Q4 2023 Glacier Bancorp Inc Earnings Call

Presentation

Operator

Good day and thank you for standing by, and welcome to the Glacier Bancorp Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen only mode after the speakers' presentation, there will be a question and answer session to ask a question. During the session, you'll need to press star one one on your telephone. You will then hear an automated message advising Johannes Reis. To withdraw your question, please press star one again. Please be advised that today's conference being recorded. I would now like to hand the conference over to your speaker today, Mr. Randy Chesler, President and Chief Executive Officer of Glacier Bancorp. Mr. Chesler, please begin.

All right. Good morning, and thank you for joining us today. With me here and countless bell this morning is Ron Copher, our Chief Financial Officer; Angela Dose, our Chief Accounting Officer; Byron Pollan, our Treasurer; Tom Dolan, our Chief Credit Administrator; and Don Cherry, our Chief Administrative Officer.
I'd like to point out that the discussion today is subject to the same forward-looking considerations found on page 14 of our press release, and we encourage you to take a careful review of this section. We released our fourth quarter and full year 2023 earnings after the close of the market yesterday in Greece and the Glacier Bancorp team wrapped up a challenging year with a very strong quarter.
We achieved earnings per share of $0.49, which increased $0.02 per share from the prior quarter. Net income was $54.3 million for the current quarter, an increase of $1.9 million or 4% from the prior quarter. Interest income of $273 million in the current quarter increased $8.6 million or 3% over the prior quarter.
Net interest margin on a tax-equivalent equivalent basis was 2.56% versus 2.58% in the prior quarter. Our smallest quarterly decrease this year total noninterest expense of $132 million for the current quarter, including a one-time $6 million FDIC. Special assessment increased only $2.6 million or 2% over the prior quarter.
The portfolio loan yield of 5.34% increased 7 basis points from the prior quarter. New loan production yields were 8.24%, up 32 basis points from the last quarter. Nonperforming assets to bank assets decreased $16.7 million or 39% from the prior quarter to 9% or 9 basis points of assets. Net charge-offs to total loans ended the year with only 6 basis points. Provision expense for the quarter was $3 million, which was stable compared to the prior quarter provision expense of $3.5 million.
The allowance for credit losses as a percentage of total loans outstanding at year end was 1.19%, flat to the prior quarter and relatively unchanged compared to the 1.2% in the prior fourth quarter -- prior year fourth quarter. While the industry saw a significant outflow of deposits during the year, the Company's core deposits and retail purchase agreements only decreased $108 million or 50 basis points from the prior year end.
The Company ended the year with $1.3 billion in cash, which was an increase of $952 million over the prior year end. Stockholders' equity of $3 billion increased $146 million for the quarter or 5% and increased $177 million or 6% over the prior year end. The company declared a quarterly dividend of $0.33 a share and the company has declared 155 consecutive quarterly dividends and has increased the dividend 49 times. And we received all regulatory approvals for the acquisition of Wheatland bank, a leading Eastern Washington community bank headquartered in Spokane with total assets of $728 million as of the end of the year. This will be our 25th acquisition since 2000, and we will close the transaction on January 31. We welcome the Wheatland team to Glacier Bancorp.
Despite the significant volatility in the banking industry in 2023 with two of the largest bank failures in history, depositors' fear of bank safety, and historic interest rate increases, the Glacier team did an excellent job taking care of customers and communities across the West and ended 2023 well positioned for a strong 2024.
So that ends my formal remarks, and I would now like normal to open the line for any questions that our analysts may have.

Question and Answer Session

Operator

Matthew Clark, Piper Sandler.

As a reminder, you may view them starting on expenses. The run rate well below prior guidance of $132 million to $134 million. And can you speak to on not only the run rate that you expect going forward ex excluding Wheatland, but also maybe provide some color behind the staffing inefficiencies that you gained? Just maybe speak to what exactly was done there?

