Business context and reporting period
Glacier Bancorp, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2017. The Montana-based bank holding company provides community banking across Montana, Idaho, Wyoming, Colorado, Utah and Washington. Its sole operating segment is banking.
Financial performance and condition
Unless noted otherwise, amounts are in millions of dollars.
| Metric | Q1 2017 | Comparable period / change |
|---|---|---|
| Net interest income | $80.3 | $76.7 in Q1 2016; up 4.6% |
| Non-interest income | $25.7 | $24.3 in Q1 2016; up 5.9% |
| Net income | $31.3 | $28.7 in Q1 2016; up 9% |
| Diluted earnings per share | $0.41 | $0.38 in Q1 2016 |
| Net interest margin, tax-equivalent | 4.03% | 4.01% in Q1 2016 |
| Efficiency ratio | 55.57% | 56.53% in Q1 2016 |
| Operating cash flow | $93.8 | $56.2 in Q1 2016 |
Total assets were $9.55 billion at quarter-end, up $103 million from December 31, 2016. Loans receivable were $5.88 billion, up $193 million quarter over quarter; management reported 14% annualized quarterly growth. Deposits totaled $7.48 billion, up $108 million from year-end. The loan-to-deposit ratio was 78.91%, versus 74.65% a year earlier.
Cash and cash equivalents were $234.0 million, up $81.5 million from year-end. Investing activities used $83.6 million and financing activities provided $71.3 million. Total liabilities were $8.42 billion, including $211.6 million of Federal Home Loan Bank advances, $497.2 million of repurchase agreements and $126.0 million of subordinated debentures. The Bank reported regulatory capital ratios of 15.63% total capital, 14.37% Tier 1 and common equity Tier 1, and 11.41% leverage; management said the Company and Bank met applicable capital requirements.
The allowance for loan and lease losses was $129.2 million, or 2.20% of loans, compared with 2.50% a year earlier. Non-performing assets were $71.5 million, or 0.75% of subsidiary assets, versus $80.2 million and 0.88% a year earlier. Accruing loans 30–89 days past due rose to $39.2 million from $24.0 million a year earlier; management attributed half of the increase to one loan under evaluation.
Material changes versus prior periods
- Compared with Q1 2016, interest income rose $3.2 million, led by commercial loan growth, while investment interest income declined $1.9 million. Tax-equivalent net interest margin improved 2 basis points.
- Non-interest expense increased $1.0 million year over year to $63.3 million, mainly reflecting $2.3 million higher compensation; the prior-year period included $834,000 of Core Consolidation Project costs.
- The investment portfolio fell $119 million from year-end and $314 million year over year as cash flows were redeployed toward loans. Commercial real estate and other commercial loans drove year-over-year loan growth.
- Net charge-offs were $1.9 million, compared with $194,000 in Q1 2016; the provision for loan losses increased to $1.6 million from $568,000.
- Core deposits increased $99.6 million from year-end. FHLB advances declined $40.1 million quarter over quarter as deposits grew.
Outlook, commentary, risks and unusual items
No specific earnings or financial guidance is provided. Management described regional economic conditions as gradually improving but characterized the recovery as fragile and said it would continue monitoring effects on lending and credit quality. It cited real estate values, local economic conditions and loan performance as important allowance considerations. The filing warns that future credit deterioration, interest-rate changes, competition, regulation, cybersecurity events, disasters and acquisition integration could adversely affect results.
On April 30, 2017, after quarter-end, the Company acquired TFB Bancorp and The Foothills Bank in Arizona. At March 31, Foothills had $359.9 million of assets, $305.2 million of gross loans and $292.3 million of deposits. Purchase consideration, acquired net asset fair values and resulting goodwill had not yet been determined. The Company declared a quarterly dividend of $0.21 per share, up $0.01; future dividends remain subject to earnings, capital, asset quality, economic and regulatory factors.
Adoption of share-based compensation guidance reduced Q1 2017 income tax expense by $537,000, or approximately $0.01 per diluted share. The Company is evaluating the expected-credit-loss standard effective in 2020 and noted potential for a higher allowance at adoption. Management said pending ordinary-course litigation is not expected to materially affect financial condition, results or liquidity; it reported no material change in risk factors or market-risk disclosures.
Important facts for investors to verify
- Whether the increase in early-stage delinquencies, including the loan management was evaluating, leads to further credit deterioration or higher provisions.
- The assumptions supporting the $129.2 million allowance and management’s collateral valuations for impaired loans and other real estate owned.
- The final purchase accounting, goodwill, integration costs and subsequent performance of the Foothills acquisition.
- Whether loan growth can continue while maintaining deposit funding, funding costs, net interest margin and capital ratios.
- The eventual effect and implementation costs of the expected-credit-loss accounting standard.