Glacier Bancorp Inc

NYSE:GBCI

Q3-2025 Earnings Call

[Operator]

Good day, everyone, and welcome to the Glacier Bancorp Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

Now it's my pleasure to turn the call over to Glacier Bancorp's President and CEO, Randy Chesler. Please go ahead.

[Randall Chesler, executive]

Good morning, and thank you for joining us today. With me here in Kalispell is Ron Copher, our Chief Financial Officer; Tom Dolan, our Chief Credit Administrator; Angela Dose, our Chief Accounting Officer; and Byron Pollan, our Treasurer. I'd like to point out that the discussion today is subject to the same forward-looking considerations outlined starting on Page 13 of our press release, and we encourage you to review this section.

We delivered another excellent quarter, continuing our momentum with strong margin expansion, higher loan yields, lower deposit costs and solid high-quality loan growth. We also completed the core conversion of the Bank of Idaho with assets of approximately $1.4 billion. And shortly after quarter end, we successfully closed the acquisition of Guaranty Bank & Trust, adding $3.1 billion in assets and expanding our presence in the Southwest.

Bank of Idaho was successfully folded into 3 of our existing divisions: Citizens Community in Pocatello; Mountain West in Boise; and Wheatland Bank in Eastern Washington. The Bank of Idaho brought us a terrific team of lenders and staff, as well as excellent customer relationships.

The Guaranty transaction marks our first entrance into the State of Texas, and we're excited about the long-term opportunities this brings. Our focus now is on delivering a flawless conversion in the first quarter of 2026 and making sure we have happy employees and customers.

For the third quarter, Glacier Bancorp reported net income of $67.9 million or $0.57 per diluted share. The third quarter net income represents an increase of 29% from the prior quarter and reflects a 33% increase in net income compared to the same quarter last year. Pretax pre-provision net revenues of $250 million for the first 9 months of the current year increased $77.1 million or 45% over the prior year first 9 months. Our loan portfolio grew $258 million to $18.8 billion or 6% annualized from the prior quarter. Commercial real estate continues to be a key driver of loan growth.

Deposits also grew, reaching $22 billion, up 4% annualized from the last quarter. Noninterest-bearing deposits grew again this quarter, increasing 5% annualized and now representing 31% of total deposits. We reported net interest income of $225 million, up $18 million or 9% from the prior quarter and up $45 million or 25% from the same quarter last year.

Our net interest margin on a tax adjusted basis expanded to 3.39%, up 18 basis points from the prior quarter and up 56 basis points year-over-year. This marks our seventh consecutive quarter of margin expansion, reflecting the strength of our loan portfolio repricing, our ability to get good margin on new loans and our continued focus on managing funding cost. The loan yield of 5.97% in the current quarter increased 11 basis points from the prior quarter and increased 28 basis points from the prior year third quarter. The total earning asset yield of 4.86% in the current quarter increased 13 basis points from the prior quarter and increased 34 basis points from the prior year third quarter.

Total cost of funding declined to 1.58%, down 5 basis points from the prior quarter, as we reduced higher-cost Federal Home Loan Bank borrowings by $360 million. Core deposit costs decreased in the quarter to 1.23% from 1.25% in the prior quarter. Noninterest expense was $168 million, up $13 million or 8% from the second quarter, primarily due to increased costs from acquisitions.

Noninterest income totaled $35 million in the current quarter, up $2.4 million or 7% from the prior quarter and up 2% year-over-year. Service charges and fees increased 5% from the prior quarter, while gains on loan sales increased 18% from the prior quarter. Our efficiency ratio remained at 62%, down from 65% a year ago with good momentum for continued steady reduction.

Credit quality remains very strong. Our nonperforming assets remain low at 0.19% of total assets. And net charge-offs were $2.9 million for the quarter, or 3 basis points of loans. Our allowance for credit remains at 1.22% of total loans, reflecting our conservative approach to risk management. We continue to maintain a strong capital position, with tangible stockholders' equity increasing $304 million or 14% in the current year. Tangible book value per share increased to $20.46, up 8% year-over-year. And we declare our 162nd consecutive quarterly dividend of $0.33 per share, underscoring our commitment to delivering consistent shareholder returns.

We are very pleased with our performance this quarter. Our expanding footprint, unique business model, strong business performance, disciplined credit culture and strong capital base provide a solid foundation for future growth.

