Q4 2022 Glacier Bancorp Inc Earnings Call
Speaker 2: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1-1. 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. To ask a question during a session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker 3: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to speak it today. Randy Chesler, President and CEO of Glacier Bancorp. Please go ahead. All right, thank you Victor and good morning and thank you for joining us
Speaker 4: With me here in Kalispell this morning is Ron Kofer, our Chief Financial Officer, Don Sherry, our Chief Administrative Officer, Angela Dosi, our Chief Accounting Officer, Byron Pollin, our Treasurer, and Tom Dolan, our Chief Credit Administrator.
Speaker 5: I'd like to point out that the discussion today is subject to the same forward-looking considerations found on page 13 of our press release, and we encourage you to review this section.
Speaker 6: I'll start with a few new data points about our community banking markets. The eight western states which represent our footprint are among the most dynamic in the country and include Montana, Idaho, Eastern Washington, Wyoming, Utah, and the United States.
Speaker 7: Colorado, Nevada, and Arizona. Our eight state average income and GDP growth rate exceeds the national average and the average eight state unemployment rate is below the national average.
Speaker 8: USA Facts reports that Idaho's population has grown by 46 percent from 2000 to 2021.
Speaker 9: US News states that Washington has the third best business environment in the United States.
Speaker 10: And the Tax Foundation State Business Tax Climate Index ranks Utah 8th in the nation, Montana 5th.
Speaker 11: and Wyoming number one.
Speaker 12: I'll touch on some of the business highlights first and then provide some additional thoughts on the quarter.
Speaker 13: Net income for the quarter was $79.7 million, an increase of $339,000 from the prior quarter, net income of $79.3 million. For the full year, the company had record net income of $303 million.
Speaker 14: an increase of 18.4 million or 6% compared to 2021.
Speaker 15: Pre-tax, pre-provision net revenue was $103.6 million versus the prior quarter of $105.7 million, a decrease of $2.1 million or 2%. However, pre-tax, pre-provision net revenue was up $15.6 million.
Speaker 16: angle eyes.
Speaker 17: For the full year, we grew 1.9 billion or 15 percent.
Speaker 18: Non-interest expense of $129 million decreased 1 million, or 1% over the prior quarter, and decreased 5 million, or 4% over the prior year's fourth quarter.
Speaker 19: The loan yield for the quarter was 4.83%, which increased 16 basis points compared to the prior quarter.
Speaker 20: New loan production yields were 6.34%, up 93 basis points from the prior quarter.
Speaker 21: Investment portfolio yields were 1.87%, up four basis points from the prior quarter.
Speaker 22: Interest income of $225 million increased 11 million, or 5%, over the prior quarter.
Speaker 23: increased 17% over the prior year fourth quarter.
Speaker 24: For the full year, interest income was $830 million, a 22% increase over 2021.
Speaker 25: Credit quality continued to improve to record levels. Non-performing assets as a percentage of subsidiary assets was 12 basis points in the current quarter, compared to 13 basis points in the prior quarter.
Speaker 26: Net charge off as a percentage of total loans was five basis points.
Speaker 27: We declared a regular.
Speaker 28: dividend for the quarter of 33 cents per share, which was consistent with our prior quarter dividend.
Speaker 29: The company has declared 151 consecutive quarterly regular dividends and has increased the regular dividend 49 times.
Speaker 30: For the full year, we declared total dividends of $1.32 per share, an increase of 4% over 2021.
Speaker 31: And we enter 2023 with strong capital. Our CET1 ratio, which measures capital against risk weighted assets, is expected to end 2022 around 12.19%.
Speaker 32: a full 100 basis points above the median of our proxy peer group.
So, the most material development in the industry this quarter was the historic increase in interest rates which created significant volatility in bank deposits.
After growing for three quarters, our deposits declined by 1.3 billion with the largest decline occurring in those accounts with an average balance of 3 million dollars or greater.
60 percent.
of the deposit outflows in the quarter were concentrated in just 100 accounts.
When the Treasury bill rates crossed 4% in early October , it was a significant inflection point.
and we begin to see an accelerated outflow of deposits.
not relationships.
primarily to non-banks, mostly for the purpose of purchasing Treasury bills.
These excess deposits accumulated during the pandemic at ultra-low rates.
