Q3 2022 Glacier Bancorp Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Good day, and thank you for standing by and welcome to the <unk>.
Glacier Bancorp 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.
Ask a question during the session you will need to press star one one on your telephone.
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.
Alright, Thank you Victor and good morning, and thank you for joining US today with me here in Kalispell. This morning is Ron Copher, our Chief Financial Officer, Don Chery, Our Chief administrative officer, Angela dose, our Chief Accounting Officer, Byron Pollan, our treasurer, and Tom Dolan, our chief credit administrator.
Our leadership position in some of the best high growth markets in the country is a strong tailwind for the company as we continue to grow.
A few data points about our community banking markets, which includes Montana, Idaho, Eastern Washington, and Wyoming, Utah, Colorado, Nevada, and Arizona.
For the 15th year in a row Utah's economy has been ranked the top in the United States.
Rich States core states.
Nevada has recovered all of the jobs lost during COVID-19, and has reached an all time high of one 4 million jobs 3000 more than the previous peak in February of 2020.
Rich States core States Gibbs, Wyoming, 10th place in the U S.
Its economic outlook due to economic conditions and favorable taxes.
I'll touch on some of the business highlights first and then provide some additional thoughts on the quarter.
Net income for the quarter was 79 million, an increase of $3 million or 5% from the prior quarter and net income up $76 million.
Pre tax pre provision net revenue was 106 million versus prior quarter of 92 million, an increase of 14 million or 15% pre.
Pre tax pre provision net revenue was up 13 million or 14% compared to the third quarter a year ago.
The loan portfolio, excluding triple P loans had strong organic growth during the quarter of 457 million or 13% annualized.
Core deposits grew organically by $96 million or 2% annualized.
Cost of core deposits was six basis points consistent with the prior quarter.
Noninterest bearing deposits increased $233 million or 12% during the current quarter.
Net income net interest income for the quarter on a tax equivalent basis was $211 million, an increase of $12 million or 6% from $199 million in the prior quarter.
Net interest margin for the quarter as a percentage of earning assets on a tax equivalent basis was 334% compared to 323% in the prior quarter.
The core net interest margin for the quarter.
329% increased 13 basis points from the prior quarter.
The loan yield for the quarter was $4, six 7%, which increased 15 basis points compared to $4 five 2% in the prior quarter.
Credit quality continued to improve to record levels.
Nonperforming assets as a percentage of subsidiary assets was 13 basis points in the current quarter.
Compared to 16 basis points in the prior quarter.
Net charge offs as a percentage of loans was four basis points.
We declared our regular dividend for the quarter of <unk> 33 per share, which was consistent with our prior quarterly dividend.
The company has declared 150 consecutive quarterly regular dividend and has increased the regular dividend 49 times.
This was a strong quarter for the company with solid performance across our key metrics.
We experienced core deposit growth across our footprint as the team continued to maintain existing customer relationships.
Also building new ones this quarter core deposits increased $96 million or 2% annualized.
Year to date core deposits are up $564 million or 4% annualized.
Noninterest bearing deposits increased $233 million or 12% annualized during the quarter and now account for 38% of core deposits.
Year to date noninterest bearing deposits have increased $515 million or 9% annualized.
And our core deposits now total almost 22 billion at a cost of six basis points.
The growth in the loan portfolio was driven by continued demand throughout our footprint combined with a reduction in pay off volume. Despite the increase in interest rates, our gross new production for the quarter before pay offs was $1 7 billion.
With yields at around five 4%, which was an increase of about 80 basis points versus the yields in the prior quarter.
The yield on our loan portfolio ended the quarter at $4, 67% up 15 basis points from the prior quarter and.
In the core the core loan yield of four 6% increased 19 basis points from the prior quarter loan year core loan yield of 441%.
Given the strength strength of all of our markets. We saw broad based contributions to this growth made by each of our divisions across our eight states.
Credit quality improved during the quarter with nonperforming assets the bank assets, improving 13 basis points from $62 13 basis points from 16 basis points in the prior quarter.
Early stage delinquencies as a percentage of loans ended the quarter at seven basis points compared to 12 basis points in the prior quarter.
How about 80% of the commercial loan growth continues to come from existing commercial loan customers, where we have a very good understanding of the quality of the borrower and the correct.
And our focus continues to be responsible.
Responsible growth with a through the credit cycle underwriting loans.
