Glacier Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period
Glacier Bancorp is a community banking holding company headquartered in Kalispell, Montana, serving customers through Glacier Bank across Montana, Idaho, Wyoming, Colorado, Utah, and Washington. This unaudited report covers the quarter and nine months ended September 30, 2015; balance-sheet comparisons are primarily with December 31, 2014.
The company completed its acquisition of Montana Community Banks in February 2015. On October 31, 2015, after quarter-end, it acquired Cañon Bank Corporation for approximately $31.3 million in cash and stock; purchase accounting was incomplete at filing.
Key financial metrics
| Metric | Q3 2015 | Nine months 2015 |
|---|---|---|
| Total revenue (net interest income plus non-interest income) | $98.9 million | $288.7 million |
| Net interest income | $73.1 million | $214.4 million |
| Provision for loan losses | $0.8 million | $1.9 million |
| Net income | $29.6 million | $86.6 million |
| Diluted earnings per share | $0.39 | $1.15 |
| Tax-equivalent net interest margin | 3.96% | 3.99% |
| Return on average assets | 1.36% | 1.37% |
| Return on average equity | 10.93% | 10.90% |
At September 30, total assets were $8.76 billion, net loans $4.75 billion, investment securities $3.18 billion, deposits $6.67 billion, and stockholders’ equity $1.07 billion. Cash and cash equivalents were $242.8 million. The allowance for loan and lease losses was $130.8 million, or 2.68% of loans.
For the first nine months, operating cash flow was $133.8 million, investing cash flow was negative $536.5 million, and financing cash flow was positive $203.1 million. Cash and cash equivalents declined $199.6 million from year-end to $242.8 million, largely alongside investment-security purchases and other investing activity.
Interest-bearing and other borrowings included $441.0 million of repurchase agreements, $329.3 million of FHLB advances, $6.6 million of other borrowed funds, and $125.8 million of subordinated debentures. The company reported available liquidity sources including $1.04 billion of unused FHLB capacity, $852.5 million of FRB discount-window capacity, $255 million in unsecured lines, and $1.58 billion of unencumbered investment securities. Glacier Bank’s reported regulatory capital ratios were 17.18% total capital, 15.92% Tier 1 and common equity Tier 1, and 11.93% leverage.
Material changes versus comparable periods
- Q3 net income rose 1% from Q3 2014, while diluted EPS declined from $0.40 to $0.39. Nine-month net income increased 2% and diluted EPS rose from $1.14 to $1.15 year over year.
- Q3 net interest income increased $3.8 million year over year, principally from commercial-loan growth. Nine-month net interest income increased 5%; the tax-equivalent margin was 3.99%, down 1 basis point from the prior-year period.
- Nine-month non-interest income increased 12%, including a 42% rise in gains on residential-loan sales. Non-interest expense increased 11%, reflecting acquisition-related staffing and operating costs, among other factors. The nine-month efficiency ratio increased to 55.01% from 54.03%.
- Loans receivable grew $388.3 million from year-end, including the acquired portfolio; management reported $304 million of growth excluding the Montana Community Banks acquisition. Deposits increased $328.0 million from year-end, with non-interest-bearing deposits rising $261.3 million.
- Non-performing assets were $85.0 million, down $13.1 million from September 2014 but slightly higher than June 2015. The allowance was 224% of non-performing loans. Accruing loans 30–89 days past due declined to $17.8 million from $28.5 million at June 30.
Outlook, commentary, risks and unusual items
- No specific earnings, revenue, or margin guidance is provided. Management described economic indicators across its markets as generally improving but remained cautiously optimistic and said it would continue monitoring local economies and loan quality.
- Management cited commercial-loan growth as a key contributor to higher interest income. The margin was pressured by interest-rate-swap expense and lower accretion of acquired-loan fair-value discounts. Q3 included $259,000 of one-time acquisition and conversion expense.
- Credit risks include borrower deterioration, local economic weakness, real-estate collateral values, and concentrations in construction and land-related lending. Land, lot, and other construction loans represented $38.6 million, or 45%, of non-performing assets. Management cautioned that allowance estimates involve significant judgment and that future provisions could increase.
- Interest-rate changes may affect net interest income and securities values. Gross unrealized losses on investment securities were $16.7 million at quarter-end; management attributed them primarily to rate and market-spread movements, reported no other-than-temporary impairment, and said it did not expect to sell the affected securities before recovery.
- Other risks include acquisition integration and purchase accounting, goodwill impairment, regulatory changes, competition, cybersecurity or systems disruption, and dependence on key personnel. Management reported no material change in previously disclosed risk factors and no material change in market-risk disclosures.
- The third-quarter goodwill impairment test found no impairment. Management said pending ordinary-course litigation was not expected to materially affect financial condition, results, or liquidity. Disclosure controls were assessed as effective, with no material third-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether loan and deposit growth persists after separating organic growth from acquisitions, and how the Cañon acquisition affects results and capital once purchase accounting is completed.
- Commercial and construction-related credit trends, including non-performing assets, delinquencies, charge-offs, and the adequacy of the allowance.
- Net interest margin sensitivity to interest rates, funding costs, wholesale deposits, and interest-rate swaps.
- Cash-flow and liquidity trends, including the use of securities purchases, borrowings, and available funding capacity.
- Whether operating expenses, acquisition integration costs, and efficiency ratios improve, and whether mortgage-sale gains remain a meaningful contributor.
- The effect of unrealized securities and derivative losses on accumulated other comprehensive income, capital, and future earnings.