GBCI - NYSE

Good day, and thank you for standing by. Welcome to the Glacier Bancorp Fourth 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 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 on Page 14 of our press release, and we encourage you to review this section. 2025 was a transformative year for Glacier Bancorp. We successfully closed two strategic acquisitions: Bank of Idaho in April and Guaranty Bank & Trust in October, growing our footprint in fast-growing Idaho and expanding our Southwest region to include the great state of Texas. These markets offer strong growth potential and fit seamlessly with our long-term growth strategy. We converted the Bank of Idaho business operating platform in September and plan to convert Guaranty Bank & Trust in February. This was the largest acquisition year in our history with over $4.7 billion acquired, topping our previous record of $4.1 billion in 2021. We delivered strong financial results in 2025 with significant growth in all key metrics. We also delivered an excellent quarter, continuing our momentum with strong margin expansion, higher loan yields, lower cost of funding and solid high-quality loan growth. The company's total assets exceeded $30 billion in the quarter, ending the year at $32 billion in total assets, which was another record for the company. Net income was $63.8 million for the quarter, including the $36 million of expenses related to our 2025 acquisitions. Net income for 2025 was $239 million, an increase of $48.9 million or 26% from the prior year net income and was driven by the two acquisitions and our disciplined approach to increasing our net interest margin during the year. Pretax pre-provision net revenues of $362 million for 2025 increased $107 million or 42% over the prior year. Diluted earnings per share for the quarter was $0.49 per share. Diluted earnings per share for 2025 was $1.99 per share, an increase of $0.31 per share or 18% from the prior year. Net interest income of $266 million for the quarter increased $41 million or 18% from the prior quarter. Net interest income of $889 million for 2025 increased $184 million or 26% from the prior year. The loan portfolio of $21 billion at the end of 2025 increased $2 billion or 11% from the prior quarter. For 2025, the loan portfolio increased $3.7 billion or 21%. Total deposits of $24.6 billion increased $2.7 billion or 12% from the prior quarter. Total deposits increased $4 billion or 20% during 2025. The net interest margin as a percentage of earning assets on a tax equivalent basis for the quarter was 3.58%, an increase of 19 basis points from the prior quarter and an increase of 61 basis points from the prior year fourth quarter. The loan yield of 6.09% in the quarter increased 12 basis points from the prior quarter and increased 37 basis points from the prior year fourth quarter. The total earning asset yield of 5% in the quarter increased 14 basis points from the prior quarter and increased 43 basis points from the prior year fourth quarter. The total cost of funding, including noninterest-bearing deposits of 1.52% in the quarter decreased 6 basis points from the prior quarter and decreased 19 basis points from the prior year fourth quarter. Total noninterest expense of $195 million for the quarter increased $26.8 million or 16% over the prior quarter, primarily due to the increased costs from our two acquisitions. Included in noninterest expense for the quarter was $24 million from the Guaranty Bank & Trust acquisition and $3 million of expenses related to vacating branch locations. Noninterest income for the quarter totaled $40 million, which was an increase of $5 million or 14% over the prior quarter and was up 28% over the prior year fourth quarter. Service charges and fees increased 14% from the prior quarter and increased 20% over the prior year fourth quarter. In 2025, our efficiency ratio dropped from 66.7% at the beginning of the year to 63%, showing good momentum for continued steady reduction. Credit quality remains at historically low levels. Our nonperforming assets remained low at 22 basis points of total assets with a slight increase from the prior quarter, driven primarily by the acquisition of Guaranty Bank & Trust. Net charge-offs were 6 basis points of total loans for the year compared to 8 basis points in the prior year. Our allowance for credit remains at 1.22% of total loans, reflecting our conservative approach to risk management. We continue to improve our strong capital position with tangible stockholders' equity increasing $609 million or 29% in 2025. Tangible book value per share increased to $21, up 12% year-over-year. And in November, we declared our 163rd consecutive quarterly dividend of $0.33 per share, underscoring our commitment to delivering consistent shareholder returns. We are very pleased with the performance in the fourth quarter and for the full year 2025. Our exceptional team, expanding footprint, unique business model, strong business performance, disciplined credit culture and strong capital base provide a very solid foundation for future growth. So, that ends my formal remarks, and I would now like the operator to open the line for any questions our analysts may have.

[Operator Instructions] And our first question comes from David Feaster of Raymond James.

