Q1 2023 Glacier Bancorp Inc Earnings Call
Speaker 1: of subsidiary assets was 12%.
Speaker 1: or.12 basis points in the current quarter and compared to.24% in the prior year first quarter. Net charge-offs as a percentage of loans was one basis point. The company declared a quarterly dividend of 33 cents per share in the quarter. The company has declared 152 consecutive quarterly dividends and increased the dividend 49 times. Core deposit funding of $20 billion, almost 85% of total funding liabilities, ended the quarter at a cost of 23 basis points versus 8 basis points in the prior quarter. Non-interest-bearing deposits were 35% of core deposits at quarter end compared to 37% in the prior quarter..
Speaker 1: We expect deposits to perform more consistent with historic growth trends going forward, with some growth in the second quarter and second and third quarters of the year, followed by some outflow in the fourth quarter. Pollution for deposits and the cost to attract and retain them will continue to increase.
Speaker 1: We still anticipate borrowings to slowly decline throughout the year and plan to fund our growth for 2023 primarily by using the quarterly cash flow from our investment portfolio.
Speaker 1: So we remain confident in the dynamic Western markets we serve and our unique business model to continue to deliver strong results.
Speaker 1: The Glacier team did another excellent job in the first quarter. Despite the market turmoil, they once again kept their focus on shareholders, customers, and communities.
Speaker 1: So that ends my formal remarks and I'd now like Catherine to open the line for any questions that our analysts may have.
Speaker 2: Thank you. As a reminder, to ask a question, press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again.
Speaker 2: Please stand by while we compile the Q&A roster.
Speaker 2: Our first question comes from David Feaster with Raymond James. Your line is open.
Speaker 3: Hey, good morning everybody. Morning, David.
Speaker 4: Maybe if we could just start talking about on the deposit flow side some of the drivers this quarter. I know last quarter flows are primarily isolated to some of the top 100 clients or so. Is that the case again this quarter?
Speaker 4: Are the outflows, you know, how much could you maybe just talk about too? How much is just from normal seasonality versus clients paying down higher cost debt or capital purchases or you know? With some of the retail borrowers looking for higher rates versus actual fallout from from the recent bank failures
Speaker 1: Sure. Yeah, so obviously we've spent a lot of time looking at deposits and studying inflows and outflows. Byron has done a lot of analysis there. So I'm going to hand it over to Byron to kind of walk you through your
Speaker 3: responding to some of your questions. So Byron, go ahead. Sure David, appreciate the question. So when we look at our deposit flows, one of the things that I'll include when we talk about our core deposit flows, I'll be including repo, our retail repo, in this discussion.
Speaker 3: Those retail repo accounts are not wholesale funding. They are collateralized accounts. These are our customers. They are core relationships. So when I think of core relationship accounts, I'll be including a retail repo on this discussion.
Speaker 3: So in the quarter, our core deposits and repo declined roughly $600 million.
Speaker 3: That was a tremendous improvement over the decline in the fourth quarter. And what I'll do is I'll break this down between the month and kind of track and give you a sense for what happened in January , February , March. So more than 90% of that $600 million outflow happened in January .
Speaker 3: This was purely rate driven. This was kind of a continuation of what we saw in the fourth quarter. We did adjust our pricing and retention strategies toward the end of January and became much more proactive in defending those balances. And so once we did that, things realised that in the last quarter we were produce at least for another semester, and it would go well with our positive And so once we did that, I think we propped that down a little bit further because we would be actions started like this.
Speaker 3: our deposit and repo balances stabilized in February , and in the month of March, our core deposits and repo balances actually grew. And that was in the face of all that noise and volatility that happened in March with all the noise from Silicon Valley Bank. So our divisions did a fantastic job of stabilizing deposits.
Speaker 3: in February and actually growing deposits in a very difficult environment. Now you'll see the impact of that show up in our cost of deposits. They're on the rise and clearly going up.
Speaker 3: So, we did see some normal seasonality. That's typical for us to see some outflow in the first quarter. I would say that that was kind of accelerated by some rate drivers in January . We put a stop to that in February and actually grew in the month of March.
