Glacier Bancorp, Inc.

Good day, and thank you for standing by. Welcome to the Glacier Bancorp Third Quarter Earnings Conference Call. At this time, all participants are on 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. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. 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, Glacier Bancorp President and CEO. Please go ahead.

Good morning and thank you for joining us today. With me here in Kalispell is Ron Cofer, our Chief Financial Officer, Byron Pollin, our Treasurer, Tom Dolan, our Chief Credit Administrator, Don Cherry, our Chief Administrative Officer, and joining us on the phone is Angela Dosey, our Chief Accounting Officer. I'd like to point out that the discussion today is subject to the same forward-looking considerations outlined starting on page 13 of our press release, and we encourage you to review this section. The positive organic trends that emerged in our first and second quarters continued and became more pronounced through our third quarter. In addition, in the third quarter, we finalized the purchase of six Montana branches from Heartland Financial of its Rocky Mountain Bank division, including the deposits, loans, owned real estate, and fixed assets associated with the branches, totaling $403 million in assets. We closed this transaction on July 19 and converted these branches to Glacier Systems over that weekend. This quarter we had strong EPS growth of 15% or 45 cents, primarily driven by increasing interest income and higher non-interest income. Net income was $51 million. which increased 6.3 million or 14% from the prior quarter net income of 44.7 million. Net interest margin grew 15 basis points from 2.68% to 2.83%. Net interest income was 180 million for the current quarter An increase of 13.8 million or 8% from the prior quarter net interest income. The loan portfolio of 17.1 billion increased 329 million or 2% during the current quarter and organically increased 57.6 million or 1% annualized during the current quarter. The loan yield of 5.69% in the current quarter increased 11 basis points from the prior quarter loan yield of 5.58%. Total core deposits of 20.7 billion increased 613 million or 3% during the current quarter and organically increased 216 million or 4% annualized during the current quarter. Non interest bearing deposits of 6.4 billion increased 314 million or 5% during the current quarter and organically increased 221 million or 14% annualized during the current quarter. Our total cost of funding in the quarter. including non-interest-bearing deposits, decreased one basis point from the prior quarter to a total cost of funding of 179 basis points. Core deposit cost, including non-interest-bearing deposits, was 1.37 percent for the current quarter compared to 1.36 percent in the prior quarter. Total non-interest expense of $145 million was within our expected range, increasing $3.8 million in the quarter or 3% over the prior quarter. While non-performing assets to bank assets and net charge-offs to average loans and early stage delinquencies increased slightly, our credit portfolio continues to perform at near record levels with no material negative trends emerging. The current quarter credit loss of 8 million included 3.6 million of provision for credit losses from the acquisition of Rocky Mountain Bank. Excluding the acquisition of Rocky Mountain Bank, the current quarter credit loss expense was 4.4 million, including 4.2 million of credit loss expense from loans and 225,000 of credit loss expense from unfunded loan commitments. Non-interest income for the current quarter totaled $34.7 million, which was an increase of $2.5 million or 8% over the prior quarter. Tangible stockholders' equity of $2.1 billion increased $68.1 million or 3% compared to the prior quarter and was primarily the result of a decrease an unrealized loss on the available for sale debt securities, which was partially offset by the increase in goodwill and core deposit intangibles associated with the Rocky Mountain Bank acquisition. We also declared a quarterly dividend of 33 cents per share. The company has declared 158 consecutive quarterly dividends and has increased the dividend 49 times. The Glacier team has done an excellent job taking care of our customers while growing the business organically and welcoming our new acquisitions. In 2024, we closed and converted two acquisitions during the year, totaling approximately $1.2 billion in assets. So that ends my formal remarks, and I would now like to ask the operator to open the line for any questions that our analysts may have.

And at this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by as we compile the Q&A roster.

One moment for our first question.

Our first question comes from Jeff Rulis from DA Davidson. Your line is open.

Thanks. Good morning. Morning, Jeff. I wanted to touch on the non-interest bearing growth on the organic side. I think a real outlier and most simply looking to hold that balance, not show double-digit annualized growth. I guess what occurred in the quarter with the non-interest bearing growth?