We believe we are very well, we are well prepared and the advent of an economic downturn with strong capital strong reserves and a very healthy franchise, which will continue to generate high quality earnings.
Yes.
As we noted earlier this year, we are focused on growing net interest income on a tax equivalent basis net income net interest income was $600 million in the first quarter and the first nine months of the year.
Which was an increase of $111 million or 23% over the first nine months of 2021.
As I as I noted previously we are well positioned to benefit from this higher rate environment.
Our asset sensitive balance sheet is designed to perform well over the long term.
Roughly 25% of our loans reprice in any given year. So today's higher rate environment is gathering momentum in our loan portfolio supportive of increasing income over the long term.
We continue to add for protection to our new loans and current rates are above essentially all loan floors in our existing portfolio.
Our securities portfolio, providing roughly $350 million of cash flow per quarter, which is being used to fund loan growth.
This remix of securities into loans, as providing meaningful lift to margin and earnings.
Yes.
And Additionally, our high quality core deposit base.
38% of which is non interest bearing continues to provide stable low cost funding, we expect that our low beta core deposit base will continue to outperform peers.
We are very well positioned to ride out this volatile interest rate environment and to weather the impact of a recession, if and when one occurs.
We expect that our proven stable sticky deposit base will once again outperform our peer group and the industry and we expect our high quality loan portfolio to perform well and also expect to see our loan yields increase as rates move up and enable us to deliver strong net interest income.
And when interest rates peak, and then decline but longer term structure of our loan portfolio will continue to generate strong returns.
So the glacier team did another excellent job in the third quarter.
Once again kept their focus on customers and communities, which the results clearly show.
So Victor that ends my formal remarks, and I would now like to open the line for any questions. Our analysts may have.
Sure as a reminder to ask a question you May press star one on one on your telephone.
Please standby, while we compile the Q&A roster.
And our first question comes from the line of Jeff <unk> from D. A Davidson your line is open.
Thanks, Good morning.
Morning, Jeff.
Maybe.
Randy I can check.
Check in with you on loan growth.
You've done a good job this year of <unk>.
Sort of identifying early on low double digit growth in year sort of hitting that I don't know if its too early to talk about 'twenty three are either broadly or more specifically just.
And expectations as you close the year end and into 'twenty three on on.
On net growth.
Sure, Tom and I have been talking quite a bit about that so Tom do you want to provide some insight Gerry good morning, Jeff.
I'll start with the fourth quarter.
As we talked last quarter we.
We saw a lot of pull forward growth into Q2.
And then some pipeline slowing up a little bit as we discussed last quarter.
Reflective of what we saw in the third quarter I think that trend is going to continue in the fourth quarter, but we expect that.
We're in the mid to upper single digits annualized for the fourth quarter.
And then in terms of 2023.
Early.
To make a projection of that back there's still a lot of uncertainty out there.
Okay got.
Got you.
Ron.
Also sort of guidance on the expense run rate.
Ex merger costs in the $1 28 to $1 30 kind of stick it in there.
So similar question about how your trend into Q4, and what you think about.
'twenty three.
The growth off that.
Yes, let me again too early on.
Q.
The next year, but I can address certainly the Q4.
So the.
It came right in as the guide.
120 to 130, but for the fourth quarter I would go with.
The mid $1 30.
And primarily the reason is inflation.
<unk> seen it.
Anders.
<unk> shovel the snow.
People who've paired with our ATM, we're seeing fuel charges were seeing higher increases and it's amazing.
Across the board.
I would tell you.
One of the things that I mentioned in the third quarter.
Call, we had for the second quarter I said, our third party cost.
Would come down and they did that came down $51 million.
So that we held pretty steady so the increase that overcame that million dollar reduction again, primarily inflation beverages.
More and more so that's why we would guide to the mid mid $1 30.
For Q4.
Okay. So.
That's $1 30 to $1 31.
Like a bit.
Correct.
Yes, I would go if you want a range is $1 33 to $1 35.
So upper.
Okay got you $1 33 to 135.
Yes.
The other thing I should add some of that.
The fourth quarter, we have had market rate market increases.
Actually for our frontline employees and so that's going to show up as well.
So trying to figure out how we're going to drive what compensation will be and that's the largest component of our noninterest expense part of the hesitation I had to give guidance on that right now.
Sure.
Okay.
Hi, guys.
Just sorry, one last one.
Remind us the seasonality of that do you typically see.
I know, we're not talking 'twenty three but.