Matthew, Ron here. So yes, what you recognized for a proud of we recognized for that. But in terms of the staffing, especially, but so on the guide, it was $132 million to $134 million. And if you remove the FDIC $6 million and some M&A of $500,000, you get down to the roughly $126,000, but our compensation was down by about $6 million. And I want to normalize for that because that included the performance related performance-based pay that totals about $6 million.
So when you bring it all back our $132 million is basically what we came in at. And then when you look forward for the guidance for Q1, excluding Wheatland, we would be at $138 million to $140 million. And then when you add in $6 million for Wheatland, the guide for the full first quarter $144 million, up to $146 million. That should be the high for each of the quarters in 2024. As is typical, the first quarter run high. So you get the full impact of the merit pay increases. If I get tax the employer portion it kicks in. And so that's some how that how that reconciles there.
So the FTE count has continued to migrate down, particularly in the second and third quarters. The division, the team, the corporate department calls, it is an outstanding job continuing into the fourth quarter, we had another 20 FTE reduction. So overall for the full year was 96 FTE reduction. And a lot of that is attributable to the technologies that we've talked about. I think on each of the calls, as we continue to implement those, I think of the account opening process, cut that in half, even doing better now at the center doing end of day closing, we've gone through real time adjustments that greatly sped up of that part of the construction program we added built have been very, very good treasury management, making great strides is all very positive. We do continue to believe that no, we'll have some additional reductions in staffing, probably not to that same degree remember, we're bringing on of Wheatland and they've got 14 branches. So we'll we feel pretty good about what we're able to achieve certainly for the year, but in particularly the fourth quarter.

Okay, that's great. Thank you. And shifting gears to the margin, I have a three-part question there on you had the spot rate on deposits at the end of the year. Or the average name in the month of December? And then what's your deposit beta assumptions on the way down with rate cuts at this stage?

Hi, Matthew. This is Byron. I can address that. So spot rate for the total deposits in in December, this is a December 31st total deposits by 1.30%. And you asked for the margin, the December margin, that was 2.59% and beta on the way on the way down. And I think what we'll likely see as the Fed begins to cut rates. I think what we'll likely see an adjustment period may be a lag in customer expectations as well as in the competitive deposit environment.
I think for the first few cuts, we're expecting a lower beta on the way down, maybe less than 10%. And I think we will see some some opportunities, some near-term opportunities to reduce rate our first rate reduction opportunity will be really was a higher cost CD that we've ramped up in recent quarters. I'm thinking of our CD specials that we have in place. We've kept our CD specials intentionally short, almost 60% of our CDs mature in the first quarter. And so that will that will afford us an opportunity to reprice those those CDs as they mature and as market rates are falling. And so and that's our expectation. I think I think it will take a little bit of time for the down rate beta to gain some traction. And for the first few cuts, we're thinking less than 10% on the way down.

Okay, great. And then on the loan portfolio, particularly within residential construction and land lots and other construction that's come down the last couple of quarters. I assume those are just projects being completed, but maybe speak to the trend there. Is it maybe being a little more cautious on that front? Or is it just tough to get things find workers and get things done?

Yes, Matthew, this is Tom. Yes, that reduction in the construction segments that you're absolutely right. That's as a function of projects getting completed and moving moving into the Permian functions, which is why you saw one to four-family multi-family, some other CRE segments lift in the quarter.
In terms of volume in the construction segments, we're definitely seeing a reduction there really across the board of residential and commercial construction. And I think it's I think it's really twofold. And we are being more selective and cautious than we normally are even more so than our EXISTING conservative underwriting standards. But we've also seen customers waiting on the sidelines to get a little bit more clarity on what's going to happen. So there definitely is some pent-up demand out there. You know, with the current interest rate environment, especially on the commercial side, it takes certainly more cash equity to make a deal pencil to our underwriting standards. So I think all those things combined are have a construction production muted a bit.

And then last one for me, bit of a two-part question around M&A. Great to see you guys getting the regulatory approvals here. Does this long-awaited approval process change your appetite and wanting to do deals? And if not, can you speak to some of the incremental change in conversations you've had over the last quarter?