Speaker 4: the early read is early in the second quarter.
Speaker 3: Very typical tax related flows. So I have a little bit of increase first couple weeks of April and then some outflows related to tax payments. Nothing outside the ordinary from what we typically see in April .
Speaker 4: So I guess maybe just just how do you think about the deposit trajectory from here? It sounds like maybe April's you know a little bit more outflows from seasonal tax issues but I mean do you think core deposit balances are kind of at a trough or would you expect you know how do you think it plays out through the course of the year and ultimately.
Speaker 3: how do you think about the timing of some of the balance sheet and the paydowns of the borrowings? Yeah, I would, trough is a good word right now. I think that's right. I think from here, we'll probably revert back to some of our normal historic flows. Summertime is really strong for us on the deposit front.
Speaker 3: year for us where we grow somewhere in the range of 3 to 5 percent. Given headwinds I would put us at the low end of that range and so if I had to put a number on it you know between now and the end of the year you know potentially we could grow 2% would be you know my estimation.
Speaker 4: Okay, and then just again thinking about some of the balance sheet side, you know, obviously we built up some extra liquidity. How do you think about, you know, maintaining that liquidity and just thinking about some of the other dynamics, you know, with the cash flows from the securities book, you know, predominantly funding loan growth.
Speaker 4: probably don't start in 2% deposit growth like we were just talking about. Probably don't really see the borrowings come down in earnest really until 2024 or maybe early late in the year. Is that kind of the right way to think about it?
Speaker 3: I think so. You know, as Randy mentioned, we built that cash balance out of an abundance of caution. I think things are starting to settle down. You know, you could see us release some of that cash. That would help us pay down some of this wholesale funding. And then, you know, as you pointed out, the cash flow off of the securities portfolio.
Speaker 3: continuing to fund our our loan growth so just just just a little bit you know I could see maybe maybe if we release some of this cash that can put a dent in our wholesale funding but then it's just chipping away from there through the rest of the year.
Speaker 4: Okay, and could you remind us of the securities cash losses? I think we talked about $300 million. Is that still the right case?
Speaker 3: Yeah, I think I'm still comfortable with that number for quarterly for the rest of the year.
Speaker 4: Okay. Thanks, everybody.
Speaker 2: Thank you. One moment for our next question.
Speaker 2: Our next question comes from Kelly Mota from KBW. Your line is open.
Speaker 5: Hi, good morning. Thanks for the question. Morning, Kelly.
Speaker 6: Okay.
Speaker 5: Sorry, my model is kind of spinning on me. You guys got some good bone growth this quarter, so it was pretty decent even with the slowdown we've been seeing. What's your pipeline from here and can you talk about which areas you're seeing?
Speaker 5: the best risk-adjusted returns at this stage.
Speaker 1: Sure. You know, that's another area we spent a lot of time looking at as well, and Tom studied it very closely, so I'm going to ask Tom to cover your question on growth. Yeah, I would say, Kelly, the first quarter was a little stronger than expected, you know, and I think that's reflective of the...
Speaker 1: strong markets that we operate in through our A-State footprint. In addition to that, the continued strength on our borrowers' balance sheets that we continue to see. I would say though that we...
Speaker 1: I think we expect growth to continue to slow in the coming quarters. You know both customers and certainly our credit officers and our provision banks are continuing to be cautious. So I would say for the year we're probably on the low end of the mid single digit range.
Speaker 1: And then in terms of the second part of your question that's providing us some of the growth drivers and some of the areas where we're getting some very good pricing. You know certainly industrial warehouse has been a good segment for us in the last.
Speaker 7: probably last year and a half now, and that continues to show some strength. Multifamily has been good as well, even though we've seen that slow down a little bit. And certainly the agriculture portfolio provides a very healthy return, especially as a lot of the operating lines are prime-based structures.
Speaker 5: Thanks, and I appreciate all the color as well in the prepared remarks about the granularity of the portfolio and kind of what you're seeing. Credit continues to be stellar with 120 basis point reserve and where you are. How do you feel from here?
