Glacier Bancorp, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Glacier Bancorp is a regional banking company operating through Glacier Bank across eight western states. Comparisons are primarily with Q3 and the first nine months of 2021; the October 1, 2021 Altabancorp acquisition materially affects year-over-year comparisons. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Comparable period |
|---|---|---|
| Net interest income | $205.3 | $162.6 in Q3 2021 |
| Net interest margin, tax-equivalent | 3.34% | 3.39% in Q3 2021; 3.23% in Q2 2022 |
| Provision for credit losses | $8.3 | $0.7 in Q3 2021 |
| Non-interest income | $30.4 | $34.8 in Q3 2021 |
| Non-interest expense | $130.1 | $104.1 in Q3 2021 |
| Net income / diluted EPS | $79.3 / $0.72 | $75.6 / $0.79 in Q3 2021 |
Q3 net income rose 5% year over year, but diluted EPS fell 9%, in part reflecting the larger share count following the Alta acquisition. Higher net interest income from Alta and organic loan growth more than offset lower residential loan-sale gains, lower PPP-related income and higher credit-loss provision. Q3 efficiency ratio was 52.76%, versus 50.17% a year earlier.
For the first nine months, net interest income increased 23% to $584.3 million, while net income declined 5% to $223.5 million and diluted EPS declined 18% to $2.02. Tax-equivalent net interest margin was 3.26%, down from 3.52%. Non-interest income fell 16% to $92.2 million, largely because loan-sale gains declined; non-interest expense increased 30% to $389.9 million, reflecting Alta, acquisition costs and higher operating expenses. The nine-month efficiency ratio increased to 55.14% from 48.94%.
Financial position, liquidity and capital
- Total assets were $26.73 billion at September 30, 2022, up $792 million from December 31, 2021. Loans were $14.85 billion, up $1.42 billion, or 11%; commercial real estate was the largest loan category, at $9.58 billion.
- Total deposits were $21.88 billion, up $542 million from year-end. Non-interest-bearing deposits were $8.29 billion, or 38% of core deposits. The loan-to-deposit ratio was 67.98%.
- Cash and cash equivalents were $425 million. The company had $705 million of FHLB advances outstanding, compared with none at year-end, which management said supported liquidity needs related to loan growth. Additional reported capacity included $2.88 billion of available FHLB advances, $1.81 billion at the FRB discount window and $635 million of unsecured lines; unencumbered securities totaled $6.76 billion.
- Nine-month operating cash flow was $350.7 million; investing cash outflow was $1.40 billion and financing cash inflow was $1.04 billion. Cash and cash equivalents decreased $12.5 million from year-end.
- Stockholders’ equity was $2.77 billion, down $405 million from year-end, primarily reflecting a $522.5 million after-tax decline in accumulated other comprehensive income. Tangible book value per share was $15.73, down from $19.33 at year-end. Glacier Bank reported regulatory capital ratios of 13.43% total capital, 12.46% Tier 1 and common equity Tier 1, and an 8.85% leverage ratio; management stated the company and Bank met applicable capital requirements.
Credit, securities and material changes
- The allowance for credit losses on loans was $178.2 million, or 1.20% of loans, versus $172.7 million and 1.29% at year-end. Nine-month loan provision was $11.4 million, compared with a $2.9 million benefit in the prior-year period; provision for unfunded commitments was $2.5 million.
- Non-performing assets fell to $35.1 million, or 0.13% of subsidiary assets, from $67.7 million, or 0.26%, at year-end. Management reported early-stage delinquencies of $10.9 million, down from $50.6 million at year-end. Nine-month net charge-offs were $5.8 million.
- Total debt securities were $9.51 billion. Available-for-sale securities had $658.9 million of gross unrealized losses and held-to-maturity securities had $498.9 million of gross unrealized losses at quarter-end. Management attributed the declines primarily to higher interest rates and market spreads, said the securities were investment grade, and reported no securities credit-loss allowance and no intention or expected requirement to sell AFS securities before recovery.
- During Q1, the company transferred $2.15 billion of securities from AFS to HTM after determining it had the intent and ability to hold them to maturity. The securities’ unrealized losses and broader rate-driven valuation declines substantially reduced reported equity and tangible book value.
Outlook, commentary and risks
The filing does not provide specific earnings or financial guidance. Management said loan growth, portfolio mix, credit quality, economic forecasts and other environmental factors will influence future credit-loss provisions. It also cited rising interest rates as a driver of higher loan yields and borrowing costs; Q3 core margin improved sequentially as loan yields rose, while nine-month margin remained below the prior-year level. Mortgage activity and residential loan-sale gains declined as rates rose and purchase and refinance activity weakened.
Risks highlighted include deterioration in loan quality and regional economic conditions; interest-rate and funding-cost changes affecting margin, earnings and equity; liquidity and deposit movements; regulatory or legislative changes; acquisition execution and integration; goodwill impairment; competition; cybersecurity, fraud and systems disruptions; natural disasters; and broader market and geopolitical conditions. Management reported no material change in previously disclosed risk factors, no material change in market-risk disclosures, and effective disclosure controls. Routine legal proceedings were not expected by management to have a material effect.
Most important facts for investors to verify
- Whether loan growth continues to be funded by stable deposits or requires additional, potentially more costly, wholesale borrowing.
- How rising rates affect net interest margin, deposit pricing, funding costs and the market value of AFS securities—and whether unrealized losses remain unrealized.
- Whether the allowance and recent asset-quality improvements remain adequate as the loan portfolio expands and economic conditions change.
- How much of earnings growth reflects recurring organic performance versus Alta acquisition effects, and whether acquisition and operating costs moderate.
- How reduced mortgage activity and lower PPP income affect non-interest income and future EPS; the filing provides no formal earnings guidance.