I just wanted to -- I want to start on the growth side. Obviously, it was a noisy quarter. We had the Guaranty deal. Organic growth you guys laid it out, it was about 1% annualized, a little bit slower than maybe we expected. It looks like it's actually pretty solid in the quarter. So I just wanted to get a sense of what you saw on the loan side that maybe kept things a little bit slower this quarter. And then just how you think about growth going forward? And when you'd expect Guaranty to maybe start contributing more meaningfully as all those bankers are trained on the new systems and fully ramped up?

Yes. Yes, a lot going on, and we actually feel good about the growth. But let me let Tom fill you in on some of the details there.

Yes, David. Fourth quarter and even first quarter is seasonally slower for us. In the fourth quarter, we exited the ag season, the construction season. So the tailwinds provided by those draws earlier in the year, those ceased and for the ag growers as they end of their season, we saw a lot of line paydowns as they went to harvest. And then not unusual for us to see lower line utilization in the latter part of the year as well. Looking into 2026, we're looking at low to mid-single digits for the full year. But one thing I wanted to mention, we are now at a record level of our pipeline early this year. And it's too early to tell whether the increase in the pipeline that we've seen is a surge or if it's sustainable. In addition to that, a growing piece of the production is related to construction, and that's been evident for the last couple of quarters. And as you know, those don't fund at origination. So it should give us some decent tailwinds heading into the stronger seasonal quarters, second, third quarter. So we could be towards the higher end of that range for 2026. And then in terms of Guaranty, to answer your other question there, they've hit the ground running. I think they're going to add meaningful production for us, quite frankly, David, starting immediately.

That's great. That's great. And then, Byron, I just wanted to maybe dig back into the margin trajectory going forward. I mean, thus far, it's kind of played out exactly how you've laid it out. I know you've laid out that kind of that 4% threshold by the end of this year. I just wanted to make sure that, that was still on track. And maybe if you could walk us through the NIM walk and what gives you confidence in your ability to achieve that? And how dependent is that 4% level on Fed cuts?

Yes, David, this is Byron. Yes, we've seen tremendous progress in our net interest margin. We've got great momentum, and we continue to see momentum ahead of us. We have a lot of programmatic structural repricing drivers in the balance sheet. That will, to your point, that will continue to lift margin regardless of the Fed. So, we're not in any way Fed dependent. And we continue to see growth ahead of us. We do expect to hit 4% at some point later this year, probably second half of '26. So, green lights ahead.

Okay. That's great. And then maybe just touching on the expense side. Obviously, there's a lot of noise just with the Guaranty deal, ongoing savings from BOID. Just wanted to see if you could help us think about the core expense run rate heading into the new year and how you'd expect expenses to trend over the year and maybe some investments that you might have on the horizon, just including potential hiring. I mean there is a lot of disruption in the market. Just kind of curious what investments and your thoughts on that.

Yes. Dave, this is Byron here. So our -- just to cover what happened in Q4. So our reported all-in noninterest expense was $194.6 million, but we had some onetime -- we had M&A of $5.8 million, as we explained in the earnings release, $3 million related to three leased branches. And then we had $827,000 reversal of FDIC assessment. So taking those three adjustments into account, our operating core noninterest expense was $186.6 million, which was within the guide, we said $185 million to $189 million. So feel good about that. The run rate for next year, the first quarter, as is traditional, will step up. We're going to guide $189 million to $193 million, and that represents just a 2% increase compared to Q4. And then it will step down there over Q2, Q3, Q4 as we grow into our expense base. And basically, that's the typical pattern that we exhibit. So, but in terms of the technology spend, the really good news is that's helping us control our noninterest expense as we get more efficient as our divisions, our people embrace that technology. So it's made a difference certainly in the numerator of the efficiency ratio, but as well as helping to helping us with our net interest income, the loans, the commercial loans, what we're doing there, the treasury management services, that continues to pick up. Good news there as the divisions embrace it more so and including what Guaranty Bank & Trust will bring to us, they're very excited about that. So, as Randy commented, we've made some pretty good headway, especially if you look at the four consecutive quarters in '25. each time, whether you look at reported or operating, our efficiency ratio continues to improve. And the good news is we think in this year, we will be able to hit mid-50s, 54% to 55%, which is our traditional range.

