This report recommends selling shares of Glacier Bancorp (GBCI) as the stock appears overvalued. The report cites Glacier's missed analyst EPS estimates in recent quarters and reliance on acquisitions to drive growth as concerns. Projections estimate Glacier will grow at a slower pace of around 4.7% annually over the next five years due to regulatory constraints and a gradually rising interest rate environment. Based on a DCF model valuing Glacier at $22.61, the current stock price of $24.36 represents an overvaluation of approximately 6.5%, leading to a recommended target price of $23 and rating of "Sell".
Laurentian Bank Securities - Economic Research and Strategy Mark MacIsaac
LBS Asset Allocation December Update:
Global equities made yet another high this month as global economic data remained robust and economic growth prospects kept being upgraded.
Equity market what to expect in November 2021Vinod Prajapati
In the month of October Large, mid- and small-sized Indian equities performed within a relatively tight range.
So, how will the market perform in November? Here is what experts have to say...
Laurentian Bank Securities - Economic Research and Strategy Mark MacIsaac
LBS Asset Allocation December Update:
Global equities made yet another high this month as global economic data remained robust and economic growth prospects kept being upgraded.
Equity market what to expect in November 2021Vinod Prajapati
In the month of October Large, mid- and small-sized Indian equities performed within a relatively tight range.
So, how will the market perform in November? Here is what experts have to say...
Private Equity and Venture Capital volume stays depressed while valuations remain high during the second quarter of 2017. Read Bridgepoint Merchant Banking's latest Midwest Capital Raise Update, measuring private equity and venture capital throughout the Midwest.
A fantastic presentation on how the HECM insured mortgage program can help retirees and senior citienz alike . If you are Financial Planner and have your skepticism about it, then this is a must read. Call me if you want to hear more about it. With baby boomers entering retirement, there is no better time than now to think about the future
Equity Market - What to expect in August 2021?Vinod Prajapati
Although with slower pace, all major indices continued upward journey in the month of July. Mid and Small-caps led the way up this month along with real estate and metal index.
So, where will the market headed in August? Here is what experts have to say...
Mercer Capital's Business Development Companies Quarterly Newsletter | Q4 201...Mercer Capital
Business development companies are an important and growing source of funding for middle market companies. Along with private equity and other investment funds, BDCs provide billions of dollars of investment capital to private companies in every segment of the economy.
For over thirty years, Mercer Capital has met the valuation needs of the same middle market companies to which BDCs and other funds provide capital.
This quarterly newsletter tracks the financial and stock market performance of the public BDCs.
In our annual Calgary event, held at the Hyatt Regency Hotel, we presented Strategic Decisions for an Uncertain Future:
Mark Therriault, Nicola Wealth Financial Advisor and Partner, addresses several issues facing high net worth families:
• How will the Liberals’ tax changes affect financial planning for Canadians?
• How will inflated prices impact future returns?
• Are there best practices for navigating the current environment?
Rob Edel, Chief Investment Officer provides an investment roadmap for 2018:
• After a record-breaking period for the S&P 500, what signs might indicate an economic downturn?
• What current events could most affect the economy and investment strategy?
• What should one make of bitcoin, marijuana stocks, electric vehicles, and other hot topics for the upcoming year?
Private Equity and Venture Capital volume stays depressed while valuations remain high during the second quarter of 2017. Read Bridgepoint Merchant Banking's latest Midwest Capital Raise Update, measuring private equity and venture capital throughout the Midwest.
A fantastic presentation on how the HECM insured mortgage program can help retirees and senior citienz alike . If you are Financial Planner and have your skepticism about it, then this is a must read. Call me if you want to hear more about it. With baby boomers entering retirement, there is no better time than now to think about the future
Equity Market - What to expect in August 2021?Vinod Prajapati
Although with slower pace, all major indices continued upward journey in the month of July. Mid and Small-caps led the way up this month along with real estate and metal index.
So, where will the market headed in August? Here is what experts have to say...
Mercer Capital's Business Development Companies Quarterly Newsletter | Q4 201...Mercer Capital
Business development companies are an important and growing source of funding for middle market companies. Along with private equity and other investment funds, BDCs provide billions of dollars of investment capital to private companies in every segment of the economy.
