Glacier Bancorp Inc

NYSE:GBCI

Good day, and thank you for standing by. Welcome to the Glacier Bancorp First 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 speaker today, Randy Chesler, President and CEO of Glacier Bancorp. Please go ahead.

Well, good morning, and thank you for joining us today. With me here in Kalispell is Ron Copher, our Chief Financial Officer; Tom Dolan, our Chief Credit Administrator; Angela Dose, our Chief Accounting Officer; Jeff Meredith, our Chief Investment Officer, and joining us on the phone is Byron Pollan, our Treasurer. I'd like to point out that the discussion today is subject to the same forward-looking considerations outlined starting on Page 9 of our press release, and we encourage you to review this section.

The positive trend of margin expansion driven by lower deposit costs and higher loan yields continued in the first quarter. Expense control was solid and credit performance continued to be excellent. Diluted earnings per share for the current quarter was $0.48 per share an increase of 66% from the prior year first quarter diluted earnings per share. Net income was $54.6 million for the current quarter, an increase of $21.9 million or 67% from the prior year first quarter net income. The net interest margin as a percentage of earning assets on a tax equivalent basis for the current quarter was 3.04%, and an increase of 7 basis points from the prior quarter net interest margin and an increase of 45 basis points from the prior year first quarter net interest margin of $2.59 million. The margin has increased 5 quarters in a row, and this is the first time the margin is north of 3% in the last 2 years. We expect this trend to continue throughout the year.

The total cost of funding, including noninterest-bearing deposits of 1.68% in the current quarter decreased 3 basis points from the prior quarter. The total core deposit cost, including noninterest-bearing deposits of 1.25% in the current quarter decreased 4 basis points from the prior quarter. The loan yield of 5.77% in the current quarter increased 5 basis points from the prior quarter loan yield and increased 31 basis points from the prior year first quarter. Total deposits of $20.6 billion increased $87.1 million or 2% annualized during the current quarter. Total loans of $17 billion decreased $48 million from the prior quarter due to accelerated payoffs.

We don't expect this trend to continue and still feel good about our loan growth outlook for the year. Our customers acknowledge a certain amount of uncertainty in the economy, but most have not indicated they're going to pull back on projects. We had solid expense control in the quarter with noninterest expense of $153 million, which is just about flat to the first quarter a year ago. Noninterest income ended the quarter at $33 million, which increased 9% versus the first quarter a year ago. While our credit portfolio continues to perform at near record levels, we increased our allowance for credit loss to 1.22% of total loans from 1.19% last quarter. Now we did this out of an abundance of caution given the current uncertain economic environment.

We don't expect to see material credit deterioration in 2025 and remain optimistic about the future, but want to be prepared if conditions change. At this point, we don't expect to increase our allowance for credit loss above 1.22%. Tangible stockholders' equity of $2.2 billion at the end of the quarter increased $67 million or 3% , compared to the prior quarter and increased $147 million or 7% compared to the prior year first quarter. Tangible book value per common share of $19.28 at the current quarter end increased $0.57 per share or 3% from the prior quarter and increased $1.28 per share or 7% from the prior year first quarter. And we declared a quarterly dividend of $0.33 per share. We have declared 160 consecutive quarterly dividends and increased the dividend 49x.

The Glacier team continues to do an excellent job taking care of our existing customers and welcoming our new customers and acquisitions. In 2024, we closed and converted 2 transactions through the year. Our purchase of the Rocky Mountain Bank branches in Montana and the acquisition of Wheatland Bank in Eastern Washington, totaling approximately $1.2 billion in assets. And in the beginning of this quarter, we announced the proposed acquisition of Bank of Idaho, a $1.3 billion bank with locations in Eastern Idaho, Boise and Eastern Washington. This is a great acquisition for Glacier because it strategically expands our presence in several high-growth markets where we already have a presence. We have now received all regulatory approvals and expect to close this acquisition at the end of this month, moving from announcement to closing in under 4 months. Over the last few years, we have demonstrated that we can find good banks and good markets to partner with regardless of the broader M&A environment and quickly get regulatory approvals and move to closing with certainty.