In terms of investment in people, David, one of the -- and there is a lot of disruption. I think one of the interesting things here is and we're looking at all the people, we are -- we really kind of whittle funnel the folks, the talent down and find that there's fewer rather than many that we think would be a good fit for our team and add some real significant lift. And so really no material increase in expense associated with bringing those people on. It's more individual. And as I said, that's because there's a lot of people, but when you really sort through who has the relationships and who's got a lot to bring to the table, it's actually a smaller number.

And our next question comes from Andrew Terrell of Stephens.

If I could just follow back up on expenses. I appreciate the guide, the $189 million to $193 million in the first quarter, but it sounds like it moderates afterwards. I know you guys will have the core system conversion and some cost saves coming through from Guaranty. But I'm just trying to get a sense of full year kind of expected expenses if you have it for 2026, just the 1Q guide is a little bit higher than where consensus is. I'm just trying to make sure we're maybe stepping down appropriately throughout '26.

Yes. So, Ron here. I appreciate the question. So, Q2 through Q4, I would estimate it will range, and this is for each of the 3 remaining quarters, $187 million to $192 million. So on a full year guide basis, that shapes up to be -- and I'm talking core. I want to make that very clear. So when I say core, I'm excluding M&A, onetime unusual items, gain or loss on any facility sales, et cetera. But the full year guide would be $750 million to, say, $600 million -- excuse me, to $766 million for the full year. Again, that's core operating expense.

Understood. I appreciate it. If I could move over just to margin quickly. You guys buy to your credit, really spot on kind of with where we've talked about margin going. I'd just like to maybe better understand on the origination side and just as we think about the asset repricing potential, what are you seeing in terms of new origination yields and spreads right now? Have you seen any level of increased competition that's impacted that? Just hoping to get some more comfortability around the pace of loan yield expansion or earning asset yield expansion.

Yes. Let me -- I think Tom can answer part of that. And then, Byron, if you have things to add, that would be great.

Yes. On the production, we're still seeing good spreads. We're at around 300 basis points over the index. We that we utilize. For the fourth quarter, we were a little over 6.8%. We've seen that come up a little bit towards the latter part of December and continuing into January. That's what we're seeing on the production side right now.

Byron, anything to add?

No. I think you covered it. Repricing is another area of lift for us. I think we expect to see north of $2 billion of assets reprice and we'll be gaining 75 to 100 basis points on that balance. So, another strong driver there.

Great. I appreciate it. And then last one for me, just I'd be curious, do you guys have the final day one tangible dilution for Guaranty? And maybe I missed it, but I think it's supposed to be barely dilutive when you guys announced. But your tangible book value was up pretty nicely this quarter and capital is obviously in a better spot than what you were forecasting as well. So I was just hoping if you had the update there.

Yes. No, that was one of the -- there's many good things about that Guaranty transaction, but one of them was a tangible book value payback period, which was six months. So don't see any change to that. So still tracking to that.

[Operator Instructions] Our next question comes from Kelly Motta of KBW.

I'm sorry, I do want to get a few points of clarification on certain pieces of the guide. Ron, I just wanted to make sure on the expenses that the upper end was $766 million. Is that correct?

That's correct.

Okay. So, in terms of where you -- it sounds like you're still expecting to get into that mid-50s efficiency by the second half of the year. In terms of where the expenses kind of come out, can you -- I would imagine the upper end of the range would be commensurate with higher revenues. Like is that the right way to think about it? And just kind of any puts and takes of what could push you higher versus lower end?

Yes. So, yes, as revenues increase and as we add some talent, yes, the expenses would expect to go up. And that just makes -- that's a typical pattern. So I have a complete agreement with that. Just I want to be clear, just on that first quarter, that's typically our higher first quarter because we have the merit pay increases, employment taxes and then it will drop down. And we're doing very well across the divisions, the corporate departments with controlling our noninterest expense. And so I think that's really helping with the efficiency ratio. But the net interest income revenues growing is certainly making a big difference as well as we continue to get towards that, as you said, in the second half, get to the mid-50s on the efficiency ratio.

Got it. That's really helpful. And then what was a nice I guess, surprise or at least relative to my model is your loan yields came in higher and granted there's the contribution from Guaranty. It looks like loan fees were fairly minimal. So, as you look ahead, maybe can you provide where new loan pricing is coming on and how we should be thinking about that as being additive to the outlook ahead?