That ends my formal remarks. And I would now like the operator to open the line for any questions that our analysts may have.

[Operator]

[Operator Instructions] One moment for our first question that comes from the line of Jeff Rulis with D.A. Davidson.

[Jeff Rulis, analyst]

You guys, on the margin, you did note the 7 consecutive quarters of expansion. This quarter's was the largest sequential of all of them. I won't read into kind of the lumpiness of that, I suppose, but a good sign, nonetheless. You guys have really guided very well on the trend on that front. Maybe just catch us up on where you think you see it headed in light of September's cut and potentially, a couple more this -- through the end of the year? That would be great on the visibility front.

[Byron Pollan, executive]

Jeff, this is Byron. Yes, it has been great to see the continued improvement in our margin. And I would say those repricing drivers in our balance sheet that we've discussed, they remain in place. And so we do see continued growth ahead of us in terms of our outlook. For Q4, we anticipate that, that will grow. Our margin, additional 18 to 20 basis points in the fourth quarter, that does include the impact of Guaranty.

I know a lot of folks will be interested in our 2026 outlook. I don't have specifics for you there. We're just now starting our budgeting cycle for 2026. But broadly speaking, what I can say is that we do expect to see continued margin growth throughout the year. I would say, though, that the pace of quarterly increase is likely to moderate throughout next year. So hopefully, that gives you some color for where we're headed. We do see continued growth.

[Jeff Rulis, analyst]

Just to refine that, Byron, when you said the margin growth throughout the year, you're mentioning additionally in '26, but not specifically. Is that what you were referring to?

[Byron Pollan, executive]

Exactly right. Yes. I don't have a specific guide for you on '26. I think we need to get to our budgeting cycle first to really refine that expectation. But from where we sit right now, we do see continued growth throughout the year. But quarter-to-quarter, I could see the pace of growth starting to moderate a little bit.

[Jeff Rulis, analyst]

Understood. And Randy, we are early goings in the Texas market, but interested in the reception there and how potentially, your view of finding further partnerships in Texas and Oklahoma, if that's -- if you got any update there, if you're just as encouraged or less, more? Just interested in that feedback so far. Again, very early, but notable anyway.

[Randall Chesler, executive]

Yes. No, absolutely. First, I'd say, I think Guaranty may be the best cultural fit of any acquisition we've done in the last 10 years. Very, very good fit. Our focus right now is on getting Guaranty converted in 1Q and making sure that goes extremely well. I will tell you, there's conversations already. We'll have plenty of interested banks who would like to have a conversation when we're ready. Our job one right now is making sure we get through the conversion in 1Q and do it really, really well, make sure our customers are happy, employees are happy. And then like I said, we'll have plenty of banks to talk to.

[Jeff Rulis, analyst]

Got you. Maybe one last housekeeping, if I could squeeze it in. The tax rate seemed a little elevated. I don't know if that's a factor of kind of merger cost, but if you could just point us to maybe a good rate going forward?

[Ron Copher, executive]

Yes, Jeff, Ron here. It is a function of, largely, the merger-related expenses, some of which are nondeductible. And I would tell you that third quarter rate, I would use that as well for fourth quarter.

[Jeff Rulis, analyst]

Okay. And Ron, are you -- is that an assumption of additional merger costs or just more of a core rate to match third quarter?

[Ron Copher, executive]

We'll have some more merger costs as well, but it's -- I think it's a pretty good rate to go with.

[Operator]

One moment for our next question that comes from the line of David Feaster with Raymond James.

[David Feaster, analyst]

Maybe just on the growth side. I mean loan growth has been solid, kind of remained in that mid-single digit realm. Just wanted to get a sense of how demand is trending, how the pipeline is shaping up and you're backfilling that production? And then just any comments on the competitive landscape as well? And I mean, we're hearing more competition, especially on the pricing side, maybe a bit more on the structure as well. But just again, I wanted to get a sense of your thoughts on the loan growth side and how that competitive landscape is shaping up.

[Tom Dolan, executive]

Yes, David, this is Tom. Yes, third quarter was another good quarter for us. Typically, second and third quarter are seasonally stronger for us, a little bit less so in fourth and first quarter. I think we expect that a little bit. But from a pipeline perspective, we continue to see consistent pull-through. We continue to see consistent build back. And it is really fairly consistent throughout the footprint, too.

