Glacier Bancorp, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. Unaudited results; dollar amounts below are in millions unless noted.
Business context
Glacier Bancorp provides community banking across six Rocky Mountain and Northwest states through Glacier Bank’s divisions. Results include Wheatland Bankshares from May 31 and North Cascades Bancshares from July 31, 2013; prior-year comparisons do not include these acquired operations.
Financial performance and condition
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net interest income | $62.3 | $53.1 | $167.8 | $166.5 |
| Non-interest income | $23.9 | $24.0 | $70.0 | $66.1 |
| Net income | $25.6 | $19.4 | $69.1 | $54.8 |
| Diluted EPS | $0.35 | $0.27 | $0.95 | $0.76 |
| Tax-equivalent net interest margin | 3.56% | 3.24% | 3.34% | 3.48% |
Q3 return on average assets was 1.27% and return on average equity was 10.85%; the efficiency ratio was 54%, compared with 55% a year earlier. Nine-month efficiency ratio was 55% versus 53%. Nine-month income-tax expense was $21.4 million and the effective tax rate was 23.6%, up from 19.5%.
At September 30, total assets were $8.05 billion, up $300 million from year-end 2012. Loans were $4.00 billion, up $604 million, while available-for-sale securities were $3.32 billion, down $364 million. Cash and equivalents were $254.7 million. Deposits totaled $5.61 billion; FHLB advances were $967.4 million, repurchase agreements $314.3 million, and subordinated debentures $125.5 million. Stockholders’ equity was $947.8 million.
Nine-month cash flows were $272.6 million provided by operating activities, $126.6 million provided by investing activities, and $331.6 million used in financing activities. Cash and equivalents increased $67.6 million to $254.7 million. Available liquidity included $489.3 million of unused FHLB capacity, $620.1 million of Federal Reserve discount-window capacity, $155 million of unsecured lines, and $1.80 billion of unencumbered securities. The company and bank were reported well capitalized; consolidated regulatory Tier 1 and total capital ratios were 17.56% and 18.83%.
Material changes and notable items
- Net income rose 32% year over year in Q3 and 26% for the first nine months. Lower funding costs helped; Q3 interest expense fell 19% year over year. Q3 margin improved sequentially as securities premium amortization declined and earning assets shifted toward higher-yielding loans. Nine-month margin nevertheless declined 14 basis points year over year.
- Management reported $111.7 million of organic loan growth in Q3, excluding acquired loans. Total loan growth also reflects the two acquisitions, which added approximately $387 million of acquired loans and $23.6 million of goodwill. Acquisition-related costs were about $1.1 million for the nine months.
- Non-performing assets were $125.0 million, down 29% year over year; non-accrual loans were $88.3 million and OREO was $36.5 million. Early-stage delinquencies of $26.4 million rose 20% from the prior quarter. Land, lot and other construction accounted for $55.3 million, or 44%, of non-performing assets.
- The allowance for loan and lease losses was $130.8 million, 3.27% of loans and 148% of non-performing loans. Nine-month provision was $5.1 million versus $19.3 million a year earlier; net charge-offs were $5.2 million versus $20.1 million.
- Unrealized available-for-sale securities losses contributed to a $38.0 million decline in accumulated other comprehensive income from year-end; AOCI was $10.0 million at quarter-end. Management said it did not intend, and was not expected to be required, to sell temporarily impaired securities and identified no other-than-temporary impairment.
- Q3 declared dividends of $0.15 per share. Goodwill passed the company’s third-quarter impairment test.
Outlook, commentary and risks
The filing provides no quantitative earnings or revenue guidance. Management cited improving housing and credit trends in its markets, while noting that economic conditions remain uncertain. It expects OREO expense to fluctuate as it works through troubled loans and foreclosed properties. Mortgage refinancing slowed as rates rose, reducing loan-sale gains.
Key risks include credit deterioration and collateral values—particularly in real estate and construction lending—interest-rate changes affecting net interest income and securities values, acquisition integration and potential goodwill impairment, competition, regulatory changes, and operational or cybersecurity disruptions. Management said ordinary-course litigation was not expected to materially affect the company and did not anticipate material losses from off-balance-sheet commitments. It also reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether post-acquisition loan growth and earnings are sustainable, and how integration costs and acquired-credit performance develop.
- Credit trends in construction and commercial real estate, including early-stage delinquencies, non-performing assets, TDRs and collateral valuations.
- Whether lower securities premium amortization continues to support margin, and the sensitivity of securities fair values and AOCI to interest-rate changes.
- Deposit composition and funding needs, including wholesale deposits, repurchase agreements and FHLB borrowing, alongside available liquidity.
- Dividend sustainability, capital ratios and any changes in regulatory or economic conditions that could affect them.