Generally see a pick up Q4 to Q1 and costs or do you think.
At least early on now most definitely you will see the seasonal part in large part of it.
I'm going to start that FICO wage basis, and so we see if for no. Other reason, we see higher compensation cost for that.
Okay.
Correct.
Seasonally higher.
Alright and last one.
Randy or Rod just.
Looking at the noninterest bearing.
Costs.
Just just flat at this point and looking in last cycle.
Really virtually there was really no beta almost on the noninterest bearing.
I guess, if you care to compare.
Where you sit in this cycle and expectations.
Do you expect similar.
Lack of movement on.
On the noninterest bearing front.
Yeah.
Yes, we can we can give you a little color there I'm going to hand, it over to Byron, but I would see it up by saying we are.
The steep steepness of the raises here is.
Are exceeding what we saw in the last cycle. So there's a much steeper.
Aggressive curve here, so environment, you want to talk about our expectations or thoughts sure. Yeah. So we've been very pleased with our deposit performance.
Especially in this interest rate environment.
So far we've been able to keep our rate pretty much unchanged, but theres pressure building 300 basis point into a rising rate cycle and more to go.
And so we're not immune from that we can't defy gravity with with regard to deposit costs forever.
And especially with the rate hike that are expected ahead of us we do expect to see some movement in our overall deposit costs.
In terms of what we're expecting what we're modeling on our side, our beta expectation over the course of the cycle.
The amount of look at the bigger picture of the course of the entire cycle.
Beta may land somewhere in the mid teens with the <unk>.
Alright.
Hey, Byron.
That's a total deposit beta or interest bearing deposit beta.
That would be at total deposit base.
Okay I appreciate it I'll step back thank you.
You bet.
Thank you one moment our next question.
Our next question comes from the line of Brandon King from choice Youre line is open.
Okay.
Thank you good morning.
Good morning, Brandon.
Good morning.
Yes.
Growth in <unk>.
Noninterest bearing deposits really stood out this quarter relative to your peers and I wanted to get experience. If you think that could continue near term based on what youre seeing in your markets.
Yes.
Likely not be in mainly due to seasonality.
Our.
A lot of our customers.
You know really build up reserves in the second third quarter.
They start to throttle back their businesses in the fourth quarter.
First quarter and they are going to live off some of those excess funds. So we would probably see that.
<unk> historical seasonality trends start to kick in.
Got you and do you think you will see a decline this quarter or do you think <unk>, particularly you hold that flat based off of those seasonal factors.
At our historical rate.
Generally been some some outflow as people use those deposits to kind of get through the colder months.
Okay.
And then on the net interest margin.
I was curious just based off of your deposit beta assumptions.
The loan repricing those expectations I know you have a longer pricing cycle relative.
It appears.
When do you think the NIM can kind of top out it seems that interest margin could continue to expand.
Maybe past 2023.
Brian do you want to comment on that yes.
In terms of the trajectory of margin as.
As Randy mentioned in his comments this rate environment and that the amount of rate increase really has built a lot of momentum.
And to our margin and so I would see it continuing to increase through next year. When we look at our interest rate sensitivity, we show margin growing throughout next year and into and then to 24 as well.
Okay.
Very helpful. Thanks for taking my questions.
You bet.
Thank you one moment for our next question.
Our next question comes from the line of Matthew Clark from Piper Sandler Your line is open.
Hey, good morning.
Excuse me.
Just to close the loop on the deposit beta.
Discussion can you remind us what your mix of deposits is relative to commercial versus consumer and it just seems like this earning season, so far theres been a lot more.
More sophisticated.
Corporate commercial wealthy customers are more in tune with where money market rates are these days relative to the retail consumer I'm, just trying to get a sense for your mix and that might be part of the reason why we're seeing load lower beta here over the cycle.
Yes. This is Byron I can address that in terms of the Mexican tween consumer end and.
And business. It's about 50 50, so were about evenly split.
Between the two categories.
Okay. Okay. Thank you.
And then just shifting gears to the.
The overall margin in kind of a weighted average rate on new loans, just trying to get a sense for where that yield might be trending here in the near term.
And in terms of the loan rates, we do we do see some lift.
It could be.
In terms of the fourth quarter at fourth quarter to increase it could be 15 20 basis points.
Increase in inbound rates next quarter.
And then in that way.
Weighted average rate on new production that you have it.
Yes.
Yes, I think for the third quarter was about $5 40.