Speaker 5: What should we be expecting in terms of credit normalization and anything we should be watching as we look to the year ahead?
Speaker 7: Sure. You know, barring any changes in any significant changes in the economic forecasting the model or you know changes in portfolio mix or asset quality I really don't expect.
Speaker 7: much change as a percent of loans.
Speaker 7: So, you know, we keep a close eye on it, we evaluate it every quarter, you know, when we're watching the forecast closely, we really haven't seen material deterioration there yet, and certainly, you know, we've got some overlays in the model as well to reflect that. So, you know, as of now, I don't expect much in the way of change.
Speaker 5: Got it. And then in your prepared remarks, you had some commentary about M&A. It seems like everyone saw how you have to go through foul Osborne and made targets. So again folks
Speaker 5: somewhat constructive. Can you provide additional color? Do you expect what's going on in the banking industry and potential headwinds?
Speaker 5: starting to motivate some activity or is the environment as a chance right now still pretty slow?
Speaker 1: Sure, yeah, no you're absolutely right Kelly. It is slow right now and it's probably a little difficult to see, but we feel it's going to be good for certain companies and with our experience in M&A and our strategy, we feel like it'll be a very good time for us.
Speaker 1: A couple things that will, and of course you need buyers and sellers to make that happen, but you know, I think that some of these headwinds will weigh on people's decisions on how long to kind of hold their position and wait for a better time. I think that will bring.
Speaker 1: regulatory expense and then deposit cost will, I think, play to our strengths and present some very good opportunities for us. And so we're open for M&A business. We are having some good conversations. And we feel like that will be a very good opportunity for us to have a good conversation with our customers.
Speaker 1: positive and a good way for us to continue income growth you know during a period where there's some certainly some headwinds in the industry.
Speaker 5: Thanks. Maybe last question for me on the margin, and I apologize if I missed it, but
Speaker 5: At 308 and your commentary that you're going to fund off securities flows, should we be thinking of this as kind of the trough margin and some expansion from here, or will these funding pressures continue to kind of...
Speaker 1: maybe have some additional downward pressure in the next couple quarters. Sure, yeah. I mean, margin, obviously, that's really tied to the money cost and where we see that going. And Byron will give you a little more detail update or color around the margin.
Speaker 3: Sure, Kelly. As you saw, our margin in the first quarter came in at 308 for the quarter. The best guide I can give you on margin from here would be to look at the March. If you just isolate March within the quarter, that margin was 295. Now I think that's going to be close to the trough. And from here...
Speaker 3: I would think stable. If you had to pin me down on a range, I would think we would end the full year somewhere in the 295 to 3% area in terms of net interest margin.
Speaker 5: Right, I appreciate all the color. I will step back. Don't Beudet
Speaker 8: Thank you.
Speaker 8: Thank you. We have a moment for our next question.
Speaker 2: Our next question comes from Jeff Rulis from DA Davidson. Your line is open. Sorry.
Speaker 9: Thanks. Good morning.
Speaker 9: Thanks. Good morning. Morning, Jeff.
Speaker 9: I guess as a jump off one of that last comment on the margin near 3%, I wanted to understand the assumption of what occurs with the non-core funding sources. What is the backdrop?
Speaker 9: in terms of how much you wean off of those sources over the course of the year.
Speaker 3: Sure. So in terms of our wholesale funding balances, we do think that we'll bring that down some over the course of the year to put a number on it. I don't have an estimate for you at this point, but I think it would be a modest decline in funding0024 synthetic and judges would be looking in participation yields just to make sure that we don't get sued.
Speaker 3: in wholesale funding between now and the end of the year. The good news is with our participation in the BTFP program, a lot of that wholesale funding cost is essentially locked in for the rest of the year. So regardless of rates, if the Fed does have some additional hike left, our wholesale funding costs are locked in for the rest of the year.
Speaker 3: should remain fairly steady from this point on.
Speaker 9: Okay, and just to try to understand the strategy.
Speaker 9: you know, maybe just a sense for what is it that you need to see to kind of, not that you've got an all clear, but you've talked about operating in an abundance of caution. You see real time what your deposit balances have done, really non reactionary to sort of the news of the day. So just trying to get a sense for.
