Glacier Bancorp, Inc.

Good day and thank you for standing by. Welcome to the Glacier Bancorp Second Quarter 2025 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. 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 your speaker today, Randy Chesler, President and CEO of Glacier Bancorp. Please go ahead.

Good morning and thank you for joining us today. With me here in Kalispell is Ron Cofer, our Chief Financial Officer, Tom Dolan, our Chief Credit Administrator, Angela Dosey, our Chief Accounting Officer, and 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 13 of our press release, and we encourage you to review this section. We delivered an excellent quarter, continuing our momentum with higher loan yields, lower deposit costs, increasing margin, solid growth, and disciplined expense management. We successfully completed the acquisition of the Bank of Idaho, adding $1.4 billion in assets and expanding our presence in Idaho and eastern Washington. The integration is progressing very smoothly, and we're excited about the long-term opportunities this brings. We also announced a definitive agreement to acquire Guaranty Bank Shares, a $3.1 billion bank headquartered in Mount Pleasant, Texas. This marks our first entry into the state and represents a significant step for our company and in our strategic expansion of our Southwest presence. We report a net income of $52.8 million for the second quarter, or 45 cents per diluted share. Our results include $19.9 million in credit loss expense and acquisition-related expenses, primarily from the completion of the Bank of Idaho acquisition. While the second quarter net income represents a decline of 3% from the prior quarter due to acquisition expenses, It reflects an 18% increase in net income and a 15% increase in earnings per share compared to the same quarter last year. Our loan portfolio grew $1.3 billion to $18.5 billion, an 8% increase from the prior quarter, with $239 million or 6% annualized in organic growth. Commercial real estate continues to be a key driver of loan growth. Deposits also grew, reaching $21.6 billion, up 5% quarter over quarter. Notably, non-interest-bearing deposits increased 8% and continue to represent 30% of total deposits. Deposits and repurchase agreements organically increased by $43 million, or 1% annualized from the prior quarter. We reported net interest income of $208 million, up $17.6 million, or 9% from the prior quarter, and up $41.1 million, or 25% from the same quarter last year. This growth was driven by higher average loan balances, improved loan yields, and declining funding costs. Our net interest margin on a tax-adjusted basis expanded to 3.21%, up 17 basis points from the first quarter and up 53 basis points year over year. This marks our sixth consecutive quarter of margin expansion reflecting the strength of our loan portfolio repricing, our ability to get good margin on new loans, and our continued focus on managing funding costs. The loan yield of 5.86% in the current quarter increased nine basis points from the prior quarter loan yield and increased 28 basis points from the prior year second quarter. The total earning asset yield of 4.73% in the current quarter increased 12 basis points from the prior quarter and increased 36 basis points from the prior year second quarter. Total funding costs declined to 1.63% down five basis points from the prior quarter as we reduced higher cost federal home loan bank borrowings by $265 million in the quarter. Core deposit costs remained stable at 1.25%. On the expense side, non-interest expense was $155 million, up 3% from the prior quarter. This includes $3.2 million in acquisition-related costs. Compensation and benefits rose due to increased headcount from the Bank of Idaho acquisition and annual merit increases. Non-interest income totaled $32.9 million in the current quarter, up slightly from the first quarter, and up 2% year over year. Service charges and fees increased 8% from the prior quarter, while gains on loans remained steady. Our efficiency ratio improved to 62.1%. 0.08% down from 65.49% in the prior quarter and 67.97% a year ago, reflecting positive operating leverage. Credit quality remains very strong. Our non-performing assets remain low at 0.17% of total assets. and net charge-offs were just 1.6 million for the quarter. Our allowance for credit remains at 1.22% of loans, reflecting our conservative approach to risk management. We recorded a provision for credit loss of 20.3 million, which includes 16.7 million related to the Bank of Idaho acquisition. Excluding that, Our core provision for credit loss was $3.6 million. We continue to maintain a strong capital position. Tangible book value per share increased to $19.79, up 8% year over year, and we declared our 161st consecutive quarterly dividend of $0.33 per share. underscoring our commitment to delivering consistent shareholder returns. We are very pleased with our performance this quarter. Our expanding footprint, unique business model, strong business performance, disciplined credit culture, and strong capital base provide a solid foundation for future growth. That ends my formal remarks. And I would now like the conference call operator to open the line for any questions our analysts may have.

As a reminder, to ask a question, please press star 11 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. And our first question comes from Jeff Ruiz with DA Davidson. Your line is open.

Thanks. Good morning. Morning, Jeff. I wanted to check in on the margin. Certainly seems to be tracking really well to the guide. I think you've talked about a 350 exit towards the end of the year. Just wanted to see if there's anything in the current quarter on kind of one-timer or accretion bump, or is that all-in number kind of, again, stair-stepping towards that exit kind of pre-guarantee?