Sure. Well, we're 30 days longer than what we expected. So I think that we are very, very happy to go all the approvals and get it closed. No, I don't think this will change our appetite one bit. I think it will change our expectations that we set at the beginning of these and allow more time for the regulatory approval.
On terms of activity, yes, the market has picked up. We are getting more inbound calls and a lot of very interesting opportunities. So I think coming out of 23, there is just a little more of an increase in inquiries, interest as well as different types of on opportunities, be it whole banks or branches or just the quite a bit of more activity picking up. We'll see that continues, Matthew, by the at the start here, marketing increased.

Operator

David Feaster, Raymond James.

Maybe just starting on the deposit front. I'm curious some of the dynamics that you're seeing there and if you could help us think about like how much of the deposit flows that you saw in the quarter. Would you attribute to maybe client activation or perhaps some seasonality hoping you could quantify that and just kind of how you think about deposit growth going forward? And really, I guess the overall balance sheet size obviously probably targeting core deposit growth, but would you expect the balance sheet to remain relatively stable and just on remix the book?

Sure, David, this is Byron. I'll start with deposits. Our deposit flows in Q4 were primarily driven by our noninterest-bearing decline. We also had some decline in our brokered CDs. We just let those mature and run off in terms of our outlook for total deposits for 24 we do think will be reverting back to some typical seasonal patterns. I think we'll be down in the first quarter. But on the year, I think we'll be likely flat versus where we ended 23 at that's in terms of total deposits.
Digging into the non-interest bearing a little bit, the majority of our non-interest bearing decline came from from typical seasonal outflows, another driver that we've looked at. So the bulk of the outflow of non-interest bearing came from business accounts. And so we looked at what type of businesses saw balanced decline the top three categories were all related to the housing market. So title company balances were down, construction, construction accounts, contractor accounts, those kinds of things. And so no surprise there, given recent headlines that because that housing activity is at a very, very slow pace at a low point. I think that's seen 35 30-year low in some headline, I would say on the other hand, when we're talking about non-interest bearing balances, the rate motivated migration is slowing. That trend has been slowing in recent quarters. And in Q4 it was half of what it was in Q3. So there is still some rate seeking migration there, but but it's much lower than it has been in previous quarters. And I think that that trend will continue to flow.
In terms of the outlook for non-interest bearing, I think we could continue to see some some outflow, not just non-interest bearing balances and some remix there. I would say this is where we win will give us a real boost there. Very strong non-interest bearing balances. Their their total deposit base is over 90 is over 45% non-interest bearing, which is which is very strong. Now there's some seasonality seasonality to that. It is influenced by the ag cycle and what's going on there, but very encouraged by the strong deposit base that we want to bring to the balance sheet.

Got it. That's helpful. And then maybe just touching on the securities book. Could you first remind us the cash flows that you're expecting off that book near term? And I know you sold some securities gains this quarter. Curious your thoughts on maybe being more active on managing that book and at what point you may be interested in a restructuring?
And then just to your point on on Wheatland, whether whether there's any racing come down since that deal was announced, just curious if there's any additional opportunity from optimism for balance sheet optimization inclusive of that deal?

Yes, if I could comment on the investment portfolio, the gain there, David, was the sale of the Visa B shares and so on. We've been holding onto those for quite a while. 1.7 million. We thought this was a good time based on a lot of factors to exit those shares. So that was a gain that you saw this quarter.

Sure, David, back to cash flow and the securities portfolio, we are we are expecting about 250 million a quarter in securities cash flow that that through the end of this year.
In terms of restructuring, I don't think as Randy mentioned, what we didn't sell anything in the fourth quarter. I don't think we'll be looking to sell. And so anything out of out of our portfolio when we lend when we win does come to us, we are looking to sell those securities. And so the securities that are currently in their portfolio will be liquidated in February and will just become part of our overall pop of liquidity.

Okay, perfect. And then maybe just touching on the loan growth side. Obviously, loan growth slowed and I know you're very conservative. You've been you've been you've done a great job pushing pushing pricing. I'm curious how much of that slowdown would you attribute to being strategic on your end and just less appetite for growth versus maybe weaker market demand or just less on less certain backdrop and for the borrowers? And just any thoughts on how you think about loan growth going forward?

Operator

David, you might want to ask your question again.

