Glacier Bancorp, Inc. — 2010 Form 10-K
Business context and reporting period
Annual report for the fiscal year ended December 31, 2010; selected fourth-quarter results are also disclosed. Glacier Bancorp is a regional bank holding company operating 11 community banks across six states, with 105 locations. It provides commercial, consumer, agricultural and real estate banking services.
Financial performance and condition
| Metric | 2010 | 2009 |
|---|---|---|
| Total revenue (net interest income plus non-interest income) | $322.3 million | $331.8 million |
| Net interest income | $234.8 million | $245.3 million |
| Net earnings | $42.3 million | $34.4 million |
| Diluted earnings per share | $0.61 | $0.56 |
| Tax-equivalent net interest margin | 4.21% | 4.82% |
| Total assets at year-end | $6.759 billion | $6.192 billion |
| Deposits at year-end | $4.522 billion | $4.100 billion |
| Stockholders’ equity at year-end | $838.2 million | $685.9 million |
- Net earnings rose 23%, mainly because loan-loss provision expense fell by $39.9 million. Net interest income declined 4%, and total revenue fell 3%.
- Non-interest expense increased 11% to $187.9 million. Other real estate owned (OREO) expense increased $13.1 million to $22.2 million, including $10.4 million in write-downs and $6.7 million in losses on sales.
- Gross loans fell 7% to $3.826 billion; available-for-sale investment securities rose to $2.461 billion. The company cited weaker loan demand, charge-offs and foreclosures, and purchased securities as loans declined.
- Cash and cash equivalents were $104.9 million at year-end, down from $210.6 million. Operating cash flow was $193.9 million; investing activities used $822.7 million and financing activities provided $523.1 million. Net cash declined $105.7 million.
- Year-end borrowings included $965.1 million of FHLB advances, $249.4 million of repurchase agreements and $125.1 million of subordinated debentures; there were no FRB discount-window borrowings. The company reported $137.8 million of unused FHLB capacity, $359.6 million of FRB capacity, $161.8 million in unsecured lines and $1.455 billion in unencumbered securities.
- Consolidated regulatory capital ratios were 18.24% Tier 1 risk-based, 19.51% total risk-based and 12.71% leverage. Each bank subsidiary was reported as well capitalized.
- The company paid $0.52 per share in annual dividends. The March 2010 stock offering generated $145.5 million net proceeds. The annual dividend payout ratio was 85.25%.
- In the fourth quarter, net earnings were $9.6 million and diluted EPS was $0.13; provision for loan losses was $27.4 million.
Material changes versus the prior comparable period
- Net interest margin compressed by 61 basis points, reflecting lower loan yields and volumes and a larger mix of lower-yielding securities. Average earning-asset yield fell to 4.92% from 5.72%; interest-bearing liability cost declined to 1.16% from 1.36%.
- Provision for loan losses declined 32% to $84.7 million, but net charge-offs increased 55% to $90.5 million. The allowance declined to $137.1 million from $142.9 million.
- Non-performing assets increased to $270.5 million from $261.1 million, although the ratio to subsidiary assets improved to 3.91% from 4.13%. Early-stage delinquencies fell to $45.5 million from $87.5 million.
- Deposits increased 10% and equity increased 22%. Investment securities grew substantially as the loan portfolio contracted.
- One-time items affected comparisons: 2010 included $2.0 million pre-tax gain on sale of merchant-card servicing portfolios; 2009 included a $3.5 million bargain-purchase gain and a $2.5 million FDIC special assessment.
Outlook, risks and contingencies
No quantified earnings or growth guidance is provided. Management said future performance will depend on local economic conditions, interest rates, competition for deposits and loans, loan quality and regulatory costs. It aims to maintain or increase net interest income while controlling interest-rate risk.
- Credit risk remains significant: real estate secured 85% of gross loans, and commercial real estate and other commercial loans represented about 68%. Construction loans were 17% of the portfolio and 61% of non-accrual loans.
- OREO stood at $73.5 million, up from $57.3 million. Impaired loans were $225.1 million; troubled debt restructurings were $68.7 million, including $42.0 million on non-accrual status. Management’s collateral assessments and allowance estimates are judgmental, and further losses or write-downs remain possible.
- Interest-rate sensitivity modeling estimated a 4.5% decrease in net interest income under a 200-basis-point rate increase and a 2.1% decrease under a 100-basis-point decline; these are scenarios, not forecasts.
- Dividend continuation is not assured and is subject to earnings, regulatory oversight and subsidiary dividend capacity. The Federal Reserve generally expects dividends per share not to exceed recent earnings per share.
- Other identified risks include economic weakness, funding costs and availability, securities valuation, goodwill impairment, acquisitions and integration, and evolving banking regulation. Management stated pending ordinary-course litigation was not expected to have a material effect.
- The company reported unqualified audit opinions on its financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether credit quality continues to improve: non-accruals, construction and commercial real estate exposures, OREO dispositions, charge-offs and allowance adequacy.
- Whether net interest margin stabilizes and securities growth can offset weak loan demand without adding material market or credit risk.
- Funding composition and liquidity, particularly wholesale deposits, near-term FHLB maturities and access to borrowing capacity.
- Whether earnings support the $0.52 annual dividend given the high payout ratio and regulatory constraints.
- The quality and assumptions behind collateral valuations, securities fair values and management’s allowance estimates.