10-K: Glacier Bancorp Reports 4% Asset Growth Amid Industry Pressures in 2023

Glacier Bancorp, Inc. reported a 4 percent increase in assets, reaching $27.743 billion by the end of 2023, despite facing industry-wide pressures from rising interest rates and economic volatility.

Summary

• Glacier Bancorp, Inc. (the Company) reported total assets of $27.743 billion as of December 31, 2023, marking a $1.107 billion, or 4 percent, increase from the previous year end.
• The growth in assets was primarily driven by a $951 million, or 6 percent, increase in the loan portfolio and a significant rise in cash liquidity, which offset a decrease in debt securities.
• The Company strategically managed through the year by focusing on diversified deposit and repurchase agreement product offerings, resulting in a slight decline of $108 million, or 50 basis points, in these areas during the year.
• A strong liquidity position was maintained, ending the year with $15.0 billion in available liquidity, including cash, borrowing capacity, and unpledged securities.
• Stockholders' equity increased by $177 million, or $1.57 per share, due to earnings retention and a decrease in the unrealized loss on AFS debt securities.
• Net income for 2023 was $223 million, a decrease of $80.3 million, or 26 percent, from the prior year, largely due to increased cost of funds outpacing interest income.
• Diluted earnings per share for the year stood at $2.01, down 27 percent from $2.74 in 2022.
• The net interest margin for 2023 was 2.73 percent, a 54 basis point decrease from 3.27 percent in 2022, primarily driven by the volatile interest rate environment and higher cost of funds.
• The Company successfully controlled non-interest expenses, with an increase of only $8.5 million, or 2 percent, mainly due to a $6.0 million FDIC special assessment and increased regulatory assessment and insurance costs.
• Credit quality remained strong, with non-performing assets at $26 million compared to $33 million at the end of the prior year, and net charge-offs at 0.06 percent of loans.
• The Company maintained adequate reserves at 1.19 percent of loans at year-end 2023, compared to 1.20 percent at the prior year end.
• An agreement to acquire Community Financial Group, Inc., the parent company of Wheatland Bank, was announced in 2023 and completed on January 31, 2024, adding $728 million in assets, $469 million in loans, and $623 million in deposits as of December 31, 2023.

Sentiment

Score: 6

Explanation: The sentiment is slightly positive due to the company's growth in assets and strong credit quality, but tempered by the decline in net income, EPS, and net interest margin, along with industry-wide pressures.

Positives

• The Company experienced a 4 percent growth in total assets, reaching $27.743 billion by year-end 2023.
• Loan portfolio growth was strong, increasing by $951 million, or 6 percent, with growth across all loan categories.
• A robust liquidity position was maintained, with $15.0 billion in available liquidity.
• Stockholders' equity saw a $177 million increase, reflecting earnings retention and reduced unrealized losses on debt securities.
• The Company demonstrated effective cost control, with only a 2 percent increase in non-interest expenses, primarily due to non-recurring FDIC assessments.
• Credit quality remained a positive aspect, with low levels of non-performing assets and net charge-offs.
• The acquisition of Community Financial Group, Inc. and Wheatland Bank is expected to contribute positively to the Company's market presence and financial performance.

Negatives

• Net income decreased by $80.3 million, or 26 percent, compared to the prior year, totaling $223 million for 2023.
• Diluted earnings per share dropped by 27 percent, from $2.74 in 2022 to $2.01 in 2023.
• The net interest margin declined by 54 basis points to 2.73 percent, impacted by the volatile interest rate environment and increased funding costs.
• Non-interest bearing deposits decreased significantly by $1.667 billion or 22% from the prior year.
• The Company faced a substantial increase in interest expense, which rose by $285 million, or 690 percent, over the prior year.

Risks

• Economic conditions in the Company's market areas could adversely impact earnings and increase credit risk.
• Competition in the banking industry may limit future success and growth.
• The Company may face challenges in growing organically or through acquisitions due to changing market and regulatory conditions.
• Fluctuating interest rates could adversely affect profitability and shareholders' equity.
• The retirement of LIBOR as a reference rate may impact the Company's financial instruments and contracts.
• Cybersecurity threats and technological changes pose operational and security risks.
• Changes in banking laws, regulations, or governmental policies could negatively affect the Company.
• Dependence on senior management and key personnel creates a risk if there are unexpected departures.
• Climate change may materially adversely affect the Company's business, financial condition, and results of operations.