Speaker 9: What would be the hesitation to run that loan deposit ratio up? Begin to kind of lean into what is a franchise strength is, you know amongst peers it, you know you see outflows, you see ramping costs, just trying to get a sense for
Speaker 9: What do you need to see it go maybe quicker off of those wholesale borrowings to maybe prop up the top line a bit?
Speaker 3: You know, back to loan to deposit ratio, you know, clearly it's on the way up. You know, we've talked internally about, you know, comfort zone. I could see, you know, us going into the end of the high 80s with regard to loan to deposit ratio.
Speaker 3: We just have to see what the lending opportunities look like in order for us to get there and those types of investments iniku the strombology that's the financial aid that we have
Speaker 1: what the funding requirements those lending opportunities present. And that will really determine our funding strategy from there. Yeah, Jeff, I think the deposit flows will be a big driver of that. And, you know, there's going to be a lot of competition for deposits. We talked about our view.
Speaker 1: in terms of, you know, seeing some return to more of the lower end of the historic range, that's going to be the bigger determinant, as well as on balance sheet liquidity in the form of cash, just how much, you know, of that. And when they all clear whistle blows, that's been a moving target. And so, you know, that's been a moving target.
Speaker 1: I think we're feeling actually good about the second quarter, so we'll see if there's any other external events that change that. But I think that to answer your question on where the wholesale funding balances go, really going to be driven by
Speaker 9: deposit flows. Okay, okay. Thanks. And just one other topic. I wanted to...
Speaker 9: hot to the expense run rate, I, you know, in the release sounds like kind of pleased given the inflation backdrop that, you know, keeping that growth managed. Expectations for the, you get through a seasonal Q1, but just expectations for.
Speaker 3: expense management over the course of the year would be helpful. Yes, this is Ron. We appreciate the question. So the guide we gave, you know, coming out of the fourth quarter call was 136 to 138. And, you know, expecting it to be higher towards that 138. I'll give you the new guidance, but I want to give backdrop to why it came in lower.
Speaker 3: And on page two of the earnings release, you know, you can see that our FTE was flat. And then when you look at our FTE compared to the year ago, we're down 49. And so what that reflects is...
Speaker 3: And on page two of the earnings release, you know, you can see that our FTE was flat. And then when you look at our FTE compared to the year ago, we're down 49. And so what that reflects is the FTE is the FTE is the FTE is the FTE is the FTE is the
Speaker 3: technology platform. Again, everybody realizing, you know, we can do better with less. The headcount over that same time period, year over year, has come down 20. So I think the divisions have a very, very good handle. Again, no edeck came from, you know, from us. They're making the decisions that are right for their market.
Speaker 3: Again, compensation being the primary driver of our non-infant expense. I just want to comment on the regulatory assessments. That's up 43 percent. While that only accounts for 4 percent of the non-infant expense, I mean, it's uniform. The FDIC has adjusted it for—
Speaker 3: I say that because while we were very, very good at controlling expenses, we're still seeing across the...
Speaker 3: various expense categories, inflationary pressures, and so
Speaker 3: inflationary pressures and so I'm just leaving that there.
Speaker 8: Okay, thank you. Thank you. We have a few more minutes for our next question.
Speaker 2: Our next question comes from Brandon King with Truist Securities. Your line is open.
Speaker 10: Hey, good morning.
Speaker 10: Hey, good morning. Morning, Brandon.
Speaker 11: Morning. Could you just give us your thinking and thought process around?
Speaker 11: not being more aggressive as far as pricing up core deposits.
Speaker 11: instead of tapping higher cost wholesale funding, just optically, your deposit costs are much lower than peers and I know historically that's kind of always been the case, but just wanted to get a better sense of what the thought process is there strategically. Sure.
Speaker 1: I can give you my thoughts on the myth Byron may want to add to it. The I guess just to step back and you know some contacts. We went through a decade of zero to low rates. And so there was a little muscle memory that had to be developed in terms of competing for deposits.
