Glacier Bancorp, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; financial statements are unaudited. Glacier Bancorp is a Montana-based bank holding company operating through Glacier Bank’s 11 divisions across Montana, Idaho, Wyoming, Colorado, Utah and Washington. Dollar amounts below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Q1 2013 / March 31, 2013 | Comparison |
|---|---|---|
| Net income | $20.8 | Up 27% from $16.3 in Q1 2012; approximately flat versus Q4 2012 |
| Diluted EPS | $0.29 | Up from $0.23 in Q1 2012 |
| Net interest income | $50.5 | Down 13% year over year and 2% sequentially |
| Tax-equivalent net interest margin | 3.14% | Up 9 basis points sequentially; down from 3.73% a year earlier |
| Provision for loan losses | $2.1 | Down from $8.6 in Q1 2012 |
| Non-interest income / expense | $23.0 / $43.4 | Income up 13% and expense down 11% year over year |
| Return on average assets / equity | 1.11% / 9.20% | Compared with 0.91% / 7.58% in Q1 2012 |
| Total assets | $7,609 | Down $138 from December 31, 2012; up $367 year over year |
| Loans receivable, gross | $3,404 | Up $6 from year-end; down $29 year over year |
| Deposits | $5,373 | Up $9 from year-end; deposits included $656 of wholesale deposits |
| Cash and cash equivalents | $129 | Down $58 from year-end |
| Stockholders’ equity | $914 | Equity/assets 12.02%; tangible equity/tangible assets 10.70% |
Q1 operating cash flow was $129.1 million. Investing activities used $25.1 million and financing activities used $162.0 million, principally reflecting a $195.0 million reduction in FHLB advances, partly offset by deposit and repurchase-agreement growth. Period-end borrowings included $802.0 million of FHLB advances, $312.5 million of repurchase agreements, and $125.5 million of subordinated debentures. The company reported regulatory capital ratios of 18.97% Tier 1, 20.24% total capital and 11.74% leverage, and stated that it and the Bank were well capitalized.
Material changes and credit quality
- Interest income declined year over year, primarily because investment-security premium amortization increased and loan interest income fell. Net interest margin improved sequentially for the first time in seven quarters, aided by lower premium amortization and higher investment-security yield.
- Loan-sale gains remained high at $9.1 million, up $2.3 million year over year. Lower OREO expense was a major contributor to lower non-interest expense: $0.9 million versus $6.8 million in Q1 2012.
- Non-performing assets fell to $135.4 million, or 1.79% of subsidiary assets, from $214.6 million, or 2.91%, a year earlier. Non-accrual loans were $90.9 million. Early-stage delinquencies (30–89 days past due) rose 19% sequentially to $32.3 million, though remained below the prior-year level.
- The allowance for loan and lease losses was $130.8 million, 3.84% of loans and 143% of non-performing loans. Net charge-offs were $2.1 million. Management identified land, lot and other construction exposures as a continuing credit concern; those loans represented 40% of non-accrual loans.
- At quarter-end, TDR loans totaled $127 million, including $47.0 million on non-accrual status. OREO declined to $44.0 million from $74.3 million a year earlier.
- Available-for-sale securities totaled $3.66 billion. Unrealized losses were $4.7 million; 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.
Outlook, commentary and risks
- The company signed agreements to acquire First State Bank of Wyoming, expected to close in Q2 2013, and North Cascades National Bank of Washington, expected to close in Q3 2013. Their reported year-end 2012 assets were $281 million and $347 million, respectively. Completion and integration remain subject to risks; the filing provides no earnings guidance.
- Management described improving regional housing and credit trends but noted continuing economic uncertainty and exposure to real estate collateral, especially construction and land-development lending. It cautioned that operating results for the quarter are not necessarily indicative of full-year results.
- Other stated risks include interest-rate changes, loan deterioration, competition, regulatory changes, acquisition execution, potential goodwill impairment, cybersecurity or system disruption, and dependence on senior management. Management said no material changes had occurred to previously disclosed risk factors or market-risk information.
- Available liquidity included $325.7 million of unused FHLB capacity, $564.5 million of Federal Reserve discount-window capacity, $171.0 million of unsecured lines, and $2.37 billion of unencumbered investment securities. Management said normal-course legal proceedings were not expected to materially affect financial condition, results or liquidity.
- The board declared a $0.14-per-share dividend payable April 18, 2013. Future dividends depend on earnings, capital, asset quality, economic conditions and regulatory considerations.
Important facts for investors to verify
- Whether net interest margin stabilizes as premium amortization and low market rates continue to affect interest income.
- Progress in resolving construction, land-development and other non-performing exposures, and whether delinquencies or charge-offs reverse the improving credit trend.
- Acquisition closing conditions, integration costs and the effect of both proposed bank acquisitions on capital, liquidity and earnings.
- The sustainability of loan-sale gains and the unusually lower OREO expense in Q1.
- Wholesale-deposit reliance, liquidity capacity and the implications of continued changes in FHLB borrowing.
- Collateral valuations and allowance adequacy, which depend on management estimates and could change with economic conditions.