We believe this will work to our advantage in times like the present where fewer buyers have a strong currency to offer a fair deal and the M&A experience to provide the confidence of getting the closing. So that ends my formal remarks. And now I would like to turn the call back over to the operator to open the line for any questions that our analysts may have.

[Operator Instructions]

Our first question comes from the line of Jeff Rulis with D.A. Davidson.

Just want to reorient on the margin discussion. You guys have laid it out pretty well. I think you mentioned previously you had close to $2 billion in loans repricing this year and rolling off some higher cost funding, and sort of just checking in on that structural margin progression, Randy caught your comments about momentum expected to continue, but a little more detail on the margin front would be great.

You bet. We have Byron on the phone. So Byron, do you want to talk about the margin trajectory?

Sure, Jeff, this is Byron. I would say we do continue to see growth throughout the year. all of the structural drivers that you mentioned of our upward margin trajectory are still in place. We see elevated securities runoff in 2025. We'll have more low-yielding investments maturing this year. That will help margin. We see the potential to pay down high-cost FHLB borrowings. We did pay off $280 million that matured in March. We have a little over $1 billion more maturing before the end of this year. That will be very helpful.

We have the loan repricing that you noted earlier. And we've got new loan production rates are fairly strong right now. I would say in addition to that, Bank of Idaho, that's coming on will also provide some margin lift. And so all of the structural drivers that we see are still in place. Those are very strong dynamics that will be improving our margins throughout the year. I do think it's important to point out here that our margin trajectory is not Fed dependent. All the things that I just mentioned will drive margin expansion regardless of Fed activity. So that's, I think, an important thing to understand about trajectory of our margin.

We did talk on the last call about a full year guide in the area of $320 million to $325 million I still feel very comfortable with that guide. I think we'll end up in that range, all told for the full year.

And Byron, I appreciate that. That's great. On the bank, when you referenced the Bank of Idaho deal, are you talking about both their core margin but also accretion? And I guess to clarify that, do you have the expected discount accretion? Have you released that number?

We don't have the -- all the discount accretions yet. But just ballparking it. I do think Bank of Idaho, just with their kind of core margin plus the accretion, that will be helpful. Our estimate right now, and of course, this could change once the discounts and everything come in and are finalized. But right now, I could see Bank of Idaho contributing 4 basis points of margin lift to the entire organization. So that's -- that will be very helpful.

Great. I guess, maybe check back in with Ron on the expense guide, once again, kind of on the low side. I think you've mentioned there's some variable performance-based comp that maybe the loan growth being modest, helped on that, but again, just an update on the expense.

Yes, Jeff, Ron here. I appreciate that. Just to put everybody in the same starting point, I just want to reiterate our core noninterest expense guide for 2025. It's a range of $151 million to $154 million per quarter. And as we said in the January call, skewing towards $154 million in the first quarter and then stepping down $151 million to $152 million for the remaining quarters. And for this first quarter, we did report $151.3 million but that included, as we identified in the earnings release, a $1.2 million favorable gain on the sale of a former branch, $600,000 of merger-related expenses.

So when you reverse those 2 items out, it brings our core noninterest expense to about $152 million for the first quarter. And that's a difference of $2 million compared to the guide of $154 million. Two primary reasons for that. We slowed our hiring in the first quarter. We added only 17 FTE, and we also had about $800,000 less expense than anticipated for third-party consulting. We continue to be cautious in spending due to the market volatility, the economic uncertainties that within that first quarter. Let me continue. So just to repeat, before we consider the impact of the Bank of Idaho, for the remainder of 2025, the 3 quarters, we are maintaining our core organic noninterest expense guide of $151 million to $152 million per quarter. Now I'll layer on Bank of Idaho. We said back in January, our Bank of Idaho would add $9 million to $10 million per quarter of noninterest expense. That is after the savings that we modeled in.

