Glacier Bancorp, Inc. Q4 FY2024 Earnings Call

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. 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. Please go ahead.

Good morning, and thank you for joining us today. With me here in Kalispell is Ron Copher, our Chief Financial Officer; Byron Pollan, 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 outlined starting on page 14 of our press release, and we encourage you to review this section. Overall, the Glacier team delivered a very strong fourth quarter and full year performance. The positive trend of margin expansion driven by increasing interest income and lower deposit costs continued in the fourth quarter. Credit performance remains very good, and we believe we are very well positioned for a strong 2025. Diluted earnings per share for the current quarter was $0.54 per share, an increase of 20% from the prior quarter diluted earnings per share of $0.45 and an increase of 10% from the prior year fourth quarter diluted earnings per share. Net income was $61.8 million for the current quarter, an increase of $10.7 million or 21% from the prior quarter net income of $51.1 million and an increase of $7.4 million or 14% from the prior year fourth quarter net income. The net interest margin as a percentage of earning assets on a tax equivalent basis for the current quarter was 2.97%, an increase of 14 basis points from the prior quarter net interest margin of 2.8% and an increase of 41 basis points from the prior year fourth quarter net interest margin. Net interest income was $191 million for the current quarter, an increase of $11.2 million or 6% from the prior quarter net interest income of $180 million and an increase of $25 million or 15% over the prior year fourth quarter net interest income. The loan portfolio of $17.3 billion increased $81 million or 2% annualized during the current quarter. The loan yield of 5.72% in the current quarter increased 3 basis points from the prior quarter loan yield of 5.69% and increased 38 basis points from the prior year fourth quarter loan yield. Total deposits of $20.5 billion at the end of the year 2024 decreased $168 million or 1% from the prior quarter and increased $618 million or 3% from the prior year-end. Non-interest-bearing deposits represented 30% of total deposits which remains unchanged from the prior year-end. The total core deposit costs, including non-interest-bearing deposits of 1.29% in the current quarter decreased 8 basis points from the prior quarter total core deposit cost of 1.37%. The total cost of funding, also including non-interest-bearing deposits of 1.71% in the current quarter decreased 8 basis points from the prior quarter total cost of funding of 1.79%. Non-interest expense was $141 million for the current quarter, a decrease of $3.7 million or 3% from the prior quarter. Non-interest income for the current quarter totaled $31.5 million, a decrease of $3.2 million or 9% over the prior quarter, and an increase of $684,000 or 2% over the prior year fourth quarter. The gain on the sale of residential loans of $3.9 million for the current quarter decreased $972,000 or 20% compared to the prior quarter and increased $1.7 million or 76% from the prior year fourth quarter. Our credit portfolio continues to perform at near-record levels with no material negative trends emerging. Tangible stockholders' equity of $2.1 billion at December 31, 2024, decreased $17.4 million or 1% compared to the prior quarter and increased $118 million or 6% compared to the prior year. On November 20, 2024, the company's Board of Directors declared a quarterly cash dividend of $0.33 per share paid in December. The dividend was the company's 159th consecutive regular dividend. 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 transactions during the year. Our purchase of the Rocky Mountain branches in Montana and the acquisition of Wheatland Bank in Eastern Washington, totaling approximately $1.2 billion in assets. And last week, we announced the proposed acquisition of Bank of Idaho, a $1.3 billion bank with locations in Eastern Idaho, Boise, and Eastern Washington. This is a great transaction for Glacier because it strategically expands our presence in several high-growth markets where we already have a presence. Financially, the transaction is very attractive, reflective of our disciplined approach to M&A with minimal tangible book value dilution, immediate accretion and conservative cost savings assumptions and a paid-to-trade ratio of only 76%. Bank of Idaho has a solid record of high performance. And this was a negotiated transaction between Glacier and Bank of Idaho. So that ends my formal remarks, and I'd now like to open the line for any questions that our analysts may have.

And our first question comes from Jeff Rulis with D.A. Davidson. Your line is open.

Thanks. Good morning, Randy and team.

Good morning, Jeff.

Could you provide an update on the margin and loan growth? Regarding the margin, you offered great clarity for 2024 as it approached 3%. I’m curious about the initial outlook for this year. I believe the December average was above 3%, but I’d like to understand your parameters for how you plan to frame 25% in relation to 2024.

Yes, I appreciate that. And we've had a lot of discussions about it. So Byron is ready to talk about margin.

