Glacier Bancorp, Inc.

Good day, everyone, and welcome to the Glacier Bond Corp 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 participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 1-1 again. Please note this conference is being recorded. Now it's my pleasure to turn the call over to Glacier's Bancorp's President and CEO, Randy Chesler. 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 Pollin, 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 another excellent quarter, continuing our momentum with strong margin expansion, higher loan yields, lower deposit costs, and solid high-quality loan growth. We also completed the core conversion of the Bank of Idaho with assets of approximately $1.4 billion, and shortly after quarter end, we successfully closed the acquisition of Guaranteed Bank and Trust, adding $3.1 billion in assets and expanding our presence in the Southwest. Bank of Idaho was successfully folded into three of our existing divisions, Citizens Community in Pocatello, Mountain West in Boise, and Wheatland Bank in Eastern Washington. The Bank of Idaho brought us a terrific team of lenders and staff, as well as excellent customer relationships. The Guarantee Transaction marks our first entrance into the state of Texas, and we're excited about the long-term opportunities this brings. Our focus now is on delivering a flawless conversion in the first quarter of 2026 and making sure we have happy employees and customers. For the third quarter, Glacier Bancorp reported net income of $67.9 million, or $0.57 per diluted share. The third quarter net income represents an increase of 29% from the prior quarter and reflects a 33% increase in net income compared to the same quarter last year. Pre-tax, pre-provision net revenues of $250 million for the first nine months of the current year increased 77.1 million, or 45%, over the prior year first nine months. Our loan portfolio grew $258 million to $18.8 billion, or 6% annualized from the prior quarter. Commercial real estate continues to be a key driver of loan growth. Deposits also grew, reaching $22 billion, up 4% annualized from the last quarter. Non-interest-bearing deposits grew again this quarter, increasing 5% annualized and now representing 31% of total deposits. We reported net interest income of 225 million up 18 million or 9% from the prior quarter and up 45 million or 25% from the same quarter last year. Our net interest margin on a tax adjusted basis expanded to 3.39% up 18 basis points from the prior quarter and up 56 basis points year over year. This marks our seventh 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 5.97% in the current quarter increased 11 basis points from the prior quarter and increased 28 basis points from the prior year third quarter. The total earning asset yield of 4.86% in the current quarter increased 13 basis points from the prior quarter and increased 34 basis points from the prior year third quarter. Total cost of funding declined to 1.58% down five basis points from the prior quarter. as we reduced higher cost federal home loan bank borrowings by $360 million. Core deposit costs decreased in the quarter to 1.23% from 1.25% in the prior quarter. Non-interest expense was $168 million, up $13 million or 8% from the second quarter, primarily due to increase cost from acquisitions. Non-interest income totaled $35 million in the current quarter, up $2.4 million, or 7% from the prior quarter, and up 2% year over year. Service charges and fees increased 5% from the prior quarter, while gains on loan sales increased 18% from the prior quarter. Our efficiency ratio remained at 62%, down from 65% a year ago with good momentum for continued steady reduction. Credit quality remains very strong. Our non-performing assets remain low at 0.19% of total assets, and net charge-offs were $2.9 million for the quarter, or three basis points of loans. Our allowance for credit remains at 1.22% of total loans, reflecting our conservative approach to risk management. We continue to maintain a strong capital position with tangible stockholders equity increasing 304 million or 14% in the current year. Tangible book value per share increased to $20.46, up 8% year over year. And we declared our 162nd consecutive quarterly dividend of 33 cents 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 operator to open the line for any questions that our analysts may have.

Thank you, and as a reminder, to ask a question, simply press star 11 to get in the queue and wait for your name to be announced. to remove yourself, press star 11 again. Please stand by while we compile the Q&A roster. One moment for our first question that comes from the line of Jeff Rulis with DA Davidson. Please go ahead.

Thanks. Good morning. Good morning, Jeff. You guys, on the margin, You did note the seven consecutive quarters of expansion. This quarter was the largest sequential of all of them. I won't read into kind of the lumpiness of that, I suppose, but a good sign nonetheless. You guys have really guided very well on the trend on that front. Maybe just to catch us up on where you think you have see it headed in light of September's cut and potentially a couple more through the end of the year. That'd be great on the visibility front.