Yeah, Jeff, this is Byron. Yeah, we were really pleased to see that organic growth in the third quarter. Third quarter is typically a time when we see seasonal strength in our deposit base, and particularly our non-interest bearing. And that's what we saw this quarter. And our divisions really did deliver on that. So that was great to see. We are continuing to see a little bit of migration to interest-bearing accounts. That is still there, but it's not nearly at the level that we were seeing, say, a year ago. In terms of our outlook for the fourth quarter for non-interest-bearing, I do think that we could be flat-tipped down a little. We could see a little bit of unwind of that seasonal inflow that just came in.

Okay. And, Byron, the timing of maybe – the timing of that non-interest-bearing build in the quarter, and additionally, the timing of bringing borrowings down. My guess is, and I'm ultimately going to give you a question here, the impact of deposit costs. Maybe if you have an exit or spot deposit cost at the end of the quarter would also be helpful.

Sure.

Sure.

In terms of the timing of the non-inter-sparing bill throughout the quarter, we saw every month, July, August, September, saw growth on an organic basis in our non-inter-sparing, so it was really spread very nicely throughout the quarter. In terms of the timing of our FHLB pay down, the overnight portion of our FHLB funding, that did happen in July, earlier in the quarter. And in terms of a spot rate, our spot rate for total deposits, this is the rate on September 30, was 1.35%. Did I cover all your questions?

Yeah, that was a lot. Thank you. Maybe if I could hop to expenses, I think really at the low end of the guide, and I think include merger costs. So I guess I'm hesitant to kind of ask about the run rate ahead. It seems like, Ron, we've beat that number a little bit each quarter. So what should we expect in terms of, I guess you'd have the branches for a full quarter. I think you missed a couple of weeks in the third, but any thoughts on expenses ahead?

Yeah, just to recognize, yeah, the divisions really did a stellar job. seller jobs being very focused on controlling expenses, and so hats off to them, and that's where it happened. Yeah, it's a pleasant development. So if you do exclude the gain on the sale and the M&A, the core non-interest expense came in at 143.4, and we think that that can be maintained into the next quarter. We need to go back and understand what's really driving that. You'll see that our compensation is very well controlled. Even picking up folks from the Rocky Mountain Bank branch is very controlled. And again, that's in part in large measure to our technology I've spoken about in the past. You know, we've cut the time in half to open an account. We've got... closing on each day now instead of a batch submission it's real time the point of all this is that we're doing things uh very well but with less people the divisions have strongly embraced the technology so they're able to do more with less and that's been a theme that we started talking about really last year and so that continues to to happen and that will then help understand the guide i will give for court non-interest expense when i say core it means reported less gain on sale or losses it means excluding the m a so i'm going to lower the guide we're going to lower the guide by 2 million on each end so it'll be 143 to 145 million for q4 okay uh thank you i'll step back

Thank you. One moment for our next question. Our next question comes from Kelly Mata from KBW. Your line is open.

Hey, good morning. Thanks for the question. Maybe piggybacking off that expense question, again, it's compared really favorably to where you've been guiding now for a couple quarters, I think. Just as we look ahead, I know you may not be ready to look at 2025 yet with where you are in the budget process, but as we think about the natural kind of expense growth rate of your company, what's a good – What's a good run rate for growing expenses just on a normalized basis? And it seems like most of the room and fat has been cut given what you've done. But any additional thoughts there?

Yeah, Kelly, appreciate the question. I would go with 3%. That's slightly better than what we've had on average this year and last year. And in part, that's the efficiency gains we're getting there. We're still using third-party consultants to help build out our control functions. And in large measure, when I say control functions, that reflects the heightened continuing regulatory expectations. And so we want to make sure as we grow that we're staying on top of that, staying ahead of it. But coming back to the answer, it's 3%.

got it that's that's helpful um and then maybe maybe turning to loan growth you've been ex the deals you've done this year you're running in the low single digit range um just wondering if you've seen any you know pent up demand ahead of rate cuts and how how to think through that um as well as you know where where you're seeing opportunities in the state of the pipeline as as it stands today

