Glacier Bancorp, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Glacier Bancorp provides community banking services across Montana, Idaho, Wyoming, Colorado, Utah, and Washington. Results include the effects of its 2015 acquisitions, including Cañon Bank in October 2015.
Financial performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Net interest income | $76.7 million | $70.1 million |
| Net interest margin, tax-equivalent | 4.01% | 4.03% |
| Non-interest income | $24.3 million | $22.7 million |
| Non-interest expense | $62.4 million | $55.5 million |
| Net income | $28.7 million | $27.7 million |
| Diluted earnings per share | $0.38 | $0.37 |
| Efficiency ratio | 56.53% | 54.80% |
| Operating cash flow | $57.7 million | $38.1 million |
Net income increased 4% year over year. Higher commercial loan income supported net interest income growth; the margin edged down as earning-asset yields declined and funding costs increased. The efficiency ratio rose primarily due to acquisition-related staffing and expenses from the Core Consolidation Project (CCP). Return on average assets was 1.28% and return on average equity was 10.53%.
Financial position, credit and liquidity
- At March 31, 2016, total assets were $9.12 billion, loans receivable were $5.20 billion, and deposits were $7.02 billion. Loans grew $118.5 million from year-end; total assets increased $31.5 million.
- Cash and cash equivalents were $150.9 million, down from $193.3 million at year-end. Net cash decreased $42.4 million during the quarter. Available liquidity included $1.20 billion of unused FHLB capacity, $942.7 million of FRB discount-window capacity, $255 million of unsecured lines, and $1.56 billion of unencumbered securities.
- Total liabilities were $8.03 billion. FHLB advances were $314.0 million, repurchase agreements $446.0 million, and subordinated debentures $125.9 million. FHLB advances declined $80.2 million during the quarter. Wholesale deposits rose $95.8 million to $325.5 million; management said some were obtained to support hedge accounting for interest-rate swaps.
- Stockholders’ equity was $1.09 billion; tangible equity was $939.3 million and tangible book value was $12.33 per share. Glacier Bank’s regulatory capital ratios included total capital of 16.50% and CET1 of 15.25%, above stated well-capitalized thresholds.
- The allowance for loan and lease losses was $130.1 million, or 2.50% of loans, versus 2.77% a year earlier. Net charge-offs were $194,000. Nonperforming assets were $80.2 million, 0.88% of subsidiary assets, essentially unchanged from year-end and down from $90.8 million a year earlier. Early-stage delinquencies increased from year-end to $24.0 million.
Material changes, outlook and risks
- Loan growth was led by commercial real estate and other commercial loans. Excluding the Cañon acquisition, loans increased $350 million, or 7%, year over year, according to management.
- Q1 included $135,000 of acquisition-related costs and $831,000 of CCP expenses, including chip debit-card reissuance. CCP work was expected to continue through 2016 and be completed by year-end.
- On April 20, 2016, the company agreed to acquire Treasure State Bank, with closing anticipated in Q3 2016. The target reported year-end 2015 assets of $71 million, gross loans of $53 million, and deposits of $58 million. This was a pending transaction, not included in Q1 results.
- Management described the regional recovery as gradual and fragile, noting exposure to local economic and real-estate conditions, particularly stressed energy and commodity markets and weaker conditions in Wyoming. It was cautiously optimistic and said it would continue monitoring portfolio credit quality.
- Key risks include credit deterioration and collateral values, interest-rate changes affecting net interest income, acquisition completion and integration, competition, regulatory changes, cybersecurity and system interruptions, and potential goodwill impairment. Management reported no material change in previously disclosed risk factors; ordinary-course legal matters were not expected to materially affect results or liquidity.
- The board declared a quarterly dividend of $0.20 per share, a 5% increase from the prior quarter. The filing provided no full-year earnings or other quantitative financial guidance; Q1 results were not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether loan growth continues and whether rising early-stage delinquencies develop into nonaccruals or losses; also monitor commercial and construction credit exposures.
- Whether net interest margin stabilizes as deposit costs, wholesale funding, and swap-related expense evolve.
- Whether expenses from acquisitions and CCP remain elevated, and whether the project is completed on schedule.
- Whether the Treasure State Bank acquisition closes on the anticipated timetable and on acceptable terms.
- Whether liquidity, capital ratios, and the allowance remain adequate as lending and funding needs change.
- Whether unrealized securities and swap losses, including potential collateral requirements, change materially. Management reported no other-than-temporary impairment in securities with unrealized losses at quarter-end.