Yes, sure. My question was just kind of on the loan growth side. You know, loan growth slowed in the quarter. I know you guys have a pretty conservative posture you guys have done a great job pushing improving loan yields. I'm curious how much of the slowdown in loan growth was strategic on your end and you know, you all just having less appetite for growth versus weaker market demand and maybe a less certain economic backdrop as your clients are looking out and just how you think about loan growth more broadly going forward?

Sure. Yes, David, this is Tom. Yes, I really think it's twofold. We have been more selective, especially around high-risk areas, especially in uncertain economic times, speculative repayment, cash-out refi based on market appreciation. Those are things that were even more conservative on now that we have been. I think that's a portion of it. I think the other side of it is we do still have a lot of borrowers. A lot of developers wait on the sidelines until they they're comfortable with kind of the market outlook. And as Byron mentioned, the slowdown in the residential side, we've seen our builder finance and subdivision finance is not a big business line for us. But as you know, we do make some very real well-heeled multi-year recession, tested developers and and they've proactively scaled down time as well. Just kind of seeing what was coming on the forefront. So I really think it's it's twofold of us being more selective borrowers being more cautious in terms of the production yield that we saw. We have that at our bank division has done a phenomenal job getting strong pricing on our deals that hasn't really slowed growth of that much. You know, constantly talking to our bank divisions, I'm not hearing that we're losing deals over pricing is generally just overall pipelines are muted from where they were back in the heyday, although they have been somewhat stable over the last couple of quarters. And you know, the tailwinds we saw at the first half of 23 with a lot of construction draws as those deals have moved through to completion into the perm category, we're just not replacing the construction volume at the same pace that we were as expected.
And then to answer your last question on our go-forward outlook for 2024, we're thinking low to mid-single digits for the year.

Operator

Kelly Motta, KBW.

Good morning. Thanks for the question. I just wanted to ask about the $2.7 billion of BTFP that you guys have. Just wondering what your plans are there with replacing that amount and how we should be thinking about that in context of the balance sheet overall?

Sure, Kelly, this is Byron. As you know, we have $2.74 billion of BTFP balances. Those mature in March at the rate curve in Q4 allowed us to lock in some forward-starting FHLB advances. We locked in $1.8 billion of forward starting advances at a very similar rate as we have are a PVFP borrowing rate. That's on a dividend adjusted basis. Those those forward-starting advances will begin in March to coincide with the maturity of the BTFP borrowings, and we ladder those maturities from 12 to 24 months. And so we spread the refinancing of that over five quarters.
So we locked in the $1.8 billion. That leaves us with $940 million left to refinance in March. And we've got some flexibility and options that we've got a little bit of extra cash right now. We could use some of that to pay down. That said, $940 million, we'll look at what the overnight borrowing environment is, and we'll look at what the what the curve looks like in terms of term FHLB advances and so we'll keep our options open. We'll evaluate that, that last $940 million as we get closer to maturity.

Got it. That's super helpful. Thank you. And you alluded to the higher levels of liquidity you have. Can you remind us where you're comfortable running those cash balances?

Sure we could bring our cash down to somewhere in the $500 million to $750 million range, somewhere in that zone, probably a more comfortable level.

Okay. Super helpful. And then just on the margin overall, it was really encouraging. I'd ask that you threw out about spot rates and whatnot. It seems like some please somewhat reached a bottom, but I was just wondering what what you guys are expecting in terms of the glide path of NII this year on and margin really, especially considering potential rate cuts and maybe given the forward curve?

Sure, yeah, Q4 margin was down only 2 basis points. That was a significant improvement over the pace of decline that we have seen in prior quarters. So very encouraged by that we are seeing signs signs of stabilization. The biggest driver of that is the slowing of our deposit cost increase. So in terms of our outlook, I think we do see Q1 continued stabilization. I think from there, we'll see an inflection point likely somewhere in the second quarter and then we see growing NIM from there.
We are also encouraged by, again, we lend and the lift that they will help provide on the margin side. That will be helpful to put a to put a range in terms of our expectation for the full year. I think we'll comment on the full year 24, somewhere in the range of [$280 million to $290 million]. And so that that's given our current rate outlook. That includes three cuts in 24 spread evenly throughout quarters two, three and four later this year.