Speaker 1: And I think that's, you know, what we saw in the fourth quarter and to some extent in January , the Byron's commentary. Once we said enough within a week, the deposit stabilized and then actually grew. So I think Brandon is as simple as that. You know, it's.
Speaker 1: We had been in a mode for a decade of operating in one environment. It shifted pretty quickly. And I think we're squarely now out to retain and defend the deposits and keep them with our relationships.
Speaker 11: Okay, and would you care to share what the spot deposit rate was at the end of the quarter?
Speaker 3: I can give you the average rate for the month of March with 36 basis points.
Speaker 11: Okay. And final question, I know there's been kind of growing consternation about, you know, the work from home trend kind of almost ending from here and not being as prevalent. So could you just give us an update on what the immigration trends are there in your footprint?
Speaker 11: And also just a sense of how housing has performed and if there's any notable trends there based off of the increases over the last couple of years, especially.
Speaker 1: pandemic. Yeah, we've, we continue to see in migration across all our markets. It's slowed down, but it's still continuing.
Speaker 1: The return to work, I think a number of the people that have made the move decided not to return to work. And we see some folks staying put. We have not seen any kind of material outflow. We still have housing shortage across almost all our markets.
Speaker 1: Prices have held in pretty stable. So we don't see a lot of disruption there, despite the bigger return to work has not really materially changed those dynamics.
Speaker 8: Okay, thanks for taking my questions. Welcome.
Speaker 8: Thank you.
Speaker 2: And we have a question from Andrew Terrell from Stevens. Your line is open.
Speaker 12: Hey, good morning. Morning, Andrew.
Speaker 13: Thanks for the questions. If I could start just on the margin as well and Byron I appreciate all the color around.
Speaker 13: the deposits and the kind of pricing strategy there. It's all really helpful. I maybe just wanted to get a sense from you on
Speaker 13: deposit beta expectations. I know in the past we've kind of talked around I think around 15% total deposit beta through the cycle, but it felt like it maybe performed that expectation. I was hoping to get a sense of whether you still thought 15% just given the pricing changes that were made. Recently, if you still think 15% through the cycle for total deposit beta is...
Speaker 13: kind of the expectation or if there's a chance you could come in above that.
Speaker 3: Sure, we're still using 15% for our through the cycle beta for total deposits. We still think that's a good estimate. It really depends on the Federal Reserve and kind of what rates, what happens from here. If we see higher for longer.
Speaker 3: That is a scenario where I think clearly we'll have to push through that 15% beta to retain deposit balances. If you believe market expectations and the Fed begins to cut towards the back half of this year, that's a scenario where I think we could maintain and hold to that 15% beta.
Speaker 3: beta number. So it really depends on you know on what what the Fed does from here, but you know what what we're using we're still using that 15% number in our estimate.
Speaker 13: Yep, okay. And then maybe just following up on that point, when we look out at the forward curve, there's obviously some cuts baked in starting later this year. And I think, Randy, you might have mentioned prepared remarks around the bias of the balance sheet being maybe a bit liability sensitive. Could we maybe put just like a…
Speaker 13: finer point on that and I know there's a lot of moving parts, but as we look out into late this year, early next year, how do you think the margin responds as we start to contemplate rate cuts?
Speaker 3: I think the margin will do well with rate cuts. One of the things that when we talk about liability sensitive, it's just modestly liability sensitive. When we ran our model at year end, we ran our model for about a year and a half.
Speaker 3: We were fairly neutral. We did make an adjustment to our March 31 model with the rate shocks. And so again, kind of the base case, 15 percent I think is still a good guide. But we do recognize that a lot of the lag capacity that we have had has been used up in our deposit.
Speaker 3: in our deposit base. And so if we're talking about up 100, up 200 from here, I think our deposit cost will be more sensitive to those hikes. And so when we're talking about shocks, we did dial up our beta sensitivity in those shock scenarios, creating the liability sensitive overall result.
Speaker 13: Yep. Okay. Makes sense. And just to clarify, the 15% total beta excitation, does that include the...