Hi, Jeff. This is Byron. Yeah, it has been great to see the continued improvement in our margin. And I would say those repricing drivers in our balance sheet that we've discussed, they remain in place. And so we do see continued growth ahead of us in terms of our outlook. For Q4, we anticipate that that will grow our margin additional 18 to 20 basis points in the fourth quarter. That does include the impact of guarantee. I know a lot of folks will be interested in our 2026 outlook. I don't have specifics for you there. We're just now starting our budgeting cycle for 2026. But broadly speaking, what I can say is we do expect to see continued margin growth throughout the year. I would say, though, that the pace of quarterly increase is likely to moderate throughout next year. So hopefully that gives you some color for where we're headed. We do see continued growth.

Just to refine that, Byron, when you said the margin growth throughout the year, you're mentioning additionally in 26, but not specifically. Is that what you were referring to?

Exactly right. I don't have a specific guide for you in 26. I think we need to get to our budgeting cycle first to really refine that expectation. From where we sit right now, we do see continued growth throughout the year. Quarter to quarter, I could see the pace of growth starting to moderate a little bit.

Understood. Thank you. Randy, we are early goings in the Texas market, but interested in the reception there and how potentially your view of finding further partnerships in Texas and Oklahoma, if you've got any update there, if you're just as encouraged or less more, just interested in that feedback so far, again, very early, but notable anyway.

Yeah, no, absolutely. You know, first I'd say I think Guaranty may be the best cultural fit of any acquisition we've done in the last 10 years. Very, very good fit. Our focus right now is on getting Guaranty converted in one queue and making sure that goes extremely well. I will tell you there's conversations already. We'll have plenty of interested banks who would like to have a conversation when we're ready. Our job... One right now is making sure we get through the conversion in one queue and do it really, really well. Make sure our customers are happy, employees are happy, and then, like I said, we'll have plenty of banks to talk to.

Gotcha. Maybe one last housekeeping, if I could squeeze it in. The tax rate seemed a little elevated. I don't know if that's a factor of kind of merger costs, but if you could just point us to maybe a good rate going forward.

Yeah, Jeff, Ron here is a function of largely the merger-related expenses, some of which are non-deductible. And I would tell you that third quarter rate, I would use that as well for fourth quarter.

Okay. And, Ron, is that an assumption of additional merger costs or just more of a core rate to match third quarter?

We'll have some more merger costs as well, but I think it's a pretty good rate to go with. OK, thank you.

Thank you so much. One moment for our next question. That comes from the line of David Pfister with Raymond James. Please proceed.

Hey, good morning, everybody.

Morning, David. Maybe just on the growth side. I mean, you know, loan growth has been solid, kind of remained in that mid single digit realm. Just wanted to get a sense of how demand's trending, how the pipeline's shaping up and you're backfilling that production. And then, you know, just any comments on the competitive landscape as well. And, you know, I mean, we're hearing more competition, especially on the pricing side, maybe a bit more on the structure as well. But just, again, wanted to get a sense of your thoughts on the loan growth side and how that competitive landscape's shaping up.

Yeah, David, this is Tom. Yeah, third quarter was another good quarter for us. And, you know, typically second and third quarter are seasonally stronger for us, a little bit less so in fourth and first quarter. You know, I think we expect that a little bit. But, you know, from a pipeline perspective, you know, we continue to see consistent pull through. We continue to see consistent build back. And it's really fairly consistent throughout the footprint too. And I think from a competition standpoint, it's a little bit geographic specific. In some of the larger markets, we'll see more pricing competition, a little bit less so in markets where we have more of a controlling market share. Certainly in the types of deals that we go after, just core main street lending, We're not really seeing competitors stretch on the structure side, which is encouraging, and certainly not something that we would do. So it tends to be more pricing related.

