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spk00: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
spk02: Good day, and thank you for standing by.
spk05: Welcome to the Glacier Bancorp Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Randy Chesler, President and CEO. Please go ahead.
spk12: All right. Thank you, Victor. Good morning and thank you for joining us today. With me here in Kalispell this morning is Ron Cofer, our Chief Financial Officer, Don Sherry, our Chief Administrative Officer, Angela Dosey, our Chief Accounting Officer, Byron Pollin, our Treasurer, and Tom Dolan, our Chief Credit Administrator. You know, our leadership position in some of the best high-growth markets in the country is a strong tailwind for the company as we continue to grow. A few new data points about our community banking markets, which include Montana, Idaho, Eastern Washington, Wyoming, Utah, Colorado, Nevada, and Arizona. For the 15th year in a row, Utah's economy has been ranked the top of the United States by rich states, poor states. Nevada has recovered all of the jobs lost during COVID-19 and has reached an all-time high of 1.4 million jobs, 3,000 more than the previous peak in February of 2020. Rich states, poor states gives Wyoming 10th place in the U.S. for its economic outlook due to economic conditions and favorable taxes. I'll touch on some of the business highlights first and then provide some additional thoughts on the quarter. Net income for the quarter was $79 million, an increase of $3 million or 5% from the prior quarter net income of $76 million. Pre-tax, pre-provision net revenue was $106 million versus prior quarter of $92 million, an increase of $14 million or 15%. Pre-tax, pre-provision net revenue was up $13 million or 14% compared to the third quarter a year ago. The loan portfolio, excluding Triple P loans, had strong organic growth during the quarter of 457 million, or 13% annualized. Core deposits grew organically by 96 million, or 2% annualized. The cost of core deposits was six basis points, consistent with the prior quarter. Noninterest-bearing deposits increased 233 million, or 12% during the current quarter. Net income, net interest income for the quarter on a tax equivalent basis was $211 million, an increase of 12 million or 6% from the $199 million in the prior quarter. Net interest margin for the quarter as a percentage of earning assets on a tax equivalent basis was 3.34% compared to 3.23% in the prior quarter. The core net interest margin for the quarter of 3.29% increased 13 basis points from the prior quarter. The loan yield for the quarter was 4.67%, which increased 15 basis points compared to 4.52% in the prior quarter. Credit quality continued to improve to record levels. Non-performing assets as a percentage of subsidiary assets was 13 basis points in the current quarter, compared to 16 basis points in the prior quarter. Net charge-offs as a percentage of loans was four basis points. We declared a regular dividend for the quarter of 33 cents per share, which was consistent with our prior quarterly dividend. The company has declared 150 consecutive quarterly regular dividends and has increased the regular dividend 49 times. This was a strong quarter for the company with solid performance across our key metrics. We experienced core deposit growth across our footprint as the team continued to maintain existing customer relationships while also building new ones. This quarter, core deposits increased 96 million or 2% annualized. Year-to-date core deposits are up $564 million, or 4% annualized. Non-interest bearing deposits increased $233 million, or 12% annualized during the quarter, and now account for 38% of core deposits. Year-to-date non-interest bearing deposits have increased $515 million, or 9% annualized. And our core deposits now total almost $22 billion at a cost of six basis points. The growth in the loan portfolio was driven by continued demand throughout our footprint, combined with a reduction in payoff volume. Despite the increase in interest rates, our gross new production for the quarter before payoffs was $1.7 billion, with yields at around 5.4%. which was an increase of about 80 basis points versus the yields in the prior quarter. The yield on the loan portfolio ended the quarter at 4.67%, up 15 basis points from the prior quarter. And the core loan yield of 4.6% increased 19 basis points from the prior quarter loan yield, core loan yield of 4.41%. Given the strength of all of our markets, we saw broad-based contributions to this growth made by each of our divisions across our eight states. Credit quality improved during the quarter, with non-performing assets to bank assets improving 13 basis points from 16 basis points in the prior quarter. Early-stage delinquencies as a percentage of loans ended the quarter at seven basis points compared to 12 basis points in the prior quarter. About 80% of the commercial loan growth continues to come from existing commercial loan customers, where we have a very good understanding of the quality of the borrower and the credit. And our focus continues to be on responsible growth with a through-the-credit cycle underwriting lens. We believe we are well prepared in the event of an economic downturn with strong capital, strong reserves, and a very healthy franchise, which will continue to generate high quality earnings. As we noted earlier this year, we're focused on growing net interest income. On a tax equivalent basis, net