Speaker 3: the customer repo deposits as well? No, that's total deposit cost and exclude the repo account. I appreciate the clarification. Thank you.
Speaker 13: Thanks. If I could ask just two more quick modeling related questions. Do you have the for the the new loan production this quarter, the the weighted average loan yields and then also the weighted average kind of incremental loan yield and then expectations on the tax rate moving forward? Yeah, Andrew on the production breaks for
Speaker 13: Thank you guys for any questions.
Speaker 1: You're welcome.
Speaker 8: Thank you.
Speaker 2: Thank you. One moment for question.
Speaker 2: Our question comes from Matthew Clark.
Speaker 2: The next question comes from Matthew Clark with Piper Sandler. Your line is open.
Speaker 14: Hey good morning everyone. Good morning. Just on expenses and just overall efficiency, you know, given kind of the change.
Speaker 14: maybe culturally or just with the new rate environments have to compete a little more on deposits.
Speaker 14: You know, when you think about that targeted efficiency ratio longer term of 54, 55 percent, I mean, it doesn't seem like we're going to be in that range this year.
Speaker 14: But is there some, you know, do you feel like, you know, that might not be realistic going forward just given the need to kind of pay up or retain deposits in this environment?
Speaker 1: Yeah, Rami had some comments, but you're absolutely right the way you're looking at it right now. I think there are a number, and we've spoken about them, we have a number of efficiency initiatives through our technology platforms.
Speaker 1: that we're spending a lot of time with. I think that that's probably gonna be beneficial. And we're still really dialing in, you know, that ability to get back into that 54, 55 range, which is our goal.
Speaker 1: We do have some tools to get there. And, you know, that's, I think your outlook though on this year, that's really a question for next year. Ron, did you want to add anything? Well, so it will be sensitive to it. As Byron was saying, it depends on, you know, do we get the rate cuts or do we get...
Speaker 3: further rate hikes, you know, that's because the bigger component, the more impactful component this quarter was the net interest income. And so while we're doing great on the non-interest expenses, it's largely driven by that. But yeah, it'll be
Speaker 14: elevated this year, the efficiency ratio. Okay, and then just shifting gears to office exposure, I know you guys are in a lot more rural markets than most. So probably a little more insulated, but still some uncertainty around how rural office I think does longer term.
Speaker 14: Can you just quantify your exposure there and any characteristics you'd like to highlight and what the associated reserve is on that exposure?
Speaker 14: Can you just quantify your exposure there and any characteristics you'd like to highlight and what the associated reserve is on that exposure?
Speaker 7: And that is Tom total exposures run about 9.6% of the total portfolio
Speaker 7: But as Randy mentioned, you know, that's the average is quite small, you know, about 600,000 scattered across all eight states and you know there's immaterial exposure to downtown business districts. So, in terms of, you know, you're, you mentioned kind of the long term impact I think that's the unknown with the
Speaker 7: But what I will say is, and I think I mentioned it before, you know, about four years ago, we implemented an additional underwriting requirement. In addition to, you know, lesser of loan to value or cost and debt service coverage ratio, we also underwrite the debt yield, meaning that
Speaker 7: And for office, it varies by geography in asset class, but typically for office, that minimum threshold is 10%. And so as cap rates came down through this cycle, what that dictated was more cash equity coming into purchases. So to your point, I think it's fairly well insulated to market disruption average.
Speaker 7: thus far had a positive effect on our type of office that we have. So it's been a unique dynamic over the past few quarters.
Speaker 3: Okay, great. Thank you.
Speaker 8: Thank you.
Speaker 2: And our next question is a follow up from Kelly Moda from KBW. Your line is open.
Speaker 5: Hi, I appreciate you letting me back in the queue, but my questions are asked and answered at this point.
Speaker 8: Thank you, and I'm showing no other questions in the queue. I'd like to turn the call back to management for any closing remarks. All right, Katherine, thank you very much. We want to thank everybody again for dialing in to our call today. We hope everyone has a great Friday and a great weekend. Thank you.
Speaker 2: This concludes today's conference call. Thank you for participating. You may now disconnect.