Glacier Bancorp, Inc. — Q1 2014 Form 10-Q
Business context and reporting period. Montana-based regional bank holding company serving customers through Glacier Bank divisions across Montana, Idaho, Wyoming, Colorado, Utah and Washington. This unaudited report covers the three months ended March 31, 2014; balance-sheet comparisons are to December 31, 2013, and operating results are compared with Q1 2013. The company completed acquisitions in 2013, which affect year-over-year comparisons.
Key financial results
Unless noted, amounts are in millions of dollars.
| Metric | Q1 2014 / March 31, 2014 | Comparable period / prior balance |
|---|---|---|
| Net interest income | $67.4 | $50.5 in Q1 2013 |
| Net interest margin, tax-equivalent | 4.02% | 3.14% in Q1 2013; 3.88% in Q4 2013 |
| Net income | $26.7 | $20.8 in Q1 2013 |
| Diluted EPS | $0.36 | $0.29 in Q1 2013 |
| Return on average assets / equity, annualized | 1.39% / 11.04% | 1.11% / 9.20% in Q1 2013 |
| Total assets | $7,830.7 | $7,884.4 at Dec. 31, 2013 |
| Loans receivable, gross | $4,088.6 | $4,062.8 at Dec. 31, 2013 |
| Total deposits | $5,624.5 | $5,580.0 at Dec. 31, 2013 |
| Cash and cash equivalents | $161.7 | $155.7 at Dec. 31, 2013 |
| Stockholders’ equity | $985.0 | $963.3 at Dec. 31, 2013 |
- Revenue and expenses: Total interest income was $74.1 million, up 28% year over year; interest expense was $6.6 million, down 11%. Non-interest income was $19.4 million, down 16%, principally reflecting a 60% decline in loan-sale gains to $3.6 million. Non-interest expense increased 15% to $50.1 million, including higher compensation and acquisition-related costs. The efficiency ratio improved to 53% from 55% in Q1 2013.
- Cash flow: Operating activities provided $53.9 million, versus $129.1 million in Q1 2013. Investing activities provided $46.6 million, compared with $25.1 million used; financing activities used $94.5 million, compared with $162.0 million used. Cash and cash equivalents increased $6.0 million during the quarter.
- Debt and funding: FHLB advances were $686.7 million, down $153.4 million during the quarter; repurchase agreements were $327.3 million. Subordinated debentures were $125.6 million. Deposit growth supported the reduction in FHLB borrowing.
- Capital and liquidity: Management reported the company and bank were well capitalized. Company regulatory ratios were 18.00% Tier 1 capital, 19.27% total capital and 12.44% Tier 1 leverage. Available capacity included $795.3 million of FHLB borrowing capacity, $777.2 million at the Federal Reserve discount window, $255.0 million of unsecured lines, and $1.52 billion of unencumbered securities.
- Credit quality: Allowance for loan and lease losses was $130.7 million, or 3.20% of loans; Q1 provision was $1.1 million and net charge-offs were $0.7 million. Non-performing assets were $106.8 million, 1.37% of subsidiary assets, down from $109.4 million at year-end and $135.4 million a year earlier. Loans 30–89 days past due rose to $42.9 million from $32.1 million at year-end. The allowance equaled 164% of non-performing loans.
Material changes and unusual items
- Effective January 1, 2014, the company reclassified approximately $484.6 million fair value of state and local government securities from available-for-sale to held-to-maturity. This shifted classification and measurement, not the underlying investment exposure; the company stated it had the intent and ability to hold them to maturity.
- Investment securities totaled $3.15 billion, down $72.2 million from year-end and $507.4 million year over year as the company continued to reduce the portfolio. Loans grew $25.8 million in the quarter; commercial loans were the main growth driver.
- Net income increased 29% year over year, supported by higher net interest income. Management attributed much of the rise in investment income to lower premium amortization on securities; commercial-loan growth also contributed. The decline in mortgage refinancing activity reduced loan-sale gains.
- Accumulated other comprehensive income was $15.3 million, up from $9.6 million at year-end; Q1 comprehensive income was $32.4 million. Unrealized losses on securities were attributed mainly to interest-rate changes and market spreads; management reported no other-than-temporary impairment and no intent or expected need to sell affected securities before recovery.
- The quarterly dividend was declared at $0.16 per share, up from $0.14 in Q1 2013. Future dividends remain subject to earnings, capital, asset quality, economic conditions and regulatory considerations.
Outlook, risks and contingencies
- The filing provides no quantified earnings or growth guidance. Management cautioned that Q1 results are not necessarily indicative of full-year 2014 results.
- Management described improving regional housing indicators and stabilizing collateral values, while noting continuing uncertainty and weakness in some markets. Land, lot and other construction loans remained a notable credit exposure: $352.3 million outstanding, with $50.9 million of non-performing assets in that category. Construction loans represented 42% of non-accrual loans.
- Key stated risks include deterioration in loan quality, rising delinquencies, weak economic conditions or collateral values, interest-rate changes affecting net interest income, acquisition integration, regulatory changes, competition, cybersecurity or system interruptions, and possible goodwill impairment.
- The company uses interest-rate swaps to convert forecasted floating-rate borrowings to fixed rates; it had pledged $6.2 million of securities as collateral and may need to pledge more if swap values decline.
- Ordinary-course legal matters were reported as not expected to have a material adverse effect. Management said risk factors were not materially changed from the 2013 annual report. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether improving net interest margin persists as securities premium amortization changes and market interest rates move.
- Whether early-stage delinquencies, non-performing assets and construction-related exposures continue to decline or worsen, and whether the allowance remains adequate.
- How much of reported year-over-year growth reflects 2013 acquisitions versus organic growth, particularly in loans, deposits and expenses.
- The effect of the securities reclassification on reported earnings, accumulated other comprehensive income, liquidity and future flexibility to sell securities.
- Whether deposit growth and reduced FHLB advances continue to support funding needs, and whether capital and liquidity remain strong under adverse conditions.