income That interest income was $600 million in the first quarter, in the first nine months of the year, which was an increase of $111 million, or 23% over the first nine months of 2021. As I noted previously, we are well positioned to benefit from this higher rate environment. Our asset sensitive balance sheet is designed to perform well over the long term. Roughly 25% of our loans repriced in any given year, so today's higher rate environment is gathering momentum in our loan portfolio, supportive of increasing income over the long term. We continue to add floor protection to our new loans, and current rates are above essentially all loan floors in our existing portfolio. Our securities portfolio is providing roughly $350 million of cash flow per quarter which is being used to fund loan growth. This remix of securities into loans is providing meaningful lift to margin and earnings. And additionally, our high quality core deposit base, 38% of which is non-interest bearing, continues to provide stable low cost funding. We expect that our low beta core deposit base will continue to outperform peers. We are very well positioned to ride out this volatile interest rate environment and to weather the impact of a recession if and when one occurs. We expect that our proven, stable, sticky deposit base will once again outperform our peer group and the industry. And we expect our high-quality loan portfolio to perform well and also expect to see our loan yields increase as rates move up and enable us to deliver strong net interest income. And when interest rates peak and then decline, the longer-term structure of our loan portfolio will continue to generate strong returns. So the Glacier team did another excellent job in the third quarter. They once again kept their focus on customers and communities, which the results clearly show. So, Victor, that ends my formal remarks. And I would now like to open the line for any questions our analysts may have.
spk05: Sure. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. And our first question will come from the line of Jeff Rulis from DA Davidson. Your line is open. Thanks. Good morning.
spk12: Morning, Jeff.
spk06: Maybe, Randy, I could check in with you on loan growth. You've done a good job this year of sort of identifying early on low double-digit growth, and you're sort of hitting that. I don't know if it's too early to talk about 23 or either broadly or more specifically, just kind of expectations as you close the year and into 23 on net growth.
spk12: Sure. Tom and I have been talking quite a bit about that. So, Tom, do you want to provide some insight? Sure. Good morning, Jeff.
spk08: I'll start with the fourth quarter.
spk12: You know, as we talked last quarter, we saw a lot of pull forward growth in the Q2 that, you know, and then some pipelines slowing up a little bit as we discussed last quarter. You know, that's kind of reflective of what we saw in the third quarter. I think that trend is going to continue in the fourth quarter, but we expect somewhere in the mid to upper single digits annualized for the fourth quarter. And then in terms of 2023, I think it's a little early to make a projection of that fact. There's still a lot of uncertainty out there.
spk06: Okay. Got you. And Ron, also sort of guidance on the expense run rate, I think you have X merger costs in the 128 to 130, kind of stick it in there. It's a similar question about how you trend into Q4 and what you think about 23 sort of growth off that.
spk10: Yeah, let me, again, too early on, excuse me, the next year, but I can address certainly the Q4. So the came right in at the guide, you know, 128 to 130. But for the fourth quarter, I would go with the mid-130s. And primarily, the reason is inflation. We've just seen it. The vendors, the guy who shovels the snow, the people who service our ATMs, you know, we're seeing fuel charges. We're seeing higher increases. And it's amazing. It's across the board is what I would tell you. One of the things that I mentioned in the third quarter, excuse me, the call we had for the second quarter, I said our third party cost you know would would come down and they did they came down to say a million so but we held pretty steady so the increase that overcame that million dollar reduction is again primarily inflation but we're just seeing it more and more so that's why we would guide to the mid mid 130s for the q4 okay so ron that's that's 130 to 131 not like a bit uh correct Yeah, I would go with, if you want to range, use 133 to 135. Oh, okay.
spk06: So upper, okay, got you, 133 to 135.
spk10: Yeah, and Jeff, the other thing I should add, some of the, in this fourth quarter, we have had market rate, market increases, especially for our frontline employees, and so that's going to show up as well. still trying to figure out how we're going to address what compensation will be. And that's the largest component of our non-interest expense. Part of the hesitation I have to give guidance on that just right now.
spk06: Okay. And just, sorry, one last one. Just remind us, you know, the seasonality of that, do you typically see, I know we're not talking 23, but do you generally see a pickup Q4 to Q1 in costs or do you think at least early on
spk10: No, most definitely you see the seasonal part. A large part of this, we restart that FICA wage base, and so we see it for no other reason. We see higher compensation costs for that. But it is what you observed is correct, seasonally higher.