And I think the -- from a competition standpoint, it's a little bit geographic-specific. In some of the larger markets, we'll see more pricing competition, a little bit less so in markets where we have more of a controlling market share. We're -- certainly, the types of deals that we go after, just core Main Street lending. We're not really seeing competitors stretch on the structure side, which is encouraging. And that's certainly not something that we would do. So it tends to be more pricing related.

[David Feaster, analyst]

Okay. And maybe just staying on credit broadly. I mean, credit is still pretty benign for you all, especially just in the government. The increase that you guys saw in nonaccruals, all government guaranteed. Is there anything on the credit front that you're seeing at this point or watch more closely? Or is there anything specific within the small business space that you're seeing notable pressures?

[Tom Dolan, executive]

The only industry that I would say is a little bit outsized is probably the ag sector. Hard grain prices, hay prices are still quite depressed. We're faring quite well through this. I think our banks do a good job of securing those assets with -- certainly more hard assets than crops. And so I think that gives the flexibility of both us and the borrower to work through these cycles. And certainly, our ag lenders have a tremendous amount of experience and have seen cycles like this over and over again.

But outside of that, David, there's really no specific geography or industry segment that's showing an outsized level of risk. We saw a little bit of an increase this quarter, similar to last quarter. I think we're just continuing to see more normalization from the historic lows that we were showing for the last couple of years.

[David Feaster, analyst]

Okay. And then maybe last one for me, just maybe a bit higher level, conceptual. Like, I mean, you look back, I mean, there's obviously -- you guys have done a great job driving the margin expansion, right? And there is a huge tailwind just from the remix in your pricing side. And then again, obviously, organic loan and deposit growth is, again, accretive to the margin as well.

You look -- pre-pandemic, right? I mean, you guys were consistently operating well north of 4%. Yes, is that -- just in this kind of world, is that still a reasonable target? I mean, you guys have continued to march your way towards that, but is that a reasonable target that we could hit in some time in the foreseeable future? Is that -- just kind of curious, your thoughts on that?

[Byron Pollan, executive]

Yes, David, I do think we can get back to that 4% threshold. It's a matter of timing. I think it's really a matter of when, not if. I don't have specific timing for you. It wouldn't surprise me towards the end of next year if we see a full handle on our net interest margin.

Now a lot of things could impact that between here and there. What happens with our loan growth and deposit growth, what's the Fed doing and shape of the curve, all of those things are going to influence that longer-term margin. But I do see the potential to get there in the future.

[Operator]

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

[Matthew Clark, analyst]

I want to start on the deposit cost side. Just -- if you could give us the spot rate on deposits at the end of September? And just give us a sense for what kind of beta you think you can achieve with this last rate cut that we just got and subsequent rate cuts?

[Byron Pollan, executive]

Our spot deposit cost on September 30 was 1.22%. In terms of our beta, to this point, we've been able to achieve a down rate beta somewhere in the mid-teens with some amount of lag there. Our deposit cost doesn't react immediately to a rate cut. It takes us a little time to kind of work into that, call it, 15% deposit beta. With the addition of Guaranty, their deposit base has a slightly higher beta. So if we were 15%, I think somewhere going forward with a combination of Glacier and Guaranty, maybe that pushes us up another couple of percent. So somewhere in the range of, call it, 15% to 20% would be my expectation for our down rate beta going forward.

[Matthew Clark, analyst]

Okay. And then the other one for me, just around the expense run rate and your updated guidance there, whether or not that's changed since last quarter with Guaranty now in the fold at the start of the fourth quarter. I don't know if you want to -- it sounds like you're still budgeting for next year, so I don't know if you want to offer up anything in the first quarter, but I assume there's some seasonality there?

[Ron Copher, executive]

Yes. Let's -- Ron here. Thank you for the question. Yes, well, we're budgeting, so I'm just going to limit the discussion to the third quarter, I want to touch on that and then go towards the fourth quarter. So in the third quarter, we finished -- reported noninterest expense, $167.8 million. That includes $7 million in acquisition-related expense and $800,000 we incurred for a fixed asset write-down related to a branch consolidation in one of our Montana markets.