Yes. I think that as Tom commented on, we're getting a little better margin at origination than we expected. We saw some compression in the tail end of '25, but December was really strong and that margin, we're getting closer to 3% margin on the new loan pricing. And so whether that continues or not, it's a little difficult to say. It's a little early, but we're encouraged we're starting off the year with that dynamic. And we'll just see if that trend carries through for the rest of '26.

Got it. That's helpful. And then maybe a last question for Byron is obviously, the cash flows from securities with the treasury ladder maturing has been a nice tailwind. Can you remind us kind of the cadence of securities cash flows as we get through the year?

Sure. We're expecting roughly $425 million of cash flow from the securities book every quarter. And that's a rough estimate quarterly for '26.

Got it. Do you have the blended roll-off yields on that?

That's going to be -- it's going to have a one handle on it. It's going to probably be in the low to mid-1% range.

And our next question comes from Jeff Rulis of D.A. Davidson.

Tom, I wanted to circle back to your -- the growth conversation. And I think you loans up 3% organically this year. And I understand kind of the guide for this coming year is at a minimum, that level and hope to do better. But was there anything in '25 that you had more kind of credit trimming or balance sheet adjustments, certainly brought on a lot of your busiest acquisition years. So I don't know if there was some balance sheet reshaping. Just trying to get a sense for -- it feels like the model is in some fantastic markets and repeating 3% might be a little mild. So anything in '25 that you maybe had headwinds versus '26 that releases maybe some of those pressures?

Yes. I think there's two things that are real tailwinds. One is the construction production we've had over the last few quarters. As we enter the construction season, that's going to be a tailwind for net growth. Those don't typically fully fund at close. So as we enter the construction season, especially in the northern part of the footprint, that will pick up. Same thing with the ag book. And then we typically see stronger line utilization towards the middle part of the year. From a headwinds perspective, 2025 was impacted probably a little more than normal with some early term payoffs. We've talked about that on prior calls. We'll just have to watch that to see if that's a continuing trend. And just given the overall CRE market, cap rate is still quite low. NOI is probably better than anticipated. that gives a pretty good investment return for those developers as they hit stabilization on those projects. So the economics around that are still pretty positive for the investor side. So that's just something we'll need to watch, Jeff.

Okay. And Randy, I guess the baseline question for you on busiest acquisition year in the history of the bank as you get into the Southwest footprint in terms of more conversations as well as the historical regions that you've been in. How is the M&A outlook from your perspective?

No, I think it's good. And we're having conversations in the Mountain West region as well as the Southwest. And there's increasing activity there. And I'd say we're being very disciplined and selective as we've always been as more and more things appear. And right now, our focus is on getting the Guaranty Bank & Trust conversion done. We're going to do that in mid-February and really making sure that goes exceedingly well, which we believe it will. And then I think we have a lot of conversations ongoing. We'll see where that will take us. But I think it should be a very good environment for the next couple of years.

We have a follow-up from Andrew Terrell of Stephens.

Just a couple of quick questions around the margin. Byron, I think you said it was a little north of $2 billion for repricing assets in 2026. Do you have a -- can you confirm that? And do you have a comparable figure for 2027? And then separately, I was going to ask, you're getting close to the end on the FHLB balances. Do the rest of those come off in the first part of 2026? And then with some of this excess cash flow you're generating, what should we think about in terms of uses of that? Does it go back into the bond book? Is there anything else that needs to come off in terms of higher cost funding? Just a couple of the moving pieces there.

Sure. In terms of the repricing, Andrew, I don't have the '27 number in front of me. I can look that up and get back to you. I think it will be comparable to what we expect in '26, $2 billion, $2.5 billion, somewhere in that neighborhood would likely be repricing in '27. In terms of the FHLB paydown, we expect to complete the payoff of our FHLB advances later in the first quarter. I think mid-March is the payoff of that. And so that will be great to see the payoff of that higher cost debt. And that's been a big part of our margin recovery story as well. And that will be funded with securities cash flow with the elevated cash flow that we noted earlier coming off of the securities portfolio, perfectly sufficient to fund that payoff. So -- and once we pay off that remaining $440 million, that's pretty much it in terms of our wholesale funding that plus.

Yes. And so just probably gets put back into the bond book at that point, the excess cash flows?

Exactly right. Yes. We're looking at strategies for later this year to what to do to redeploy that cash that would build.