Future Outlook

The Company believes its future performance will depend on factors such as economic conditions in its markets, interest rate changes, competition levels, loan quality, the successful integration of acquisitions, and managing regulatory requirements and expenses.

Industry Context

The banking industry faced significant pressures in 2023, including historic interest rate increases and notable bank failures, leading to higher deposit costs and a prioritization of deposit safety by customers. Glacier Bancorp was not immune to these challenges, particularly in terms of deposit costs and net interest margin.

Comparison to Industry Standards

• The Company's net interest margin of 2.73 percent in 2023 is lower than the industry average, reflecting the broader trend of margin compression due to rising interest rates. For example, JPMorgan Chase reported a net interest margin of 2.81 percent in 2023, while Bank of America reported 2.67 percent.
• Glacier Bancorp's loan growth of 6 percent in 2023 is in line with or slightly above some of its peers, such as U.S. Bancorp, which reported loan growth of approximately 5 percent in 2023.
• The Company's efficiency ratio of 62.85 percent is higher than the industry average, indicating higher operating costs relative to revenue. Wells Fargo reported an efficiency ratio of 63 percent in 2023, while Citigroup reported 73 percent.
• Glacier Bancorp's return on average assets of 0.81 percent is below the industry average, reflecting the challenging operating environment. In comparison, JPMorgan Chase reported a return on average assets of 1.38 percent in 2023.
• The Company's non-performing assets as a percentage of subsidiary assets of 0.09 percent is lower than many industry peers, indicating strong credit quality. For example, the FDIC reported an average non-current loan rate of 0.75 percent for all U.S. banks in the fourth quarter of 2023.

Corporate Governance

Legal Proceedings

• The Company is involved in various claims, legal actions, and complaints arising in the ordinary course of business, which are believed to be adequately covered by insurance or without merit, and are not expected to have a material adverse effect on the financial condition or results of operations.

Related Party Transactions

• The Company has entered into transactions with its executive officers and directors and their affiliates, with loans outstanding to such related parties totaling $110,707,000 and $101,637,000 at December 31, 2023 and 2022, respectively.
• During 2023, transactions included new loans to related parties of $20,758,000 and repayments of $11,688,000.
• The Company has entered into deposit transactions with its executive officers, directors, and their affiliates, with the aggregate amount of deposits with such related parties totaling $31,706,000 and $37,046,000 at December 31, 2023 and 2022, respectively.
• The Company has entered into borrowing transactions with its related parties in connection with the certain variable interest entities. The aggregate amount of borrowings with such related parties was $10,251,000 at December 31, 2023 and 2022.

Stakeholder Impact

• Shareholders: Potential impact from decreased net income and EPS, but positive impact from asset growth and dividends.
• Employees: No significant changes mentioned, but ongoing focus on training, development, and a safe workplace.
• Customers: Continued provision of a wide range of banking products and services, with potential benefits from acquisitions and expanded market presence.
• Suppliers: No significant impact mentioned.
• Creditors: No significant impact mentioned, but the Company's strong liquidity position and capital adequacy provide reassurance.
• Communities: Continued support through employment, banking services, and involvement in local economies.

Next Steps

• Complete the integration of the Wheatland Bank operations with the North Cascades Bank division, expected in the second quarter of 2024.
• Continue to monitor economic conditions, interest rate changes, and competition levels to adapt business strategies accordingly.
• Focus on managing credit quality and loan portfolio growth.
• Address regulatory requirements and manage expenses effectively.
• Evaluate potential future acquisitions and growth opportunities in the Rocky Mountain and Western states.
• Pay off all of the BTFP borrowings at maturity through a combination of the committed FHLB borrowings and additional sources of liquidity.

Key Dates

Keywords

Glacier Bancorp, banking, financial services, asset growth, loan portfolio, liquidity, net interest margin, non-interest expense, credit quality, acquisition, Community Financial Group, Wheatland Bank, interest rates, FDIC, regulatory compliance, Montana, Idaho, Utah, Washington, Wyoming, Colorado, Arizona, Nevada