And I want to remind folks that the core noninterest expense includes merger-related expenses, other onetime unusual items. So taking those adjustments into account, our core noninterest expense was flat at $160 million, right in the midpoint of the guide of $159 million to $161 million that was shared on the last quarter's call.

And then moving into the fourth quarter. Just looking at Bank of Idaho, we had a full 3 months of expense from them versus 2 months in the prior quarter. So Bank of Idaho, projected to add $9 million to $10 million in that third quarter, came in just about $9 million, the low end of that guide. And we expect that to occur. Bank of Idaho impact for the fourth quarter will be just right around that $9 million number.

So then with the acquisition of Guaranty Bank on October 1 versus -- we think it would be October 31 -- we're now going to have a full 3 months of expense from Guaranty, and this will cause a step up in our core noninterest expense. It will add $21 million to $22 million to core noninterest expense in the fourth quarter. But in addition, because of purchase accounting, we're going to have $3 million of amortization expense for a core deposit intangible that we had to record as we would on any acquisition.

So in the fourth quarter, when you look across it and put it all together, we're expecting a range of $185 million to $189 million. And again, that includes Guaranty Bank. So -- but collectively, I just want to speak very highly of our bank divisions, corporate department. They've done very well in limiting, controlling their expenses. We do continue to take a cautious approach in hiring and spending in general. You still got higher levels of market volatility, et cetera. Let me open it up for questions.

[Operator]

One moment for our next question. And it's from the line of Andrew Terrell with Stephens.

[Andrew Terrell, analyst]

Maybe I'll just start back there on expenses. Ron, I really appreciate the guidance on 4Q with all kind of the moving pieces. Just understanding that the core system conversion for Guaranty until the first quarter of '26, I'm assuming the $185 million to $189 million guide for the fourth quarter doesn't incorporate much in terms of cost save. And question being, should we expect some moderation of that $185 million to $189 million going into 2026, just as we experience the core system conversion and get some cost saves?

[Ron Copher, executive]

Yes, we will have in the beginning of the first quarter, again, largely related to after the conversion, that's when the cost saves really start to kick in. And as we modeled, we're modeling 20% reduction in noninterest expense cost saves. 50% of that, we will achieve in '26. The other 50% will be in '27. And so as I mentioned earlier, we're still beginning, I should say, in the budgeting process, but there will be some moderation.

[Andrew Terrell, analyst]

Yes. Got it. Okay. I appreciate it. And if I could go back to just the margin commentary briefly for Byron. I appreciate all the color there. I specifically wanted to ask about the comment of just less margin expansion sequentially throughout '26 versus what you've experienced this year. And you guys have benefited from a few things this year. It's -- M&A has helped, the FHLB deleverage is up significantly, and I think that slows down or kind of ends in 1Q of next year, but then the fixed asset repricing. And I'm curious, the comments on slower margin expansion next year, is that mostly reflective of less FHLB deleverage, potential less M&A-related expansion, but asset repricing trends staying intact? Or do you expect relatively less asset repricing benefits as well?

[Byron Pollan, executive]

I would say, for the most part, it's the FHLB deleveraging. As you point out, that -- we really finished that by the end of the first quarter. And so we don't -- that extra boost or pop that we get from paying down high-cost corporate funding, that will end in Q1. But also on the fixed asset repricing, we still see -- from a balance perspective, we still see that asset repricing is there. I would say from a rate perspective, the 5-year point of the curve has come down some. And so that's also kind of playing into and influencing that comment I made earlier, where we're seeing less lift. I think we'll see less repricing lift just because of the -- where that 5-year point in the curve is right now. It could change, of course.

[Andrew Terrell, analyst]

Yes. Fair enough. Okay. And last one just for Randy. I appreciate your comments on the Texas market and how well the Guaranty acquisition has gone so far. I wanted to ask about your comments. I know the near-term priority is getting everything integrated from Guaranty, but it sounds like conversations maybe could be picking up. And I think your comments were specific to Texas, but I'm curious just on the overall M&A strategy going forward. Should we expect there is more of an emphasis in the Texas market as you build out scale there? Or are you equally as focused kind of legacy Mountain West franchise in Texas? I guess, is one more in a row? Or would you expect to grow more in one than the other?

[Randall Chesler, executive]

Yes. So I'd say overall, M&A, I think what we offer is becoming even more attractive to sellers, especially with some of the larger banks purchasing banks in our market. We think that's very, very positive for us, so we offer something that's very different and very attractive to a lot of sellers.