And we have a follow-up from David Feaster of Raymond James.

I wanted to circle back to Guaranty and just kind of get a sense of how that integration has gone so far. Going into a new market can be very difficult in Texas isn't easy, but I know that's a market that you know well, Randy. I suspect it's pretty limited disruption just given this is a new division that you all are creating, no real brand changes or anything like that. And again, Tom, I appreciate the commentary that they're already starting to contribute. But just wanted to get an early read on the integration now that we're a few months in post close and kind of what you're most excited about with them at this point?

Sure. Yes. I mean to start with our model, we keep the name. It's a 100-year-old bank in terms of minimizing disruption. We keep the people. We have the same leadership in place. And so that is very, very helpful compared to some of the other transitions ongoing in the market down there. We think that we're extremely well positioned with customers and employees. So, that part, just setting the stage with the model is very, very helpful and positive from our standpoint. It's been a great fit. I think we've noticed that from the beginning and talked about that, the culture fit, certainly on the credit side, Tom has done a lot of work, and it's a very good fit. So it looks very much like a seamless handoff. They're integrated into the credit system right now. And we're very, very mindful of making sure that they have all the tools they need to succeed. In terms of being excited about it, I mean, it's -- the franchise has been and still is extremely well positioned in that market. They've got a great legacy base in East Texas with Mount Pleasant as the centerpiece there, but a lot of very, very good markets. And then they're exposed to some very strong growth markets with very good teams in place. So, Dallas-Fort Worth, College Station, Houston, Austin. And so I think the opportunity, and they really just have scratched the surface there. That's probably the most exciting thing is as we give them some sophisticated tools. So we're giving them our automated commercial loan processing system. That's going to create some productivity, some improvement in how we can serve customers there. And then a much bigger balance sheet, so an ability to take care of customers, bring back relationships that had to be handed off from a $3 billion bank to a $30 billion bank. So all those things, David, we think will be really, really nice tailwinds going forward.

Okay. That's great. And then I don't want to beat a dead horse on the margin. You guys have been very clear on the near-term dynamics. But if I think longer term, just given the strength of your core deposit base, you've historically operated -- you had a -- pre-pandemic, you had a margin in the mid-4% realm. I just wanted to get your thoughts on if that's still an achievable level, again, based on the back book repricing and securities tailwinds even into 2027, would you still expect fairly robust margin expansion in '27?

Yes, David, we do see continued expansion, whether we get to 4.5%, let's get to 4% first and then work and build on that progress. But just from what I see ahead of us right now, yes, I could see us growing beyond that 4% in '27, absolutely.

And our next question comes from Matthew Clark of Piper Sandler.

I thought my hand was raised. Just want to clarify the expense run rate for the upcoming quarter, the guide. Did you say $189 million to $190 million or $189 million to $193 million.

$193 million. Ron here. $189 million to $193 million.

Got it. Okay. And then on your deposit costs this quarter, they ticked up a little bit here. I'm assuming that's from the Guaranty deal? Or was there something else going on? And I assume we're going to see deposit costs trend down from here, though.

That's exactly right. Yes, the uptick that you saw was from the acquisition, and we do expect to see a declining deposit costs from here.

Okay. Got it. And then on the -- for the cost saves, did you get any cost save -- I think it was expected to be a little over $17 million from Guaranty. Did you get any of the cost saves out this quarter? Or is it all on the come beginning in 1Q?

Yes, Ron here, it will really take hold after the conversion. And so that's really where it is. We've been just doing a lot of things, as Randy pointed out, but they will show up. They've been very, very mindful of that, and we're working with them back to Randy's point, integration coordination going very well.

Yes. Good. Okay. And then on the net charge-offs this quarter, I know we're splitting hairs at 12 basis points, but up from the prior quarter. Anything unusual in that those charge-offs, anything outsized? Or is that kind of more normal, you think?

No, more normal and typical for year-end cleanup. We typically -- as we continue to scrub the portfolio, if there's an opportunity to exit a credit, we'll do it. So it's normal. Nothing outsized, nothing unusual.

This concludes our question-and-answer session. I would like to turn it back to Randy Chesler for closing remarks.

Very good. Thank you, Didi, and thank you, everybody, for dialing in today. Very excited about the trends here and the growth into '26. So, we appreciate everybody dialing in. Have a great Friday and a great weekend. Thank you.