Okay. Thank you.
And then if you have it as well the the average margin in the month of September .
Let us get back to you on that one.
We get very focused on quarterly roll up so we'll provide that.
Okay No worries.
And then.
The borrowings that you took down this quarter.
Can you give us a sense for.
Kind of the cost and duration and plans for plans to do more or not.
Sure. This is Byron I can I can address that.
The borrowings that said that we have on our balance sheet <unk> borrowings there overnight that cost us roughly in the neighborhood of 325 right now we expect that that will go up.
And that's really driven by the strong loan growth that we had seen.
And and we do see about $350 million of cash flow, that's coming up the securities portfolio, that's going to fund loan growth and so we'd have to.
We see loan growth slow a little bit then the cash flow from securities will be able to catch up and then chip away at that violence balances. So.
That's how we view.
That bond position.
Perfect.
And then last one from me just on the.
The net charge offs and I think overdraft related.
Charge offs.
Any.
I guess I know it's <unk>.
Seasonally our.
Tourist season, and all that all are busier, so more transaction volume but.
Is there any change in the overdraft products or anything you did differently.
No charge offs.
Alright, not much but they are still they are still up relative to where they were.
Yes, no there's been no changes to the program I think they're up.
Do.
Due to a little bit of seasonality and as we bring on some of the new divisions with our.
High performance growth program, which is the core relationship checking account there.
He is driving a little bit more of those charge offs.
Okay. Thank you.
Thank you.
Our next question.
Yes.
And our next question comes from the line of Kelly Motta from <unk>. Your line is open.
Hi, This is Kelly good morning, Thank you for the question.
Good morning Kelly.
Maybe switching to.
Capital.
Sure.
Typically you do a special dividend.
In the fourth quarter of the year, we're in there now.
Wondering how you view the OCI playing you obviously have.
Healthy analysis.
Regulatory capital, but I'm wondering is.
TCE placed at consideration into how you guys are thinking about capital returns.
Yeah, and so that's a board decision, where they weigh a number of different factors and certainly one of them is capital levels and outlook as well terms.
The economic outlook, so, yes, Kelly, they're going to they're going to weigh those factors in making a decision.
Got it and maybe.
M&A question out there obviously.
The way March they're going it makes it more difficult to just wondering if you have any updated thoughts on M&A in your market.
We really don't I think if anything our timing has shifted out a bit due to the what you just touched on which is certainly the attractiveness to a seller based on some of the marks.
But also from a buyer perspective.
Just letting the credit environment settle out a little bit I think is really important at the same time, we continue to talk to people and keep the door open and fully expect win.
We feel the time is right to get back into the into the M&A.
Strategy.
Got it maybe last question for me.
On the expenses and the expense side I know when you closed I'll tell you, where we're talking about some technology that you were testing out there and potentially looking at rollout just wondering if you're.
Any updated comment commentary on any technology initiatives you may be working on.
Yeah.
We are currently.
Pursuing a number of those initiatives and they are growing quite well.
To say that we are.
Implementing those within that 54%, 55% efficiency ratio that we've talked about and so we're very mindful of feathering in any expense associated with those.
It's also expect some.
On some saves coming out of there because each one of them does have a business case that we see that fully deployed there should be some efficiency pickup but for right now.
We're doing that.
We are reengineering a number of our platforms.
And.
We are.
Like we said feathering that in so we're keeping our efficiency in that 54 or 55 range.
Got it that's super helpful. Thank you so much I'll step back alright and welcome.
Thank you one moment for our next question.
Yes.
And our next question comes from the line of Tim Coffey from Janney. Your line is open.
Thanks, Good morning, everybody.
Tim.
Randy how should we be thinking about total deposit growth going forward in this current rate environment. Because if you really wanted to keep your deposit costs low you could you've got plenty of on balance sheet deposits already as well as access to additional liquidity. So just kind of wondering.
Would it be unreasonable to think that deposits actually stayed relatively flat in the near term.
Near term.
I think Randy mentioned are.
As discussed earlier, we could see a little bit of runoff in the fourth quarter.
And so that's some of the seasonality factors. We do we do traditionally had a very strong third quarter fourth quarter is not quite not quite as strong so.
Now looking at where we just ended in August .
We could see a little bit of run off particularly.
With the rate environment and competitive pressures that are building out there.
Okay Alright.
And then the current rate environment being pretty much straight up has created some unintended consequences for other institutions.