Okay. And maybe just staying on credit broadly. I mean, credit is still pretty benign for you all, especially just, you know, again, the government. The increase that you guys saw in non-accruals, all government-guaranteed, Is there anything on the credit front that you're seeing at this point or watch more closely, or is there anything specific within the small business space that you're seeing notable pressures?

You know, the only industry that I would say is a little bit outsized is probably the ag sector. You know, hard grain prices, hay prices are still quite depressed. You know, we're faring quite well. Through this, I think our banks do a good job of securing those assets with certainly more hard assets than crops. I think that gives the flexibility of both us and the borrower to work through these cycles. Certainly, our ag lenders have a tremendous amount of experience and have seen cycles like this over and over again. Outside of that, David, there's really no specific geography or industry segment that's showing an outside level of risk. You know, we saw a little bit of an increase this quarter, similar to last quarter. I think we're just continuing to see more normalization from, you know, the historic lows that we were showing for the last couple of years.

Okay. And then maybe last one for me, just maybe a bit higher level conceptual. Like, I mean, we look back, I mean, there's obvious, you guys have done a great job driving the margin expansion, right? And there is a huge tailwind just from the remixing your pricing side. And then, again, obviously, organic loan and deposit growth is, again, accretive to the margin as well. You look pre-pandemic, right? I mean, you guys were consistently operating well north of 4%. Yeah, is that just in this kind of world, is that still a reasonable target? I mean, you guys have continued to march your way towards that. but is that a reasonable target that we could hit in some time in the foreseeable future? Just kind of curious your thoughts on that.

Yeah, David, I do think we can get back to that 4% threshold. It's a matter of timing. I think it's really a matter of when, not if. I don't have specific timing for you. It wouldn't surprise me towards the end of next year if we see a full handle on our net interest margin. Now, A lot of things could impact that between here and there. You know, what happens with our loan growth and deposit growth? You know, what's the Fed doing and shape of the curve? All of those things are going to influence that longer-term margin. But I do see the potential to get there in the future.

Okay. That's super helpful. Thanks, everybody.

Thank you. Our next question comes from the line of Matthew Clark with Piper Sandler. Please proceed. Hey, good morning everyone.

I want to start it on the deposit cost side, just if you could give us the spot rate on deposits at the end of September and just give us a sense for what kind of beta you think you can achieve with this last rate cut that we just got and and subsequent rate cuts?

Our spot deposit cost on September 30 was 1.22%. In terms of our beta, to this point, we've been able to achieve a downright beta somewhere in the mid-teens with some amount of lag. Our deposit cost doesn't react immediately to a rate cut. It takes us a little time to kind of work into that, call it 15%. deposit beta. With the addition of Guaranty, their deposit base has a slightly higher beta. So, you know, if we were 15, I think somewhere going forward with a combination of Glacier and Guaranty, you know, maybe that pushes us up, you know, another couple of percent. So, somewhere in the range of, you know, call it 15 to 20 percent would be my expectation for our down rate beta going forward.

Okay. Thank you. The other one for me, just around the expense run rate and your updated guidance there, whether or not that's changed since last quarter with guarantee now in the fold at the start of the fourth quarter. I don't know if you want to, sounds like you're still budgeting for next year, so I don't know if you want to offer up anything in the first quarter, but I assume there's some seasonality there.

