Glacier Bancorp, Inc. Q2 FY2025 Earnings Call

Good morning, and thank you for joining us today. With me here in Kalispell is Ron Copher, our Chief Financial Officer; Tom Dolan, our Chief Credit Administrator; Angela Dose, 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 our Guaranty Bancshares, 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 reported net income of $52.8 million for the second quarter or $0.45 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, noninterest-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 9 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 cost declined to 1.63%, down 5 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, noninterest 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. Noninterest 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 62.08%, down from 65.49% in the prior quarter and 67.97% a year ago, reflecting positive operating leverage. Credit quality remains very strong. Our nonperforming 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.

And our first question comes from Jeff Rulis with D.A. Davidson.

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 accretion bump? Or is that all-in number kind of, again, stair-stepping towards that exit kind of pre Guaranty?

Yes, Jeff, this is Byron. I can address the margin. Yes, 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, depending on what happens with loans between now and the end of the year, what happens with deposits between now and the end of the year. That could drive some variability there. Also with Guaranty and the announced acquisition there, depending on the timing of when we closed that acquisition, I think Guaranty could add an additional 6 to 7 basis points on top of what we just discussed.

Byron, thank you for the thorough overview. It sounds very encouraging. Ron, maybe we start by applying 80% of your expense guidance, but it seems the bank has been quite efficient. Considering the third quarter, there may be a brief pause between deals. With the merger costs aside and the full quarter contribution from Bank of Idaho, reaching that $155 million target might be a bit challenging. Could you provide an updated perspective on where you foresee expenses and growth heading from this point?

Thank you. To recap for everyone, the $153.5 million that Randy mentioned in his opening remarks is $3.5 million under our second quarter forecast of $157 million to $158 million for core noninterest expenses. It's important to note that this forecast included $6 million for Bank of Idaho for the two months following its acquisition on April 30. The second quarter reflects a similar environment to the first, where we are being cautious with our spending due to ongoing economic uncertainty and market volatility. As everyone knows, there is a lot of activity happening in Washington as well. Of the $3.5 million underperformance, $0.5 million is due to Bank of Idaho underperforming compared to the $6 million estimate, as they haven't been fully integrated yet. The remaining $3 million includes $1.2 million from reduced third-party consulting services and $300,000 from lower occupancy and facilities costs, thanks in part to the sale of former branch locations that has made us more efficient. The rest, totaling $1.5 million, was dispersed across various expenses, with no single category exceeding $250,000, which signifies effective cost management across our divisions. Looking ahead to the second half of 2025, my previous guidance for core noninterest expenses was $160 million to $162 million for both the third and fourth quarters, which reflects an increase of $3 million to $4 million on either side of that due to having three months of Bank of Idaho's expenses compared to the previous $6 million for just two months in the second quarter. For the upcoming third quarter, we are adjusting the core noninterest expense guidance to $159 million to $161 million, and for the fourth quarter, it will be $161 million to $163 million. To provide further context, the current $153.5 million compares to $152 million in Q1, showing a 1% increase. The midpoint for quarter three under the new guidance is $160 million, reflecting a $6.5 million increase over the $153 million in operating expenses from Q2, which includes an additional $3.5 million for the Bank of Idaho acquisition, leaving $3 million from other divisions and corporate departments. This $3 million represents a 2% increase when compared to the base of $153.5 million for Q2, noting that we expect some rise in this figure as we had significant deferred expenses in Q1. Third-party consulting was nearly $800,000 lower last quarter, and as mentioned earlier, consulting costs were $1.2 million lower this quarter. Anticipating additional hiring in Q3, much of the deferred consulting expenses should surface then. In the fourth quarter, the midpoint estimate is $162 million, which is a $2 million increase over the Q3 estimate. Specifically, that's a $1.25 million rise compared to the $160 million midpoint for Q3. The key point is that we will see some increase in Q3, but we’re committed to managing our operating expense growth. Lastly, core operating expenses exclude any merger-related costs and any gains or losses from branch sales or other unique items. Just to clarify, assuming we finalize the Guaranty deal around October 31, we would add $14 million to the fourth-quarter guidance. Now, please feel free to ask any questions.

No. Ron, you were very thorough. I appreciate it.

Our next question comes from Matthew Clark with Piper Sandler.

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, I want to say...

Yes, that was closer to 8%.

