Glacier Bancorp Inc
NYSE:GBCI
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Earnings Call Analysis
Q3-2023 Analysis
Glacier Bancorp Inc
The company's financial maneuvering is quite proactive in terms of loan management. Annually, about 20% of their loan portfolio either matures or undergoes repricing, which incorporates a significant variable rate component—amounting to 90% of loans. This helps the company stay nimble in reacting to interest rate trends. Additionally, about 11% of the 20% comprises adjustable-rate loans, which adapt to rate changes, not on a floating basis but on a fixed adjustment frequency, such as every five years.
Deposit growth this quarter was robust and future increments are expected to reflect the recent quarters with a strong inclination towards Certificate of Deposit (CD) balances. With CDs being a product in favor, they've strategically priced them across their markets, with most new CDs yielding between 4% to 5% to stay competitive.
The company's deposit beta position, which reflects the sensitivity of deposit costs to changing interest rates, is targeted to stay around 25% through the cycle. Signs of cost leveling and stabilization are evident as they head into the final quarter, suggesting net interest income figures close to those of the third quarter. The margin for the next quarter is not expected to deviate largely from current levels, indicating a period of financial stability.
Looking into the merger and acquisition (M&A) landscape, the company is optimistic. They believe that there are fewer active players than before, which positions them favorably given their experience in this arena. Current conversations around M&A are not at the levels seen pre-pandemic, but banks are contemplating their strategic options in light of a 'higher for longer' interest rate environment, potentially leading to more M&A discussions as some entities may prefer not to wait for market conditions to improve. The company expects 2024 to reveal whether this sentiment converts into more substantive M&A activity.
Facing a situation where the market 10-year rate is over 5%, which might spur more deposit movement, the company has geared itself more towards retaining and expanding their deposit base. Initially cautious, they now perceive a clearer long-term interest rate scenario and prioritize holding onto current customers rather than letting deposits slip away and having to reacquire them later.
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Good day, and thank you for standing by. Welcome to Glacier Bancorp's Third Quarter Earnings Conference Call. [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, Randy Chesler, President and Chief Executive Officer of Glacier Bancorp. Please begin, sir.
All right. Thank you, Norma, 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; Don Chery, our Chief Administrative Officer, is on the road today visiting our Mountain West division.
I'd like to point out that the discussion today is subject to the same forward-looking considerations found on Page 12 of our press release, and we encourage you to review this section.
So we released our third quarter earnings after the close of the market yesterday, and the Glacier Bancorp team delivered another strong quarter. Net income was $52 million for the current quarter, and we generated earnings per share of $0.47. The Net interest income ended the quarter at $167 million. Pretax, pre-provision net revenue came in at $68 million. Interest income of $265 million in the current quarter increased $18 million or 7% over the prior quarter and increased $51 million or 24% over the prior year third quarter.
The current quarter interest expense of $98 million increased $23 million or 30% over the prior quarter.
Our net interest margin as a percentage of earning assets on a tax equivalent basis was 2.58% for the current quarter compared to 2.74% in the prior quarter. And although the net interest margin has been negatively impacted by the increase in interest rates in the current year, we experienced a slower pace in the decline in the net interest margin during the current quarter. We like the positive trends on our interest income and expect some moderating trends on interest expense at this point and believe this sets the stage for margin growth in 2024.
During the current quarter, the team continued to focus on our diversified deposit and repurchase agreement products.
Total deposits and retail repurchase agreements of $22 billion at the current quarter end increased $530 million or 10% annualized during the current quarter. With the increased core deposits, we allowed $411 million of higher-cost wholesale brokered CDs to mature and not renew. Excluding these wholesale deposits, core deposits and retail repurchase agreements increased $941 million or 18% annualized during the current quarter.
Noninterest-bearing deposits increased $7 million over the prior quarter, representing 32% of total core deposits at quarter end. We're very pleased to see the strong deposit growth driven by all of our divisions. Our teams were able to leverage their strong existing relationships and market presence to achieve these impressive results.
