Glacier Bancorp, Inc. — Q1 2012 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2012, with balance-sheet comparisons to December 31, 2011 and year-over-year operating comparisons to Q1 2011. Glacier Bancorp is a regional bank holding company serving customers in six western states. On April 30, 2012, it combined its 11 bank subsidiaries into one commercial bank, with the former banks continuing as divisions under their existing names and management teams.
Financial results and condition
| Metric | Q1 2012 / March 31, 2012 | Comparable period or change |
|---|---|---|
| Total revenue (net interest income plus non-interest income) | $78.6 million | Up 6% from Q1 2011 |
| Net interest income | $58.3 million | Up 3% year over year |
| Net interest margin, tax-equivalent | 3.73% | 3.91% in Q1 2011; 3.74% in Q4 2011 |
| Net income / diluted EPS | $16.3 million / $0.23 | $10.3 million / $0.14 in Q1 2011 |
| Provision for loan losses | $8.6 million | $19.5 million in Q1 2011 |
| Non-interest expense | $49.0 million | Up 15% year over year |
| Operating cash flow | $95.5 million | $226.9 million in Q1 2011 |
| Total assets / stockholders’ equity | $7.24 billion / $864.0 million | Assets up $53.9 million from year-end |
| Loans, gross / allowance | $3.43 billion / $136.6 million | Loans down 1% from year-end and 6% year over year |
| Deposits / cash and cash equivalents | $4.93 billion / $131.8 million | Deposits up $106.6 million from year-end |
| Borrowings | FHLB advances $995.0 million; repurchase agreements $259.3 million; subordinated debentures $125.3 million | FHLB advances declined $74.0 million from year-end |
| Capital and returns | Equity/assets 11.93%; tangible equity/tangible assets 10.52%; annualized ROA 0.91%; annualized ROE 7.58% | Quarterly dividend declared: $0.13 per share |
Net income increased 59% year over year, with the lower loan-loss provision a significant contributor. Lower deposit funding costs also supported net interest income: the reported funding cost was 0.72%, versus 0.96% in Q1 2011. The company reported a 51% efficiency ratio. Cash and cash equivalents were $131.8 million at quarter-end.
Material changes versus comparable periods
- Available-for-sale securities increased $112.3 million from year-end to $3.24 billion, or 45% of total assets. Management said purchases helped offset weak loan growth and sustain interest income.
- Loan balances continued to contract amid weak demand. Land, lot and other construction loans fell 28% year over year to $361.1 million; management said the pace of overall loan decline had slowed.
- Non-interest income rose 17% year over year to $20.3 million, including a 45% increase in gains on loan sales, which management attributed to refinance activity.
- OREO expense was $6.8 million, up $4.7 million year over year; it included $5.4 million of fair-value write-downs. Total non-interest expense rose despite lower FDIC premiums and lower other real estate expense than in Q4 2011.
- Other comprehensive income was $8.0 million, mainly reflecting after-tax unrealized gains on available-for-sale securities and a positive change in the fair value of cash-flow hedges. The company reported no other-than-temporary impairment on its reviewed securities.
Outlook, risks and unusual items
- No numerical earnings, loan-growth or margin guidance is provided. Management described economic conditions as soft and loan demand as limited, while noting the slower pace of loan contraction.
- Credit remains a central risk. Non-performing assets were $214.6 million, or 2.91% of subsidiary assets, versus $267.6 million a year earlier. Non-accrual loans were $131.0 million; non-performing loans were 4.09% of total loans, and the allowance equaled 97% of non-performing loans.
- Real estate and construction exposure is material: construction loans represented 13% of total loans and 48% of non-accrual loans. Commercial real estate and land-related collateral, continued property-market weakness, and potentially lower collateral values could require further provisions or write-downs.
- OREO was $74.3 million. Management cautioned that additional write-downs may occur. Troubled debt restructurings totaled $155 million, including $65.4 million on non-accrual status.
- Margin pressure includes lower asset yields and elevated collateralized mortgage obligation premium amortization, which reduced Q1 net interest margin by 76 basis points, compared with 63 basis points a year earlier. Interest-rate changes and the large securities portfolio create additional market and reinvestment risks.
- Liquidity sources included $110.5 million of unused FHLB capacity, $231.6 million of Federal Reserve discount-window capacity, $183.9 million of unsecured lines and $2.07 billion of unencumbered securities. The company also reported wholesale deposits of $649 million, including reciprocal deposits.
- A $160 million interest-rate swap hedge had a $5.8 million liability fair value at quarter-end; $15.4 million of securities were pledged as collateral, and additional collateral could be required.
- Management identified risks from economic and real-estate conditions, credit losses, interest rates, regulation, deposit and funding availability, competition, goodwill impairment and the ability to maintain dividends. Future dividends remain subject to earnings, capital and regulatory considerations.
Important facts for investors to verify
- Whether loan quality improves or deteriorates, particularly non-accrual construction and commercial real estate exposures, impaired loans, TDRs and OREO.
- Whether the allowance remains adequate as charge-offs, delinquency trends, collateral valuations and local economic conditions evolve.
- Whether securities growth and mortgage-related premium amortization continue to pressure asset yields and net interest margin.
- How funding costs and wholesale-deposit reliance change, and whether the stated liquidity capacity remains available on acceptable terms.
- Whether the April 30 bank consolidation produces expected operating benefits without disrupting service, controls or credit oversight, and whether future dividends remain supportable.
The filing states that disclosure controls were effective, reports no material change in internal control over financial reporting, and identifies no pending material legal proceedings.