Glacier Bancorp, Inc. (GBCI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Glacier Bancorp Third Quarter Earnings Conference Call. [Operator Instructions] 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 of Glacier Bancorp. Please go ahead.

Good morning, and thank you for joining us today. With me here in Kalispell are Ron Copher, our Chief Financial Officer; Tom Dolan, our Chief Credit Administrator; Angela Dose, our Chief Accounting Officer; and Byron Pollan, our Deputy CFO and Treasurer. I would like to remind everyone that today's discussion is subject to the forward-looking statement considerations included in our earnings release, and we encourage you to review that language. Last night, we issued our earnings release for the third quarter of 2026, and we are very pleased to report record net income for Glacier. The quarter reflected continued earnings momentum, our 11th consecutive quarter of margin expansion, strong deposit growth, solid loan growth and excellent credit performance. Net income was $105 million for the third quarter, a record for the company and the first time we exceeded $100 million in net income in a quarter. We were up 7% from the prior quarter and up 54% from the third quarter of last year. Diluted earnings per share were $0.80, up 7% from the prior quarter and up 40% from the prior year third quarter. Operating diluted earnings per share were $0.81, up 7% from the prior quarter and up 31% from the prior year third quarter. A key driver of our strong performance continues to be net interest income and margin expansion. Net interest income increased to $290 million, up 5% from the second quarter and up 29% from the third quarter of last year. Our tax equivalent net interest margin expanded to 4.01%, up 11 basis points from the second quarter and up 62 basis points from the prior year third quarter. This marks our 11th consecutive quarter of margin expansion, and we have now crossed the 4% mark with a strong tailwind driving momentum for further growth in the fourth quarter and into 2027. From a pretax pre-provision net revenue perspective, our PPNR for the third quarter was $138 million, an increase of 6% from the prior quarter. Turning to the balance sheet. Loans ended the quarter at $21.6 billion, increasing $256 million or 5% annualized from the second quarter. The growth reflected our continued focus on disciplined loan production in our attractive markets. The average loan yield of 6.22% in the current quarter increased 10 basis points from the prior quarter and increased 25 basis points from the prior year third quarter. Noninterest-bearing deposits increased $279 million or 15% annualized to $7.7 billion and represented 30% of total deposits at quarter end. Total deposits were $25.3 billion at quarter end, increasing $619 million or 10% annualized from the prior quarter and increased $3.4 billion or 16% from the prior year third quarter. Our loan-to-deposit ratio improved to 85.7% from 86.8% at the end of the prior quarter. And our deposit base continues to comfortably support our liquidity, funding strategy and future loan growth. The total cost of funding declined to 1.32%, down 1 basis point from the prior quarter and down 26 basis points from the third quarter of last year. Core deposit costs, including noninterest-bearing deposits, was 1.17%, down 1 basis point from the prior quarter and down 6 basis points from the prior year third quarter. Credit quality remains excellent, consistent with our market-focused divisional model and disciplined underwriting culture. Early-stage delinquencies declined to 0.27% of loans from 0.31% in the prior quarter and nonperforming assets decreased $1.2 million to $90.6 million or 0.28% of subsidiary assets. Net charge-offs were $6 million for the quarter, which included $3.5 million of deposit overdraft charge-offs. Noninterest expense was well managed in the quarter. The efficiency ratio improved to 56.08% from 56.65% in the prior quarter. Return on average assets increased to 1.31%, up from 1.25% last quarter and 0.93% in the third quarter of last year. During the quarter, the Board increased the quarterly dividend by $0.02 or 6% to $0.35 per share. This marks our 166th consecutive quarterly dividend, and we have now increased the dividend 50x over our history. Tangible book value per share grew to $22.05, up 1% from the prior quarter and up 8% from the prior year third quarter. We are very encouraged by our results for the third quarter and through the first 9 months of the year. Record earnings, a margin above 4% and strong deposit growth, disciplined loan growth and excellent credit performance, all driven by Glacier's community banking model demonstrate the power of the Glacier franchise and provides strong momentum heading into the fourth quarter and 2027. That concludes my remarks. I will now ask the operator to open the line for questions from our analysts.

