Glacier Bancorp, Inc. (NYSE:GBCI) Q4 2023 Earnings Call Transcript

Glacier Bancorp, Inc. (NYSE:GBCI) Q4 2023 Earnings Call Transcript January 26, 2024

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Operator: Good day, and thank you for standing by. Welcome to Glacier Bancorp’s Fourth 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, Mr. Randy Chesler, President and Chief Executive Officer of Glacier Bancorp. Mr. Chesler, please begin.

Randy Chesler: All right. Thank you very much. Sorry for the technical difficulties. I think, we’re ready to go. So, 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 found on Page 14 of our press release, and we encourage you to take a careful review of this section. We released our fourth quarter and full year 2023 earnings after the close of the market yesterday, and the Glacier Bancorp team wrapped up a challenging year with a very strong quarter.

We achieved earnings per share of $0.49, which increased $0.02 per share from the prior quarter. Net income was $54.3 million for the current quarter, an increase of $1.9 million, or 4%, from the prior quarter. Interest income of $273 million in the current quarter increased 8.6 million, or 3%, over the prior quarter. Net interest margin on a tax equivalent basis was 2.56% versus 2.58% in the prior quarter, our smallest quarterly decrease this year. Total non-interest expense of $132 million for the current quarter, including a one-time $6 million FDIC special assessment, increased only $2.6 million, or 2%, over the prior quarter. The portfolio loan yield of 5.34% increased seven basis points from the prior quarter. New loan production yields were 8.24%, up 32 basis points from the last quarter.

Non-performing assets to bank assets decreased $16.7 million, or 39% from the prior quarter to 9% or nine basis points of assets. Net charge-offs to total loans ended the year at only six basis points. Provision expense for the quarter was $3 million, which was stable, compared to the prior quarter provision expense of $3.5 million. The allowance for credit losses, as a percentage of total loans outstanding at year-end was 1.19%, flat to the prior quarter, and relatively unchanged, compared to the 1.2% in the prior – year fourth quarter. While the industry saw a significant outflow of deposits during the year, the company’s core deposits and retail purchase agreements only decreased $108 million, or 50 basis points from the prior year-end. The company ended the year with $1.3 billion in cash, which was an increase of $952 million over the prior year-end.

Stockholders’ equity of $3 billion increased $146 million for the quarter, or 5%, and increased $177 million, or 6%, over the prior year-end. The company declared a quarterly dividend of $0.33 a share, and the company has declared 155 consecutive quarterly dividends, and has increased the dividend 49 times. And we received all regulatory approvals for the acquisition of Wheatland Bank, a leading Eastern Washington community bank headquartered in Spokane, with total assets of $728 million as of the end of the year. This will be our 25th acquisition since 2000, and we will close the transaction on January 31. We welcome the Wheatland team to Glacier Bancorp. Despite the significant volatility in the banking industry in 2023, with two of the largest bank failures in history, depositors’ fear of bank safety and historic interest rate increases, the Glacier team did an excellent job taking care of customers and communities across the West, and ended 2023 well-positioned for a strong 2024.

So that ends my formal remarks, and I would now like Norma to open the line for any questions that our analysts may have.

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Q&A Session

Operator: Thank you. [Operator Instructions] One moment for our first question, please. Our first question comes from the line of Matthew Clark with Piper Sandler. Your line is now open.

Matthew Clark: Hi, good morning, guys.

Randy Chesler: Good morning, Matthew.

Matthew Clark: Starting on expenses, the run rate, well below the prior guidance of $132 million to $134 million. Can you speak to not only the run rate that you expect going forward, excluding Wheatland, but also maybe provide some color behind the staffing efficiencies that you gained? Just maybe speak to what exactly was done there?

Ron Copher: Yes, Matthew, Ron here. So yes, what you recognize, we’re proud to be recognized for that, but in terms of the staffing especially, but – so the guide, it was $132 million to $134 million, and if you remove the FDIC, $6 million and some M&A of $500,000 you get down to the roughly $126,000. But our compensation was down by about $6 million. And I want to normalize for that, because that included the performance-related, performance-based pay that totals about $6 million. So when you bring it all back, $132 million is basically what we came in at. And then when you look forward for the guidance for Q1, excluding Wheatland, we would be at $138 million to $140 million. And then when you add in $6 million for Wheatland, the guide for the full first quarter, $144 million to $146 million.

That should be the high for each of the quarters in 2024. It’s typical the first quarter runs high. You get the full impact of the – pay increases, the FICA tax, the employer portion kicks in. And so that’s how that reconciles there. So the FTE count has continued to migrate down, particularly in the second and third quarters. The division, the teams, the corporate departments all did an outstanding job. Continuing into the fourth quarter, we had another 20 FTE reduction. So, overall for the full year was a 96 FTE reduction. And a lot of that is attributable to the technologies that we’ve talked about, I think, on each of the calls. As we continue to implement those, think of the account opening process, cut that in half, even doing better now.

The – instead of doing end of day closing, we’ve gone to real time adjustments. That’s greatly set up that process, but construction program we added built, been very, very good. Treasury management’s making great strides. It’s all very positive. We do continue to believe that we’ll have some additional reductions in staffing. Probably not to that same degree. Remember, we’re bringing on Wheatland and they’ve got 14 branches. So, we feel pretty good about what we’re able to achieve, certainly for the year, but in particular the fourth quarter.

Matthew Clark: Okay. That’s great, thank you. And shifting gears to the margin, the three part question there. If you had the spot rate on deposits at the end of the year, the average NIM in the month of December, and then what’s your deposit beta assumption, on the way down with rate cuts at this stage?

Byron Pollan: Hi, Matthew, this is Byron. I can address that. So spot rate for total deposits in December, this is a December 31 total deposit spot rate, 1.30%. You asked for the margin, the December margin, that was 2.59%. And beta on the way down. I think what we’ll likely see, as the Fed begins to cut rates, I think what we’ll likely see is an adjustment period. Maybe a lag in customer expectations as well, as in the competitive deposit environment. I think for the first few cuts, we’re expecting a lower beta on the way down, maybe less than 10%. I think we will see some opportunities, some near term opportunities to reduce rate. Our first rate reduction opportunity will be really with a higher cost CD that, we’ve ramped up in recent quarters.

I’m thinking of our CD specials that, we have in place. We’ve kept our CD specials intentionally short. Almost 60% of our CDs mature in the first quarter. And so that will afford us an opportunity to reprice those CDs as they mature, and as market rates are falling. And so that’s our expectation. I think, it’ll take a little bit of time for the down rate beta to gain some traction. And for the first few cuts, we’re thinking less than 10% on the way down.

Matthew Clark: Okay. Great. And then on the loan portfolio, particularly within residential construction and land lots and other construction that’s come down the last couple of quarters, I assume those are just projects being completed. But maybe speak to the trend there. Is it maybe being a little more cautious on that front, or is it just tough to get things, find workers and get things done?

Tom Dolan: Yes Matt, this is Tom. Yes, the reduction in the Construction segments, that you’re absolutely right. That’s a function of projects getting completed and – moving into the perm functions, which is why you saw one to four family, multi-family, some other CRE segments lift in the quarter. In terms of volume in the Construction segments, we’re definitely seeing a reduction there, really across the board, residential and commercial construction. And I think – it’s really twofold. We are being more selective and cautious than we normally are, even more so than our existing conservative underwriting standards. But we’ve also seen customers waiting on the sidelines to get a little bit more clarity on what’s going to happen.