Core deposit funding of $21 billion, or almost 90% of total funding liabilities, ended the quarter at a cost of only 8 basis points versus 6 basis points in the prior quarter.
non-interest-bearing deposits remained at 37% of core deposits, unchanged from the beginning of 2022.
Our total cost of funding in the quarter for total funding liabilities of $24 billion, including non-interest-bearing deposits, increased by $25 billion in 2018.
from 15 basis points in the prior quarter to a total cost of funding of 35 basis points in the current quarter.
The increase in the total cost of funding was primarily due to our elevated borrowings from the Federal Home Loan Bank because of the deposit outflow which impacted net interest income and margin in the quarter.
Borrowings increased from $705 million at the end of the third quarter to $1.8 billion at the end of the fourth quarter.
We expect deposit outflows to moderate beginning in 1Q.
then perform more consistent with historic trends.
As a result, we anticipate Federal Home Loan Bank borrowing to slowly decline throughout the year.
We plan to fund our loan growth for 2023 by utilizing the quarterly cash flow from our investment portfolio.
currently in excess of $300 million per quarter.
Our margins should show growth in 2023, benefiting from the cash flow rolling out of investments yielding about 150 and 1.5% and being reinvested in new and renewing loans yielding in excess of 6%. Please see the complete disclaimer at PissedConsumer.com
While we face an uncertain interest rate environment in 2023, we remain confident in the dynamic Western markets we serve and the capability of our unique business model to continue to deliver strong results.
The Glacier team did another excellent job in the fourth quarter and for the full year of 2022.
They once again kept their focus on shareholders, customers, and communities, which the results clearly show.
And that ends my formal remarks. And now I'd like to ask Victor to please open the line for any questions that the analysts may have.
Thank you. As a reminder to ask a question, you will need to press star 1 1 on your telephone.
wait for your name to be announced. To withdraw your question please press star one one again
Please stand by while we compile the Q&A roster.
One moment for first question.
Our first question will come from the line of Jeff Rulis from DA Davidson. Your line is open.
Thanks, good morning.
Morning, Jeff.
I wanted to check in about just the use of the borrowings. You kind of walked us through sort of the thought process, but just you've got such a strong deposit franchise and a low loan deposit ratio. I just wanted to see about the timing of the
Again, a little more detail as to the use of that. It came at a cost, but I appreciate the 23 outlook on running those down and the impact on margin headed up. Anything else to add on that that you'll be.
Hi Jeff, this is Byron, I can address that. I'd like to start by going back to the third quarter. Recall we were still growing deposits through the third quarter. That turned a corner though when short term treasury rate presented such a compelling investment alternative in the fourth quarter. As Randy mentioned, we are still growing deposits through the third quarter.
the 4% number. So when Treasury rates went through that 4%, that's when we really saw a turn with this deposit outflow. We looked at that and we're not a premium rate bank. We've never been a premium rate bank. That hasn't been our strategy to attract premium rate deposits. So as we looked at it, we saw a turn.
We decided not to compete with those treasury rates because at the time we had lower cost wholesale funding alternative.
And so it really was a funding cost optimization decision. Now that math is shifting, especially with the next Fed rate hike, where we think wholesale funding rates will be at a level where we can retain deposits at a rate below.
So at the time we simply had lower cost funding options. Now as Randy mentioned, we were not losing customer relationships. We were simply seeing an outflow of excess discretionary balances.
That outflow was very highly concentrated. It was concentrated in high balance accounts that accumulated during the pandemic. 60% of that outflow was concentrated in 100 accounts. We know who they are. We maintain the relationship. We know where the funds went. And when we see value in bringing those deposits back.
grew in the fourth quarter.
So what do we expect from here? I think we could see some continued volatility in high balance accounts. That could offset some of our normal core deposit growth rates. We see the lagging rate pressure, we feel it, and we are addressing it.
We do expect deposit rates to go up. We are becoming much more aggressive in retaining those balances. And from here we do expect deposit flows to normalize. We think we are well positioned to retain deposits. I think you will see a variety of solutions employed.
to retain deposits through the rest of this year. I think you'll see some CD specials. I think you'll see some repo specials. You'll see some money market premier rates that are attractive. I think you'll see some targeted outreach, some negotiated one-off rates. All of these things have been very successful for us in the past.
And the beauty of our model is that we have 17 divisions with the right tools and the right incentives in place focused on serving their customers.
and finding solutions tailored for their markets while optimizing their deposit structure and funding costs.
