Glacier Bancorp, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; comparisons are primarily with fiscal 2013. Glacier Bancorp is a Montana-based bank holding company operating Glacier Bank across six western states, with 129 locations at year-end.
Financial performance and condition
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Total assets | $8.31 billion | $7.88 billion | +5% |
| Total loans | $4.49 billion | $4.06 billion | +10% |
| Total deposits | $6.35 billion | $5.58 billion | +14% |
| Net interest income | $273.0 million | $234.8 million | +16% |
| Non-interest income | $90.3 million | $93.0 million | -3% |
| Net income | $112.8 million | $95.6 million | +18% |
| Diluted EPS | $1.51 | $1.31 | +15% |
- Margins and efficiency: Tax-equivalent net interest margin was 3.98%, up 50 basis points. The efficiency ratio was 54.31%, slightly improved from 54.51%.
- Cash flow: Operating cash flow was $182.7 million; investing cash flow was $158.9 million; financing cash flow was negative $54.9 million. Cash and cash equivalents increased $286.8 million to $442.4 million.
- Credit: Non-performing assets fell 18% to $89.9 million, or 1.08% of subsidiary assets. Provision for loan losses declined 72% to $1.9 million; net charge-offs were $2.5 million. The allowance was $129.8 million, 2.89% of loans versus 3.21% in 2013.
- Funding and liquidity: Non-interest-bearing deposits were $1.63 billion, 26% of deposits. FHLB advances fell 65% to $296.9 million. Reported available capacity included $1.075 billion from FHLB, $815.5 million at the Federal Reserve discount window and $255 million in unsecured lines; unencumbered securities totaled $1.24 billion.
- Debt and capital: Repurchase agreements were $397.1 million and subordinated debentures $125.7 million. Consolidated regulatory total capital was 18.93%, Tier 1 risk-based capital 17.67%, and Tier 1 leverage 12.45%; the Bank exceeded regulatory “well-capitalized” thresholds. Stockholders’ equity was $1.03 billion.
- Dividends: Declared dividends totaled $0.98 per share, including a $0.30 special dividend, compared with $0.60 in 2013. No shares were repurchased in 2014.
Material changes and notable items
- Completed the August 2014 acquisition of FNBR / First National Bank of the Rockies, adding Colorado operations. Consideration was $31.8 million; the company recorded a $680,000 bargain purchase gain. FNBR contributed approximately $1.7 million of net income after acquisition through year-end.
- Excluding acquisitions, loans grew $288 million, or 7%, and non-interest-bearing deposits grew $178 million, or 13%. Commercial loans were the largest source of loan growth.
- Net interest income benefited from lower investment-security premium amortization and increased commercial lending. Premium amortization was $36.6 million lower than in 2013. Residential loan-sale gains fell $8.7 million as refinancing activity slowed.
- Non-interest expense rose 9% to $212.7 million, with acquisition-related staffing, occupancy and data-processing costs contributing to increases; OREO expense declined by $4.6 million.
- On January 1, 2014, approximately $484.6 million of state and local government securities was reclassified from available-for-sale to held-to-maturity. At year-end, the portfolio was 82% available-for-sale and 18% held-to-maturity.
Outlook, risks and contingencies
- Management gave no quantified earnings or growth guidance. It said future performance depends on regional economic conditions, interest rates, competition, loan quality and growth, acquisition integration, and regulatory burden. Management described the recovery cautiously optimistically.
- A definitive agreement to acquire Montana Community Banks was pending at year-end. Regulatory approvals had been obtained and closing was expected in the first quarter of 2015. The target reported $175 million in assets, $93.0 million in gross loans and $149.5 million in deposits at December 31, 2014.
- Key risks include the concentration in real-estate-secured and commercial loans, possible deterioration in collateral values and credit quality, interest-rate and securities-value volatility, deposit competition, acquisition integration and dilution, cybersecurity and operational disruptions, and evolving regulation. Land, lot and other construction loans accounted for $47.7 million, or 53%, of non-performing assets.
- Basel III capital rules began phasing in for the Bank in 2015. Management said the company would meet the requirements on a fully phased-in basis using year-end 2014 figures, and anticipated electing to exclude accumulated other comprehensive income from regulatory capital. The capital conservation buffer phases in through 2019.
- The company reported ordinary-course litigation and commitments to extend credit and letters of credit totaling $976.7 million; management did not expect material losses from these items. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
- The filing disclosed an ongoing CEO succession search. Management identified the CEO and senior team as important to the company’s business and growth prospects.
Important facts for investors to verify
- Whether the improvement in net interest margin and earnings persists as premium amortization, interest rates and loan/deposit pricing change.
- Whether loan growth is accompanied by stable underwriting and further improvement in non-performing assets, construction exposures, TDRs and charge-offs; assess the adequacy of the allowance.
- How the Montana Community Banks acquisition closed and performed, and whether integration costs, synergies and any share dilution matched expectations.
- Whether deposit growth and the reduction in FHLB advances are sustainable, and how the company manages wholesale funding, repurchase agreements and liquidity access.
- The effect of the held-to-maturity reclassification, unrealized securities losses, interest-rate swaps and Basel III phase-in on capital, earnings and dividend capacity.
- Whether dividend payments remain supported by earnings, capital, asset quality and regulatory limits, and how the CEO succession proceeds.