Got it. That's super helpful. And if we were to get more rate cuts and more in line with the forward curve? Just directionally, what would you anticipate that would and how do you anticipate that would impact that expectations?

I think though, I think it would be helpful. So I think our margin could could improve even above the range that that I mentioned previously.

That's really helpful. And last question I wanted to ask was on expenses. I think you had said increases have we hit we lent $144 million to $146 million in Q1. That was a little higher than where I was. Could you remind us on the net debt, a partial impact of Wheatland. Can you just remind us the dollar amount of cost saves you interstate expecting for Wheatland and overall core expenses? It seems like from the release in your commentary you're looking to control. I'm just wondering, you know if what you're anticipating in terms of some kind of core expense outlook there.

Kelly, Ron. Let me go back. I just want to make sure of the $144 million to $146 million guide that included Wheatland, we wind up. So just to go back to the core, ignoring Wheatland, we're going to go from $132 million in the fourth quarter. We'll go up to $138 million to $140 million just on the provisions we already had, and then you add another $6 million. So the guide become $144 million to $146 million. And on the expense saves, we are in the model that we built, we assumed a 20% reduction of their noninterest expense, and that would be layered in 50% in 24 and then 100% in 25, and we feel that very, very achievable. I don't have the exact dollar amount. I didn't remember, it's 20% phased-in, 50%, '24; 100%, '25.

Got it. And if they're adding back that $6 million that are adding for the quarter, is that inclusive of any any one-time nonoperating kind of just merger charges in that and that you have had a little few months.

It's in there, but it is it's not that really big number, but we just are giving the guide $144 million to $146 million.

And that's the two month contribution from them?

Yes, two months. Thank you.

Operator

Jeff Rulis, D.A. Davidson.

Good morning. To chase down the margin too much. And I think you framed up really well, Byron, and particularly that last piece, I just wanted to get sensitivity. You do screen fairly liability-sensitive. So I just want to make sure. Are you now in that three cut scenario and kind of upward trending? And you talked about kind of the beta on the way down on deposits. Is that would that extend into 25, then some of that favorable kind of tailwind in a three cut environment? And then and then conversely, what kind of margin expectation should there be no cuts this year. Is there kind of a core left or is the pad trying to chase that down?

Sure. I'll start with expectations. If we don't see cuts, I think we I think we could still see margin growth there. The pace of that growth will be a lot slower. And the key to that is stabilization of our deposit costs were already seeing good signs there. And so we're kind of flattening out the curve of that deposit cost increase. And so I think I think that will happen even without cuts and it may push out that inflection point. I mentioned second quarter. It may push that inflection point out further in the year, but I still think we could see some some growth, although more limited, even if the Fed doesn't cut rates.

And I guess the not so clear question in there was that in the 25, you talked about that and three cut lift to kind of to 80 to 90 range in as we progress into 25. Can we see further left? Is there sort of a tail of that beta down scenario where you you foresee an environment where margin can continue to propel higher and 25 a long time from now, but just the thoughts on that.

Sure. I do think we'll see some some tailwind into 25 of the way our balance sheet structure to it. We get most of the benefit kind of in year two of a rate move. And so with three rate cuts and 24, that will gain momentum into 25. If there are further cuts beyond that, it will be even better. So yes, I do think I do think the outlook for 25 is really positive.

Okay. Thanks. I appreciate it. Thank you. And, Randy, you had to appreciate the M&A kind of appetite and conversation. The dividend rate is been flat for a little while now. And I know that's a Board discussion, but should we read anything into that in terms of as holding capital for maybe a more active M&A? Or is that a separate channel that I'm looking at the dividend, you can kind of do both more specifically asking about the dividend thanks to.

Sure. We're comfortable where the dividend is. I don't see it changing. And I think CONE is still in an environment where capital is king. And so we'll stay the course with the dividends in the foreseeable future. Again, that's up to the board, but that's my expectation.

Okay. Maybe some of those hikes were kind of kind of post pandemic some kind of there was some moves there, I suppose, anyway, I think you answered it. I appreciate that. The last one for me is just to check in on that tax rate and kind of where you see in 24 where we settle in?