spk06: All right, and last one, Randy or Ron, just looking at the non-interest-bearing numbers, costs just flat at this point. And looking in last cycle, really virtually, there was really no beta almost on the non-interest bearing. I guess if you care to compare where you sit in this cycle and expectations, do you expect similar lack of movement on the non-interest bearing front?
spk12: Yeah, we can give you a little color there. I'm going to hand it over to Byron, but I would key it up by saying, you know, we are, the steepness of the raises here is far exceeding what we saw in the last cycle. So there's a much steeper aggressive curve here. So Byron, do you want to talk about our expectations or thoughts?
spk10: Sure, yeah. So we've been very pleased with our, you know, deposit performance, you know, especially in this rate environment. So far, we've been able to keep our rates pretty much unchanged, but there is pressure building. You know, we're cleaning our basis points into a rising rate cycle and more to go. And so we're not immune from that. We can't defy gravity with regard to deposit costs forever. And especially with the rate hikes that are expected ahead of us, we do expect to see some movement in our overall deposit costs. In terms of, you know, what we're expecting, you know, what we're modeling on our side, our beta expectations over the course of this cycle, you know, kind of if you zoom out and look at the bigger picture over the course of the entire cycle, that beta may land somewhere in the mid-teens with our expectations.
spk06: And Byron, that's a total deposit beta or interest-bearing deposit beta?
spk10: That would be a total deposit.
spk06: Okay. I appreciate it. I'll step back. Thank you.
spk05: You bet. Thank you. One moment for our next question. Our next question comes from the line of Brandon King from Truist. Your line is open.
spk07: Thank you. Good morning. Morning, Brandon. Good morning. So, yes, the growth in non-interest bearing deposits really stood out this quarter relative to your peers. And I wanted to get a sense if you think that could continue near term based off what you're seeing in your markets.
spk12: Yeah, the likely not be and mainly due to seasonality, you know, our our our A lot of our customers, you know, really build up reserves in the second, third quarter. They start to throttle back their businesses in the fourth quarter and first quarter, and they're going to live off some of those excess funds. So we would probably see that historical seasonality trends start to kick in.
spk07: Got you. And do you think you'll see a decline next quarter, or do you think you could potentially hold that flat based off of those seasonal factors?
spk12: Look at our historical rate. There's generally been some outflow as people use those deposits to kind of get through the colder months.
spk07: OK. And then on the net interest margin, I was curious, just based off of your deposit data assumptions and the loan repricing, those expectations that you have a longer repricing cycle relative to peers, when do you think the NIM could kind of top out? It seems that the interest margin could continue to expand maybe past 2023. Byron, do you want to comment on that?
spk10: Yeah, in terms of the trajectory of margin, as Randy mentioned in his comments, this rate environment and the amount of rate increase really has built a lot of momentum into our margin. So I would see it continuing to increase through next year. When we look at our interest rate sensitivities, we show margin growing throughout next year and into 24 as well.
spk04: Okay.
spk10: Very helpful.
spk07: Thanks for taking my questions.
spk05: You bet. Thank you. One moment for our next question. Our next question comes from the line of Matthew Clark from Piper Sandler. Your line is open.
spk01: There you go. Good morning. Good morning, Matthew. Excuse me. Just to close the loop on the deposit beta Can you remind us what your mix of deposits is relative to commercial versus consumer? It just seems like this earning season so far, there's been a lot more. The more sophisticated, you know, corporate, commercial, wealthy customers are more in tune with where money market rates are these days relative to the retail consumer. We're just trying to get a sense for your mix. And that might be part of the reason why we're seeing lower beta here over the cycle.
spk10: Yeah, this is Byron. I can address that. In terms of the mix between consumer and business, it's about 50-50. So we're about, you know, evenly split between the two categories.
spk01: Okay. Okay. Thank you. And then just shifting gears to the overall margin and kind of weighted average rate on new loans, just trying to get a sense for where that yield might be trending here in the near term.
spk10: In terms of loan rates, we do see some lift. It could be, in terms of fourth quarter increase, it could be 15, 20 basis points of increase in loan rates next quarter.
spk01: And the weighted average rate on new production, if you have it?
spk08: Matthew, for the third quarter, it's about $540.
spk01: Okay. Thank you. And then if you have it as well, the average margin in the month of September?