Now we are going to close instead of June 30, we're going to close on April 30. That's when we'll complete the legal acquisition. So for the second quarter, noninterest expense, add -- you want to add for your model, $6 million to that guidance. So in combination, the guide would be $157 million to $158 million for the second quarter. And then for the third and fourth quarters each, you would want to add $9 million to $10 million per quarter to the guidance. And so combined, the guide then for Q3 and Q4 each would be a range of $160 million to $162 million. And just as one more reminder, this is core noninterest expense that would exclude merger-related expenses, other unique items and if we had any additional gains on sale of former branch buildings.

Very thorough, Ron. Sorry, if I could squeeze one more in there. Randy, you've added a more detailed kind of Southwest footprint in potential M&A interest in your deck. I guess any development on discussions in, say, Oklahoma or Texas on that end?

Yes. No, I appreciate you kind of referencing the clarification that we put in the investor deck. We've been in the Southwest since 2017 with our acquisition of Foothills Bank, expanded it 5 years later with the State Bank of Arizona. We're now one of the largest community banks in the market. So very, very happy with our experience down there. But given all the questions we had at the beginning of the year around M&A and the expectations, we clarified that in our investor deck. So we have our Mountain West region as well as Southwest.

Within the Southwest, and we have conversations going in both of those areas right now. And so we've looked in the Southwest and some of those other states over the years have not found the right partner for us, but we do have ongoing conversations. There's a lot of really good banks and really good markets in the Southwest and Mountain West. So Jeff, we're as you know, Wheatland was a negotiated transaction. Bank of Idaho was a negotiated transaction. As a result, of building relationships over a period of time, and we continue to do that in both those areas.

Our next question is going to come from the line of Matthew Clark with Piper Sandler.

A couple more questions on maybe more the near-term margin, just the spot rate on deposits at the end of March and the average margin in the month of March, if you had it.

Sure, Matthew. The spot rate at the end of March, March 31, was 1.24% and the margin for the month of March was 3.05%.

Got it. And then the uptick in nonaccruals this quarter, it looked like it was a C&I credit. Can you just provide some color there?

Matthew, this is Tom. It was centered in one relationship. The issue with the credit was not market or economic based. It was a management issue. And it's well secured, including real estate, there's no loss expected and we should be out of the deal by the end of the year.

And then final one for me, just around tariffs. Any thoughts on tariffs going up on Canadian lumber and what that might do for your construction activity that you tend to help out with on the resi and commercial side?

Yes. Let me -- I'll start on that, and then we'll have Tom give you some color. We've -- the best way to get to the -- what we see happening is talking to our customers, and we've been doing a lot of that. And it's been very interesting that the impact seemed to be much more manageable with our customers. We're just not hearing a lot of distress over pricing moving way outside of what they can handle. And so far, all the discussions plans are still in place. People are moving forward. They recognize that costs are going to go up in some area.

But when we talk to the most, to specifically answer your question, kind of dependent industries homebuilding, construction, they feel like they can manage those costs within reason on the projects. And so they've yet to really report that those have hit them. They're anticipating, they're very, good thing about our customer base is we tend to bank smaller operators. They're very nimble, very reactive and they're looking for alternatives as well. So it's obviously on everybody's mind, but they're just not seeing material impact that would disrupt at this point. Tom, do you want to add anything to that?

Matt, the only thing I'd add is when we're seeing budgets come in on construction requests, we're seeing more conservatism and certain line items, which certainly would be expected. And we're also adding some conservatism in our contingency line items on construction as well to be able to offset any fluctuation in prices. And ultimately, what that's led to is just additional cash equity into the deal upfront.

Our next question comes from the line of Andrew Terrell with Stephens.

Apologies, I missed the number in the remarks earlier, but Byron, can you remind us the FHLB borrowings that mature throughout the remainder of this year? And then just balance sheet kind of size question. I understand you got a lot of kind of securities cash flow picking up in '25, but also into 2026. I guess, should the expectation barring a material step-up in loan growth, be that the cash flow from that goes to pay down the borrowing position? Or just how should we think about the size of the balance sheet?

