Glacier Bancorp, Inc. — 2016 Form 10-K
Business context and period. This annual report covers the year ended December 31, 2016. Glacier Bancorp is a community banking holding company operating through Glacier Bank across Montana, Idaho, Wyoming, Colorado, Utah and Washington. It completed the acquisition of Treasure State Bank in August 2016. The announced acquisition of Arizona-based Foothills, with year-end assets of $335 million, remained subject to regulatory approval and was expected to close in the second quarter of 2017.
Financial performance and position
| Metric | 2016 | 2015 |
|---|---|---|
| Total assets | $9.45 billion | $9.09 billion |
| Net interest income | $314.5 million | $290.4 million |
| Non-interest income | $107.3 million | $98.8 million |
| Net income | $121.1 million | $116.1 million |
| Diluted earnings per share | $1.59 | $1.54 |
| Net interest margin, tax-equivalent | 4.02% | 4.00% |
| Return on average assets | 1.32% | 1.36% |
| Return on average equity | 10.79% | 10.84% |
| Efficiency ratio | 55.88% | 55.40% |
- Loans receivable, net, rose 12% to $5.55 billion; deposits increased 6% to $7.37 billion. Organic loan growth, excluding TSB, was $554 million (11%), led by commercial real estate and commercial lending.
- Commercial real estate loans were $2.99 billion, approximately 54% of gross loans. Investment securities declined 6% to $3.10 billion, as cash flows were redeployed toward lending.
- Operating cash flow was $180.4 million; investing activities used $408.0 million and financing activities provided $186.9 million. Cash and cash equivalents fell $40.7 million to $152.5 million.
- Year-end borrowings included $473.7 million in repurchase agreements, $251.7 million in FHLB advances and $126.0 million in subordinated debentures. FHLB advances declined $142.4 million from 2015. Available borrowing capacity included $1.31 billion from the FHLB, $1.23 billion at the FRB discount window and $255 million in unsecured lines.
- Stockholders’ equity was $1.12 billion, or 11.82% of assets. The Bank’s total capital ratio was 15.76%, CET1 ratio 14.50%, and leverage ratio 11.45%; regulators classified the Company and Bank as well capitalized.
- The allowance for loan and lease losses was $129.6 million, 2.28% of loans, versus 2.55% a year earlier. Provision expense was $2.3 million and net charge-offs were $2.5 million.
Changes versus 2015
- Net income increased 4%, mainly on higher commercial-loan interest income and non-interest income. Net interest income rose 8%; non-interest income rose 9%.
- Non-interest expense increased 9% to $258.7 million. Compensation and data-processing costs rose, including $4.3 million of Core Consolidation Project costs; the efficiency ratio consequently worsened by 0.48 percentage points.
- Asset quality improved overall: non-performing assets declined 11% to $71.4 million, or 0.76% of subsidiary assets, from $80.1 million, or 0.88%. Early-stage delinquencies, however, increased $6.2 million to $25.6 million.
- Dividends declared increased to $1.10 per share from $1.05, including a $0.30 special dividend in each year. No shares were repurchased in 2016.
Outlook, commentary and risks
Management described loan growth and deposits as strong, cited gradual economic improvement across its markets, and characterized its outlook as cautiously optimistic. It gave no specific earnings or growth guidance. Performance will depend on local economic conditions, interest rates, competition for deposits and loans, credit quality, acquisitions and regulatory costs. CEO succession was completed at year-end: Randall Chesler became CEO on January 1, 2017, following a transition period with retiring CEO Mick Blodnick.
- Key exposures include real-estate-secured and commercial lending concentrations, borrower and collateral deterioration, and the possibility that the allowance may prove insufficient. Non-performing assets improved, but early-stage delinquencies rose.
- Interest-rate changes may affect net interest income, securities values and funding costs. Management’s modeled sensitivity was within policy limits, but the filing cautions that the simulations are not forecasts. The $3.10 billion securities portfolio was 33% of assets and had $30.3 million of gross unrealized losses; management did not consider these losses other-than-temporary.
- Integration and execution risks include acquisitions and the completed consolidation of 13 division database systems. The project supported future efficiency and preparation for potential growth beyond $10 billion in assets; the filing notes additional regulatory requirements may apply at that threshold.
- Other risks include regulatory and compliance changes, cybersecurity and third-party system disruptions, competition, deposit funding needs, and economic or natural-disaster impacts in the company’s six-state footprint. Foothills closing remained contingent on approvals and customary conditions.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also reported effective disclosure controls and internal controls.
Investor verification checklist
- Track organic loan and deposit growth separately from acquisitions, and assess the commercial real estate concentration and changing delinquency trend.
- Review allowance adequacy, charge-offs, impaired loans, troubled debt restructurings and collateral values, particularly as loan growth continues.
- Assess whether higher operating costs and acquisition or technology-related spending moderate, and whether earnings growth can improve the efficiency ratio.
- Monitor liquidity and funding composition, including wholesale deposits, repurchase agreements, FHLB advances and the interest-rate swap arrangements.
- Confirm regulatory approval and completion of Foothills, and evaluate its integration, funding and effect on capital and per-share results.
- Review dividend sustainability against earnings, capital needs and regulatory limits; the 2016 payout ratio was 69.18% and included a special dividend.