Thanks Byron, appreciate the rundown there, that was helpful.
Maybe if I could just jump back to Randy on the capital side. Just checking in, you're building capital. M&A has been quiet in the past. You've used special dividends. That's been a bit. Maybe protecting some capital.
with the macro environment, but Do you need anything to touch on on capital? uh randy
Not in particular as it relates to M&A. You know, we still have the doors open and want to have conversations. There's some headwinds to putting deals together as everybody, as you know, but still having those discussions.
Regarding a special dividend, that's completely up to the board. I would tell you we put a lot of effort into building the capital and feel like at this point in the cycle,
that's where you want to be.
sailing into this with a fair amount of capital, and then we'll see what unfolds in 23.
Appreciate it. I'll step back. Thank you
Thank you. And as a reminder to ask a question that's star 11. Once again, that's star 11.
One moment for our next question.
Our next question comes from the line of Kelly Motta from KBW. Your line is open.
Hi, good morning. Good morning, Kelly. I'd like to continue on on the balance sheet side of things.
I appreciate all the color on how you anticipate on funding the growth ahead with the deposit flows moderating and cash flows off the securities book. Just wondering if these funding considerations are...
helping to guide maybe your outlook for loans to be lower, as well as any changes in demand at this higher rate point in the cycle.
So Kelly, you broke up a little bit there. I just want to make sure I have the right question. Maybe you could just restate it for me. So the essence was...
if these funding considerations are impacting how you're managing loan growth going forward, as well as I'm sure demand is...
coming in at this point in the cycle, just wondering.
maybe if you could hit on both sides of the things as well as what your outlook is for loan growth over the next few quarters.
Yeah, let me ask Tom to cover that. Morning, Kelly. From a demand perspective, we've seen that kind of continue to reduce over the past couple of quarters. Fourth quarter was no exception. So we saw pipelines reduce again.
We saw our top-line production reduced, but at the same time so did our payoffs. And so, you know, actually net-net between the two of them was about the same dollar amount of reduction. You know, all of which reflected, I think, of the interest rate environment. You know, cap rates are still low. So with rising interest rates, it's a little bit...
So I think that's been a headwind there as well. But in terms of loan growth outlook for 2023, we're thinking in the loan of mid single digits for the year. Yeah, and Kelly, we're not throttling back growth. We have more than enough rolling out the investment portfolio to put upon the level of growth that
we see organically coming at us in 23. So I feel like we're well-positioned to take care of our customers.
Understood. Now on the deposit side, I appreciate the color about this being 100 accounts and you're very well aware of who they are. Can you just remind us about the typical granularity of your deposit portfolio?
maybe average account size and things like that because it seems like it was concentrated on in just like the larger balance accounts.
Yeah.
We have our average. So if you get back down to the average balances, you know, our accounts, we have a lot of we probably have more units than a bank our size. We have a lot of smaller accounts and so we'll get to the average numbers. But.
You know that that's what was the interesting thing here is that they were a lot of the outflow was just concentrated in these Very large accounts which we could pretty easily see by when they want to add a little color to that sure in terms of averages Kelly a retail deposit account average about 15
And just a point of clarification, or trying to put some numbers around first quarter deposit outflows, you, in your prepared remarks, said you expect that to moderate. You said, does that, um, does that, um,
kind of imply that we're still going to see some decline in 1Q. It just won't be as great as we saw in 4Q and then kind of a stabilization thereafter.
Exactly. I think you're looking exactly right. Back to your point on granularity, I think that's a tremendous strength for us because we have a lot of small dollar accounts. As Byron pointed out, those actually grew throughout the year, including the fourth quarter. So that's an important part of our...
stable, sticky franchise.
Thank you so much. I'll step back.
Welcome.
Thank you.
And I'm actually not showing any further questions in the queue at this moment. I'd like to turn the call back over to our president and CEO Randy Chesler for any closing remarks.
Great. Well, very good. Appreciate. I know this was a really busy day for analysts with a lot of overlaps. And, hello? Yes? I'm sorry. I do have a follow-up from Kelly.
Well...
Kelly, the floor is yours.