[Operator Instructions] Our first question comes from the line of Jeff Rulis with D.A. Davidson.

Wanted to check in on the kind of the growth in the quarter, a good solid mid-single-digit I don't know if you had the numbers for sort of the Texas footprint relative to the other areas of your -- the footprint, if you could?

Sure, Jeff. This is Tom. Yes, the Southwest division, just how we look at it, outperformed the bank as a whole in the quarter, they came in at about 8% annualized growth.

Appreciate it. And I guess the follow-on to that is the, I guess, that initial phase of the guaranteed team been on board and their book of business and -- and I guess as that's aged, I mean just kind of getting into the opportunity in this most recent quarter would be a pretty good tail. But the outlook for growth in the Southwest region, still pretty positive. And just interested in your view of that plus the Rocky Mountain outlook as well.

Yes. No, the Southwest division still sits on a very healthy pipeline, very healthy deal flow. And I think the same extends to the Mountain footprint as well. I would say overall origination activity remains solid. And as you saw this in the quarter and it continues, particularly within our commercial real estate and the construction portfolios, but that we're still seeing a healthy level of ongoing deal flow and pipeline strength. But as we've seen in prior years, we are entering into a seasonally slower period. But overall, we're still comfortable with our low to mid-single-digit outlook.

Right. And then maybe one other one. Byron, I wanted to maybe quantify or frame up the further asset repricing opportunity in '27 sort of Randy alluded to got some tailwinds. Just hoping to frame up the positive factors that may impact that year-over-year, up 60 basis points on the margin is impressive, Tough to repeat, but just want to see the components of what you're seeing looking forward?

Yes. Thanks, Jeff. Very excited to reach 4.01% in the third quarter for our net interest margin. we've been looking ahead at that for some time. It's an important milestone for us in our continued improvement in our earnings profile. But as Randy pointed out, as you say, importantly, there is additional upside from here. So the tailwinds we see ahead in our asset repricing are very strong and frankly, have gained some momentum with the shift in the curve. I'll start with investments. Investment cash flows are being reinvested roughly 350 basis points higher than the current runoff yield. So that's very helpful. And that's a little stronger than it has been. Loan repricing approximately $3.5 billion of loans currently in portfolio will reprice up 125 to 150 basis points. In the next 12 months, that's also a little stronger than it has been lately. And on the new production side, with new production yields in the high 6s and trending higher. Every new loan we put on the books will lift our margins. So we do have some meaningful momentum on the asset repricing, and that's going to carry us through with increasing margin through '27.

Okay. That's very helpful, Byron. And I guess we'll make our determination on deposit costs, but that seems pretty tamed for now. So I appreciate it.

Our next question comes from the line of Matthew Clark with Piper Sandler.

On that front, I guess it sounds like your kind of incremental spread on new loans, in particular, is pretty healthy today. How are you thinking -- I mean it sounds like this NIM expansion, not just going to continue next year or the year after. So when you think about a normalized margin, is 4.50% what you're ultimately striving for? Is that realistic?

Well, I think we have some good visibility into '27. We're still pulling a lot of things together here. We'll wait and see kind of how '27 develops before we can really speak to 2028. But I think of our margin in terms of historical range, 4% to 4.5% is typically where we have been historically. There are some things that could lift us towards the higher end of the range with what I see today, the market environment, the lending opportunities that we have -- those are the -- this is the type of environment that could help us lift towards the higher end of that range. Now I can't put a time frame on that. I can't say that that's a 2027 event. But certainly, with enough time, I could see us hitting that 4.5% level that we know at the higher end of our historically.

Got it. And then just on deposit costs, do you have the spot rate at the end of September? And then also what beta should we assume if we get -- we have this recent one and then we get maybe one in December and March?

