Glacier Bancorp, Inc. — FY2019 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019. Glacier Bancorp is a regional bank holding company operating through Glacier Bank across eight western states, with 181 locations. The Bank is its sole operating segment.
Financial performance and condition
Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
| Metric | FY2019 / year-end | FY2018 / prior year-end |
|---|---|---|
| Total income | $634.2 | $552.3 |
| Net interest income | $503.4 | $433.5 |
| Net income | $210.5 | $181.9 |
| Diluted EPS | $2.38 | $2.17 |
| Total assets | $13,684.0 | $12,115.5 |
| Loans receivable, net | $9,388.3 | $8,156.3 |
| Deposits | $10,776.5 | $9,493.8 |
| Cash and cash equivalents | $331.0 | $203.8 |
- Profitability and margins: Net interest margin, tax-equivalent, was 4.39%, up 18 basis points. Return on average assets was 1.64%, versus 1.59%; return on average equity was 12.01%, versus 12.56%. The efficiency ratio rose to 57.78% from 54.73%; excluding specified termination, prepayment and acquisition-related compensation charges, management reported 54.79%.
- Credit: Provision for loan losses was $0.1 million, compared with $10.0 million in 2018. Net charge-offs were $6.8 million, down from $8.3 million. Non-performing assets fell 34% to $37.4 million, or 0.27% of subsidiary assets. The allowance was $124.5 million, or 1.31% of loans, versus 1.58% a year earlier.
- Cash flow: Operating activities provided $226.6 million, investing activities used $42.7 million, and financing activities used $56.8 million. Cash and cash equivalents increased $127.2 million during the year.
- Debt, liquidity and capital: Year-end FHLB advances were $38.6 million, repurchase agreements $569.8 million, other borrowed funds $28.8 million, and subordinated debentures $139.9 million. The loan-to-deposit ratio was 88.92%. Available liquidity included $2.32 billion of unused FHLB capacity, $1.06 billion of Federal Reserve discount-window capacity, $230 million in unsecured lines and $1.32 billion in unencumbered securities. The Bank’s total capital ratio was 14.64%; Common Equity Tier 1 was 13.52%. Management reported the Company and Bank were well capitalized.
- Shareholder returns: Dividends declared were $1.31 per share, unchanged from 2018; no shares were repurchased during 2019. Stockholders’ equity was $1,960.7 million and tangible book value was $15.61 per share.
Material changes versus the prior comparable period
- Net income increased 16% and diluted EPS increased 10%. Management attributed the improvement to acquisitions, organic growth, stronger commercial loan interest income and controlled expenses.
- Two acquisitions—FNB in Utah and Heritage in Nevada—added approximately $1.36 billion of assets. The company issued approximately $316.5 million of stock in acquisitions during 2019. Year-end assets rose 13%; excluding the FNB and Heritage acquisitions, loans grew 4% and core deposits grew 4% organically.
- Non-interest expense rose 17%, reflecting acquisitions, staff growth, acquisition costs and other expenses. Net interest expense also increased, partly due to higher deposit balances and rates.
- In September, the company terminated $260 million notional pay-fixed swaps and reduced related funding as part of a balance-sheet strategy. It recognized $13.5 million of termination-related expense, including a $10.0 million swap loss and a $3.5 million FHLB prepayment loss. The strategy also included selling $308 million of securities; securities-sale gains were $14.4 million.
- From July 1, 2019, the Durbin Amendment interchange-fee cap reduced service-charge fees by approximately $10 million in the second half. Management estimated an approximately $20 million annual pre-tax impact going forward.
Outlook, risks and other notable items
- Management identified economic conditions in its markets, interest-rate changes, deposit and loan competition, credit quality, acquisition integration and regulatory burden as key factors affecting future performance. It described its outlook on housing and local economies as cautiously optimistic, while continuing to monitor credit and economic conditions.
- The pending acquisition of State Bank of Arizona (reported at year-end with $678 million in assets, $439 million in gross loans and $587 million in deposits) had regulatory approval and was expected to close in the first quarter of 2020, subject to customary closing conditions.
- CECL was scheduled for adoption on January 1, 2020. The company estimated an allowance for credit losses of $125.6–$131.3 million and an allowance for unfunded commitments of $12.8–$13.6 million; the estimated after-tax retained-earnings adjustment was $10.0–$14.8 million.
- Principal risks include concentration in real-estate-secured lending (commercial real estate was 59% of loans), potential deterioration in local economies or collateral values, interest-rate exposure, cybersecurity and operational disruption, regulatory and compliance costs, acquisition execution, and possible goodwill impairment. Goodwill was $456.4 million and was not impaired at year-end.
- LIBOR-linked contracts and subordinated debentures created transition risk as LIBOR retirement approached. The filing states that replacement-rate effects and transition costs were uncertain.
- The company reported an unqualified audit opinion and effective internal control over financial reporting. Management said ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether the Arizona acquisition closed as expected and how its integration affects growth, expenses and capital.
- Actual Durbin-related revenue effects for 2020 and whether fee growth offsets the impact.
- The realized CECL adoption adjustment versus the disclosed estimated range, including the unfunded-commitment allowance.
- Whether credit quality and allowance coverage remain adequate as commercial real estate and other loans grow.
- How the swap and funding changes affect net interest income, margin and sensitivity to different rate scenarios.
- Dividend capacity under regulatory limits, given that dividends depend on earnings, capital, asset quality and regulatory considerations.