Sure. I'll circle back to the FHLB advances. So we have quarterly maturities through -- throughout the rest of the year. We have $300 million maturing in Q2, we have $360 million maturing in Q3, and $420 million maturing in Q4. In terms of our expectations around paydowns, we do, as I mentioned, expect to see some accelerating investment security cash flow. We do anticipate, for the most part, we'll be using that cash flow to pay down or pay off those FHLB advances. We'll remain flexible with what the market opportunities reflect at the time. But that I would say is our base case expectation.

Overall, in terms of how I think about the balance sheet, let's separate Bank of Idaho for a second and then just talk about the organic balance sheet going forward. I think of it as stable and flat through the rest of the year. might see a little bit of a downtick in Q4 with some accelerated investment securities maturities. But for the most part, I would think about the balance sheet is stable organic growth coming from Bank of Idaho acquisition.

Understood. And on the Bank of Idaho deal, I guess, great work by you guys on accelerating some of the closing date there. Do you have an integration date or conversion date set for that yet?

Yes. At this point, we're targeting early September to do the conversion. So that's on track and starting to move towards that once we get this closing at the end of the month.

Understood. And just back to one of the questions around more kind of Southwest markets. As you guys think about M&A and what would complement your franchise going forward? And maybe specifically, if you're looking to extend into more kind of contiguous markets, do you feel like that alters the size of the acquisition you look to do just to achieve critical mass in a newer market? Or is it -- should we think that it's really no change to the typical kind of size of acquisition you would look to do?

Yes. Our targeting, our wheelhouse, we always talk about $1 billion to 3% to 5%, somewhere in that range really hasn't changed. I think if we enter a new market, our preference would be to lean into a little bit larger to really enter the market with some scale. But dependent on the quality of the bank and the opportunity that we see there. So I would, I don't really see it changing our strategy other than to say, if we had our profits, we'd probably lead to a little higher end of that range. But all that being said, it's still driven by finding a great bank and a great market with great people.

Our next question is going to come from the line of Kelly Motta with KBW.

I would love to circle back to the margin. I believe in the past, you've talked about an exit 4Q '25 margin. I appreciate the dynamic Byron, but wondering to get to that $320, $325 million range implies a pretty meaningful step-up from the $305 million in March. So wondering if you have any thoughts on where margin could exit for this year ex the basis points lift you have from Bank of Idaho.

Sure, Kelly. I do see forward quarter margin exiting somewhere in the neighborhood of $340 million. if we can include Bank of Idaho in there, I might move it closer to $345 million, but $340 million, I think, is a good exit number for us coming out of the year.

That's helpful. And then a question on loan growth. I appreciate the color that the -- some uncertainty weighed on growth this quarter. But it sounds like the pipeline is solid ahead and you expect some nice growth here. Wondering the factors puts and takes that you guys are seeing in the conversations you're having with your customers that give you some optimism that net growth can resume here?

Yes. Sure, Kelly, this is Tom. Generally, first quarter is seasonally slower for overall production, but we actually saw a comparatively strong top line production, especially in the last half of the quarter in March, in particular. A larger component of the first quarter production was in the Construction segment, and that's something we really haven't seen over the past several quarters. And of course, those loans do not fully advanced.

We continue to see elevated payoffs in the first quarter as well with multiple commercial real estate and multifamily projects achieving stabilization in either refinancing into the secondary market as originally planned or opportunistically selling. And I think the change that we've seen is those headwinds we saw in the first quarter appear to be abating somewhat in April. And we're also coming into seasonally stronger months, which should provide some tailwinds.

We've seen construction draws materially increase and also agriculture production is entering a more seasonally positive period. So -- and then the comment on the pipeline, it does remain strong. We're seeing early-stage pipeline growth after some good pull-through in February and March. So we're still confident in our low to mid-single-digit guide for the year.

Our next question is going to come from the line of Tim Coffey with Janney.