Total noninterest expense of $130 million for the current quarter decreased $1 million or 79 basis points over the prior quarter and decreased $484,000 or 37 basis points over the prior year third quarter.
Our divisions continue to show great judgment in managing people and hiring positions only as needed and containing costs in other areas.
The current quarter provision for credit loss expense was $5.1 million, which is a decrease of $160,000 from the prior quarter and a $3.3 million decrease from the prior year third quarter. The percentage of provision to loans was essentially flat to the last quarter at 1.19%.
Our credit performance continues to be excellent. Nonperforming assets to bank assets of 15 basis points was little changed from last quarter as was net charge-off to average loans, which ended the quarter at only 4 basis points.
Early stage delinquencies of $15 million at the end of the quarter decreased $10 million from the prior quarter and decreased $6 million from the prior year-end. Early-stage delinquencies as a percentage of loans at September 30 was 9 basis points compared to 16 basis points for the prior quarter and 14 basis points for the prior year-end.
The loan portfolio of $16 billion increased $180 million or 5% annualized during the current quarter with the largest dollar increase in commercial real estate, which increased $72 million or 3% annualized.
New loan production yields were 7.92%, up 55 basis points from the last quarter. Overall, the portfolio loan yield of 5.27% in the quarter increased 15 basis points from the prior quarter loan yield of 5.12%. Noninterest income for the quarter totaled $30.2 million, which was an increase of $1.2 million or 4% over the prior quarter.
We added over 3,000 new retail and business accounts in the quarter with over $360 million in new relationship deposits. We declared a quarterly dividend of $0.33 a share. Glacier Bancorp has declared 154 consecutive quarterly dividends and has increased the dividend 49x, and we announced the signing of a definitive agreement to acquire Community Financial Group, Inc., the parent of Wheatland Bank, a leading Eastern Washington community bank headquartered in Spokane, Washington, with total assets of $763 million as of September 30. This will be our 25th acquisition since 2000.
We've already received some of our regulatory approvals for this transaction and expect to close as we previously indicated, by this year-end.
Our capital levels are strong and growing with estimated CET1 increasing 13 basis points from the prior quarter to 12.55%. 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.
So with that, we remain confident in the dynamic Western markets we serve and our unique business model to continue to deliver strong results.
So Norma, that ends my formal remarks, and I'd now like you to open the line for any questions that our analysts may have.
[Operator Instructions] And our first question comes from the line of Matthew Clark with Piper Sandler.
Just a few questions around the margin to start and try to get some visibility going into the next quarter. Do you have the spot rate on deposits at the end of September and then the average margin in the month of September?
Byron, do you want to take that?
Yes, Matthew, this is Byron. The spot rate at the end of September for total deposits was $117 million. The margin for the month of September was $259 million.
Okay. Okay. Great. And then the BTFP comes due in March, I think it's about $2.7 billion. What's your plan on that front? Obviously, you added some cash or build some cash this quarter. Is that the plan to continue to accumulate cash and pay the whole thing off? Or do you expect to refi some portion of it?
Yes. Right now, we're creating options for ourselves. And I think we're in a very good position, as you noted, with that level of cash over $1.7 billion in cash. So we're evaluating our options, looking at other funding alternatives. And really, at this point, Matthew, our main goal is to get us in a good position to take care of that. So we'll see how we -- what kind of position we are at that time. But certainly, our goal is to bring that down at what level that remains to be seen.
Okay. And then shifting gears to expenses. Any updated thoughts on the run rate outlook here for 4Q? And into...
Ron here, Matthew. Yes. So the guide will be $132 million to $134 million and we feel very comfortable with that as an estimate. Fourth quarter, typically, we've got some cleanup and just leaving room for that as well.
Okay. And then the uptick in nonperformers. I know it's coming off a small base, and it's only $10 million, but any color around what drove that increase in terms of the types of borrowers and geography and kind of plans to resolve them?
