Glacier Bancorp, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Glacier Bancorp provides banking and mortgage services across Montana, Idaho, Wyoming, Colorado, Utah and Washington. Unless otherwise stated, figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial performance
- Third quarter: Net income was $31.0 million, up 5% from $29.6 million a year earlier; diluted EPS was $0.40 versus $0.39. Total net interest and non-interest income was $106.9 million, up 8% year over year.
- Nine months: Net income was $90.1 million, up 4% from $86.6 million; diluted EPS was $1.18 versus $1.15. Total net interest and non-interest income rose 9% to $313.3 million.
- Interest earnings and margin: Q3 net interest income was $78.6 million, nearly unchanged from Q2 and up $5.6 million year over year. Tax-equivalent net interest margin was 4.00% for Q3, versus 4.06% in Q2 and 3.96% a year earlier; the nine-month margin was 4.02% versus 3.99%.
- Other income and expenses: Q3 non-interest income increased 10% year over year to $28.3 million, led by loan-sale gains and service charges. Non-interest expense rose 10% to $65.2 million. The efficiency ratio was 55.84%, compared with 54.32% a year earlier. For nine months, expenses increased 10% to $192.0 million and the efficiency ratio was 56.15%, up from 55.01%.
- Cash flow: For nine months, operating activities generated $117.7 million, investing activities used $103.3 million, and financing activities provided $43.7 million. Cash and cash equivalents increased $58.2 million to $251.4 million; in the comparable 2015 period, cash decreased $199.6 million.
Financial position, credit and liquidity
- Total assets were $9.32 billion at September 30, up $227.6 million from year-end 2015. Net loans were $5.46 billion, up $514.4 million; deposits were $7.31 billion, up $364.3 million. Management reported loan growth excluding acquisitions of 12% annualized during Q3.
- Investment securities totaled $2.97 billion, down $341.0 million from year-end. Management attributed the reduction primarily to redeploying securities cash flows into higher-yielding loans.
- Funding included $401.2 million of repurchase agreements, $211.8 million of FHLB advances and $126.0 million of subordinated debentures. The reported loan-to-deposit ratio was 77.53%, versus 73.68% a year earlier. Available capacity included $1.40 billion of FHLB borrowing capacity, $1.07 billion at the Federal Reserve discount window, $255 million in unsecured lines and $1.24 billion of unencumbered securities.
- Stockholders’ equity was $1.15 billion; tangible equity was $987.8 million, or 10.79% of tangible assets. Glacier Bank’s reported regulatory ratios were 16.31% total capital, 15.05% Tier 1 and Common Equity Tier 1, and 11.77% leverage. The filing states the Bank met fully phased-in Basel III capital requirements.
- The allowance for loan and lease losses was $132.5 million, equal to 2.37% of loans, down from 2.68% a year earlier. Nine-month provision was $1.2 million; net recoveries were $1.6 million, compared with $858,000 of net charge-offs in the first nine months of 2015.
- Nonperforming assets were $78.2 million, or 0.84% of subsidiary assets, down from $85.0 million and 0.97% a year earlier, but up from $75.6 million in Q2. Non-accrual loans were $52.3 million; loans 30–89 days past due increased to $27.4 million from $23.5 million in Q2. Troubled debt restructurings totaled $76.0 million, down from $90.6 million at year-end.
Material changes, outlook and risks
- Treasure State Bank was acquired on August 31, 2016, for $13.94 million in cash and stock. The acquisition added $51.9 million of loans and $58.4 million of deposits and generated $6.4 million of goodwill; its results were included from the acquisition date. Q3 included approximately $59,000 of acquired-bank net income.
- Q3 included $1.4 million of expenses related to the Core Consolidation Project and $228,000 of acquisition-related expenses. Ten of 13 bank divisions had completed the core-system conversion by quarter-end. Management cited the project and higher compensation costs as contributors to the year-over-year increase in the efficiency ratio.
- Management described the regional recovery as gradual and uneven, noting continued exposure to real estate, construction, commodity and local economic conditions. It considered the allowance adequate but cautioned that credit estimates are judgmental and future problem loans or losses could require higher provisions.
- Other stated risks include changes in interest rates and funding costs, regulatory changes, acquisition integration and goodwill impairment, competition, cybersecurity and system disruptions, and dependence on key management. Management reported no material change in market-risk disclosures or previously reported risk factors and provided no specific earnings guidance.
- Unrealized investment-security losses were attributed primarily to interest-rate and market-spread movements; management reported no other-than-temporary impairment and said it did not expect to be required to sell the securities before recovery. The annual goodwill impairment test in Q3 found no impairment.
- The Board declared a quarterly dividend of $0.20 per share, payable October 20, 2016. Future dividends remain subject to earnings, capital, asset quality, economic and regulatory considerations.
Key facts for investors to verify
- Whether loan growth continues to outpace deposit growth and how the resulting funding mix affects net interest margin and funding costs.
- Whether the increase in early-stage delinquencies and Q3 nonperforming assets develops into higher non-accrual loans, charge-offs or loan-loss provisions.
- How much of earnings growth is sustained by core banking results versus acquisitions, mortgage loan-sale gains and tax benefits.
- Remaining Core Consolidation Project costs, completion timing and any operational or customer impacts.
- Integration and credit performance of Treasure State Bank, acquisition-related goodwill, and the adequacy of available liquidity and capital under adverse conditions.