. These are our customers. They are core relationships. So when I think of core relationship account, I’ll be including retail repo in this discussion. So in the quarter, our core deposits and repo declined roughly $600 million.
That was a tremendous improvement over the decline in the fourth quarter. And what I’ll do is I’ll break this down between the month and kind of track and give you a sense for what happened in January, February, March.So more than 90% of that $600 million outflow happened in January. This was purely rate driven. This was kind of a continuation of what we saw in the fourth quarter. We did adjust our pricing and retention strategies toward the end of January and became much more proactive in defending those balances. And so once we did that, our deposit and repo balances stabilized in February. And in the month of March, our core deposits and repo balances actually grew. And that was in – that was in the face of all that noise and volatility that happened in March with all the noise from Silicon Valley Bank.So our divisions did a fantastic job of stabilizing deposits in February and actually growing deposits in a very difficult environment.
Now, you’ll see the impact of that show up in our cost of deposits. They’re on the rise and clearly going up. So, we do – we did see some normal seasonality that’s typical for us to see some outflow in the first quarter. I would say that was kind of accelerated by some rate drivers in January. We put a stop to that in February and actually grew in the month of March. So hopefully that addresses your question.David Feaster Yes, no, that’s very helpful. I guess, have you seen that trend persist here early into the second quarter? Have you seen core deposit balances continue to grow? Just curious what the early read is, in early into the second quarter?Byron Pollan Very typical tax related flows. So had a little bit of increase first couple weeks of April, and then some outflows related to tax payment.
So nothing outside the ordinary from what we typically see in April.David Feaster So I guess maybe just how do you think about the deposit trajectory from here? It sounds like maybe April’s – a little bit more outflows from seasonal tax issues. But I mean, do you think core deposit balances are kind of at a trough? Or would you expect, how do you think it plays out through the course of the year? And ultimately, how do you think about the timing of some of the balance sheet and the pay downs of the borrowings?Byron Pollan Yes, I would, trough is a good word right now. I think that’s right. I think from here we’ll probably revert back to some of our normal historic flows. Summertime is really strong for us on the deposit front. Fall is still pretty good.
And then as winter sets in, we see some outflows. So I would look to or I would anticipate some of those kind of seasonal factors influencing our deposit balance. If you look at a typical year for us where we grow somewhere in the range of 3% to 5%, given headwinds, I would put us at the low end of that range. And so if I had to put a number on it between now and the end of the year, potentially we could grow 2% would be my estimation.David Feaster Okay. And then, so just again, thinking about some of the balance sheet side, obviously, we built up some excess liquidity. How do you think about maintaining that liquidity and just thinking about some of the other dynamics, with the cash flows from the securities book, predominantly funding loan growth, probably don’t start and 2% deposit growth, like we were just talking about, probably don’t really see the borrowings come down in earnest really until 2024 or maybe early, late in the year.
Is that kind of the right way to think about it?Byron Pollan I think so. As Randy mentioned, we built a cash balance out of an abundance of caution. I think things are starting to settle down. You could see us release some of that cash that would help us pay down some of this wholesale funding. And then, as you pointed out, the cash flow off of the securities portfolio continuing to fund our loan growth. So just a little bit, I could see maybe if we release some of this cash that could put a dent in our wholesale funding, but then it’s just chipping away from there through the rest of the year.David Feaster Okay. And could you remind us of the securities cash flows, I think we talked about $300 million. Is that still the right pace?Byron Pollan Yes, I think I’m still comfortable with that number for quarterly for the rest of the year.David Feaster Okay.