Sure, Matthew. This is Tom. Yes, as you said, start off of a low number, so [indiscernible] that's going to move the needle. Really, what this quarter was about was really just a business-as-usual situation, just the ongoing ebb and flow of NPAs. There's no common theme. And both of them are nonowner CRE. One's the student housing, the other one is self-storage are really the larger drivers.
Question comes from the line of David Feaster with Raymond James.
Maybe just touching on the core funding side. It's great to see the stabilization in the noninterest-bearing deposits. Obviously, seeing a decent amount of growth in the interest-bearing side. I'm just curious maybe if you could help us understand some of the underlying trends that you're seeing on the core funding side. and where you're having the most opportunity to drive core deposit growth? And then just digging into the new account growth, where are you having success driving those -- attracting new relationship clients today?
Yes. Let me take a shot at that, and we'll see then if Byron wants to add. So the core funding, no, we're very, very happy to see the growth that we put forth in really, at the core, it's back to the divisions and the model. They've got the relationships. They've got the customers, and I think we saw a lot of existing customers just moving deposits back into our banks from other places. So we're very, very pleased to see that. I think that's very positive. We don't have to go too far outside of existing relationships that show the kind of growth that we did.
In terms of new, very happy with that as well. we still are seeing a decent amount of in-migration. And then as we build scale in a lot of our markets, becoming the largest institution or one of the larger institutions delivering really good service as some competitors take their eye off the ball, it just creates an opportunity for us to bring new people in.
And as you know, Dave, we have a machine really that we focus on, meaning all our divisions, the one thing -- one consistent theme across all of them is the drive for good quality new customers in the marketplace. And they've got a pretty good process to do that.
So starts with taking care of existing customers and bringing more of those relationships back to our balance sheet. And then we also continue to have a fairly robust new account strategy that's working well for us.
That's great. And then maybe following up on the margin commentary. I'm just curious, how do you think about -- look, it's increasingly likely, it seems like that we're going to be in a higher for longer environment. I'm curious how you think about the margin in the NII trajectory as we look forward in a higher for longer environment. I mean funding pressures probably persist near term. It seems like given the larger balance sheet, maybe we can see NII stabilize and maybe a bit of margin compression into the first or second quarter of next year. But I'm just curious, if rates do stay high, how do you think about the margin and the NII trajectory as we look forward?
Yes, David, this is Byron. I can address that. I think higher for longer sets up really well for us. We're already seeing signs of slowing deposit cost increase. And so that's going to be very helpful. Every month, we have loans that are repricing higher into this rate environment. We're getting the remix of cash flow from investments into loans. And with the pace of deposit cost increase slowing, we're -- I think that's going to be helpful long term for the margin. And as that deposit cost really levels off, I think we'll see growth next year, as Randy noted in his comments in '24.
The timing of that, we're still trying to pin down. We're right in the middle of our budgeting process. And so a lot of it has to do with our outlook for growth in loans and deposits. A lot of it happens -- is dependent on the Fed and what the Fed does. Do they need to get more aggressive in order to really stem inflation, we'll have to see. But I am very optimistic about the trajectory for margins in the higher for longer environment.
Okay. That's terrific. And then last one for me. I'm just curious, maybe touching on the loan demand side. What are you hearing from your clients? What's the pulse across your footprint? How is the pipeline shaping up as we head into the fourth quarter? Where are new loan yields? And then especially just digging into the CRE side. I'm curious where you're seeing good opportunities there? And what type of deals still pencil at these higher rates?
Yes. I think I'd just say overall, and I want Tom to fill in the details. But overall, the rates are getting to a point where it's starting to reduce loan demand and customers still feel I think, relatively confident. But at these rates, they're really rethinking some of their projects, not all of them, but we are seeing a deceleration in the incoming business. Tom?
