Glacier Bancorp, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are primarily with December 31, 2018. Glacier Bancorp is a community banking company operating through Glacier Bank across seven western states. Unless noted, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q1 2019 | Comparable period / change |
|---|---|---|
| Net income | $49.1 | Up 27% from $38.6 in Q1 2018; down from $49.6 in Q4 2018 |
| Diluted EPS | $0.58 | Up from $0.48 in Q1 2018 |
| Net interest income | $115.2 | Up $19.9, or 21%, year over year; down $0.7 from Q4 2018 |
| Net interest margin | 4.34% tax-equivalent | 4.10% in Q1 2018; 4.30% in Q4 2018 |
| Non-interest income | $28.5 | Up 9% year over year; essentially unchanged from Q4 |
| Non-interest expense | $82.8 | Up 13% year over year |
| Efficiency ratio | 55.37% | Improved from 57.80% year over year; worsened from 53.93% in Q4 |
| Operating cash flow | $46.3 | $47.9 in Q1 2018 |
Interest income rose 22% year over year, supported by loan growth and higher loan yields; interest expense increased 40%, reflecting higher deposit and funding costs. The provision for loan losses was $0.1 million, compared with $0.8 million a year earlier. The declared quarterly dividend was $0.26 per share.
Financial condition, credit and liquidity
- Assets and lending: Total assets were $12.07 billion, down $41.7 million from year-end but up $415.0 million year over year. Gross loans were $8.33 billion, up 9% year over year; commercial real estate loans were the largest source of growth.
- Funding and borrowings: Deposits were $9.59 billion, up $94.3 million from year-end and $169.3 million year over year. Non-interest-bearing deposits were $3.05 billion. FHLB advances fell to $154.7 million from $440.2 million at year-end; repurchase agreements increased to $489.6 million. Subordinated debentures were $134.0 million.
- Credit quality: Non-performing assets declined to $50.8 million, or 0.42% of subsidiary assets, from $56.8 million at year-end and $74.0 million a year earlier. The allowance for loan and lease losses was $129.8 million, or 1.56% of loans, versus 1.58% at year-end. Net charge-offs were $1.5 million.
- Capital: Stockholders’ equity was $1.55 billion; tangible book value was $14.35 per share. Glacier Bank reported total capital of 14.64%, Tier 1 capital of 13.39%, and a leverage ratio of 11.08%, above the stated minimums.
- Liquidity: Reported available capacity included $2.06 billion of FHLB borrowing capacity, $947.8 million at the Federal Reserve discount window, $230 million of unsecured lines, and $1.36 billion of unencumbered debt securities. These are disclosed sources and capacities, not cash on hand.
Changes, outlook and notable items
- Management attributed year-over-year earnings growth primarily to loan growth, higher interest rates and an improved net interest margin. Higher compensation and other operating costs partially offset revenue gains.
- Management described economic conditions across its markets as generally positive but said it remained cautiously optimistic, citing potential economic weakness and housing-supply constraints. No quantified earnings or growth guidance was provided; management cautioned that quarterly results are not necessarily indicative of full-year results.
- Q1 included $0.2 million of acquisition-related expenses, versus $1.8 million in Q1 2018. The quarter’s $33.3 million of after-tax other comprehensive income, largely from improved available-for-sale securities values, increased reported equity. Adoption of accounting standards also reduced retained earnings by $25.5 million cumulatively, primarily from the callable-debt-premium rule.
- Effective January 1, 2019, lease accounting brought operating lease right-of-use assets and liabilities onto the balance sheet; the company recognized $36.2 million and $38.2 million, respectively, at adoption. The expected-credit-loss standard is scheduled for adoption in 2020; management said the impact was not yet quantifiable and could increase the allowance.
- Subsequent transactions: Glacier completed its acquisition of FNB Bancorp on April 30, 2019; at March 31, FNB had $328.9 million of assets, $248.7 million of gross loans and $279.7 million of deposits. On April 3, Glacier agreed to acquire Heritage Bancorp, with $840.8 million of assets, $589.5 million of gross loans and $723.0 million of deposits at March 31. Closing was anticipated in Q3 2019, subject to approvals and other conditions.
- Risks and contingencies: The filing highlights credit deterioration, interest-rate and funding-cost changes, competition, regulatory changes (including consequences of exceeding $10 billion in assets), acquisition completion and integration, goodwill impairment, cybersecurity and natural-disaster risks. Management said ordinary-course litigation was not expected to have a material effect; it reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether loan growth, margin performance and deposit pricing remain favorable as funding costs rise.
- Credit trends, especially construction lending, delinquencies, non-performing assets and the adequacy of the allowance.
- The valuation, integration costs and performance of the completed FNB acquisition and the timing and conditions of the proposed Heritage acquisition.
- The effect of securities valuation changes, interest rates and eventual adoption of the expected-credit-loss standard on earnings, equity and capital.
- Liquidity availability under stress and the company’s capacity to maintain capital and dividends while pursuing acquisitions.