Yeah, Kelly, this is Tom. You know, we're seeing continued optimism from our customers, you know, especially after the recent rate reduction. But we have yet to see it translate to, you know, significant deal flow. You know, to answer your question on the pipeline, it was fairly stable throughout the third quarter. But, you know, I think there's still a little bit of uncertainty that's keeping that pent-up demand on the sidelines until there's a little bit more clarity, you know, over the next quarter. So, you know, for the rest of the year, I think you're probably going to see more of the same. Fourth quarter is typically a little slower growth quarter force anyway, particularly due to the agriculture pay downs. So, you know, like I said, in the fourth quarter, I think we'll probably see a little bit more of the same.

I got it. That's helpful. I'll step back. 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. Matthew, you may be on mute. Your line is open. We'll move on to our next question. One moment. Our next question comes from the line of David Feaster from Raymond James.

Your line is open.

Hey, good morning, everybody. Morning, David. Maybe touching on the growth side. I mean, organic growth was a bit lighter. I'm curious maybe some of the drivers behind that. I mean, how much of that's a function of weaker demand or higher payoffs and paydowns? Just curious kind of how the pipeline's shaping up, what you're hearing from clients, and where you're seeing opportunity to drive growth, and just kind of how you think about the pace of organic loan growth going forward.

Yeah, Dave, this is Tom. You know, yeah, there's still some pence of demand. There's continued optimism. But, you know, pipelines were relatively stable throughout the quarter. So, you know, to answer your question on the drivers behind the growth, it was a little bit of both. You know, there's not quite the strength of demand that we would normally see. And in addition to that, we've seen elevated payoffs as, you know, some of these construction and development projects either sell out or hit stabilization and either the asset is sold or is refinanced into the secondary market. So we're continuing to see that as well. And that's another reason why you've seen the construction balances come down for another quarter. Those things move into either the term portfolio or are sold and, you know, the volume is just not replacing the outflow.

Okay. And then maybe touching on some of the repricing and remixing dynamics within the earning asset base. I'm curious, how do you think about cash flows from the securities book and the roll off rates there? And similarly, with the upcoming maturities in the loan portfolio, where new loan yields are relative to roll off rates? And just how do you think about the repricing dynamics there in the near term? um, and, and, you know, uh, you know, just the opportunity to continue to remix earning asset base.

Well, let's, uh, so let's take the first part of that, the new loan piece and what your thoughts are on that. And then maybe Byron, we can move on to the investment portfolio and cash flows.

Uh, yeah. So the, the loan yields, you know, we're, we're still seeing, you know, mid to upper sevens, um, and our top line production. So, you know, as a, as a, In relation to the coming off yield, I'll pass it on to Byron. Sure.

We continue to see strong cash flow off of our securities portfolio. $250 million a quarter for the next couple of quarters I think remains a good guide. That cash flow includes principal and interest. The yield of that cash flow is coming off at about 1.5%. move that and remix that into the loan portfolio yields that Tom just mentioned, that repricing lift creates a lot of momentum for us. I will say we do start to see some additional securities maturity in 2025. And so in the second quarter, we start to see some treasury bonds come back to us. We have $50 million in the second quarter. of 2025, and then in the fourth quarter of 2025, we have $270 million mature. So we have been running at a pretty consistent, you know, $250 million pace. Look for that to begin to increase next year.

Okay. Okay. And then maybe just kind of thinking high level, how do you think about your footprint, right? I mean, you've got a really broad network. um, and footprint and some massive density in some key markets, but maybe smaller footprints in some of the other, other markets. I'm curious how you think about expansion priorities, where you're focused on, on driving growth and how you think about organic growth relative to, you know, supplementing that with M&A and, um, just kind of how some of those conversations are going.