Yes. The only thing I'd add to that is -- certainly, it takes a lot more cash equity to make deals pencil at these interest rates than they did a year ago. And so we're -- the pipelines are off from the last couple of quarters, certainly, they're off from last year, relatively stable in just the last couple of months. And as Randy said, we're still pushing kind of that just shy of 8% even on the CRE side. But what we're seeing is the deals that come through generally are coming in with more cash equity at the front of it.
Our next question comes from the line of Jeff Rulis with D.A. Davidson.
I wanted to check in on the -- I guess, the pace of the decline in the wholesale or the kind of the brokered CDs, was that sort of spread pretty evenly across the quarter? You came in close to $500 million and you're down to under $100 million. So I just wanted to see if that was pretty steady throughout the quarter if it was kind of lumpy?
The decline in brokered was -- mostly happened in July. So the bulk of that happened in July with a little bit of follow-on in August and September.
I see. Okay. So you probably captured a decent amount of that benefit in cost of funds? Or just trying to get a sense for, Byron, as you range-bound these variables into timing, and I know that I respect the still working on the timing, but a bottom of the margin in the fourth quarter, all things being equal, would you be surprised if that is the bottom in Q4?
It's possible. I could see scenarios where that happens, but there are risks to that as well. On one hand, as Randy mentioned, we are building cash that's accretive to NII, but it does weigh on margin. Again, we -- it kind of depends on what the Fed does. The Fed have to get more aggressive.
Also, very helpful to margin was the stabilization of our noninterest-bearing balances. If we see some additional runoff there, that could put some pressure on margins. So I could see a scenario where we do see a bottom in the fourth quarter, but there are a lot of variables at play that we still have to see how that play out.
Okay. And you said the September average was $255 million?
I'm sorry, what are you asking?
September margin average?
The September margin was $259 million.
Okay. I appreciate it. And then just a couple of housekeeping, Randy, on the Wheatland close, again, for -- by year-end, does it seem more back into the quarter or just specific timing?
Well, we're still getting the regulatory approvals, but we're being conservative towards the end of the year. Back end, yes, that's probably more likely.
Got it. And last one, Ron, you touched on expenses for Q4. Look, it's been a phenomenal year from a like expense standpoint. I don't know what that means for '24. You've really held the line. I don't know if it's -- you continue to find efficiencies. But if you could hazard a thought on '24 expense growth?
Let me -- we're in the middle of budgeting and I don't want to get ahead of the team and what I think. But -- and thank you for recognizing the hard work that's been done. We could see that, that approach will continue into 2024. We're very focused on head count, FTE and realizing more -- even more of the technology, the operating efficiencies that are coming along with that.
Our next question comes from the line of Kelly Motta with KBW.
It was nice to see the deposit growth this quarter. I believe some of that was seasonal inflows. Do you have a sense of kind of just how the -- on dollar contribution, how much that was? And as that flows out, how that -- we should be thinking about the dollar amount of NII? Would you expect that to trend lower off of this Q3 level?
Yes, I can speak to the seasonality. So yes, we had great progress growing deposits in the third quarter. Some of that was driven by seasonal strength that we typically see during the summertime. Some of that was -- some of that growth was also helped by our pricing strategy. I would say what's really encouraging is that the growth that we realized in the third quarter was based on a lower overall pace of cost increase than in the second quarter.
To pin it down, it's really hard to tease apart how much of that growth to quantify with seasonal versus rate, probably I would guess is the half of that was from a seasonal perspective, the other half being from other dynamics that Randy noted in his prepared comments.
Can you remind us just with the seasonal trends? I know that the summer is usually strong. Just -- does that mostly outflow in Q4? Or does that kind of come through the over the next couple of quarters tend to triple out. Like can you just remind us kind of the dynamics of what we should be thinking about there as well as are you holding any cash against that, that kind of boosted your securities yields mixed in there this quarter. Just trying to get thoughts around the dynamics about what the security deals will look like if that cash kind of comes out with the seasonal deposits and just overall, the timing of that more broadly?