spk12: I'll just get back to you on that one. We get very focused on quarterly roll-ups, so we'll provide that to you.
spk01: Okay. No worries. And then on... The borrowings that you took down this quarter, can you give us a sense for kind of the cost and duration and plans to do more or not?
spk10: Sure. This is Byron. I can address that. The borrowings that we have on our balance sheet, FHLB borrowings, they're overnight. That cost is roughly in the neighborhood of 325 right now. We expect that that will go up. And that's really driven by the strong loan growth that we have seen. And we do see about $350 million of cash flow that's coming off the securities portfolio. That's going to fund loan growth. And so we'd have to – once we see loan growth, you know, slow a little bit, then the cash flow from securities will be able to catch up and then chip away at that volume balance. And so that's how we view the bond position trend.
spk01: Perfect. And then last one for me, just on the net charge-offs and I think the overdraft-related charge-offs, any, I guess, I know it's you know, seasonally or, you know, tourist season and all that, a little busier, so more transaction volume. But is there any change in the overdraft products or anything you did differently? I know charge-offs aren't up much, but they're still up relative to where they were.
spk12: Yeah, no, there's been no changes to the program. I think they're up – due to a little bit of seasonality and as we bring on some of the new divisions with our high performance growth program, which is the core relationship checking account there is driving a little bit more of those charge offs.
spk01: Okay, thank you.
spk05: Thank you. One moment for our next question. And our next question is from Kelly Monta from KBW. Your line is open.
spk03: Hi, this is Kelly. Good morning. Thank you for the question. Morning, Kelly. Good morning. Maybe switching to capital and you typically do a special dividend in the fourth quarter of the year, and we're in there now. Just wondering how you view the AOCI swing. You obviously have, you know, healthy amounts of regulatory capital, but wondering if TCE plays a consideration into how you guys are thinking about capital returns.
spk12: Yeah, and so that's a board decision where they weigh a number of different factors, and certainly one of them is capital levels and outlook. as well in terms of, you know, with the economic outlook. So, yes, Kelly, they're going to weigh those factors in making a decision.
spk03: Got it. And maybe an M&A question out there. Obviously, the way marks are going, it makes it more difficult. Just wondering if you have any updated thoughts on M&A in your markets?
spk12: We really don't. I think, if anything, our timing has shifted out a bit due to what you just touched on, which is certainly the attractiveness to a seller based on some of the marks. But also, from a buyer perspective, just letting the credit environment settle out a little bit, I think, is really important. At the same time, we continue to talk to people and keep the door open and fully expect when... We feel the time is right to get back into the M&A strategy.
spk03: Got it. Maybe a last question for me on the expenses and the expense guide. I know when you closed ALTA, you were talking about some technology that you were testing out there and potentially looking to roll out. Just wondering if you have any updated commentary on any technology initiatives you may be working on.
spk12: Yeah, we are currently pursuing a number of those initiatives, and they're going quite well. I'm happy to say that we're implementing those within that 54% or 55% efficiency ratio that we've talked about, and so we're very mindful of feathering in any expense associated with those. We also expect some saves coming out of there because each one of them does have a business case, and we see that fully deployed, there should be some efficiency pickup. But for right now, you know, we're doing that. We are reengineering a number of our platforms. And, you know, but we are, like I said, feathering that in. So we're keeping our efficiency in that 54, 55 range.
spk03: Got it. That's super helpful. Thank you so much. I'll step back.
spk05: All right. You're welcome. Thank you. One moment for our next question. And our next question comes from Tim Coffey from Janie. Your line is open.
spk09: Thank you. Morning, everybody. Morning, Tim. Randy, how should we be thinking about total deposit growth going forward in this current rate environment? Because if you really wanted to keep your deposit costs low, you could. You've got plenty of on-balance sheet deposits already, as well as access to additional liquidity. So I'm just kind of wondering, would it be unreasonable to think that deposits actually stay relatively flat in the near term?
spk10: Near term, I think what Randy mentioned or You know, it was discussed earlier. We could see a little bit of runoff in the fourth quarter. And so that's, you know, some of the seasonality factors. We do traditionally have a very strong third quarter. Fourth quarter is not quite as strong. So, you know, looking at where we just ended, you know, I do see that we could see a little bit of runoff, particularly, you know, with the rate environment and competitive pressures that are building out there.