For over thirty years, Mercer Capital has met the valuation needs of the same middle market companies to which BDCs and other funds provide capital.
This quarterly newsletter tracks the financial and stock market performance of the public BDCs.
In our annual Calgary event, held at the Hyatt Regency Hotel, we presented Strategic Decisions for an Uncertain Future:
Mark Therriault, Nicola Wealth Financial Advisor and Partner, addresses several issues facing high net worth families:
• How will the Liberals’ tax changes affect financial planning for Canadians?
• How will inflated prices impact future returns?
• Are there best practices for navigating the current environment?
Rob Edel, Chief Investment Officer provides an investment roadmap for 2018:
• After a record-breaking period for the S&P 500, what signs might indicate an economic downturn?
• What current events could most affect the economy and investment strategy?
• What should one make of bitcoin, marijuana stocks, electric vehicles, and other hot topics for the upcoming year?
Presentation on how to translate your business plan into a profit & loss statement and a cash flow statement. Moreover, the presentations shows you how to determine the capital needs for your startup. All explained in an easy way! Author: Joris Kersten MSc BSc, Founder of Financeyourstartup.com (The Netherlands).
Interbank call money rates remained mostly below the RBI’s repo rate of 5.40% in the month owing to comfortable liquidity in the system, prompting the central bank to conduct frequent reverse repo auctions and provide banks with idle funds an opportunity to invest for a short period.
Read the full document to know more.
Ride the Short Duration Wave - June 2019iciciprumf
Triggers to watch out for -
Current situation in the Fixed Income space
Our Outlook on what lies ahead
Segment of the yield curve, which stands to benefit
Read the full document to know more.
SBI Corporate Bond Fund: An Income Mutual Fund Scheme - Aug 16SBI Mutual Fund
SBI Corporate Bond Fund with moderate risk invests predominantly in corporate debt securities and aims to generate regular income over medium term. Mutual Fund investors can invest in this mutual fund via SIP or lump sum. Know more about this debt fund on SBI Mutual Fund website page https://www.sbimf.com/Products/DebtSchemes/SBI_Corporate_Bond_Fund.aspx
Can Fin Homes Ltd (NSE Code - CANFINHOME) - May'13 Katalyst Wealth Alpha reco...Katalyst Wealth
Housing Finance companies have played a very vital role in the last 10 odd years in helping individuals buy their dream homes. We believe, besides getting your houses financed, one can also consider starting investing at a young age in fundamentally strong, fast growing and reasonably valued companies from the Housing finance space so as to reduce the quantum and the tenure of your home loan at the time of buying your house.
HDFC, Gruh Finance, LIC Housing Finance are some of the very well known listed Housing Finance companies, however we would like to share details with you on another
Housing Finance stock i.e. Can Fin Homes Ltd (NSE Code – CANFINHOME) which until recently was growing at 7-8%, however the renewed focus from the management and the aggressive branch expansion promises better growth prospects for the next few years.
Can Fin Homes Ltd (NSE Code – CANFINHOME) – Promoted by Canara Bank (42.38% stake), Can Fin pre-dominantly offers loans for home purchase, home construction, home improvement/extension and site purchase as well as non-housing finance loans such as
Personal loans, Child education loans, etc. Housing loans constitute ~98% of the advances of the company.
Laurentian Bank Securities - Economic Research and Strategy Mark MacIsaac
LBS Asset Allocation Model – September Update:
Global economic data remained robust in August and continue to point to solid, broad-based and synchronized economic expansion. Financial conditions also remain easy and still provide a supportive environment for economic growth.
Benchmark 10 year treasury yields remained flat as they averaged at 6.50% in November (5bps lower vs. October avg.).
System liquidity remained in surplus on the back of bank deposits growing faster than credit, government spending and
RBI forex purchases.
Read the full document to know more.
Interbank call money rates remained below the RBI’s repo rate of 5.75% during most parts of the month as systemic liquidity remained in surplus amid periodic repo auctions conducted by the central bank. The RBI also conducted frequent reverse repo auctions to drain away excess liquidity and give the opportunity to banks to park their idle funds.