Yeah, Ron here. Thank you for the question. Yeah, well, we're budgeting, so I'm just going to limit the discussion to the third quarter. I want to touch on that and then go towards the fourth quarter. So in the third quarter we finished reported non-interest expense $167.8 million. That includes $7 million in acquisition related expense and $800,000 we incurred for a fixed asset write down related to a branch consolidation in one of our Montana markets. And I want to Remind folks that the core non-interest expense includes merger-related expenses, other one-time unusual items. So taking those adjustments into account, our core non-interest expense was flat at $160 million right in the midpoint of the guide of $159 to $161. That was shared on the last quarter's call. And then moving into the fourth quarter, just looking at Bank of Idaho, we had a full three months of expense from them versus two months in the prior quarter. So Bank of Idaho projected to add 9 to 10 million in that third quarter, came in just about $9 million, the low end of that guide. And we expect that to occur. Bank of Idaho impact for the fourth quarter will be just right around that $9 million number. So then with the acquisition of Guaranty Bank on October 1st versus we were thinking it would be October 31, we're now going to have a full three months of expense from Guaranty. And this will cause a step up in our core non-interest expense. It'll add 21 to 22 million to core non-interest expense in the fourth quarter. But in addition, Because of purchase accounting, we're going to have $3 million of amortization expense for a core deposit intangible that we had to record as we would on any acquisition. So in the fourth quarter, when you look across it and put it all together, we're expecting a range of $185 million to $189 million. And again, that includes guaranteed banks. But collectively, I just want to speak very highly of our bank divisions, corporate departments. They've done very well in limiting, controlling their expenses. We do continue to take a cautious approach in hiring, spending in general. You've still got higher levels of market volatility, et cetera. Let me open it up for questions.

That's great, Ron. Thanks for the color.

A moment for our next question. And he's from the line of Andrew Terrell with Stevens. Please proceed.

Hey, good morning. Good morning. Maybe I'll just start back there on expenses. Ron, I really appreciate the guidance on 4Q with all kind of the moving pieces. Just understanding that, you know, the the core system conversion for guarantee isn't until the first quarter of 26. I'm assuming the 185 to 189 guide for the fourth quarter doesn't incorporate much in terms of cost save and, you know, question being, should we expect some moderation off that 185 to 189 going into 2026 just as we experience the core system conversion and get some call saves?

Yeah, we will have... in the beginning in the first quarter again largely related to after the conversion you know that's when the cost stays really start to kick in and as we modeled we're modeling 20% reduction in non-interest expense cost days 50% of that we will achieve in 26 the other 50% will be in 27 and so as I mentioned earlier you know we're still beginning, I should say, in the budgeting process, but there will be some moderation.

Yep. Got it. Okay. I appreciate it. And if I could go back to just the margin commentary briefly for Byron, I appreciate all the color there. I specifically wanted to ask about the comment of just, you know, less margin expansion sequentially throughout 26 versus what you've experienced this year. And You guys have benefited from a few things this year. M&A has helped. The FHLB deleverage has helped significantly, and I think that slows down or kind of ends in one queue of next year, but then the fixed asset repricing. And I'm curious, the comments on slower margin expansion next year, is that mostly reflective of less FHLB deleverage potential, less M&A leverage? related expansion, but asset repricing trends staying intact? Or do you expect relatively less asset repricing benefits as well?

I would say, for the most part, it's the FHLB deleveraging. As you point out, we really finished that by the end of the first quarter. And so, And so we don't, you know, that extra boost or pop that we get from paying down, you know, high cost of funding, you know, that will end in Q1. But also on the fixed asset repricing, we still see from a balanced perspective, we still see that asset repricing is there. I would say from a rate perspective, the five-year point of the curve has come down some. And so... you know, that's also kind of playing into and influencing that comment I made earlier where we're seeing less lift. I think we'll see less repricing lift just because of where that five-year point of curve is right now. It could change, of course.

Yep, fair enough. Okay. And last one just for Randy. I appreciate your comments on on the Texas market and how well the guarantee acquisition has gone so far. I wanted to ask about your comments. I know the near-term priority is getting everything integrated from guarantee, but it sounds like conversations maybe could be picking up. And I think your comments were specific to Texas, but I'm curious just on the overall M&A strategy going forward. Should we expect there's more of an emphasis in the Texas market as you build out scale there or are you equally as focused kind of legacy mountain West franchise and Texas, I guess is, is one more in a roller. Would you expect to grow more in one than the other?

Um, yeah. So I'd say overall MNA, you know, I think what we offer is becoming even more, uh, attractive to sellers, especially with, uh, some of the larger banks, uh, purchasing, uh, banks and in our market. Um, We think that's very, very positive for us. So we offer something that's very different and very attractive to a lot of sellers. I don't think we can put an emphasis on Texas over the Mountain West, the Southwest over the Mountain West. It's just getting back to we have a lot of optionality with very, very good sellers across that entire area. So we're not really prioritizing one area over the other. Like I said, our focus is to do a great job on the conversion, and then we'll see where the conversations take us.

