Glacier Bancorp, Inc. (NYSE:GBCI) Q1 2024 Earnings Call Transcript

Glacier Bancorp, Inc. (NYSE:GBCI) Q1 2024 Earnings Call Transcript April 19, 2024

Glacier Bancorp, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by, and welcome to the Glacier Bancorp First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [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.

Randy Chesler: All right. Thank you, Jonathan, and 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; 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 is 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 longer period of interest rates and that environment is good for the company as our 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 and increased 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 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. Non-performing 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 have 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 have divisional branch leadership and a good knowledge of the customers. This transaction includes high-quality deposits and loans and a great team of employees, too. 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 156 quarterly dividends and has increased the dividend 49 times. 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.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of David Feaster from Raymond James. Your question please.

David Feaster: Hey, good morning, everybody.

Randy Chesler: Good morning, David.

David Feaster: Maybe just starting on the margin. You were able to — like you talked about, drive the core margin higher quarter-over-quarter. You’ve been pretty vocal about calling the bottom and were 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 this higher for longer environment. And just remind us expectations for the benefits of each freight cut if they do arise.

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 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 pushback 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 coming in at the low end of our previous guide. That’s a $280 million, 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 and that is with non-interest bearing migration. If we can — if we see some outflow in our non-interest 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, could you talk about the trends that you saw in the quarter, especially on NIB and core deposits and how that progressed throughout the quarter? And just kind of the early read on the second quarter so far, and just how you’re thinking about core deposit growth as we enter into seasonally stronger months?

Byron Pollan: Sure. Yeah. Non-interest bearing balances did — we did on a core from an 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 a slight growth in February and March. Again, with the acquisition of Wheatland, they brought in $250 million of non-interest bearing balances. That was a significant boost to the balance sheet. I do think we could continue to see some additional outflow in future quarters. For example, we do see some tax — seasonal tax outflows this time of year. So that’s something that we’ve seen so far in April, that’s consistent with prior years as well. Overall, in terms of core deposits, I do think we could see a little bit of outflow in the second quarter.

I do think we will be returning more towards 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 of outflow. So I see overall kind of getting back to some of the normal seasonality that we see year-to-year and so that’s — I think that’s a positive for us. Overall, in terms of where I see the balance ending, I think we’ll end up — at the end of ’23, pretty close to where we ended, and this is organically close to where we ended the year — last year with growth coming from the acquisitions of Wheatland and the branches.

David Feaster: Okay. That’s really helpful color. And then maybe just last one for me. Touching on credit. I mean broadly, credit remains pretty benign. You guys are aggressive managers of 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, what you’re watching more closely and your thoughts on credit as you stretch your book.

Tom Dolan: Yeah. Like you said, the increase this quarter was primarily one relationship. We should have some resolution this quarter — second quarter on that transaction. More broadly on the portfolio, we’re not seeing any specific industry, asset class or geography 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 we just continue our strong discipline in credit risk management.

David Feaster: And so that credit, what industry was it in? And it sounds like you’re expecting a resolution with no losses or anything pretty quickly?

Tom Dolan: Yeah. The industry that is in hospitality and the — what’s behind it, it’s really more like an RV cabin type structure. And it’s — the sponsor is just involved in some other transactions and that are coming out of the ground and so instead of 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 trend this summer.

David Feaster: That’s great color. Thanks, everybody.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Kelly Motta from KBW. Your question please.

Kelly Motta: Hey, good morning. Thanks for the question.

Randy Chesler: Good morning, Kelly.