Sure. From a seasonal perspective, fourth quarter is a little bit of a mixed bag. I think we have some strength kind of in the first half of the quarter and then [indiscernible] that in the back half of the quarter. Overall, I could see deposits coming in maybe flat to slightly up in the fourth quarter.
In terms of securities, that cash flow continues to come up with a portfolio. It is looking like that cash flow, we anticipate being closer to $250 million per quarter now. Previously, we were seeing a little bit stronger growth. The portfolio is in runoff. And so those cash flows have come down a little bit. But from that perspective, you asked, are we holding any cash against any seasonal outlook. I don't think we're -- I'm not expecting seasonal outflows to require any of our cash balance at this point.
And Kelly, just the drivers there, we have tourism as a thread that runs through all of our markets and a lot of our customers are banking reserves up in the third quarter. And then they live off that in the fourth quarter, so to speak. And so that's why generally, we're flat to sometimes down. And I think some of that's also going to be driven by what happens in the fourth quarter here. If we have a government shutdown, that's going to create some probably some more demand for cash than we would expect. So we're just in a volatile environment. But the usual, as Byron note, is usually a flat fourth quarter.
Just kind of a high-level question. Are there any markets that are performing particularly well as of late versus others that might be slower and ones that you might be watching more closely? Just interested, since you guys do cover much of the West wondering about what you're seeing on the ground there?
Yes. In the 8 states, so from Montana down to Arizona, I would say it's pretty even across all our states. Arizona continues to have a very, very strong economy. But we also see continued growth in Idaho, Utah, Colorado. And so just all doing well, I think the same trends that drove the growth prior to the pandemic are still there, lower cost of living, higher quality of life, little business-friendly environments, still pulling in, we're still seeing the immigration and I think good economic activity as well despite kind of amazing if you think about all that external headwinds outside the banking industry, still seeing a fair amount of optimism and growth.
Our next question comes from the line of Brandon King with Truist.
Yes. So loan yields uptake pretty materially compared to my expectations. So I just wanted to get a sense of are you expecting a similar type of increase in loan yields for the next couple of quarters?
Yes, Brandon, this is Tom. Not to the same level. I wouldn't expect that. I think we're starting to near kind of the top of the new production yield curve. And as Randy mentioned earlier, they're at a level now that it's starting to impact the pipeline and demand.
Okay. And then as far as loan repricing, could you give us a sense of how much is repricing near term? And of back book levels and this is already missing new production rates, but I just wanted to get a sense of what you have in the repricing pipeline.
Yes. So every year, the -- in the totality of the portfolio, about 20% either returns or reprices. That does include the variable rate, which represents 90% of loans. So that's -- and that's what we're continuing to see in actuality as well.
Okay. And that adjustable portion, how much is that portion you mean?
The -- I'm sorry, the -- are you asking the floating portion like of the [indiscernible].
The adjustable rate portion that...
So that would be 11% of the $20 million.
Okay. Okay. So not floating, but kind of fixing and adjusting every 5 years or so. Yes. Okay. Okay.
Our next question comes from the line of Andrew Terrell with Stephens.
I appreciate all the color on the deposit kind of expectations. It was good to see the growth this quarter. I was just curious, for the incremental or the mix of the incremental deposit growth that you would expect, would you expect that to look similar to 3Q, so a heavier tilt towards CD balances. And then -- can you just maybe talk to us a little bit about your CD pricing strategy? Where are new time deposits or where did new time deposits come on at during the third quarter?
Sure. I can touch on that. In terms of growth drivers going forward, I think should we see growth, it probably looks similar to what we saw in the third quarter. In terms of kind of product mix, CDs are clearly a very popular product right now. Pricing strategy. Each division is priced for their market. And so that's one thing that I love about our model is we can optimize to 17 different markets around our footprint. We're competitive in our pricing. I would say most of our CDs, the new CDs that we're bringing in are somewhere in the range of 4% to 5%.
