Glacier Bancorp, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Unaudited consolidated results. Glacier Bancorp provides banking services across six western states. Dollar amounts below are in millions unless noted.
Financial results and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net interest income | $71.2 | $67.4 | $141.4 | $134.9 |
| Provision for loan losses | $0.3 | $0.2 | $1.0 | $1.4 |
| Non-interest income | $25.8 | $22.5 | $48.5 | $41.9 |
| Non-interest expense | $59.9 | $52.7 | $115.4 | $102.7 |
| Net income | $29.3 | $28.7 | $57.0 | $55.4 |
| Diluted EPS | $0.39 | $0.38 | $0.76 | $0.74 |
| Tax-equivalent net interest margin | 3.98% | 3.99% | 4.00% | 4.01% |
- Q2 return on average assets was 1.39%; return on average equity was 11.05%. The six-month figures were 1.37% and 10.89%, respectively. The efficiency ratio was 55.91% for Q2 and 55.36% for the first half.
- At June 30, total assets were $8.59 billion, up $283.3 million from year-end 2014. Gross loans were $4.81 billion, up $319.3 million; deposits were $6.56 billion, up $213.4 million. Stockholders’ equity was $1.06 billion.
- Cash and cash equivalents were $355.7 million, down $86.7 million from year-end. Six-month operating cash flow was $76.9 million; investing activities used $234.3 million, including $244.5 million net loan originations and $19.7 million net cash received in acquisitions. Financing activities provided $70.7 million.
- Borrowings included $408.9 million of repurchase agreements, $329.5 million of FHLB advances, $6.7 million of other borrowed funds, and $125.8 million of subordinated debentures. The filing reports $973.9 million of unused FHLB capacity, $841.9 million of FRB discount-window capacity, $255 million of unsecured lines, and $1.36 billion of unencumbered securities.
- Glacier Bank’s regulatory capital ratios were 17.56% total capital, 16.30% Tier 1 and Common Equity Tier 1, and 12.12% leverage. Management stated the Company would meet fully phased-in Basel III capital requirements.
Material changes versus comparable periods
- First-half net income rose 3% and diluted EPS increased from $0.74 to $0.76. Net interest income grew 5%, principally from commercial loan growth; non-interest income rose 16%, led by a 56% increase in gains on residential loan sales.
- First-half non-interest expense increased 12%, reflecting acquired-bank staffing and operating costs, OREO expense, and conversion-related costs. The efficiency ratio increased from 54.11% to 55.36%.
- Commercial lending drove portfolio expansion. Excluding the CB and FNBR acquisitions, loans grew $382 million, or 9%, year over year, according to management. Investment securities declined 5% during Q2 as repayments were redeployed toward loans.
- Non-performing assets fell to $84.2 million from $89.9 million at year-end and $102.5 million a year earlier. Non-accrual loans were $56.9 million; OREO was $26.7 million. The allowance was $130.5 million, 2.71% of loans versus 2.89% at year-end.
- Accumulated other comprehensive income declined to $5.4 million from $17.7 million at year-end, largely reflecting unrealized losses on available-for-sale securities. Management attributed securities losses primarily to interest-rate changes and market spreads and reported no other-than-temporary impairment.
Outlook, commentary, risks and unusual items
- The filing provides no quantified earnings or financial guidance. Management described the regional recovery as improving but remained cautiously optimistic and said it would continue monitoring economic conditions and credit quality.
- Q2 included approximately $1.4 million of one-time expenses, including conversion-related costs. The February acquisition of Montana Community Banks (CB) was completed for $23.0 million in cash and stock; CB contributed approximately $3.0 million of net interest and non-interest income and a $0.2 million net loss from acquisition through June 30. Acquisition/conversion costs included $1.4 million of third-party costs during the first half.
- On July 30, 2015, the Company announced an agreement to acquire Cañon National Bank, with closing anticipated in Q4 2015. At June 30, the target reported $253 million of assets, $159 million of gross loans and $225 million of deposits.
- Key disclosed risks include borrower and real-estate credit deterioration, interest-rate changes affecting net interest income, acquisition integration and goodwill impairment, competition, regulatory changes, cybersecurity or systems interruption, and dependence on key executives. Management said pending litigation was not expected to materially affect financial condition, results or liquidity. It reported no material change in previously disclosed risk factors.
- Management reported effective disclosure controls and no material second-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether loan growth, mortgage-sale gains and acquisition synergies can offset higher operating costs and the lower net interest margin.
- Trends in non-performing assets, construction and land-related exposures, early-stage delinquencies, and allowance adequacy as the loan portfolio expands.
- Liquidity and funding mix, including deposit growth, wholesale deposits, repurchase agreements, and the cost and maturity profile of FHLB advances.
- Interest-rate and securities valuation exposure, including the effect of unrealized losses and cash-flow hedges on earnings and equity.
- Integration and expected economics of CB and FNBR, and the announced Cañon National Bank transaction, including its closing conditions and costs.