Thank you and good morning gentlemen. Tom, if we can kind of circle back on the underwriting questions from a little while ago. Can you kind of describe how the process and the thought process changes on certain economic times like we're in? As well as can you kind of talk about what message you're sending to the lending team right now so that not bringing applications that might not fit reality?

Yes. I wouldn't say we've necessarily changed our underwriting. We always underwrite with a through-the-cycle wins that really can best protect the bank in really any economic cycle. I think if I was going to say one difference that we've changed is especially when we're working with borrowers, we're looking at projections on the construction side when we're looking at construction budgets.

Let's just make sure there's some conservatism built in there to withstand maybe any uncertainty or any fluctuations that they may see. But there haven't been any material policy changes to discourage underwriting.

And then Randy, last 24, 48 hours, we're starting to see some M&A deals and the other executives I've spoken to are somewhat optimistic given that we're starting to see some print. Do you share that optimism as well?

I think we'll see more. I'm not sure we'll see the level of activity that people were looking for at the beginning of the year. So I do think it is picking up. I think for us, conversations continue. And I think as far as we're concerned, we've demonstrated that really regardless of the general environment, we can get a deal done with the right partner. So yes, I think picking up a little bit, but I still think it's a bit muted due to stock prices and kind of a general uncertainty.

[Operator Instructions]

Our next question is going to come from the line of David Feaster with Raymond James.

I just wanted to follow up maybe along the same lines around broader uncertainty. The trade wars dose, immigration reform, we touched on lumber and construction. I'm curious, are there any other segments that you're watching closely? Obviously, ag is a smaller segment for you all, but something folks are watching. I'm just kind of curious, is there anything that you're watching more closely or cautious on?

Yes, Dave, this is Tom. Our portfolio is not comprised of multinational companies. So really, what we're keeping a close eye on is what happens to domestic prices and how that's going to affect our borrowers and even in the ag segment, when we talk to our growers, there is a very limited export component to their revenue stream. So it's -- I think ultimately, it's too early to really assess what the ultimate impact, especially to domestic prices is going to be. But when we talk to our customers and our commercial lenders, certainly, there's overall uncertainty of the economic impact of trade policy, but optimism is still there and a consistent theme in our discussions is that the uncertainty they're experiencing.

It's not stopping borrowers from moving forward. They may reassess, they may inject additional cash equity. They may add conservatism to projections, but ultimately, they're moving forward. One of the things we've been talking with our bank divisions, a law is that they're seeing a lot of evidence of projects or any type of significant capital expansion just completely being canceled. And we're just not seeing that. It's very isolated, it's not widespread. And our borrowers are still seeing demand and still seeing good revenue trends.

And then maybe just last one for me. Maybe touch on the competitive landscape. I appreciate the commentary about the loan growth outlook in the pipelines. I'm curious, what are you seeing on the competition side, kind of how new loan yields have been trending? You've always done a great job getting paid for the risk that you're taking and maintaining spreads, but just kind of curious what you're seeing on that front.

Yes. We're still maintaining very good spread loan production. One of the benefits of our footprint is when we tend to have the leading market share in a given market, we can generally set the pricing where we run into some pretty significant competition is usually in the larger markets where there's more competition. So we definitely have been seeing some competition on pricing. And as you would expect, especially for stronger deals. And I think that mix of production between more of the larger markets and the smaller real markets, we're still able to compete everywhere and maintain our spreads from an overall perspective.

We still haven't seen any type of irrational structure or underwriting. We haven't seen that yet, which is encouraging. That's not somewhere we would really be willing to compete. So -- but certainly, it's something we keep an eye on.

Where are you seeing new spreads today? And maybe how are new origination yields trending?

Yes. So we're still getting about 300 basis point spreads over the 5-year part of the curve. So for the first quarter, we were about 740. That's a little north of 300. And as we've seen that middle part of the curve kind of fluctuate we've seen our production yields fluctuate with it.

And I'm showing no further questions at this time. And I would like to hand the conference back over to Randy Chesler for closing remarks.

All right. Thank you, Michelle. I want to thank everyone for dialing into our call today. We want to wish everyone a great Friday and a great weekend. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.