Glacier Bancorp, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Glacier Bancorp is a Montana-based bank holding company operating through Glacier Bank across eight western states.
Financial performance and position
| Metric | Q3 2023 / September 30, 2023 | Comparable period / change |
|---|---|---|
| Net income | $52.4 million | Down 34% from Q3 2022; nine-month net income was $168.6 million, down 25% |
| Diluted EPS | $0.47 | $0.72 in Q3 2022; nine-month EPS was $1.52 versus $2.02 |
| Net interest income | $167.1 million | Down 19% year over year; nine-month total of $525.2 million was down 10% |
| Tax-equivalent net interest margin | 2.58% | 3.34% in Q3 2022 and 2.74% in Q2 2023; nine-month margin was 2.79% versus 3.26% |
| Loans | $16.14 billion gross; $15.94 billion net | Gross loans up 9% year over year and 6% from year-end 2022 |
| Deposits | $20.40 billion | Down $211 million from year-end 2022; non-interest-bearing deposits were 32% of core deposits versus 37% at year-end |
| Cash and cash equivalents | $1.67 billion | Up $1.27 billion from year-end 2022 |
| Borrowings | $2.74 billion FRB Bank Term Funding Program (BTFP); $1.50 billion repurchase agreements; no FHLB advances outstanding | BTFP borrowing replaced $1.8 billion of FHLB advances during 2023 |
| Credit quality | $192.3 million loan allowance, or 1.19% of loans; $42.3 million non-performing assets | Non-performing assets up 32% from Q2; net charge-offs were $2.2 million in Q3 |
| Equity and capital | $2.87 billion stockholders’ equity; tangible book value $16.73 per share | Bank regulatory ratios: total capital 13.82%, Tier 1 12.78%, CET1 12.78%, leverage 8.79% |
Nine-month cash flow from operations was $349.5 million, investing activities used $282.9 million, and financing activities provided $1.20 billion. The company declared a quarterly dividend of $0.33 per share.
Material changes versus prior periods
- Funding costs rose sharply and outpaced asset-yield improvement. Q3 interest expense increased to $97.9 million from $9.1 million a year earlier; total funding cost, including non-interest-bearing deposits, rose to 1.58% from 0.15%.
- Loan yields increased to 5.27% in Q3 from 4.67% a year earlier, but the increase was insufficient to offset higher deposit and borrowing costs. The efficiency ratio rose to 63.31% from 52.76%.
- Deposits shifted toward higher-cost certificates: certificate balances were $2.74 billion, compared with $881 million at year-end 2022. During Q3, core deposits and retail repurchase agreements increased, while $411 million of higher-cost wholesale deposits matured.
- Debt securities totaled $8.30 billion, down 13% year over year. Gross unrealized losses were $669.0 million on available-for-sale securities and $515.4 million on held-to-maturity securities. Management attributed the losses primarily to interest rates and market spreads, not credit deterioration, and recorded no securities credit-loss allowance.
- Accumulated other comprehensive loss was $500.4 million at quarter-end; Q3 other comprehensive loss was $69.6 million, largely reflecting securities valuation changes.
- Non-interest income declined 5% for the nine-month period, primarily because residential loan-sale gains fell 44% amid lower mortgage purchase and refinance activity. FDIC assessments and insurance expense rose 72% for the period.
Outlook, commentary and risks
- Management said liquidity remained strong, supported by cash, core deposit relationships, securities, and borrowing facilities. At September 30, available capacity included $4.33 billion from FHLB, $1.37 billion at the FRB discount window, $836 million remaining under BTFP, and $745 million in unsecured lines. Unencumbered securities totaled $1.98 billion.
- The company announced an agreement to acquire Community Financial Group, parent of Wheatland Bank, with $763 million of assets, $491 million of loans and $609 million of deposits at September 30. Closing was expected in Q4 2023, subject to approvals and customary conditions.
- No specific earnings or margin guidance was provided. Management cautioned that loan growth, credit quality, economic forecasts and market conditions will affect future credit-loss provisions and results.
- Interest-rate sensitivity modeling estimated that a 100-basis-point rate increase would reduce net interest income by 6.94% over one year and 5.76% over two years; a 200-basis-point shock would reduce it by 13.39% and 11.04%, respectively. These scenarios are not forecasts and depend on assumptions about rates, deposits, prepayments and customer behavior.
- Key risks include funding-cost pressure, deposit mix and retention, interest-rate exposure, potential deterioration in commercial real estate and other loan credit quality, economic and geopolitical uncertainty, regulatory changes, cybersecurity, and possible goodwill impairment. The annual Q3 goodwill test found no impairment. Management said pending ordinary-course litigation was not expected to materially affect the company.
Important facts for investors to verify
- Whether deposit costs and reliance on wholesale or secured funding continue to rise, and how the BTFP and repurchase-agreement funding evolve.
- Whether net interest margin stabilizes or continues to contract as asset yields reprice and deposits migrate to higher-cost products.
- Trends in non-performing assets, especially the Q3 increase, commercial real estate exposures, modifications to financially stressed borrowers, and allowance adequacy.
- The size and duration of securities unrealized losses, liquidity available without selling securities, and sensitivity of tangible equity to further rate changes.
- Regulatory and shareholder approvals, closing timing, integration costs and expected financial effects of the Wheatland Bank acquisition.
- Whether the $0.33 quarterly dividend remains supported by earnings, capital, asset quality and regulatory considerations.