Go ahead and open up her line. I thought there was other people in the queue, so I'll jump right back in. Can we talk about expenses? They were really well controlled.
a lot of the things that I'm seeing are having a lot of pressure on that expense line item. Just wondering as we look out to this next year, maybe if you could discuss any investments or bigger ticket items that you're making, as well as just any overall comments on
on how you're managing through the inflationary pressures and if
where we are now is a good.
where we are now is a good run rate to build off of.
Yeah, Ron and I and the team spent a lot of time looking at expenses, so I'm going to ask Ron to cover that. Yeah, Kelly, I really appreciate wealth control because that's just what it is. It gets back to the division, the model, local people making decisions that are right for their market, whether it's compensation or other.
non-interest expense, so let me start there. So, if you take the fourth quarter, you know, $129 million flat reported, but adjust that for the $2.5 million gain from the sale of former branch buildings, and then $800,000 of M&A, you get to about $130.7 million adjusted.
of you know the control on the hiring. We had a reduction during the quarter of six FTE. On an average it was actually closer to 24 so the division did a pretty good job as they have done all year doing more with less.
Just year over year, we're down 46 FTE and we've been able to manage through that. So that's been a remarkable thing and I want to point that out.
So then on the guide, just 133 to 135, we would estimate that that would then go up, say, 2.5 to 3 percent.
over the course of the year.
you know, the math is the math. The thing I would tell you is the
You know, there's still economic uncertainty. The higher inflation is still out there. I say high, it may be moderating, but it's still coming higher. So Q1 is seasonally higher. So I would say if you took the 2 1 1 1 2% guide, you'd be at 138 million for the first quarter. That's right, that's right, that's right, that's right.
You know, you guys have been obviously really well controlling your deposit costs. I think it was Byron who mentioned potentially running some CD specials. Just given the premium on liquidity that we have now, what are you guys now assuming for you to welcome and for the, the acquisitions that your company may later be able to west
cycle cycle today betas.
or sort of cycle beta.
Sure. Kelly, this is Byron. We previously mentioned mid-teens, and I think we're still there. I think mid-teens are still the right guides for our full cycle beta on our deposit count.
So just thinking through the pieces, it seems like the balance sheet is a bit smaller than we had perhaps thought with the deposit runoff. But as you remix into the
higher yielding assets from what you've given us on the security side and start to roll off of HLB. Do you see this as a bottom for your margin?
You know, in terms of margin, we do see a very modest lift this year. The asset momentum that we previously described is still in place. You mentioned the securities went up. That cash flow coming up at one and a half into loan, that's providing a lot of help to the margin.
We've got some loan repricing into this higher rate environment. We're seeing meaningful lifts from new production rates. And we feel those loan yields will carry momentum beyond the top of the Fed's rate cycle. Now, the near-term headwinds, of course, include the wholesale funding costs that we've talked about.
Deposit cost increases as we are getting more aggressive in our deposit pricing. However, on balance, we do think the asset momentum will be enough to more than offset the funding costs through the end of the year with that momentum providing ample capacity to compete for deposits and grow margins.
Thanks for the color. Left area for me is just credit. Obviously, metrics are really pristine, but we are starting to get into a more challenging environment. Just wondering, I mean, if you can give us a little bit of a background on metrics.
it feels like there's no direction but up, but what are you anticipating as the normalized level of charge off? Are there any areas too where the risk-adjusted to turns aren't looking as attractive at this point or maybe areas that...
do you think we could see more softness here in this upcoming year? Kelly, this is Tom. You know, there's no one specific industry or specific geographic location within the footprint that has an outsize area of concern. You know, we're really not seeing any early warning signs.
than anywhere in the loan portfolio, which is encouraging, especially living through inflation now for the past several quarters at that pace, to not really see any early warning signs yet is encouraging.
You know that being said you know I think there are Certainly a lot of economic headwinds You know certainly the inflation on and the pressure on consumers and how that will cascade In the commercial borrowers is left to be seen on the other side of that I feel our borrowers are coming into this time of uncertainty
probably from a position of strength greater than they've had, certainly greater than they've had during the last recession. So that's also encouraging. So in terms of where we think it's gonna go in the future, without the early warning signs, we don't really envision any material.
deterioration in at least in the coming couple quarters that being said
For the last, you know, two years we've been in a very aggressive
campaign, if you will, to...
work up or work out weaker credits in the portfolio. That effort continues so you know there could be an instance in the coming couple of quarters that if we see an opportunity to exit a weaker credit.