Sure, Jeff. Looking ahead, we anticipate continued growth, although at a slower pace. In reviewing Q1, we expect to see this growth but at a reduced rate. Reflecting on our recent performance, the margin growth in Q3 of last year was bolstered by our acquisition of the Rocky Mountain branch. In Q4, the increase noted by Randy was supported by Federal Reserve rate cuts that resulted in lower deposit costs. For Q1, we plan to rely more on asset repricing. While we foresee growth in Q1, it will be at a slower pace. However, I believe our margin growth has the potential to accelerate throughout the year. In 2025, we expect to see a decrease in our investment securities portfolio, which should benefit our margin. Additionally, we will have high-cost FHLB borrowings maturing this year, creating an opportunity to improve our margin further. Furthermore, the Bank of Idaho transaction will contribute positively as well. When projecting the full year of 2025, I believe our margin will range between 3.20% and 3.25%.

Really good color. Thanks, Byron. And then I'm going to chase down the growth that I believe a little seasonally slower, but also given what the market's giving you, I guess, any thoughts on the big picture growth? Maybe any commentary about any shifts in customer demand that you're seeing. Trying to get a sense for what you guys are budgeting in '25 on the growth front organically.

Jeff, this is Tom. For looking forward, we're looking at low to mid-single-digit loan growth. Overall pipelines over the last quarter were stable, but we did see growth in early-stage opportunities. And there's growing optimism among the customer base, but we've yet to see it translate to actual deal flow yet. So with what we see today, we're looking at low to mid-single-digits for '25.

Okay, thanks. I'll step back. Thank you.

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

Hey, good morning.

Good morning.

Just a few more around the margin. The spot rate on deposits at the end of the year and the average margin in the month of December?

Sure, Matthew. This is Byron. Spot rate on deposits. This is total deposits at the end of December was 1.26%. And our December margin, we did have some noise within the quarter. And when you smooth out that noise, our December spot margin was 2.99%.

Okay. And then the guide of $320 million to $325 million for the year. That seems like it implies like a 340, 345 exit rate in 4Q. Is that fair 335 to 345?

Yes. You're spot on that.

Okay. The loan yields were up by 4 basis points to $565 million, excluding accretion. Can you provide your outlook on core loan yields, including accretion if you wish? I want to understand if loan yields can continue to grow if there is another rate cut, considering the back book.

Yes, I believe we will continue to see loan yields expand. As you mentioned, we have a relatively small percentage of our loans that are floating rate. However, we expect about $2 billion of loans to reprice in 2025. They will adjust based on the current market conditions, with repricing of 100 to 125 basis points. This repricing dynamic should be very beneficial. Additionally, I anticipate that new production rates will also remain strong. These factors contribute to our positive outlook for increasing loan yields.

Great. And last one, just on expenses. Ron, you want to take a stab at the run rate even though you beat it again for the year?

Thank you for the acknowledgment. I appreciate that. To clarify, the reported amount is $141 million, but after making a couple of adjustments noted in the earnings release, it comes to $143 million. We're just below that lower end. When we provided our guidance, we anticipated that we would likely need to adjust performance-related compensation by about $5 million. So, if we consider that, the total would be $148 million if we hadn't accounted for the expected performance-related adjustments. Regarding the guidance for 2025, which excludes Bank of Idaho, we expect quarterly figures to range from $151 million to $154 million. Typically, the first quarter is higher, which we estimate at about $154 million. As we progress through the quarters, the numbers will decrease as we adapt to our current space. The figures I provided include cost savings from Wheatland Bank, estimated at around $2.1 million, and from the Rocky Mountain Bank acquisition, which is expected to contribute about $2.8 million in 2025. Overall, we anticipate around $5 million in cost savings that are very much achievable in 2025.

Great, thank you.

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

Hey, good morning everybody.

Good morning.

I wanted to discuss the deposit side. You have been actively reducing deposit costs and working with your clients. You're starting from an already low level. I'm interested in how clients are responding to this and what additional opportunities there are to lower core deposit costs. Additionally, could you provide insights on the trends in non-interest-bearing and demand deposit accounts? How much of that is seasonal versus a shift between accounts, and what are your thoughts on overall deposit growth?

Sure, David. This is Byron. I can address that. Yes, we are very pleased with the reduction in deposit costs that we experienced in the fourth quarter. Regarding customer response, I believe they have been understanding of the rate decrease. Our customers are aware of the current rate environment and are informed about the actions the Fed is taking, as well as what other banks are doing. This has worked in our favor. As for ongoing opportunities, I think we could see more progress in our CD portfolio, which remains relatively short. Over 60% of our CDs will mature again in Q1, and the renewal rates are coming in about 10 to 20 basis points lower than the maturing rates. By the end of Q1, we should be mostly adjusted to the current rate environment, but I see this as an opportunity for us. When considering the non-interest-bearing flows, I think these were influenced by seasonal factors. We usually experience some outflow in the fourth quarter, and it’s possible that we saw a slight reversal of the inflow we had in Q3, which aligns with our typical observations for that time of year.