Got it. Okay. And then just wanted to revisit the deposit beta guidance last quarter, I think the expectation was revised to a 25% kind of through-cycle beta expectation. Is that still in the cards? Or do you think we could see some incremental pressure to that 25%?
Right now, I see it as we're still on track to hold to the 25%. I mentioned the declining pace of cost increase. I think we're right on the path right now. So very encouraged by signs and the progress that we've made so far. We did see some meaningful increase second quarter, third quarter, but that cost increase is really leveling out. And so if we're able to hold on that path, then we're right on track for 25% through the cycle beta.
Yes. Okay. And then just I wanted to kind of ask the margin question maybe a different way because I know the margin is going to be influenced by some of the cash that was put on this quarter and presumably maybe a little bit of cash build going forward. But in terms of net interest income dollars, would you expect that 3Q was the trough in NII? Or could we see maybe some leveling off again in the fourth quarter before NI starts to grow throughout 2024 in line with kind of some of your margin commentary?
I would -- I think leveling off is the right -- is probably the right word. Stabilization, we've seen some encouraging signs of stabilization. And so I would think we'd probably see fourth quarter come in really close to where we came in, in the third.
Okay, if I could ask one more for Randy. Maybe just wanted to get your updated thoughts on the M&A landscape as we sit today, and I know you've got a current deal pending that sounds like it will close by end of the year. But as we move into 2024, just how you're thinking about M&A as a strategy for Glacier?
Yes. Well, we're very optimistic. I think -- and we're optimistic because probably the number of people who can really act -- as a number of companies can really actively pursue it is probably less so than in the past. So I think that that's positive for us given our experience in it. We do have -- I think the activity is still about the same. It's -- there are discussions. It's not at the level that it was a year ago or, I'm sorry, 2 years ago, pre-pandemic. And it's -- but there are good discussions.
I think as banks look at their balance sheets and think about higher for longer, that's going to drive a fair amount of discussions about the future and how long some banks are willing to wait for things to turn positive for them versus looking at some other options. And there's a lot of really good banks out there, I think, asking those questions.
So we're optimistic. I think we have to get into '24 and see if that pans out. But at least at this point, we don't see a title wave of deals, but we do see slow and steady conversations with, I think, some very good banks. So we're encouraged by that.
Congrats on a good quarter.
[Operator Instructions] I have a follow-up question from Matthew Clark with Piper Sandler.
Okay. Yes, just a couple more around margin. September margin was above the quarterly average. And I just wanted to get a sense for if there was anything unusual in there? Any purchase accounting accretion or kind of accelerated purchase account accretion or anything lumpy that we should -- that we can strip out and try to normalize for that trend?
No, I don't think there was anything unusual in the month of the quarter that would stand out.
Okay. And then on just back to the deposit beta conversation through the cycle, we get a 5 handle now on the 10-year, which I'm assuming might wake up some people. Can you just talk through your strategy and how you might handle people looking to gravitate or kind of resume that trend that we saw earlier this year? Are you willing to pay up? Or will you let some of that money go?
Yes. No, that's going to be interesting. You're right about these inflection points. 4% was a big wake-up call. 5%, just don't know how much of the anxious money has moved. And I would say the bulk of it is already positioned. But there's all -- that will create some more reflection, no doubt about it. If it sticks and grows, from there.
I think we're firmly in the mode of retaining and growing deposits now. We initially were slow to react because we wanted to see where this is going to play out. But we feel like it's a pretty clear picture. Now I think higher for longer is very likely and it's easier to retain the customers you have and let them go and try to bring them back later.
At this time, I'd like to turn the conference back to Mr. Randall Chesler for closing remarks.
Okay. Thank you, Norma. We appreciate everybody dialing in, having a conversation about how the quarter went, very happy with it, and we hope you all have a great Friday and a great weekend. Thank you.
This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.