Yeah. So, um, I think the outlook is very, very good. The eight states we're in are some of the fastest growing states in the United States in terms of GDP growth. So very encouraged by that. In terms, it's really both strategies, Dave. So we have an organic strategy with each division where they're looking at their markets and expanding as they see opportunities. And across the 17 divisions, that takes place at quite a few of them. At the same time, we're looking at M&A opportunities to fill in and grow scale in a lot of these fast growth markets. And so as we talk to people and look at opportunities, those are the things that we see. And more and more, we see opportunities to add on to existing divisions and build scale with some of the things that we're looking at. So really, both, David, it's both organic and We don't wait for an acquisition to appear. If there's markets we think are good markets to go into, we'll go into them organically. And then an acquisition that might be available to us, we look at as just building scale in the markets that we're in today.

Are there any of your markets where you see the most opportunity at this point or where you'd like to drive more density in or... Is there opportunity for market expansion that maybe looks attractive to you at this point?

Yeah. Across the eight states, they all have areas that we'd be interested in growing through acquisition. So I can't say there's one that we would put at the top. And I think that's one of the strengths that we have is we have multiple options across those eight states. And so we're not really pinned down waiting for something in one particular area. Keep our options open. Look across those eight states and where the good opportunities occur, that's where you'll see us go. Okay.

All right. Thanks, everybody.

Thank you. And as a reminder, to ask a question, that's star 1-1. Star 1-1. One moment for any further questions.

We have a question. One moment.

Our next question will come from the line of Jeff Rulis from DA Davidson. Your line is open.

Thanks. Just had one other, and I know we're splitting hairs on the credit side, but just wanted to kind of check in on the small increase, and it's a fraction of peers, but just on the, it looked like some ag and one to four family. And Randy, I think in your opening comments, you know, didn't sound anything systemic and at these low levels. you know, we're going to see it bumping around. But anything to speak on and what you saw in terms of the quarter?

Yeah, Jeff, I appreciate the context around the change. That's very appreciated. But, you know, just as Randy said, there's no specific industry asset class or geography that's showing any level of outsized risk. I think what we're seeing, Jeff, is just continued signs of normalization in overall asset quality. We're obviously coming off of a very a very strong position of asset quality. So, you know, it doesn't take much to move the needle. You know, and given the particulars, you know, you mentioned agriculture. That was basically centered on one relationship that we had been working with for some time now. You know, the challenge there is more on the management side, not market. So, you know, we'll be looking through that over the next couple of quarters. Outside of that, there's nothing of – particular concern. It's pretty well spread out. Okay.

Thank you, Tom.

Thank you. I'm not showing any further questions in the queue. I would now like to turn it back over to Randy for any closing remarks.

Great. Well, thank you very much for dialing in today.

We do have one question. Do you want to take it?

Sure. Absolutely.

One moment. All right. Our next question will come from the line of Matthew Clark from Piper Sandler. Your line is open.

Hey, Matthew. Hey, how are you? Sorry about that. I thought I was in the queue and I guess I wasn't. First question is on the core loan yield. I think they were up, you know, excluding accretion by 12 bps to 561. Can you just remind us how much of your loan book is truly floating and then assuming we get some additional rate cuts here in the fourth quarter and into next year, what are your thoughts on just the trend in loan yields with the benefit of the back book, but also the pressure on floating?

Yeah, this is Byron. I appreciate the question. In terms of floating, truly floating, about 7% of our loan portfolios is indexed to prime. We really don't have much indexed to SOFR, so that is the floating component of our loan portfolio. Trend into next year, as you mentioned, the back book and the repricing of that is going to be a very powerful dynamic for us. I think I would continue to expect our loan yields to increase as that repricing happens. About 20% of our loan portfolio will reprice in any given year. And we do expect some lift in that repricing at rates where they are and at rates where we see the market expectations going. So we do see continued lift.

Great. And then just the average margin in the month of September, if you have it, you know, either core or reported?

Sure. Our margin in the month of September was $2.88. Got it.

Okay, great. Thank you. Welcome.

Thank you. Now we don't have any further questions. Randy, over to you.

All right, Victor. Appreciate it. And thank you, everybody, for dialing in. Appreciate the interest. And want to wish everybody a great rest of the day, Friday and weekend as well. Thanks for joining us this morning.

Thank you for your participation in today's conference. It does include the program. You may now disconnect. Everyone, have a great day.