spk09: Okay. All right. And then the current rate environment, being pretty much straight up, has created some unintended consequences for other institutions as far as they've reported this quarter. Is there anything in the loan portfolio that you're keeping a special eye on or maybe have tightened the credit box on? For instance, I'm looking at the lots and land loans, for instance.
spk12: Yeah, Tim, this is Tom. We haven't changed any of our underwriting standards in the last couple of years to encourage growth. It's anything we've tightened up over the last couple of years. Some of those efforts that we've made kind of back in that 2018, 2019 timeframe seem to serve us pretty well, not only through the pandemic, but certainly setting us up for this environment. And in terms of, you know, measuring out the rate increase, you know, every new commercial loan originated goes through a pretty robust stress test. to stress those cash flow numbers in terms of rate shock environments. So, you know, ultimately, the moral of everything here is I'm feeling very comfortable with what we're seeing in terms of what we're putting on the balance sheet right now.
spk09: Okay. All right. Well, thank you very much. Those are my questions.
spk05: All right. You're welcome.
spk09: Thank you.
spk05: One moment for our next question. And our next question comes from David Feaster from Raymond James. Your line is open.
spk11: Hey, good morning, everybody. Happy Friday. I just wanted to touch on the loan growth side again. You know, growth was really good in the quarter, especially CRE. Just curious, first, I guess, whether there's any segments that drove that, that you're seeing exceptional strength there, and how demand's trending. Are you starting to see – a slowing of demand or more projects falling out of the pipeline just given higher rates? And then just how much of that deceleration and growth that you kind of talked about in the fourth quarter is maybe strategic versus slower originations or those types of things? Just curious, any commentary there?
spk12: I'm going to hand it over to Tom. I would just tell you, David, we are – being very selective. And I think that we've, there's a lot of other banks out there, you know, very hungry. And we, if it doesn't fit squarely in the box, you know, we're letting them win those transactions. But I'll let Tom comment on your questions about, you know, is there a particular segment that's growing, kind of what we look forward to in demand. So Tom, you want to comment on that?
spk08: Sure.
spk12: And the CRE growth, really what precipitated that in the third quarter was a lot of the construction volume we had seen in prior quarters. Now that those have now rolled through to completion and stabilization, they've moved out of that construction segment over into the firm segment, which is why you saw the commercial acquisition development construction line items drop quarter over quarter. That was expected, that was anticipated. And in terms of the volume of new production, A little less on the construction demand for the reasons you noted, higher rates, a little more difficult for a deal to pencil unless there's a tremendous amount of equity. And as Randy said, holding true to our credit discipline, you know, the projects that we are looking at typically have a very strong equity, cash equity position in them and some good, strong secondary support in the form of Garrett Core Strikes as well.
spk11: All right, that's helpful. And then maybe just touching on deposits again, I don't want to beat a dead horse here, but maybe just on the interest bearing flows, I'm just curious, you know, maybe how much of that is attributable to, you know, more rate sensitive deposits that you guys are letting go versus maybe some cash burn at clients or those types of things. And I guess, I know it's a small portion of your portfolio, but how much more would you qualify rate-sensitive balances do you think are left in your deposit base?
spk12: Overall, as you can see from where we're positioned, what are our costs, and historical performance, we focus on the relationships. And I think that shows in the cost and the volatility of our deposit franchise in that a lot of the rate seekers are really not in our core customer base or that part of their balance sheet is important to them. It's already placed someplace else. And we focus on the core relationship account. And so, you know, that's, You know, I think the overarching way to kind of answer that question, Byron, did you want to add anything to that?
spk11: Okay. And then just one last quick one. You talked about the $350 million in cash flows from the securities book. Just curious. I'm curious what the roll-off yields on those are, and maybe if you are, how the rates on new purchases and how you think about that, or is it truly just kind of coming out of there to fund the loan growth?
spk10: Yeah, the runoff rate is close to 150, and it really is just in runoff mode. We are purchasing a couple targeted pool NBS or CRA-focused investments, but very limited. So the $350 million that's running off, it's running off at 150. It's going into loans. And so, you know, there's close to 400 basis points of lift in that runoff. Okay.
spk11: That's terrific. All right. Thanks, guys. Great quarter.
spk05: All right. Thank you. Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to Randy Chesler for any closing remarks.
spk12: Yeah, appreciate that. And we thank everybody for their great questions. And we appreciate you dialing in today. We want to wish everybody a great Friday and a great weekend. Thank you again for calling in.
spk05: And this concludes today's conference call. Thank you. And everyone, have a great day.
spk00: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
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