Great. Thanks so much for taking my questions.

Thank you. Our next question is from Kelly Mota with KBW. Please proceed.

Hey, good morning. Thanks for the question. Morning, Kelly. Maybe one for Byron. I think the guidance for margin last quarter was 15 to 17 basis points plus another 5 to 7 from guarantee. It seems like at least near term it might be a little bit lower. Can you provide any context for the color around that? Wondering if guarantee is maybe contributing less or there's less accretion income. Any color would be helpful. Thank you.

Sure. We have an estimate in there for the loan marks and the purchase accounting and creation. So we have an estimate in there. I think it may be a little bit more modest than it was prior quarter. Also, kind of back to that five-year point of the curve, our repricing list is just a little bit softer. And also, just looking at the rate cuts. And I mentioned that lag on the deposit side. So the timing of the cuts and the reaction of our deposit base can create a little bit of noise during the quarter. And so put that all together. Thought it might be good to just kind of rein in just a little bit that market. At 18 to 20, it's still a very strong quarter for us.

Got it. That's really helpful. Another question that maybe you can humor me on. this non-depository financial institution lending. From what I can see in the call reports, it looks like it's almost negligible where you guys, what your exposure is. Just wondering if that's the case and if you could provide just a moment. Credit has been such a strong selling point of Glacier, just the types of commercial credits you look at and kind of what gives you comfort with the outlook ahead. Thank you.

Sure, Kelly. It's Tom. And you're right on the assessment of non-depository financial institution. It's immaterial. And, you know, Kelly, it's just, it's not a business line for us, you know, neither a syndicated or any other indirect type of business. You know, with our division model, can I answer the last part of your question? You know, at the end of the day, we're a collection of community banks. We're main street lenders that deal with local businesses and consumers. And we just haven't had the appetite really at all for, you know, syndicated and direct, nor do we foresee exploring it. And so, you know, I think when we look at the nature of the pipeline, it really falls right in line with, you know, how the footprint is laid out, good, strong local borrowers, Main Street lenders that we've had relationships with for years.

Thank you, Tom. I'll step back.

Thank you so much. And as a reminder, to ask a question, simply press star 11 to get in the queue. All right, and our last question comes from the line of Team Coffee with Jenny Montgomery Scott. Please proceed.

Thank you. Good morning, everybody. Morning. Tom, if I could follow that last question Kelly was asking. We've seen a... handful of missteps in the last couple of weeks from some banks. And I was wondering if, in general, you could discuss kind of the processes and checks you have in place at Glacier to ensure that borrowers are doing what they're supposed to be doing.

Yeah, sure. Well, you know, first of all, it begins with knowing your customer. And, you know, the other thing is the loans that we have on our books, we're in control over. So that kind of goes back to that indirect comment or purchase participations or syndications. That's just isn't really a space that we play in. We want to be, you know, directly in control of the relationship. And then, you know, I think to answer the latter part of your question, you know, we have credit administration functions in every single one of our divisions. And that's proximate to the street, proximate to the customers. They're in the communities where we meet with our borrowers on a regular basis, typically minimum on a quarterly basis for our larger borrowers. But we're also seeing these borrowers at community events and sporting events. And so, you know, it goes back to just the true core community bank type lending. And then, you know, from a more formal perspective, you know, we're very good and deliberate with our covenant structure and our new originations, our ongoing annual reviews of both, you know, each of the division banks and then also an ongoing regular review of the portfolio at large. And so, you know, I think when you just encapsulate all those things together, we really have a strong understanding of what's going on with our borrowers. That's great.

All my other questions have been asked and answered. Thank you.

Thank you so much. And this will conclude our Q&A session. And I will pass it back to Randy for concluding comments.

All right. Thank you, Carmen. And I want to thank everyone for dialing in today and joining our call. Have a great Friday and a great weekend.

Thank you. And this concludes our conference. Thank you all for participating. And you may now disconnect.