Glacier Bancorp, Inc. — FY 2017 Form 10-K
Business and period: Annual report for the year ended December 31, 2017. Glacier Bancorp is a Montana bank holding company operating Glacier Bank across seven western states, with 145 locations at year-end. Its principal activities are commercial and retail banking, lending, and mortgage origination.
Financial results and condition
| Metric | FY 2017 / Dec. 31, 2017 | Prior comparable period |
|---|---|---|
| Total revenue (net interest income plus non-interest income) | $457.4 million | $421.8 million; up 8% |
| Net interest income | $345.2 million; up 10% | $314.5 million |
| Net interest margin, tax-equivalent | 4.12% | 4.02% |
| Net income, GAAP | $116.4 million; diluted EPS $1.50 | $121.1 million; diluted EPS $1.59 |
| Net income, excluding one-time Tax Act adjustment (non-GAAP) | $136.1 million; diluted EPS $1.75 | $121.1 million; diluted EPS $1.59 |
| Efficiency ratio | 53.94% | 55.88% |
| Operating cash flow | $254.7 million | $193.1 million |
| Total assets / loans, net | $9.71 billion / $6.45 billion | $9.45 billion / $5.55 billion |
| Deposits / stockholders’ equity | $7.58 billion / $1.20 billion | $7.37 billion / $1.12 billion |
| Cash and cash equivalents | $200.0 million | $152.5 million |
2017 income before taxes was $181.0 million, versus $160.8 million in 2016. The effective tax rate was 35.7%, including a $19.7 million one-time tax expense from revaluing deferred tax assets and liabilities after the Tax Act. Excluding that adjustment, the filing reports a 24.8% effective tax rate. The fourth quarter included $31.3 million of tax expense and $15.0 million of net income.
Loans grew 16% year over year, including the Foothills acquisition; organic loan growth was reported at $601 million, or 11%, primarily in commercial real estate and other commercial lending. The loan-to-deposit ratio rose to 87.29% from 78.10%. The investment portfolio declined 22% to $2.43 billion as cash flows were redeployed into loans.
Funding at year-end included $354.0 million of FHLB advances, $362.6 million of repurchase agreements, and $126.1 million of subordinated debentures. The filing reports $1.45 billion of unused FHLB borrowing capacity, $1.05 billion available at the Federal Reserve discount window, $230 million of unsecured lines, and $978.7 million of unencumbered securities. Financing cash flow was negative $230.9 million; investing cash flow was positive $23.7 million.
Regulatory capital remained strong: the Bank’s total capital ratio was 15.04%, Common Equity Tier 1 was 13.79%, and Tier 1 leverage was 11.47%. The Bank was classified as well capitalized.
Changes, outlook, risks, and unusual items
- GAAP net income fell 4% and diluted EPS fell 6%, principally because of the $19.7 million Tax Act adjustment. Excluding it, management reported record earnings of $136.1 million, up 12%, and diluted EPS of $1.75, up 10%.
- Credit indicators were mixed: non-performing assets declined 9% to $65.2 million, and their share of subsidiary assets fell to 0.68%. However, net charge-offs rose to $10.8 million from $2.5 million, the provision for loan losses increased to $10.8 million from $2.3 million, and early-stage delinquencies increased to $37.7 million from $25.6 million. The allowance was $129.6 million, or 1.97% of loans, versus 2.28% a year earlier.
- The Company transferred $433 million of deposits off balance sheet to remain below the $10 billion asset threshold at year-end; it said the deposits could be returned at its discretion. Including these accounts, management reported organic deposit growth of $478 million, or 7%.
- Foothills, acquired in April 2017, added $385.8 million in assets at acquisition. Collegiate Peaks Bank was acquired January 31, 2018, bringing the Company above $10 billion in assets. A separate First Security Bank acquisition was pending at the filing date and expected to close in February 2018.
- Crossing the $10 billion threshold brings heightened requirements, including annual stress tests, direct CFPB supervision, and higher FDIC assessment rules. The Durbin Amendment interchange fee cap is expected to reduce annual pre-tax earnings by $13 million to $16 million beginning in 2019.
- Management expected the Tax Act to lower the effective tax rate to 17%–18% in 2018. The filing identifies economic conditions, interest-rate movements, real-estate and commercial credit concentrations, competition for deposits and loans, acquisition integration, regulation, and cybersecurity as significant risks. Management described the economic recovery as positive but remained cautiously optimistic.
- Management said interest-rate sensitivity was within policy limits. Its modeled one-year net interest income sensitivity ranged from negative 3.9% under a 100-basis-point rate decline to positive 1.1% under a 400-basis-point gradual increase; the filing cautions that these scenarios are not forecasts.
Most important facts for investors to verify
- Reconcile the audited GAAP net income of $116.4 million with the $136.1 million non-GAAP figure; the latter excludes the $19.7 million Tax Act adjustment.
- Track subsequent credit performance, especially rising charge-offs and early-stage delinquencies, the commercial real-estate concentration, and allowance adequacy.
- Confirm the treatment and cost of the $433 million off-balance-sheet deposits and the effect of the higher loan-to-deposit ratio on funding needs.
- Assess actual post-acquisition asset growth, integration results, and the financial terms and completion of the pending First Security Bank transaction.
- Monitor the actual timing and earnings impact of the $10 billion regulatory threshold, including the projected $13 million–$16 million annual interchange-fee effect beginning in 2019.
- Review dividend sustainability: declared dividends were $1.14 per share in 2017, including a $0.30 special dividend, and are subject to earnings, capital, asset quality, and regulatory limits.