Day, and thank you for standing by. Welcome to the Glacier Bancorp third quarter earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one, one again. 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 pre-tax, 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. Non-interest-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 one basis point from the prior quarter and down 26 basis points from the third quarter of last year. Core deposit cost, including non-interest-bearing deposits, was 1.17%, down one basis point from the prior quarter and down six 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 non-performing 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. Non-interest 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 50 times 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 nine months of the year. Record earnings, a margin above 4%, 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 provide 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.
Thank you. As a reminder, to ask a question, please press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one, one again. Our first question comes from the line of Jeff Rulis with D.A. Davidson. Your line is now open.
Thanks. Good morning.
Morning, Jeff.
Wanted to check in on the kind of the growth, in the quarter of good solid mid-single digit. I do not know if you had the numbers for sort of the Texas footprint relative to the other areas of the footprint, if you could.
Sure, Jeff, this is Tom . The Southwest division, which is how we look at it, outperformed the bank as a whole in the quarter. They came in at about 8% annualized growth.
Appreciate it. I guess the follow-on to that is the, I guess, that initial phase of the Guaranty team being on board and their book of business. I guess as that's aged, I mean, it just kind of getting into the opportunity in this most recent quarter would be a pretty good tell. 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.
Yeah, no. The Southwest division is still sitting on a very healthy pipeline, very healthy deal flow. I think the same extends to the mountain footprint as well. I would say overall origination activity remains solid. As you saw this quarter, it continues, particularly within our commercial real estate and the construction portfolios. Jeff, we're still seeing a healthy level of ongoing deal flow and pipeline strength. 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.
Great. Thanks, Tom. Maybe one other one. Byron, wanted to maybe quantify or frame up the further asset repricing opportunity in 2027. 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's impressive, tough to repeat, but just want to see the components of what you're seeing looking forward.
Yeah. Thanks, Jeff. Very excited to reach 401 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. 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- 150 basis points in the next 12 months. That's also a little stronger than it has been lately.
On the new production side, with new production yields in the high six's and trending higher, every new loan we put on the books will lift our margins. We do have some meaningful momentum on the asset repricing, and that is going to carry us through with increasing margin through 2027.
Okay. That is very helpful, Byron. I guess we will make our determination on deposit costs, but that seems pretty tame for now. I appreciate it. I will step back. Thanks.
Thank you. Our next question comes from the line of Matthew Clark with Piper Sandler. Your line is now open.
Hey, thanks for the question. Good morning.
Morning.
On that front, I guess. Sounds like your incremental spread on new loans in particular is pretty healthy today. How are you thinking? It sounds like this NIM expansion is not just going to continue next year, but the year after. When you think about a normalized margin, is 450 what you're ultimately striving for? Is that realistic?
Well, I think we have some good visibility into 2027. We're still pulling a lot of things together here. We'll wait and see how 2027 develops before we can really speak to 2028. But I think of our margin in terms of a historical range, 4%-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, this is the type of environment that could help us lift towards the higher end of that range. Now, I can't put a timeframe 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 at the higher end of our historical range.
Got it. Then just on deposit costs, do you have the spot rate at the end of September? Also, what beta should we assume if 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%. In terms of deposit beta, I think we'll be somewhere in the range of 20%-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 would be further down the road with several more hikes in place. But early on, I think 20%, maybe down the road towards the 25% beta is a good guide.
Okay. 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 trades on an absolute and relative basis?
Yeah, I think that gets to the capital discussion. We're looking also at the future capital build, which is substantial given the earnings growth. So, we are really now going to take a look at all options, including special dividends and share buybacks, because the amount of capital we see accumulating, and we really just want to make sure we have all levers available to us. So yeah, that's something that's absolutely in our scope.
Thank you.
Thank you. Our next question comes from the line of David Feaster with Raymond James. Your line is now open.
Hi, good morning, everybody.
Morning.
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. Core deposit growth was just very good. I wanted to get a sense of what you're seeing that's driving that. 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 intensifies?