Okay, that's helpful. And just back to the margin, I just want to be clear, so that $320 million to $325 million, that is exclusive of Bank of Idaho, and that would be additive to that margin guidance, correct?

That guide does include Bank of Idaho.

Okay, that is with Bank of Idaho. Got it. Got it. Okay. And then just touching on credit, I mean, obviously, credit is still benign in your book. I'm curious what you're watching closely, what you're seeing? Is there anything that's concerning. We've seen some pressure in some other banks on the small business side. But just kind of curious what you're seeing on the credit front?

Yes, David, I don't think we've seen the same pressures that others have. I can't point to any one specific geography or industry and even rewinding back a couple of quarters, certain commodities for our ag growers suffered a little bit in 2024. But quite frankly, I think the end result of the ‘24 growing season was stronger than we had anticipated. So that's encouraging. So again, no specific industry, no specific geography that stands out.

The only thing I'd add there, David, is weak operators continue to be the one thing that we see develop. We did a lot of those folks out over the last couple of years, but we still see people struggling in an environment where they shouldn't be. So more individually focused, not trend related, but operators that struggle in an environment where they really shouldn't. That's business. You got good business spend and then you have men and women, and you have some weaker ones. So the only thing we're really seeing is and watching our operators, we think, are struggling when they shouldn't be, and there's a few, but not many.

Got it. And what about on the competitive landscape? I know you talked about just kind of an increased optimism. It hasn't necessarily shown up into the pipeline yet. Hopefully, that's on the come. But just kind of curious, what are you seeing from the competitive landscape from other banks across your footprint? And kind of where are new origination yields today?

Yes, I'll start with the new origination yields for the quarter were 7.34%. And the trend with that, I think a lot of the competitors are seeing the same thing that we are growing optimism but not seeing a lot translate into actual deal flow. And so what that means is those that do, there's increased pricing competition, and that's what we're seeing. So we're having to sharpen the pencil on stronger deals. We're really not seeing any concerning competition from a structure perspective; it tends to still be more around the pricing element.

Okay. All right, that's helpful. Thanks everybody.

Welcome.

Thank you. Our next question comes from Andrew Terell with Stephens. Your line is open.

Hey, good morning.

Good morning.

I wanted to go back to some of the margin just quickly. Byron, I think you made a comment earlier about experiencing some pickup in securities cash flow and repricing ability in 2025. Can you just rehash that a little bit and maybe if you could talk about just the cash flow you'd expect on a quarterly basis out of the bond book?

Sure. We have been seeing about $250 million per quarter of cash flow that's principal and interest from the securities portfolio. I do see a little bit of a bump in Q1. I'm going to increase that guide to $275 million in Q1 and then we start to kind of come into some treasury maturities. We'll have a $50 million treasury maturity in the second quarter. And then really where we will start to see these treasury maturities will be in the fourth quarter. We have $270 million maturing of treasuries. In Q4, that would be incremental to the typical $250 million of cash flow that we typically see. And then we will have meaningful quarterly treasury maturities throughout '26 and into '27.

Got it. Okay, so I guess, fair to say kind of sideways into what I was going to ask next. Just you've got what looks like a really nice margin progression throughout 2025 on this fixed asset repricing dynamic. It seems like that's even though it's really good in 2025 kind of set to accelerate in 2026, at least from a fixed asset perspective, correct?

I think that's fair to say. We really haven't done much in terms of looking at '26. We're focused on '25 for now. But those trends, at least from the securities runoff definitely go into '26.

Got it. You mentioned earlier that the $2 billion in loans will be re-priced throughout the year, and I recall you saying there would be a 100 to 125 basis point increase. I'm curious if that means the new origination yields will be above the current average book yields. I would expect that the increase, especially considering the movement in the five-year, would be more substantial than 100 basis points for some of those loans.

Yes. What we're looking at there is we're looking at the yields that those loans are where they currently sit in the portfolio and where they will reprice, we expect the repricing to lift those yields 100 to 125 basis points.

Okay. Got it. And then I wanted to ask around just some of the non-interest-bearing deposit flows. If I just look at the end of period versus the average, it looks like a lot of the NIB compression was late in the quarter. I was just curious if you could speak to trends you're seeing so far in January?