Read the full document to know more.
Outlook 2015 - Making Sense Of The MarketsPhil Caulfield
As we approach year end, you may be wondering:
What can we expect to happen in the US Markets and the economy and how will that affect rates and house prices?
At Opes Advisors, our CEO Susan McHan has been working with our Chief Investment Officer, Mark Duvall, CFA® to help answer that question and we’ve just completed our “Outlook 2015: Making Sense of the Economy and the Current Markets.” I thought it would be beneficial to you to hear some of our current perspective.
________________________________________
Our Outlook for Interest Rates
As the graph below indicates, we have been experiencing a long term downtrend in interest rates since 1982. The rise in rates in 2013 followed by the drop in 2014 is consistent with a sideways trending market. We believe that short-term interest rates will rise slowly while longer-term interest rates will remain in a tight range below 3.2%. We expect the Fed to raise short-term rates in the first half of 2015 and longer-term rates to rise gradually.
Rates today are still low relative to long-term historical levels and within the average range of the past 3-4 years. This is important, as interest rates are a significant factor in determining home affordability. With interest rates remaining low, national and regional home affordability remains high.
Our Overall Outlook
Beyond interest rates, “Outlook 2015” captures our perspective on the following topics:
• What is our Economic Outlook for 2015 and beyond? What factors do we watch to inform our perspective?
• What factors informed our Interest rate Outlook and what factors determine whether they will rise or fall in the future?
• And importantly, how will the economy and interest rates impact our real estate markets, your business and your clients as we move into 2015 and beyond?
I would welcome the opportunity to share our complete Outlook with you. Please call me if you’d be interested in learning more about our Outlook and hearing a full presentation.
Debt and equity availability update: The guide to financing in commercial rea...JLL
In the last three years, commercial property lending has continued to gain momentum and it is fundamentally strong, while still maintaining disciplined underwriting standards. The fundamentals of the real estate markets also are improving via the growth in the housing markets, construction, industrial production, and the further strengthening of the consumer psyche. The convergence of these factors leads us to an optimistic 2014 forecast for the real estate lending markets. Banks now trust the improved value of real estate again, which results in increased lending competition that should keep spreads tight and fuel strong performance up the risk curve to broader geographies and asset types this year.
To learn more, visit: http://www.us.jll.com/capitalmarkets
The Scheme seeks to provide steady income and capital appreciation by investing in corporate debt. There is no assurance or guarantee that the objectives of the Scheme will be realized.Suitable for those who are looking at investing for a shorter duration product and looking at options better than traditional instruments while maintaining liquidity.
Pacific Asset Management is sub-advisor to the AdvisorShares Pacific Asset Enhanced Floating Rate ETF (FLRT)*
2014 has seen the consensus of higher Treasury yields and economic activity fail to materialize. Lower rates and risk premiums have led to strong returns year-to-date. In this commentary, Portfolio Managers David Weismiller, Michael Marzouk, and Bob Boyd discuss the current market environment, outlook, and portfolio positioning.
*Effective but not available for sale at this time. Go to www.advisorshares.com for more information.
Global equities hit another record high in December as global economic data remained robust, economic growth prospects kept being upgraded and financial conditions stayed accommodative.
Mercer Capital's Bank Watch | October 2019 | 2019 Core Deposit Intangibles Up...Mercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
HDFC Sec Note - Mutual Fund Category Analysis - Income Funds
Glacier REVISED
1. The Henry Fund
Henry B. Tippie School of Management
Husam Atari [husam-atari@uiowa.edu]
Glacier Bancorp Inc. (GBCI) April 11, 2016
Financial Services – Regional Banks Stock Rating Sell
Investment Thesis $23.00
We recommend a SELL for Glacier Bancorp (GBCI), as we believe it is currently
overvalued by 6.5%. Glacier has missed analyst EPS estimates for the past
three quarters, has used acquisitions to mask meager organic growth, and is
operating in a low-rate, sluggish GDP world. Unfortunately for Glacier, we see
these trends continuing. Also, as Glacier gets larger, regulatory pressures will
impede its growth. Thus, we do not envision an organic growth rate or level of
margin improvement that justifies Glacier’s current market price.