Yeah, Jeff, this is Byron. I can address the margin. Yeah, we do think that we'll see continued growth. We did see great traction in the second quarter from the NIM drivers that we've discussed in the past. And we do think that we can continue this pace of increase, at least for the next couple of quarters. Our margin grew 17 basis points in the second quarter. And we think we can repeat that level of growth in Q3 and Q4. To put a range on it, maybe we grow 15 to 17 basis points per quarter. Keep in mind that does include the impact from the Bank of Idaho. So, this does represent a little bit of an increase from our prior margin guide. We did see better than expected lift from the Bank of Idaho. We also saw stronger than expected loan growth in the second quarter, which helped lift our margin. There is some variability around that outlook, you know, depending on what happens with loans between now and the end of the year, you know, what happens with deposits between now and the end of the year. you know, that could drive some variability there. Also, with guarantee and the announced acquisition there, depending on the timing of when we close that acquisition, I think guarantee could add an additional six to seven basis points on top of, you know, what we just discussed.

Byron, thank you. Really detailed. Appreciate it. On the It sounds really positive. The expense side, Ron, maybe we start applying it 80% of your expense guide, but I guess the bank's been pretty efficient. And I guess ex-merger costs, if we think about the third quarter, we get a little pause between deals potentially. I guess ex-merger costs and getting a full quarter of Bank of Idaho, kind of getting into that $155 million. Maybe that's a little skinny. If you could just course correct on where you think expenses plus growth head from here.

Okay. Thank you. Just let me go back for the benefit of everyone. That $153.5 million Randy covered in his opening remarks, $3.5 million below second quarter guide of $157 to $158 million per core non-interest expense. Just want to remind everyone that that guide included $6 million for Bank of Idaho for the two months after its April 30 acquisition. And so think back to the first quarter, the second quarter had the same environment in that we remain cautious in spending given the continuing economic uncertainty, market volatility, I think we're all aware of the noise that's in Washington, et cetera. So out of that $3.5 million, $500,000, half a million, is attributable to Bank of Idaho coming in lower than the $6 million. They're not yet converted. That will happen later, but nonetheless came in lower by $500,000. And of that remaining $3 million, $1.2 million is due to lower third-party outside consulting services. Another $300,000 is lower occupancy and facilities expense. In part, you noticed last year and this quarter as well, we had the number of sales of former branch facilities, so it's getting more efficient there. And then the remainder of that $1.5 million, it really was spread across Many other expenses collectively, including Bank of Idaho, these are corporate departments. Each of the bank divisions have done a great job in controlling their expenses. And of that 1.5 million, there was no category, you know, greater than 250,000. So it really was pretty widespread. So looking ahead to the second half of 25, the previous guide I gave in April for core non-interest expense, it was $160 to $162 million for each of the third and fourth quarters. Recall that higher guide, it reflects the $9 to $10 million increase because we're going to have three months of the Bank of Idaho versus the $6 million was there only for the two months in quarter two. So that's an increase of $3 to $4 million on each side of that guide. And then for the third quarter, we're going to reduce the core non-interest expense guide to $159 to $161 million. And I'll go ahead For the fourth quarter, the guide will go to $161 to $163 million. I do want to point out that that increase, we had $153.5 million. If you compare that back to the $152 million we had for Q1, that represents a 1% increase. And then just to add perspective, for quarter three, The midpoint, and I want to focus there, is $160 million on the new guide. And that represents an increase of $6.5 million over the $153 million operating expenses for Q2. That $6.5 million includes incrementally $3.5 million for the Bank of Idaho acquisition. The remainder is $3 million from all the other divisions, corporate departments. So I want to add perspective in that $3 million aside from Bank of Idaho, that represents a 2% increase when you compare that to the base of $153.5 million for Q2. We are going to see some increase in that $3 million because we've had some pretty strong deferred expenses back in Q1. As a reminder, third-party consulting, we came in lower by almost $800,000. And then here in the, as I said a moment ago, third-party consulting came in $1.2 million. If you add that together, that's $2 million. So we are expecting some additional hiring in the third quarter, and some of that deferred consulting will show up at the bulk of it. There will be other increases, but that's the bulk of it. And then looking to the fourth quarter, the midpoint for the Q4 guide is $162 million, which is $2 million more over the third quarter estimate. So to put that into perspective, that $2 million over the Q3 base, midpoint 160, That's one and a quarter increase. My point is that we're going to have a step up in Q3, but overall, we continue to moderate the growth in our operating expenses. And just as a reminder, operating core means excluding M&A and any gain or losses on the sale of branches, anything else that's really unique here. So let me, just so I don't forget, Assuming we're going to close on guarantee and say October 31st, you would add $14 billion to the guide I gave for the fourth quarter to include guarantee. With that, let me ask for any questions.

