Glacier Bancorp, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. Glacier Bancorp is a regional bank holding company operating across eight western states. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless otherwise stated.
Financial performance and position
| Metric | Q1 2020 / March 31, 2020 | Comparable period / change |
|---|---|---|
| Net income | $43.3 | $49.1 in Q1 2019, down 12% |
| Diluted EPS | $0.46 | $0.58 in Q1 2019, down 21% |
| Net interest income | $134.4 | $115.2 in Q1 2019, up 17% |
| Net interest margin, tax-equivalent | 4.36% | 4.34% in Q1 2019; 4.45% in Q4 2019 |
| Credit loss expense | $22.7 | $0.1 in Q1 2019 |
| Non-interest income | $33.3 | $28.5 in Q1 2019, up 17% |
| Non-interest expense | $91.9 | $82.8 in Q1 2019, up 11% |
| Total assets | $15.16 billion | Up $1.47 billion from year-end 2019 |
| Loans receivable, gross | $10.09 billion | $9.51 billion at year-end 2019 |
| Deposits | $11.56 billion | $10.78 billion at year-end 2019 |
| Allowance for credit losses | $150.2; 1.49% of loans | $124.5; 1.31% at year-end 2019 |
| Cash and cash equivalents | $273.4 | $331.0 at year-end 2019 |
| Total stockholders’ equity | $2.14 billion | $1.96 billion at year-end 2019 |
- Profitability and margins: Q1 net income declined despite higher net interest income and non-interest income, chiefly reflecting the $22.7 million credit loss provision and higher operating expenses. The efficiency ratio was 52.55%, improved from 55.37% a year earlier. Core net interest margin was 4.30%, versus 4.26% in Q1 2019 and 4.33% in Q4 2019.
- Cash flow: Operating activities provided $25.8 million, compared with $46.3 million in Q1 2019. Investing activities used $720.1 million, primarily reflecting securities purchases and loan activity, partly offset by acquisition cash received. Financing activities provided $636.8 million, including $475.0 million of net short-term FHLB advances and $178.1 million of deposit growth. Cash declined $57.5 million during the quarter.
- Funding and debt: FHLB advances rose to $513.1 million from $38.6 million at year-end; repurchase agreements were $580.3 million and subordinated debentures $139.9 million. Management cited deposit growth, securities purchases and liquidity needs as reasons for increased FHLB borrowing. The loan-to-deposit ratio was 88.10%.
- Liquidity and capital: The filing lists $1.81 billion of remaining FHLB borrowing capacity, $1.25 billion of available Federal Reserve discount-window capacity, $380 million of unsecured lines and $1.95 billion of unencumbered securities. Glacier Bank’s reported regulatory ratios were 14.13% total capital, 12.99% Tier 1 and common equity Tier 1, and 11.86% leverage. Tangible equity to tangible assets was 10.70%.
Material changes and notable items
- COVID-19 and CECL: The company adopted the current expected credit loss standard on January 1, 2020. Adoption reduced retained earnings by $12.3 million, including a $3.7 million increase in the loan allowance and a $12.8 million increase in the allowance for off-balance-sheet exposures, partly offset by deferred tax effects. Management attributed $19.1 million of Q1 credit loss expense to pandemic-related economic forecasts and a further $4.8 million to the State Bank of Arizona acquisition.
- Acquisition: Glacier completed its acquisition of State Bank Corp. (SBAZ) on February 29, 2020, issuing 3.01 million shares valued at $112.1 million and paying $13.7 million cash. Preliminary goodwill was $56.9 million. SBAZ contributed approximately $2.6 million of income and a $3.5 million net loss from acquisition through quarter-end; purchase accounting remained preliminary.
- COVID-19 customer support: As of April 21, 2020, the company reported 8,775 approved PPP loans totaling $1.088 billion and 1,688 COVID-related loan modifications totaling $716 million. Modifications generally provided interest-only payments or full deferrals for up to six months.
- Revenue mix and expenses: Service charges and other fees fell $4.0 million year over year, partly reflecting the Durbin Amendment’s debit interchange fee limits. Gain on loan sales rose to $11.9 million from $5.8 million, principally due to mortgage refinancing activity. Q1 also included a $2.4 million gain on sale of a former branch building and $2.8 million of acquisition-related expenses.
- Other balance-sheet movements: Debt securities increased $833.8 million from year-end, including $723 million of securities purchased in March and securities acquired with SBAZ. Non-interest-bearing deposits were $3.88 billion. Accumulated other comprehensive income rose to $99.7 million, reflecting unrealized gains on available-for-sale securities.
Outlook, risks and contingencies
The filing does not provide numerical earnings or financial guidance. Management said the pandemic’s full impact was unknown, described the company as well positioned to respond with strong liquidity and capital, and reported enhanced credit monitoring and customer assistance. It cautioned that changing economic forecasts could require further increases in credit loss expense. Key risks include borrower stress and deteriorating credit quality, market and interest-rate volatility, acquisition integration and goodwill impairment, competition, regulatory changes, and operational or cybersecurity disruptions. Management did not identify pending litigation as likely to materially affect financial condition, results or liquidity. It also reported that available-for-sale securities in unrealized loss positions were investment grade and that no credit-loss allowance was recorded for those securities at quarter-end.
Investor facts to verify
- How subsequent pandemic conditions and borrower payment performance affect the allowance, delinquencies, charge-offs and loan modifications.
- Whether PPP loan balances, servicing economics and any associated risk exposures are clearly distinguished in later disclosures.
- Final SBAZ purchase-accounting values, integration costs, acquired-asset performance and the source of the post-acquisition net loss.
- Whether deposit growth and available liquidity remain sufficient without sustained reliance on increased FHLB advances.
- Whether margin pressure, lower fee income and elevated operating costs offset loan growth and mortgage-sale gains in subsequent quarters.
- How the company’s capital ratios, including the treatment of CECL and trust preferred securities, evolve after the acquisition.