Yeah, Ron here. Settlement, it will range from 18% to 18.5%, somewhere in that ballpark is the we achieved the net interest income, the NIM., all of that's occurring as well.

Operator

Brandon King, Truist.

So could you quantify the amount of loans, fixed rate and adjustable rate loans you expect to reprice in 2024? And what the runoff yield?

The answer is we're going to have to check on that for a brand. And so let us get back to you with the exact numbers on we do. It was one thing I was going to add to the margin discussion. We do continue to get some lift with portfolio repricing, it's a lag repricing. And so there is some lift there and it is on accelerating in the 25, but we'll get to the actual numbers.

Okay. And then on the CDs, if I remember correctly, was what I heard 60% mature in the first quarter, and I wanted to know what rates those CDs are coming off at and what you're looking to reprice those CDs?

Sure. Those are those CDs are priced at a little under 4.5%, and it will depend on the rate environment when those CDs come up for maturity, but we're already starting to at the test, you know, kind of peeling back those renewal rates a little bit, and we're having good success there. So I would expect the renewals of those cities to come in just a little bit below where they were.

Okay. That's helpful. And then lastly, with the CFPB proposal on overdraft fees. Are you considering any proactive changes to your overdraft policy?

No, we're watching that carefully and on you're looking at it at this point in time, we don't anticipate any changes I think it's still early. So there's a lot of discussion to be had about that. If you read the full report, pretty extensive know the industry's got a very strong point of view. So at this point, we're watching the discussion and too early to really anticipate any changes.

Operator

(Operator Instructions) Andrew Terrell, Stephens.

Hey, good morning. Maybe just to start on, Byron, I appreciate all the commentary you gave earlier on the deposit side. It was helpful. I just wanted to clarify when you discuss kind of year on year 24 versus 23 deposit balances kind of flat on the year. Is that inclusive or exclusive of Wheatland?

That is the exclusivity we run so that would be that would be the organic trajectory of our of our deposit base.

Yes. Okay. I thought so just wanted to make sure there. And then, Tom, if I could clarify, Ron, on the just to go back to the core expense guide. So before the Wieland deal, I mean, you're talking to kind of a $138 million to $140 million core expense in 1Q. So call it even a pretty significant build from from the 4Q, even even if you normalize for the $6 million that sound like a true up benefit this quarter. I guess I'm struggling to figure out how you get from what I'm what I call like a $132 million core in 4Q up to $138 million to $140 million on a core basis in the first quarter, just given some of the expense commentary, some sounds pretty positive and you had some FTE reduction in the fourth quarter. It sounds like a lot of expense management focus. I guess I'm just struggling to figure out how we get from $132 million to $138 millio to $140 million?

Yes, certainly, a good chunk of that is the merit increase pallet costs. And so we've layered in a 5% increase. So we're still seeing higher inflation out there. And so just being conservative but feel very comfortable that $138 million to $140 million. And the team, the colleagues, everybody is looking at it, but we continue to have negotiate and see 5% absolutely could happen. No doubt about it.

Yeah, okay. Got it. And then if I could just clarify one point on the margin guidance. You guys provided the $280 million to $290 million range for the full year, inclusive of sounds like three cuts in the last three quarters of the year. I guess at the margin, the commentary for the NIM. into 1Q is a pretty stable level versus the fourth quarter and then maybe some inflection in 2Q, but then building in the back half of the year as you as you get the benefit of those cuts, it kind of implies you got to move to like a 3% plus NIM exiting the year. Is that is that kind of a fair assessment? Or would you would you walk that back a little bit?

That's a fair assessment.

Okay. Well, thanks for taking my questions this morning.

Operator

Thank you. And I'm currently showing no further questions at this time. I'd like to hand the conference back to Mr. Randy just for closing remarks

Right, Well, thank you, Norma, and thank you, everyone, for joining us this morning. And that concludes our call. So we appreciate everyone taking time out of your busy days to listen in. Have a great Friday and a great weekend.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Everyone, have a wonderful day.