No, Ron, you're very thorough. I appreciate it. Thanks for walking me through that. I'll step back. Thanks.

Thank you. Our next question comes from Matthew Clark with Piper Sandler. Your line is open.

Hey, thanks, and good morning, everyone. Morning. Just going back to the loan yield expansion, can you quantify just how much in purchase accounting accretion contributed to interest income this quarter versus last quarter? I'm just trying to get a handle on the core loan yield trends.

I think it's right around 4%. basis points for this quarter.

Okay. And last quarter, do you recall?

Yeah, that was closer to eight.

Okay. Okay. Thank you. Great. And then on your interest-bearing deposit costs, I think they were up one basis point this quarter. I'm trying to get a sense for I said that was from Bank of Idaho, you know, inflating that number a little bit, or is there, you know, I know the Fed's been on hold. You guys have probably been pretty steady in terms of your rates out there, but just trying to get a sense for any impact from the deal and kind of what you're seeing on the pricing front.

Yeah, Matthew, that was from the acquisition of Bank of Idaho. I think from here in terms of deposit costs, I would see our costs as being fairly stable, kind of moving sideways. A catalyst for change or additional cost reduction would be another Fed cut if we do get that. I would say that's on our cost of deposits. I would say on our cost of funds, we do expect that to continue to come down as we expect it to continue to pay down. our higher cost FHLB borrowing.

Yep, got it. And then if you had the spot rate on deposits at the end of June, I'll take it in the average margin in the month of June.

Yes, spot rate at the end of June on deposits was 1.25%, and the spot margin adjusted for timing differences within the quarter, spot margin in June was 3.30%.

Okay, 3.30 for the month, not the end of June?

Correct.

Okay, thank you.

Welcome. Thank you. Our next question comes from David Feaster with Raymond James. Your line is now open.

Hey, good morning, everybody. Morning. Good morning. I wanted to touch on the organic growth side. I mean, obviously we've got a couple of deals going on. There's a lot of focus there, but I mean, your organic loan growth was solid. I'm curious maybe how pipelines are shaping up today, the pulse of your clients with maybe tariff uncertainty abating a bit and just maybe the competitive landscape from your perspective.

Yeah, David, this is Tom. Yeah, we were quite happy with the organic growth. You know, second quarter is generally seasonally stronger than You know, and then in addition to that, you know, not only from a top-line perspective, but also, you know, we enter the construction and the agriculture season, so we see stronger line utilization, which is a tailwind as well. You know, as you mentioned, you know, production levels were, you know, seasonally strong as well, particularly in theory. And, you know, from a pipeline perspective, we continue to see good and consistent deal flow, and customers continue to be optimistic. I think the instances of us hearing from a customer that they're, you know, tapping the brakes and waiting for more clarity is fewer and farther between. Certainly more so today than, you know, from the beginning of the quarter. So, you know, I think, you know, when you look at the whole year, you know, second quarter is generally the strongest. Third quarter also shows some strength. A little bit less so in first quarter and fourth quarter. But, you know, we've got some tailwinds as well.

Can you maybe touch on the competitive side? Anecdotally, we hear across the industry that competition is increasing, especially on the pricing front. Are you seeing that? Have you seen anything beyond pricing? Are you seeing competition maybe increase on structure and underwriting?

Yeah, I think we're not really seeing that much competition on the structure side, which is encouraging. We're glad to see that. We do see it on the pricing a little bit in some of the larger markets, but areas where we have more of a commanding market share, we tend to get pretty strong margins. And I think if you look at just margins overall, we're still seeing really strong production yields. I mean, for the quarter we were at 7.35 average production yield for the quarter, which is still, you know, a pretty good spread.

Okay. That's great. And then, you know, you touched on some hiring that you guys are looking at potentially here in the third quarter. I'm curious, where are you seeing opportunities? Are these revenue producers or more back office and then just Again, high level, it's still early. I'm curious maybe your thoughts on potential opportunities in Texas just given the additional M&A that's come after your deal was announced and whether the guaranteed team might be looking at opportunities to add talent there from that potential disruption. Yeah.

So the hiring that we've been very slow to kind of fill positions. And so, Dave, some of this is just infrastructure, back office to support some of the growth that we've stretched a couple places. So we're going to fill those. There is some revenue expansion hiring in there as well. But the bulk of it is more operational across the 17 divisions and a holding company that Texas, yeah, there's a lot going on down there. We've been talking to the guarantee folks and they are all over these changes. And so I think there will be some opportunity as some of those transactions pan out. That being said, we've got a great staff down there tying his team together. have a great lending staff already in place. So I think they'll be very selective, but there could be some opportunities given some of the transactions that have been announced. Okay. That's helpful. Thanks, everybody. You're welcome.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone. Again, that is star 11 to ask a question. Our next question comes from Andrew Terrell with Stevens. Your line is open.