We'll do that if it makes sense.
Got it. I appreciate you guys letting me step back on. I am good now. Thank you. No problem. Victor, let me check back with you to see if anyone else is in the queue and would like to ask a question before we wrap up.
Yes, we do have one other question. One moment. Okay.
And we have a follow-up from Jeff Rulis from DA Davidson. Your line is open.
Hi, we're rushing to begin here. Hey, so.
Ron, I'm struggling with the expense base. I mean, for Q4, I kind of see it as about a 131 core if you add back the...
branch gain and less merger costs.
that seems like a pretty big jump into Q1. I know that you said that's seasonally high. Is it possible that the
kind of the
progress throughout the years is down from that Q1 high point.
Well, Jeff, to get back to the guide, we were very confident that the, as I mentioned on the previous earnings call, the merit increases that several of our divisions, a couple of the larger ones, put in place. That was mitigated by the reduction in the headcount. promote that and make it possible for Darrell to make it possible that only the ATM taking
We expect that will not continue. It'll reverse. You know, there are still challenges with hiring, but we think that, you know, hiring will come back. And then, you know, when you think about our merit increases, you know, they're all going to start here at the beginning of the year. And so that's the reason we...
anchored to the 133, 135 range that I gave last quarter. And so that's why I'm confident when I say two and a half, it could be 3%. So I would stick with that guide. And again, first quarter being higher, we've just got the merit increases, we've got the FICA.
you know the traditional things we've got some restricted stock that's at
And then on the non-interest expense, I mean, let me just use as an example, FICA, not FICA, excuse me, FDIC insurance premium, they're up 40%. And so we still see a lot of our vendors and we're looking at the contracts, but we see that the pressure they're putting on us to pay up.
Again, thank God we have the 17 divisions to look at that. Sure. Maybe taken a different way, if I look at, say you had 519 in total expenses in 22, if I look at full year, let's strip out the seasonality.
What's a good growth rate for 23? Is it like you said two and a half to three percent off of a 519 base?
So I would estimate the range would be say 500, 45 to 555, somewhere in that range for the full year and then that'll, you know, again, we're going to run higher as we traditionally do in the first quarter and then we, you know.
go lower from there. So that's the guide I would give you.
Okay, Paul, you're saying 545 to 555? Yep.
Okay, appreciate it, Roland. Thank you for a slow to pick that up.
Maybe just on the fee income side, or just a.
A similar question, obviously we know kind of mortgages.
is on its back, but your thoughts on kind of growth from what looks like a pretty low point in the fourth quarter, any expectations on fees?
Yeah, when we look at the fourth quarter fees, the mortgage gains was the big driver there of the drop off.
And so, and you had a little bit shorter quarter this quarter, so those two things are the bulk of the change. So we don't, you know, it's really, the big move there is going to be mortgage, and we hope to see some improvement. I don't see it right now. But —
If that picks up, then we should see the overall fees. But in terms of the account fees, those pretty much look to be in line. We don't see a big change there.
OK, thank you.
Welcome.
Thank you. Okay, Victor, I'm back checking with you. Do we have any other questions? I'm not seeing anything else in the queue at this moment.
back checking with you. Do we have any other questions? I'm not seeing anything else in the queue at this moment. Alright.
Very good. Well, I want to thank you again for all your questions. Again, busy day and we appreciate you checking in and Kelly and Jeff coming back for a couple questions, happy to answer them. So we hope everyone has a great weekend and we again appreciate your part of your day.
The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 11.
$4,000 per account. Great, yeah, that's pretty granular. Got it, and just a point of clarification, or trying to put some numbers around first quarter deposit outflows. In your prepared remarks, did you expect that to moderate? Does that kind of imply that we're still gonna see some decline in 1Q, it just won't be as great as we saw in 4Q, and then kind of a stabilization thereafter? Exactly, nope, I think you're looking exactly right. And back to your point on granularity, I think that's a tremendous strength for us because we have a lot of small dollar accounts. And as Byron pointed out, those actually grew throughout the year, including the fourth quarter. So that's an important part of our stable, sticky franchise. Thank you so much, I'll step back. Welcome. Thank you. And I'm actually not showing any further questions in the queue at this moment. I'd like to turn the call back over to our president and CEO , Randy Chesler, for any closing remarks.