Glacier Bancorp, Inc. — FY2015 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2015, with comparisons to 2014. Glacier Bancorp is a regional bank holding company operating through Glacier Bank, with 144 locations across Montana, Idaho, Wyoming, Colorado, Utah and Washington. It completed acquisitions of Montana Community Banks in February and Cañon Bank in October 2015; acquired operations are included from their respective closing dates.
Financial results and condition
| Metric | FY2015 / Dec. 31, 2015 | Comparison |
|---|---|---|
| Total assets | $9.089 billion | Up 9% year over year |
| Loans receivable, net | $4.949 billion | Up 14%; gross loans up 13% |
| Investment securities | $3.313 billion | Up 14%; 36% of assets |
| Deposits | $6.945 billion | Up 9%; non-interest-bearing deposits up 18% |
| Net interest income | $290.4 million | Up 6% |
| Net interest margin, tax-equivalent | 4.00% | Up 2 basis points |
| Non-interest income | $98.8 million | Up 9% |
| Net income | $116.1 million | Up 3%; record annual earnings |
| Diluted earnings per share | $1.54 | Up from $1.51 |
| Operating cash flow | $171.5 million | Down from $182.7 million |
| Stockholders’ equity | $1.077 billion | Up 5%; 11.85% of assets versus 12.38% |
Total revenue, defined here as net interest income plus non-interest income, was $389.2 million, up 7%. Income before taxes was $150.1 million. The effective tax rate was 22.6%, versus 24.2% in 2014. No separate consolidated net income margin is stated in the filing.
Loan growth excluding the 2015 acquisitions was $346 million, or 8%, led by commercial loans. Commercial loans represented 75% of gross loans; commercial real estate exposure remains significant. The allowance for loan and lease losses was $129.7 million, or 2.55% of loans versus 2.89% a year earlier. Provision expense was $2.3 million and net charge-offs were $2.3 million.
Non-performing assets declined 11% to $80.1 million, or 0.88% of subsidiary assets, from $89.9 million and 1.08%. Non-accrual loans were $51.1 million; accruing troubled debt restructurings were $63.6 million and non-accrual TDRs were $27.1 million.
At year-end, cash and cash equivalents were $193.3 million, down from $442.4 million. Investing activities used $676.6 million, reflecting securities purchases and loan funding; financing activities provided $255.9 million. Cash and cash equivalents decreased $249.2 million overall. Available liquidity included $1.10 billion of unused FHLB capacity, $946 million of FRB discount-window capacity, $255 million of unsecured lines and $1.49 billion of unencumbered securities.
Borrowings included $394.1 million of FHLB advances, $423.4 million of repurchase agreements and $125.8 million of subordinated debentures. Total liabilities were $8.013 billion. Bank regulatory capital ratios were 16.66% total capital, 15.40% Tier 1 and Common Equity Tier 1, and 11.66% Tier 1 leverage; the Bank was categorized as well capitalized. Management said it expected to meet Basel III requirements on a fully phased-in basis.
Material changes versus 2014
- Net interest income rose $17.5 million, mainly from commercial loan volume; tax-equivalent net interest margin edged up to 4.00%.
- Non-interest income increased $8.5 million, including a 33% increase in gains on residential loan sales to $26.4 million. Non-interest expense rose 11% to $236.8 million, notably from acquired-bank staffing, compensation and occupancy costs. The efficiency ratio worsened to 55.40% from 54.31%.
- Deposits and loans expanded alongside the CB and Cañon acquisitions. Cañon added $270.1 million of assets at acquisition and generated $9.8 million of goodwill; CB added $175.8 million of assets and generated $1.1 million of goodwill. Acquisition consideration included stock and cash.
- Accumulated other comprehensive income fell to $2.0 million from $17.7 million, including net-of-tax losses on available-for-sale securities and cash-flow hedges. Comprehensive income was $100.4 million, below net income of $116.1 million.
- Cash dividends declared increased to $1.05 per share, including a $0.30 special dividend, from $0.98 in 2014. No shares were repurchased in 2015.
Outlook, commentary and risks
Management provided no specific earnings, revenue or loan-growth guidance. It described the recovery in its markets as gradual but fragile and said future performance depends on regional economic conditions, interest rates, loan quality and growth, competition for deposits and loans, acquisition integration and regulatory burden. It was cautiously optimistic about the recovery and planned to continue monitoring economic conditions and credit quality.
- Credit and regional exposure: The loan book is concentrated in real estate and commercial lending. Management cited potential vulnerability to real estate weakness and noted that lower oil and gas prices could weigh on Wyoming. Loss estimates depend on collateral values and other judgmental assumptions; acquired loans carried no allowance at acquisition under fair-value accounting.
- Interest-rate and securities risk: The Federal Reserve raised its target range in December 2015. The investment portfolio increased to 36% of assets; the Company reported $22.7 million of unrealized securities losses but determined these were temporary. Interest-rate swaps had $260 million notional value and $19.5 million fair-value liability; management cautioned that hedges may not fully offset rate exposure.
- Acquisition and execution risk: Integration, acquired-asset quality, added expenses and possible future stock issuance could affect profitability and dilute shareholders. The Company began a two-year project to consolidate 13 core banking systems, with phased implementation planned for 2016, partly in preparation for future growth and Dodd-Frank stress-testing requirements.
- Other risks: The filing highlights regulatory and compliance costs, cybersecurity and service-provider disruption, competition, FDIC assessment changes, goodwill impairment, dividend restrictions and dependence on senior management. CEO Mick Blodnick planned to retire at the end of 2016; Randall Chesler was scheduled to assume the Company and Bank CEO roles on January 1, 2017.
The Company reported no material pending litigation, no identified circumstances threatening the Bank’s deposit insurance, and no goodwill impairment in 2015. The independent auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether organic loan growth and deposit funding continue, and how acquisition contributions compare with underlying growth.
- Trends in commercial real estate concentrations, construction-loan performance, non-performing assets, TDRs, charge-offs and allowance adequacy.
- Net interest margin and funding costs as rates change, including the expense and effectiveness of the $260 million interest-rate swap program.
- Whether liquidity, regulatory capital and dividend capacity remain strong after acquisition activity and the declared special dividend.
- Progress, cost and operational risk of the core-system consolidation, acquisition integration and planned CEO transition.
- Changes in unrealized securities losses and accumulated other comprehensive income, particularly as market rates and spreads move.