Sure. The spot rate for deposits on September 30 was 1.20%. And in terms of deposit beta, I think we'll be somewhere in the range of 20% to 25%. I think early on in the cycle, we'll probably be closer to the lower end of that range. If this cycle were to expand, we may push towards the higher end of that range, but that we further down the road with several more hikes in place. But early on, I think 20%, may be down the road towards the 25% beta is a good guy.

Okay. And then maybe for Randy, your stock on a relative basis is trading at a multiple that we haven't seen in a while, any appetite to authorize a buyback and consider buying back some stock, given where your multiple trains trade your multiple trades on an absolute and relative basis?

Yes. I think that gets to the capital discussion. And we're looking also at the future capital build, which is substantial given the earnings growth. So all we are really now going to take a look at all options, including special dividends and share buybacks because of the amount of capital we see accumulating, and we really just want to make sure we have all levers available to us. So yes, that's something that's absolutely in our scope.

Our next question comes from the line of David Feaster with Raymond James.

I wanted to start on the deposit side. It was a very good quarter. Obviously, we've got the temporary deposits that you called out, got some seasonal strength. But I mean core deposit growth was just very good. I wanted to get a sense of what you're seeing that's driving that? I mean are there any markets that you're seeing notable strength? How marginal funding costs are, the competitive landscape for funding today? And just how do you think about deposit growth going forward as competition in suffice?

Yes, David. As you point out, great deposit quarter for us, really strong results in the quarter from a balance perspective with growth. And at the same time, we were able to reduce our deposit cost. And the real highlight this quarter was our growth in our noninterest-bearing balances, that was fantastic seasonally. We do expect to see good growth in the third quarter. I would say this is on the strong side of our seasonal expectations. Where is the growth coming from? I would say it's solid broad-based growth. We saw growth across most of our deposit products, interest-bearing and noninterest-bearing and we saw growth across most of our divisions and geographies. So it's hard to call out any one area. I would say it was pretty broad-based strength in the quarter overall, a fantastic result.

Okay. That's great. And then maybe following up on the loan commentary at the beginning. I just wanted to appreciate the mid-single-digit guide I wanted to get a sense of -- like as you talk to your clients with rates rising, how is demand trending? It sounds like originations has still been good. How is the pipeline headed into the fourth quarter? Have you started to see some stuff that maybe falls out of the pipeline that may not pencil any more with rates higher, just the competitive landscape? Just kind of curious what you're seeing on that front.

Yes, sure, David. We haven't seen any material deals fall out of the pipeline as a result of rates. The way I look at it, I think borrower caution has been evident for at least the last year, probably a little bit longer. But we still see projects moving forward, albeit maybe slightly scaled back or additional equity. And in the third quarter with some of the changes in the rate environment, we just haven't seen a material change in borrower behavior. Of course, it's a little early at the end of the cycle to get a strong assessment of that. But as of now, we haven't really seen any material change.

Okay. Okay. That's great. And then maybe just last one, I wanted to touch on your asset sensitivity. I think a lot of investors still look at you as liability sensitive, and you were a couple of years ago. But I just wanted to -- how do you think about the balance sheet currently in your asset-sensitive position? How do you think about the potential margin benefits in each hike? And how do you think about managing asset sensitivity in this market?

Yes, David. We are, I would say, modestly asset sensitive. And I think in this rate environment, frankly, is helpful for us. I walked through the drivers on the asset side of the balance sheet, the continued repricing that we'll see. On the other side of the balance sheet on the funding side, we will see some upward drift in our deposit cost if the Fed continues to raise rates. However, the benefit of our asset repricing and higher reinvestment yields will more than offset that funding cost pressure. And so I do see our margin continuing to expand throughout '27, as we've talked about. And the shape of the curve is helpful. A couple of incremental hikes would be helpful as well. So yes, I see this as a positive development for overall for the balance sheet.

Do you have any expectation for how each hike may benefit the margin? And again, how do you think about managing it as you go forward with your securities portfolio and just managing the balance sheet?