I don't think we can put an emphasis on Texas over the Mountain West, the Southwest over the Mountain West. It's just getting back to -- we have a lot of optionality with very, very good sellers across that entire area. So we don't -- we're not really prioritizing one area over the other. Like I said, our focus is to do a great job on the conversion, and then we'll see where the conversations take us.

[Operator]

Our next question is from Kelly Motta with KBW.

[Kelly Motta, analyst]

Maybe one for Byron. I think the guidance for margin last quarter was 15 to 17 basis points, plus another 5 to 7 from Guaranty. It seems like at least near term, it might be a little bit lower. Can you provide any context for the color around that? Wondering if Guaranty is maybe contributing less or there's less accretion income? Any color would be helpful.

[Byron Pollan, executive]

Sure. We have an estimate in there for the loan marks and the purchase accounting accretion. So we have an estimate in there. I think it may be a little bit more modest than it was prior quarter. Also, kind of back to that 5-year point of the curve, our repricing is just a little bit softer. And also, just looking at the rate cuts -- and I mentioned that lag on the deposit side. So the timing of the cuts and the reaction of our deposit base can create a little bit of noise during the quarter. And so put that all together, thought it might be good to just kind of rein in just a little bit, that margin cut. 18 to 20 is still a very strong quarter for us.

[Kelly Motta, analyst]

Got it. That's really helpful. Another question that maybe you can humor me on, this nondepository financial institution lending. From what I can see in the call reports, it looks like it's almost negligible, where you guys -- what your exposure is. Just wondering if that's the case? And if you could provide -- just a moment -- credit has been such a strong selling point of Glacier, just the types of commercial credits you look at and kind of what gives you comfort with the outlook ahead?

[Tom Dolan, executive]

Sure, Kelly, it's Tom. And you're right on the assessment of the nondepository financial institution. It's immaterial. And Kelly, it's just -- it's not a business line for us, neither is syndicated or any other indirect type of business. With our division model, kind of answer the last part of your question. At the end of the day, we're a collection of community banks, we're Main Street lenders that deal with local businesses and consumers. And we just haven't had the appetite really at all for syndicated indirect, nor do we foresee exploring it. And so I think when we look at the nature of the pipeline, it really falls right in line with how the footprint is laid out. Good, strong local borrowers, Main Street lenders that we've had relationships with for years.

[Kelly Motta, analyst]

Thank you, Tom. I'll step back.

[Operator]

[Operator Instructions] All right. And our last question comes from the line of Tim Coffey with Janney Montgomery Scott.

[Timothy Coffey, analyst]

Tom, if I could follow on that last question Kelly was asking. I mean, we've seen a handful of missteps in the last couple of weeks from some banks. And I was wondering if, in general, you could discuss kind of the processes and checks you have in place at Glacier to ensure that borrowers are doing what they're supposed to be doing?

[Tom Dolan, executive]

Yes, sure. Well, first of all, it begins with knowing your customer. And the other thing is the loans that we have on our books, we're in control over. So that kind of goes back to that indirect comment or purchase participations or syndication. That's just isn't really a space that we play in. We want to be directly in control of the relationship.

And then I think to answer the latter part of your question, we have a credit administration function in every single one of our divisions. And that's proximate to the Street, proximate to the customers. They're in the communities, where we meet with our borrowers on a regular basis, typically minimum on a quarterly basis for our larger borrowers. But we're also seeing these borrowers at community events and sporting events.

And so it goes back to just the true core community bank-type lending. And then from a more formal perspective, we're very good and deliberate with our covenant structure and our new originations, our ongoing annual reviews of both -- each of the division banks and then also an ongoing regular review of the portfolio at large. And so I think when you just encapsulate all those things together, we really have a strong understanding of what's going on with our borrowers.

[Timothy Coffey, analyst]

All right. That's great. All my other questions have been asked and answered.

[Operator]

Thank you so much. And this will conclude our Q&A session, and I will pass it back to Randy for concluding comments.

[Randall Chesler, executive]

All right. Thank you, Carmen. And I want to thank everyone for dialing in today and joining our call. Have a great Friday and a great weekend.

[Operator]

Thank you. And this concludes our conference. Thank you all for participating, and you may now disconnect.