Glacier Bancorp, Inc. — 2018 Form 10-K
Business context and reporting period. Glacier Bancorp is a community banking company headquartered in Montana, operating through Glacier Bank across seven western states. This filing reports the fiscal year ended December 31, 2018; comparisons are with 2017 unless noted. The company completed acquisitions of First Security Bank and Collegiate Peaks Bank in early 2018.
Financial performance and condition
| Metric | 2018 | 2017 |
|---|---|---|
| Total assets, year-end | $12.12 billion | $9.71 billion |
| Net interest income | $433.5 million | $345.2 million |
| Net interest margin, tax-equivalent | 4.21% | 4.12% |
| Net income | $181.9 million | $116.4 million |
| Diluted EPS | $2.17 | $1.50 GAAP; $1.75 excluding the 2017 tax adjustment |
| Deposits, year-end | $9.49 billion | $7.58 billion |
| Stockholders’ equity, year-end | $1.52 billion | $1.20 billion |
- Total income was $552.3 million, up 21%; net interest income rose 26%, driven mainly by commercial loan growth and higher loan yields. Non-interest income increased 6% to $118.8 million.
- Non-interest expense rose 21% to $320.1 million, primarily reflecting acquisitions, staffing, and higher amortization of acquired deposit intangibles. The efficiency ratio increased to 54.73% from 53.94%.
- Gross loans rose 26% to $8.29 billion, including $728 million, or 11%, of organic growth excluding acquired loans. Commercial real estate represented 57% of gross loans.
- Cash and cash equivalents were $203.8 million at year-end. Cash provided by operations was $280.7 million; investing activities used $872.4 million, including substantial securities purchases and loan growth; financing activities provided $595.5 million. Cash increased $3.8 million.
- Year-end borrowings included $440.2 million of FHLB advances, $396.2 million of repurchase agreements, and $134.1 million of subordinated debentures. Total deposits were the primary funding source. The company reported $1.66 billion of unused FHLB capacity, $875.9 million of FRB discount-window capacity, $230 million in unsecured lines, and $1.54 billion of unencumbered securities.
- Glacier Bank’s capital ratios were 14.35% total capital, 13.10% Tier 1 and Common Equity Tier 1, and 11.08% Tier 1 leverage; the bank was classified as well capitalized.
- Non-performing assets declined 13% to $56.8 million, or 0.47% of subsidiary assets. The allowance for loan losses was $131.2 million, 1.58% of loans, versus 1.97% a year earlier. Net charge-offs were $8.3 million.
Changes, outlook, and risks
- Growth reflects acquisitions as well as organic performance: assets increased 25%, deposits 25%, and loans 26%. Shares issued for acquisitions contributed to share-count growth; outstanding shares rose to 84.5 million from 78.0 million.
- The 2018 effective tax rate was 18.2%, compared with 35.7% in 2017. The prior-year rate included a one-time $19.7 million expense to revalue deferred taxes after federal corporate tax reform. Management reported 2018 net income growth of 34% and diluted EPS growth of 24% against 2017 EPS excluding that adjustment.
- Dividends declared increased to $1.31 per share from $1.14, including a $0.30 special dividend in both years. No shares were repurchased in 2018.
- Management expected the Durbin Amendment interchange-fee cap, effective for the company from July 2019, to reduce annual service-charge fees by $17–$20 million pre-tax. The company also expected higher deposit-insurance assessments after exceeding $10 billion in assets.
- On January 16, 2019, the company agreed to acquire FNB Bancorp, with $335 million in assets, $247 million in gross loans, and $286 million in deposits at year-end. Closing was anticipated in Q2 2019, subject to approvals and customary conditions.
- Management described regional economic indicators as generally positive but remained cautious about housing conditions. Key risks include real-estate and commercial-loan concentration, economic deterioration in the company’s markets, interest-rate and deposit-cost changes, competition, cybersecurity and operational disruptions, acquisition integration, and regulatory costs.
- Management said the company was evaluating CECL adoption, effective in 2020, and anticipated changes to credit-loss estimates and processes; the initial financial impact was not quantified. A new rule also permits a three-year phase-in of CECL’s regulatory capital effects, and the company was evaluating whether to elect it.
- Available-for-sale securities had $43.3 million of gross unrealized losses at year-end; management attributed these principally to interest rates and market spreads, and reported no other-than-temporary impairment. Other comprehensive loss was $7.4 million in 2018.
- Auditors gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. Ordinary-course litigation was not expected by management to materially affect financial condition or results.
Important facts for investors to verify
- Whether loan growth, credit quality, the allowance, and real-estate collateral values remain consistent as the portfolio expands.
- The realized impact of the interchange-fee cap and increased deposit-insurance assessments on earnings.
- Acquisition integration, ongoing costs, and the terms, approval status, and completion of the proposed FNB transaction.
- Deposit pricing, funding mix, liquidity capacity, and capital ratios as rates and balance-sheet size change.
- The eventual CECL adoption impact and any resulting effects on retained earnings, the allowance, and regulatory capital.