Okay. Great. Regarding your interest-bearing deposit costs, I noticed they increased by 1 basis point this quarter. I'm trying to understand if that increase was influenced by Bank of Idaho or if it's primarily due to the current steady environment since the Fed has maintained its stance. What are you observing in terms of pricing impacts from the deal?

Yes, 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 borrowings.

Yes. 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 rates 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.

Our next question comes from David Feaster with Raymond James.

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.

Yes, David, this is Tom. We're quite pleased with the organic growth. The second quarter tends to be stronger due to seasonality. Additionally, we have entered the construction and agriculture seasons, which enhances line utilization and acts as a tailwind. Our production levels have also been robust, especially in CRE. From a pipeline perspective, we are experiencing steady and consistent deal flow, and customers remain optimistic. The number of customers expressing hesitation and waiting for more clarity has decreased, particularly since the start of the quarter. Overall, the second quarter is typically the strongest of the year, with the third quarter also showing some strength, while the first and fourth quarters tend to be a bit weaker. We also have several favorable factors supporting us.

Okay. And could 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? And just have you seen anything beyond pricing? Are you seeing competition maybe increase on structure and underwriting?

Yes, we're not really experiencing much competition in the structure area, which is positive. We do see some competition regarding pricing in a few larger markets, but in regions where we hold a larger market share, we usually achieve strong margins. Overall, our margins remain robust, and we are still experiencing very good production yields. For the quarter, our average production yield was 7.35%, which represents a solid spread.

Okay. That's great. And then 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 that the Guaranty team might be looking at opportunities to add talent there from that potential disruption?

We have been slow to fill positions due to infrastructure and back office needs to support our growth in certain areas. We plan to address these hire needs, including some that focus on revenue expansion. However, the majority of this hiring will be for operational roles across our 17 divisions and our holding company in Texas, where there is significant activity. We've been in communication with the Guaranty team, who are actively involved in these changes, and I believe there will be opportunities as some transactions develop. That said, our team in Texas is strong, with Ty and his staff already having an excellent lending team in place. They will be selective in their hiring, but there could be prospects arising from the announced transactions.

Our next question comes from Andrew Terrell with Stephens.

I wanted to stick on loan growth for a bit. 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 in the first quarter, there were some heavier payoffs. To the extent you guys do have kind of a line of sight into that, do you feel like the payoff pressure is somewhat 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?

Yes, the payoff pressure, we still saw that in the second quarter, especially when you're looking at some of the multifamily stuff where we did construction and stabilization and then the asset either sold or 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 entered 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. And then maybe for Byron, on the margin, 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. How should we think about the pace of borrowing reduction that we could see over the balance of 2025 is $250 million or so off this quarter on the FHLB. Is that kind of a fair run rate? Or does it more match securities cash flow? Just how should we think about the borrowing reduction and just size of the balance sheet?

Yes. 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, somewhere in the $400 million, $440 million range in terms of maturities. 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 what the lending opportunities are on Tom's side of the balance sheet, what deposits are doing. But to answer your question in terms of maturity, we do have progressively increasing maturities, and the final maturity will land in the first quarter of next year. At that point, those term advances will have matured.

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

Yes, it is.

Our next question comes from Kelly Motta with KBW.

I did want to stick on the margin. It's great expansion this quarter, 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 that we'll continue to see margin growth throughout 2026. I don't want to put any numbers on it, but, yes, I do think that the tailwinds that we're feeling now, they will persist and kind of carry us through the end of next year from a margin growth perspective. I don't see anything that would prohibit us from kind of getting back to some of our historic margin norm maybe by the end of next year.

That's really helpful. I appreciate all the insights, Ron, on the various expense factors. At a broader level, as you continue to grow and succeed with your acquisitions, are there any other technology areas or aspects within the organization that you plan to enhance to maintain your impressive growth from the past couple of years?

We are exploring technology in various areas, which is enhancing our efficiency. You can see evidence of this in our improved operational effectiveness. We are implementing a commercial loan platform throughout the company, and it is yielding impressive results. The teams we are acquiring are also excited about the advanced technology and added capabilities that simplify their work. Ultimately, this improves the customer experience. We are currently upgrading our treasury platform, which is progressing well and will provide customers with better tools for managing their accounts and finances. These are just a few examples, but we are making good progress before we dive deeper into specifics.

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.