Yeah, David, as you point out, great deposit quarter for us. Really strong results in the quarter from a balance perspective with growth. At the same time, we were able to reduce our deposit cost. The real highlight this quarter was our growth in our non-interest-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's 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 non-interest-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. Then maybe following up on the loan commentary at the beginning. I appreciate the mid-single-digit guide. I wanted to get a sense of, as you talk to your clients with rates rising, how is demand trending? It sounds like originations have still been good. How's the pipeline heading into the fourth quarter? Have you started to see some stuff that maybe falls out of the pipeline that may not pencil anymore with rates higher, just the competitive landscape? Just curious what you're seeing on that front.
Yeah, 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 with additional equity. 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 into the cycle to get a strong assessment of that. But as of now, we haven't really seen any material change.
Okay. That's great. 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 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?
Yeah, David. We are, I would say, modestly asset sensitive. 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 drifts in our deposit costs 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. I do see our margin continuing to expand throughout 2027, as we've talked about. The shape of the curve is helpful. A couple of incremental hikes would be helpful as well. So, yeah, I see this as a positive development overall for the balance sheet.
Do you have any expectation for how each hike may benefit the margin? Again, how do you think about managing it as you go forward with your securities portfolio and just managing the balance sheet?
Sure. As I mentioned early on, our deposit beta is likely to be lower. We'll probably kind of lag into this deposit repricing a little bit. Early on, the hikes will be maybe a little bit more beneficial. As I said earlier, if this hiking cycle extends, our deposit beta might float up a little bit towards the higher end of that 20%-25% range. It'd still be helpful, but maybe not provide quite as much lift. In terms of how we'll manage the investment securities portfolio, we are putting runoff cash flows back to work in new purchases. We're being very conservative with what we're buying there. We're not really reaching for yield, reaching for duration. We have a meaningful amount of cash flow that's coming back from our securities portfolio.
That's going to provide us a lot of flexibility in what we do with that cash flow, whether it's funding loans with lending opportunities on the top side of the balance sheet or reinvesting in securities at these higher levels. I see all of that as being helpful for our margin and net interest income going forward.
That's great. Thanks, everybody.
You are welcome.
Thank you. As a reminder, to ask a question at this time, please press star one, one on your touchtone telephone. Our next question comes from the line of Andrew Terrell with Stephens. Your line is now open.
Hey, good morning.
Morning.
Maybe sticking on the margin just for a bit. A lot of the commentary, Byron, sounds very positive, and maybe this is a better rate environment for you now as you are reinvesting some of the cash flows at a higher rate. Just if I look back the past couple of quarters, you have got two quarters in a row, 10 to 12 basis point kind of margin lifts each quarter. A lot of the commentary sounds like it is better. Is it unfair to think that you could reproduce a similar kind of 10 to 12 basis point lift on the margin in the fourth quarter? And appreciate I am not going to ask it about 2027 because I know it is tougher to forecast.
I would say also keep in mind we were able to, over the last few quarters, reduce our deposit costs. I think going forward, we're likely to see that just drift up a little bit. So, that might eat into some of that. If it's a 10-basis point improvement previously, maybe it will be a little bit less than that, just accounting for the potential for increased deposit cost as the Fed is being active here.
Got it. Okay. That makes sense. I think last quarter we talked about, I think it was 187 to 192 on expenses, so you're kind of right in that range this quarter. Maybe just talk us through the moving pieces and any kind of 4Q expense expectation, or just refreshes on the guide, please.
Yeah. Ron here, Andrew. So, in this third quarter, I want to focus, pardon my voice, I want to focus on the core operating expenses because if you take the reported 191.9, back out the adjustments that we disclosed in the back of the earnings release, we came in at $190.8 million, and it was on the high side of the guide. But whether it's reported or operating, $4.4 million of that was related to the increased performance-based compensation, and that's based upon year-to-date performance. And so those are essentially the moving parts, and we're going to stick with the guide 187 to 192 in the fourth quarter, as I said back in July.
