GLACIER BANCORP, INC. quarterly report, Q3 FY2010

全文

Glacier Bancorp, Inc. — Q3 2010 Form 10-Q

Reporting period: Three and nine months ended September 30, 2010. Glacier is a regional bank holding company operating eleven community banks across Montana, Idaho, Wyoming, Colorado, Utah, and Washington. Unless noted otherwise, financial amounts below are in millions of dollars.

Financial performance and condition

  • Third-quarter results: Net earnings were $9.4 million, or $0.13 per diluted share, versus a $1.5 million loss, or $0.03 loss per share, in Q3 2009. Annualized return on average assets was 0.60%; return on average equity was 4.37%.
  • Nine-month results: Net earnings were $32.7 million, or $0.48 per diluted share, compared with $24.9 million, or $0.40 per diluted share, in 2009.
  • Revenue and margin: Q3 net interest income was $58.5 million, down 3% from both the prior quarter and Q3 2009. Noninterest income was $24.0 million, up 11% year over year; combined net interest and noninterest income was $82.5 million. Tax-equivalent net interest margin was 4.19%, versus 4.80% a year earlier. For the first nine months, net interest income fell 2% to $178.1 million and tax-equivalent margin fell to 4.32% from 4.87%.
  • Expenses and credit costs: Q3 noninterest expense rose 24% year over year to $52.0 million, principally reflecting other-real-estate-owned (OREO) expense. Q3 loan-loss provision was $19.2 million, down from $47.1 million in Q3 2009. Nine-month provision was $57.3 million versus $87.9 million; net charge-offs increased to $66.0 million from $39.3 million.
  • Balance sheet: Total assets were $6.27 billion, up $81 million from year-end 2009. Gross loans were $3.98 billion, down $146 million from year-end; available-for-sale securities were $1.83 billion. Deposits totaled $4.42 billion. Cash and cash equivalents were $115.5 million, down from $210.6 million at year-end.
  • Credit quality: Nonperforming assets were $261.5 million, or 4.03% of subsidiary assets, compared with $243.0 million and 4.10% a year earlier. The allowance for loan and lease losses was $134.3 million, 3.37% of loans and 51% of nonperforming assets. Impaired loans totaled $232.4 million; troubled debt restructurings totaled $71.3 million.
  • Capital and funding: Stockholders’ equity was $853.7 million; the equity-to-assets ratio was 13.61%, and book value per share was $11.87. The company reported regulatory capital ratios of 17.92% Tier 1, 19.19% total capital, and 13.23% leverage, above stated “well-capitalized” thresholds. FHLB advances were $579.2 million; there were no FRB discount-window borrowings at quarter-end. The company reported $1.091 billion of available FHLB capacity, of which $579 million was used.
  • Cash flow: Nine-month operating cash flow was $98.8 million; investing cash outflow was $221.9 million and financing cash inflow was $28.0 million, resulting in a $95.1 million decrease in cash and cash equivalents.

Material changes versus comparable periods

  • Q3 returned to profitability from the prior-year quarterly loss. Lower loan-loss provision was a major contributor; Q3 earnings also included $2.0 million of investment-sale gains, which management said added about $0.02 per share.
  • Despite lower provision, credit costs remained significant: nine-month net charge-offs rose year over year, and OREO expense increased to $19.3 million for the nine months from $5.7 million. Q3 OREO expense of $9.7 million included $6.4 million of fair-value write-downs and $2.1 million of sale losses.
  • Net interest margin weakened amid low rates, lower loan yields and balances, and a larger allocation to lower-yielding securities. Management reported an efficiency ratio of 50% for Q3, versus 47% in Q3 2009, and 50% for nine months, versus 46%; the company revised its calculation to align with an industry methodology.
  • Deposits increased and borrowings declined. Compared with December 2009, FHLB advances fell $211 million and FRB discount-window borrowing fell $225 million to zero. Securities and deposits grew while gross loans contracted.
  • Equity increased by $168 million from year-end, substantially reflecting the March public offering that raised approximately $146 million net and issued 10.29 million shares. First National, acquired in October 2009, also affects year-over-year comparisons.

Outlook, commentary, and risks

  • The filing gives no specific earnings or financial guidance. Management cautions that interim results are not necessarily indicative of full-year results. It described economic conditions as soft but stabilized during the first nine months of 2010, and said it was actively disposing of problem assets and OREO.
  • Management considered the loan-loss allowance adequate but emphasized that estimates are judgmental and future deterioration could require additional provisions. Key exposures include real-estate-dependent collateral, commercial real estate and construction/development lending, borrower defaults, foreclosures, and falling property values.
  • Other material risks include persistent low interest rates and margin pressure, funding availability and cost, potential further FDIC premium increases, regulatory changes, investment valuation and impairment, acquisition integration, and possible goodwill impairment.
  • The company declared a quarterly dividend of $0.13 per share. It cautioned that future dividends depend on earnings, capital, asset quality, economic conditions, and regulatory requirements; the Federal Reserve requires prior written notice and review before declaration or payment.
  • At September 30, 2010, investment securities had $12.0 million of unrealized losses, including $5.1 million on collateralized debt obligations. Management concluded the impaired securities were temporarily impaired and reported no other-than-temporary impairment. This conclusion depends on estimates and assumptions about credit performance and cash flows.
  • Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no pending material legal proceedings and no material anticipated losses from lending commitments.

Important facts for investors to verify

  • Whether nonperforming assets, OREO balances and write-downs, and net charge-offs continue to improve, and whether the allowance remains adequate.
  • How margin pressure, loan demand, deposit mix, and the shift toward securities affect recurring earnings and liquidity.
  • The performance and valuation assumptions for impaired securities, especially the CDO portfolio and securities with prolonged unrealized losses.
  • The sustainability of dividends given earnings, capital needs, and Federal Reserve review requirements.
  • The effects of the 2010 equity offering, First National acquisition, and revised efficiency-ratio methodology on comparisons and per-share performance.