You are right. A lot of the outflow was late in the quarter. And typically, we are starting to see some of the seasonality come back into the deposit portfolio. I wouldn't say we're normal yet, but we're normalizing. We're kind of getting back to some of those normal seasonal trends. Q1 can be somewhat of a mixed bag. What we typically see is we typically see a little bit of runoff into January recovery in February, March. And so far, I would say the flows that we've seen in December and so far in January have been consistent with those historical months.

Understood. Okay. Thank you for taking the questions.

Welcome.

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

Hi, good morning. Thanks for the question.

Good morning.

I wanted to revisit your growth outlook. I believe you mentioned low to mid-single-digit loan growth. Could you clarify if that includes the acquisition of Bank of Idaho? Would that contribute to that growth?

Yes. The Bank of Idaho would be additive. The low to mid-single-digits is organic.

Got it. And then I think you mentioned that there's still some FHLB borrowings to be paid down putting together kind of your outlook there for the size of the balance sheet, and kind of the potential payoff of borrowings and securities roll out. I'm wondering how we should be thinking overall about the size of the balance sheet for the year kind of exiting 2025 given there's multiple moving parts in that?

There are multiple moving parts. And so big picture, some of the things that the accelerated security cash flow runoff. You know, we talked about that. We will have above our $1.8 billion of FHLB advances, term advances that we currently have outstanding, $1.36 billion of those will mature in ‘25 and so I do expect that we'll make meaningful progress in paying down that debt. I don't know that we'll pay it all the way off. But I do think we'll make progress in paying some of that down. So between the securities runoff, that's going to give us the cash to pay down the wholesale borrowing. We could see some delevering in the balance sheet. And so organically, we could see a little bit of decline in the size of the overall balance sheet. Once we add Bank of Idaho, then I see us exiting '25 with a larger balance sheet than we exited ‘24. And so little bit of runoff, a little bit of delevering, then adding Bank of Idaho will get us back above that bar.

Thank you for the information. I would like to clarify something. I was having difficulty understanding the expense commentary. Does the projected $151 million to $154 million per quarter stand alone, or does it include the expenses from Bank of Idaho as an addition? Your comments seemed to indicate that we might see higher expenses at the beginning of the year, so I would appreciate some clarification on that.

Yes. So Ron here. So the guide was per quarter, $151 million to $154 million per quarter and typical, the first quarter would skew towards the high side of the $154 million. And that those savings, as I said, would stair-step down as we continue to achieve the savings from that remain for the Wheatland Bank, about $2.1 million is Rocky Mountain call it, $2.8 million. It's about $5 million all in. And so Bank of Idaho, pardon me, is not included in there. We do expect to close the deal in the second quarter of ‘25. And the run rate for that would be say, $9 million to $10 million per quarter. And certainly, the third quarter and fourth quarter, again, we're going to close on June 30, we're going to close on April 30. So I'll let you factor in. Yes, per quarter, excuse me, to $9 million to $10 million per quarter.

Okay, I appreciate that.

Thank you. And our next question comes from Jeff Rulis with D.A. Davidson. Your line is open.

Thanks for the follow-up. I wanted to inquire about the credit side. The charge-offs have increased slightly, but they are not significant. Regarding non-performing loans, I feel quite comfortable. There's been a rise in the provision, especially with slower growth. I'm curious about the approach being taken—does it lean towards a conservative stance? Additionally, I wanted to check on the credit situation, particularly any charge-offs in the construction sector. What is your perspective on the current credit landscape?

Yes, Jeff, this is Tom. The charge-offs, yes, you're right up a little bit in the fourth quarter. That was primarily end of year cleanup, something we go through on an annual basis. And to your point, nothing really material there. The change in the provision expense was centered in the unfunded side. So in the third quarter, we had a release on the unfunded side, in the fourth quarter, we had a provision with some new unfunded commitments that were booked. So that's the driver of the provision expense. On the funded side, no material change in outlook or anything like that.

Got you, Tom. So maybe tying together when we talked about some growth, you mentioned some early-stage relationships developing. Are those related to the unfunded, or are they separate entities?

Those are separate entities. The unfunded commitments booked in the fourth quarter, primarily on the construction side, were primarily deals that we have been working on for a few months prior to the fourth quarter. Those came through underwriting approval booking. So the increased optimism and kind of the growth in that sector of the pipeline is in addition to that.

Okay, great. Thank you.

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. Thank you, Daniel, and we appreciate everybody dialing in today. Have a great Friday and a fantastic weekend. Thank you.

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