We're doing that because the discretionary spending that was in check for the first half, that could come back still even in the fourth quarter. So, we're going to stick with that guide, but likely to be towards the high end of that, just as we were in this third quarter. For the full year, we will stay within our guide of $750 million- $760 million, probably closer to the 757, somewhere in that range. But the overall point I would make is that we still remain cautious on expenses in general. Geopolitical uncertainty, economic uncertainty, pick your pain point. So, we're cautious about that, and we've added so much technology that all the divisions are really embracing it. And so that's been very helpful to control compensation expense. So overall, things are looking pretty good. And the efficiency ratio is really where it's showing up.
Certainly, net interest income is improving, but we've done a pretty good job of keeping in check that non-interest expense. Final point, I'd look no further than year-to-date operating efficiency ratio. It's improved nearly five percentage points just in this nine months, going from 62% to 57%.
Yep. I did want to ask just on the efficiency specifically, I think we talked about 54% or 55% type efficiency. Do you think you can kind of get there either fourth quarter as we work into next year?
Yes. Definitely. Fourth quarter, we're pretty confident 54%- 55%. I'll address it again when we're in the budgeting, beginning that right now, and so I'll speak more to that when we get through the fourth quarter call.
Great. Thanks so much for taking the questions.
You are welcome.
Thank you. Our next question comes from the line of Kelly Motta with KBW. Your line is now open.
Hi. Good morning. Thanks for the question.
Morning.
Just to tie up a couple loose ends. Byron, your comment on 20%-25% deposit beta, just wanted to confirm that was for total deposits?
That is correct, total deposits.
Got it. That is helpful. Then I think you alluded to this, but can you remind us where new loan production is coming on as well as the incremental cost of new funding? It was really impressive to see the growth in deposits with minimal increase in costs. Thanks.
Yeah. Kelly, this is Tom. In the third quarter, production yields were 6.74.
Thanks. Then on the deposit side?
Kelly, on the deposit side, new accounts are being opened somewhere in the range of 2.25% to 2.5% interest cost.
Got it. Okay, that's helpful. Then we saw the really nice securities yield pick up this quarter. Just can you remind us how you're thinking about reinvesting the cash flows? It looks like the securities book is relatively flattish from here. I just wanted to confirm how you guys are thinking about that in terms of overall balance sheet growth. Thanks.
Yeah, I think roughly we'll be reinvesting the amount of runoff that we have from here quarter- to- quarter. We do have a lot of cash flow. Again, as I said, that gives us a lot of flexibility. So, we'll wait and see how lending opportunities develop, deposit gathering as well. But I would say a pretty good guide just to estimate the amount of runoff that we see will likely be reinvested.
Got it. That's helpful. Then most of my questions have been asked at this point, just to nitpick on fees on a bit. Other fees came down about $2 million. Just wondering, is this $40 million a good run rate? Any kind of commentary about the drivers of that variance? Thanks.
Yeah, Kelly, Ron here. The $40 million is the right way to approach it. Things go up and down within it. But the key I want to point out on that, the $1.8 million reduction in other income, about $1 million of that was related to fair value increases on equity investments that we have that we account for as non-interest income, and that won't repeat. So, we had $41 million in Q2. We got to basically $40 million in Q3, and I think that's a good run rate.
Got it. That's helpful. Then obviously, you guys are making a lot more money than you were in the past two years with the really nice margin increase. Just wondering, can you remind us about the tax rate? Thanks.
Yeah. Ron again. So yeah, we were suggesting 22%, around there would be the rate for the third quarter, but we came in a little bit lower. And in part, it's because we were able to close transactions that generated additional federal tax credits, so that's why it came down. For the fourth quarter, the rate will come in right around 21%. And I think for the full year, as I model it, depending upon we got a couple other opportunities to get some additional federal tax credits here, but I think it'll come in right around 21% for the full year.
Got it. That's super helpful. Thanks so much. Nice quarter. I'll step back.
Thank you. I am currently showing no further questions at this time. I would now like to hand the call back over to Randy Chesler for closing remarks.
All right. Thank you, Shannon. Thank you all for joining us this morning and your continued interest in Glacier Bancorp. We wish you a great day and a great weekend. Thank you.
This concludes today's conference. Thank you for your participation. You may now disconnect.