Hey, good morning. Morning. Wanted to stick on loan growth for a bit. You know, the production and kind of pipeline commentary all sounds pretty solid and good to hear you guys are getting some good pricing as well. I know that, you know, in the first quarter there were some heavier payoffs. To the extent you guys do have kind of line of sight into that, do you feel like the payoff pressure is somewhat higher

abated for you kind of moving into the back half of the year and then just kind of rounding out the loan growth do you feel like this kind of mid single-digit organic pace of growth is kind of achievable at least kind of in the near term yeah the payoff pressure we still saw that in the second quarter you know especially when you're you're looking at some of the multifamily stuff where we did construction and stabilization and then the asset either sold or you know went to a secondary provider That was still present in the second quarter. I do see that possibly abating somewhat towards the end of the year, just looking at the volume and the cadence of those projects coming around. So I think the growth in the second quarter was boosted by a couple of different factors. One, some increase in top line production, and then also better line utilization as we enter the construction and ag season. But I think for the full year, that low to mid single digits is still where we're comfortable.

Got it. Okay. Thank you. And then maybe for Byron, yeah, Byron, on the margin, you know, I'm looking at the borrowing position. You guys are obviously doing a good job in deleveraging. I'm curious as you kind of give the margin expectations, and I appreciate all the color there. You know, how should we think about the pace of borrowing reduction that we could see over the balance of 2025 is, you know, $250 million or so off this quarter on the FHLBs. Is that kind of a fair run rate, or does it more match securities cash flow? Just how should we think about, you know, the borrowing reduction and just size of the balance sheet?

Yeah, we put a ladder of term FHLB advances in place some time ago, and Those mature on a quarterly basis, and the quarterly maturities do increase. So I think we had a $300 million maturity in Q2. That was offset. We did inherit $35 million of advances from Bank of Idaho. But in terms of the third quarter, I think we'll see north of $300 million in terms of FHLB maturities. Q4, I think, you know, somewhere in the, you know, $400, $440 million range in terms of maturity. I do expect that we'll be able to pay down most, if not all, of those maturities. But we'll see. We'll evaluate, you know, what the lending opportunities are on Tom's side of the balance sheet, you know, what deposits are doing. But to answer your question in terms of maturity, We do have a progressively increasing maturity, and the final maturity will land in the first quarter of next year. At that point, those term advances will have maturity.

Understood. Okay. So, yeah, maybe a slightly increasing pace. And I'm assuming that that's kind of fully reflected in the margin details or margin guidance you gave earlier?

Yes, it is.

Okay. Okay. Great. The rest of mine have been addressed. Thanks for the questions. Welcome.

Thank you. Our next question comes from Kelly Motta with KBW. Your line is now open.

Hey, good morning. Thanks for the question. Morning. I did want to stick on the margin. It's great expansion this quarter. Nice, nice loan growth. And it seems like the trajectory remains quite strong. As we look to next year, are there any other factors in terms of either an acceleration or slowdown of back book pricing that would mitigate some of the really strong pickup we saw this year? Maybe said another way, pre-pandemic you were 4% plus. Is there anything structurally different that would prohibit you from continuing to make progress towards that level?

Kelly, I do think they will continue to see margin growth throughout 2026. I don't want to put any numbers on it, but I do think that the tailwinds that we're feeling now, they will persist and carry us through the end of next year from a margin growth perspective. I don't see anything that would prohibit us from getting back to some of our historic you know, maybe by the end of next year.

Okay. That's really helpful. And, you know, I appreciate all the color on the expense moving parts. You know, at a higher level, as you guys kind of grow and scale up through, you know, the real success you've had with acquisitions, are there any other areas of technology or, you know, within the organization that you're looking to strengthen in order to continue to support your really nice growth that you've been having these past couple years?

So the technology, Kelly, in terms of we are looking at it in a number of places. It's making us more efficient. You're seeing some of that in the reduction in the efficiency. And, you know, we're We're continuing on those things. So implementation of a commercial loan platform across the entire company is really delivering really, really strong results. That's also welcomed by the folks that we're acquiring. They get excited about the more advanced technology and the capabilities to do a lot of things that make their lives easier. And I think ultimately the customer have a better experience. Our treasury platform, we're upgrading that and pushing that out right now. That's going really well. But that gives better tools to customers where they can manage their account and their finances more effectively. So those are just a couple of things, but we continue to look at our roadmap and look for ways to... to enhancing, and there's more behind that. We just tend to wait until they're out and getting traction before we really get into detail and describe them.

Thanks, Randy. I'll step back.

Welcome.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Randy Chesler for closing remarks.

Yes. Well, thank you, everyone, for joining us today. We appreciate your interest. As always, if any questions, give us a ring and have a fantastic weekend. Thanks again.

This concludes today's conference call. Thank you for participating. You may now disconnect.