As far as they've reported this quarter is there anything in the loan portfolio that youre, keeping a special eye on or maybe if tighten the credit box on for instance.
At.
The lots and land loans for instance.
Yes, Tim this is Tom.
Tom.
Yes.
We haven't changed any of our underwriting standards in the last couple of years to encourage growth if anything we've tightened up over the last couple of years. Some of those efforts that we've made kind of back in that 2018, 2019 timeframe Premier service pretty well not only through the pandemic, but certainly setting us up for this environment and in terms.
<unk>.
Measuring out the rate increase every every new commercial loan originated it goes through a pretty robust stress test to stress those cash flow numbers in terms of retail environments.
So.
Ultimately.
The moral of everything here, feeling pretty feel very comfortable with what we're seeing on the.
In terms of what we're putting on the balance sheet right now.
Okay.
Alright. Thank you very much those are my questions.
Welcome.
Thank you one moment for our next question.
And our next question comes from the line of David Feaster from Raymond James Your line is open.
Hi, Good morning, everybody happy Friday.
David I just wanted to touch on the.
The loan growth side again.
Growth was really good in the quarter, especially CRE just curious.
First I guess any segments that drove that that youre seeing exceptional strength there.
And how demand trends are you starting to see.
Slowing of demand or more projects falling out of the pipeline just given higher rates.
Just and then just how much of that deceleration in growth that you.
You've kind of talked about the fourth quarter is as maybe strategic versus slower originations.
Those types of things just curious any commentary there.
Yeah, let me I'm going to hand, it over to Tom I would just tell you David.
We are being very selective and I think that we've there's a lot of.
Other banks out there very hungry.
And.
We if it doesn't fit squarely in the box, we're letting them when those transactions.
But I'll, let Tom comment on on your questions about is there a particular segment that's growing kind of what we look look forward to in demand. So Tom do you want to comment on that sure.
The CRE growth.
Really what precipitated that in the third quarter was a lot of the construction volume we had seen in prior quarters now that those have been rolled through to completion and stabilization that moved out of that construction segment over into the Prime segment, which is why you saw the commercial acquisition development construction line items drop quarter over quarter.
<unk> as anticipated.
In terms of the volume of new production low left pharma construction demand for the reasons you noted higher rates.
A little more difficult for deals to pencil.
There's a tremendous amount of equity and as Randy said holding true to our our credit discipline.
The projects that we are looking at typically have a very strong equity cash equity position.
And some good strong secondary support in the form of Australia as well.
Alright, Thats helpful. And then maybe maybe just touching on deposits I don't want to beat a dead horse here, but maybe.
Maybe just on.
The interest bearing flows I'm just curious maybe how much of that is attributable to more rate sensitive deposits that you guys are letting go versus maybe some cash burn at clients or those types of things and I guess.
If you had I know, it's a small portion of your portfolio, but I mean.
How much more I guess would you qualify rate sensitive.
Balance is do you think are left really in that.
In your deposit base.
Yes.
So I'd say overall as you can see from where we're positioned to grow our cost and historical performance. We focus on the relationships and I think that shows in the cost and the volatility of our deposit franchise in that.
A lot of the.
The rate seekers are really not in our core customer base or is that part of our balance sheet is important to them. It's already placed someplace else sudden as we.
We focus on the core relationship account and so.
<unk>.
Yes.
I think the.
The overarching.
Let me answer that question borrowings did you want to add anything to that.
Great.
Jim.
Okay.
And then just one last quick one you talked about the $350 million in cash flows from the Securities book, just curious what the roll off yield on those are.
And maybe if you are like what are the rates on new purchases and how you think about that or is it truly just kind of coming out of there and to fund the loan growth.
Yes.
Run off rate is close to 150 and it really is just in runoff mode. We are purchasing a couple of targeted pool MBS or CRA focused.
Investment, but very limited so the $350 million thats running off it's running off at $1 50, it's going into loan and so.
Yes, close to 400 basis 400 basis points.
Of lift in that.
Okay, that's sort of a alright, thanks, guys great quarter.
Alright, thank you.
Thank you.
Showing any further questions in the queue I'd like to turn the call back over to Randy Chesler for any closing remarks.
Yes, I. Appreciate then we thank everybody for their great questions.
We appreciate you dialing in today, we want to wish everybody a great great Friday and a great weekend. Thank you again for calling in.
And this concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Okay.
Yeah.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
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