Glacier Bancorp, Inc.

Good day and thank you for standing by. Welcome to the Glacier Bancorp fourth 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 need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to speaking today, Randy Chesler, President and CEO of Glacier Bancorp. Please go ahead.

All right. Thank you, Victor, and 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. I'd like to point out that the discussion today is subject to the same forward-looking considerations found on page 13 of our press release, and we encourage you to review this section. I'll start with a few new data points about our community banking markets. The eight Western states which represent our footprint are among the most dynamic in the country and include Montana, Idaho, eastern Washington, Wyoming, Utah, Colorado, Nevada, and Arizona. Our eight-state average income and GDP growth rate exceeds the national average, and the average eight-state unemployment rate is below the national average. USA Facts reports that Idaho's population has grown by 46% from 2000 to 2021. U.S. News states that Washington has the third best business environment in the United States. And the Tax Foundation State Business Tax Climate Index ranks Utah eighth in the nation, Montana fifth, and Wyoming number one. 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 $79.7 million, an increase of $339,000 from the prior quarter, net income of $79.3 million. For the full year, the company had record net income of $303 million, an increase of $18.4 million, or 6% compared to 2021. Pre-tax, pre-provision net revenue was $103.6 million versus the prior quarter of $105.7 million, a decrease of $2.1 million or 2%. However, pre-tax, pre-provision net revenue was up $15.6 million or 18% compared to the fourth quarter a year ago. The loan portfolio, excluding PPP loans, had solid organic growth during the quarter of $397 million or 11% annualized. For the full year, we grew $1.9 billion or 15%. Non-interest expense of $129 million decreased $1 million or 1% over the prior quarter and decreased $5 million or 4% over the prior year's fourth quarter. The loan yield for the quarter was 4.83%, which increased 16 basis points compared to the prior quarter. New loan production yields were 6.34%, up 93 basis points from the prior quarter. Investment portfolio yields were 1.87%, up 4 basis points from the prior quarter. Interest income of $225 million increased $11 million or 5% over the prior quarter and increased 17% over the prior year or fourth quarter. For the full year, interest income was $830 million, a 22% increase over 2021. Credit quality continued to improve to record levels. Non-performing assets as a percentage of subsidiary assets was 12 basis points in the current quarter compared to 13 basis points in the prior quarter. Net charge-offs as a percentage of total loans was five basis points. We declared a regular dividend for the quarter of 33 cents per share, which was consistent with our prior quarter dividend. The company has declared 151 consecutive quarterly regular dividends and has increased the regular dividend 49 times. For the full year, we declared total dividends of $1.32 per share, an increase of 4% over 2021. And we enter 2023 with strong capital. Our CET1 ratio, which measures capital against risk-weighted assets is expected to end 2022 around 12.19%, a full 100 basis points above the median of our proxy peer group. So the most material development in the industry this quarter was the historic increase in interest rates, which created significant volatility in bank deposits. After growing for three quarters, our deposits declined by $1.3 billion, with the largest decline occurring in those accounts with an average balance of $3 million or greater. 60% of the deposit outflows in the quarter were concentrated in just 100 accounts. When the Treasury bill rates crossed 4% in early October, it was a significant inflection point. and we begin to see an accelerated outflow of deposits, not relationships, primarily to non-banks, mostly for the purpose of purchasing treasury bills. These excess deposits accumulated during the pandemic at ultra-low rates. Core deposit funding of $21 billion, or almost 90% of total funding liabilities, ended the quarter at a cost of only eight basis points versus six basis points in the prior quarter. Noninterest-bearing deposits remained at 37% of core deposits, unchanged from the beginning of 2022. Our total cost of funding in the quarter for total funding liabilities of $24 billion, including noninterest-bearing deposits, increased from 15 basis points in the prior quarter to a total cost of funding of 35 basis points in the current quarter. The increase in the total cost of funding was primarily due to our elevated borrowings from the Federal Home Loan Bank because of the deposit outflow which impacted net interest income and margin in the quarter. Borrowings increased from $705 million at the end of the third quarter to $1.8 billion at the end of the fourth quarter. We expect deposit outflows to moderate beginning in one Q and then perform more consistent with historic trends. As a result, we anticipate federal home loan bank borrowing to slowly decline throughout the year. We plan to fund our loan growth for 2023 by utilizing the quarterly cash flow from our investment portfolio, currently in excess of $300 million per quarter. Our margin should show growth in 2023 benefiting from the cash flow rolling out of investments yielding about 150 and 1.5% and being reinvested in new and renewing loans yielding in excess of 6%. While we face an uncertain interest rate environment in 2023, we remain confident in the dynamic Western markets we serve and the capability of our unique business model to continue to deliver strong results. The Glacier team did another excellent job in the fourth quarter and for the full year of 2022. They once again kept their focus on shareholders customers, and communities, which the results clearly show. And that ends my formal remarks. And now I'd like to ask Victor to please open the line for any questions that the analysts may have.

Thank you. As a reminder, to ask a question, you need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Jeff Rulis from DA Davidson. Your line is open.