Drivers:
• National and regional GDP could exceed expectations, spurring organic
growth of Glacier’s assets that is higher than our projected 4.7% five-year
CAGR.
• For 2016-2020, we model a 5.6% interest income CAGR and a 17 bps
increase in net interest margin. However, if the Fed raises rates more
aggressively than we anticipate, such forecasts may be too low.
• Glacier could undertake accretive acquisitions that boost its growth rate
beyond our expectations.
Risks:
• Glacier’s past loan growth rates are skewed high by acquisitions. Hence our
five-year organic loan CAGR of 4.5%, relative to the non-organic 10%
historical rate.
• We expect national and regional GDP in the 2-2.4% range, fostering an
organic total asset CAGR of 4.7% the next five-years, slightly lower than the
non-organic 6% historical rate.
• The Fed will continue to raise rates cautiously, triggering a 17 bps increase
in Glacier’s net interest margin. While welcome, such a boost will not
accelerate Glacier’s profitability enough to make it an attractive stock.
• Increased regulatory costs from reaching $10B in total assets in 2017 and
price competition on fees will contribute to a lower net income CAGR of
4.5% the next five-years, relative to the 15% historical rate.
$22.61
$21.15
$23.64
$24.36
$21.90 – 30.29
$26.50
$1.87
76.17
76.50%
1.35
3.28%
10.00%
16.00
13.81
1.72
3.68%
3.54%
1.34%
Target Price
Henry Fund Equity DCF
Henry Fund DDM
Relative P/B
Price Data
Current Price
52wk Range
Median 1yr Target
Key Statistics
Market Cap (B)
Shares Outstanding (M)
Institutional Ownership
Beta
Dividend Yield
Est. 5yr Growth
Price/Earnings (TTM)
Price/Earnings (FY1)
Price/Book (mrq)
Profitability
Net Interest Margin
Net Interest Spread
Return on Assets (TTM)
Return on Equity (TTM) 11.04%
Earnings Estimates
Year 2013 2014 2015 2016E 2017E 2018E
EPS $1.31 $1.51 $1.54 $1.63 $1.71 $1.78
growth 24.47% 15.60% 1.76% 5.80% 5.31% 4.09%
12 Month Performance Company Description
Glacier Bancorp is a bank holding company that
owns and operates 144 branches across 6 states
in the Rocky Mountain region. Glacier provides
commercial bank services, ranging from
mortgages to working capital financing for small
to medium sized businesses. Glacier currently has
approximately $9B in assets, and is expected to
surpass the $10B mark in 2017.
Tearsheet sources: Yahoo! Finance; FactSet
1.7
11.0
3.3
1.1
9.1
4.0
1.1
8.2
2.3
0
1
2
3
4
5
6
7
8
9
10
11
12
P/B ROE Div. Yield
GBCI Sector Industry
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
A M J J A S O N D J F M
GBCI S&P 500
Important disclosures appear on the last page of this report.
2. EXECUTIVE SUMMARY
In recent history, Glacier’s acquisitions have obscured its
unimpressive organic growth. Additionally, Glacier has
missed analyst EPS estimates the last 3 quarters and is
sensitive to the national and regional economies, which
continue to grow at a tepid pace.
Overall, the impossibility of predicting acquisitions, a
slowly moving interest rate environment, fee competition
and the regulatory constraints that come with a larger
balance sheet frames Glacier’s growth story.
Consequently, this five-year story is one of slow and steady
growth at about 4.7% compounded annually for assets,
4.5% for loans, 4.8% for revenue, and 4.5% for net income.
These growth assumptions drive our Equity DCF model,
which produces an intrinsic value of $22.61 and, in turn,
our $23 target price. Given that Glacier currently trades at
$24.36, it is overvalued by approximately 6.5%. Ultimately,
Glacier is a fine bank, but barring unforeseen
developments, it is not worth its current stock price.
COMPANY DESCRIPTION
Glacier Bancorp is a bank holding company headquartered
in Montana that offers commercial banking services
through 144 offices throughout the Rocky Mountain
region.i
The specific states Glacier operates in are:
Montana, Idaho, Wyoming, Colorado, Utah and
Washington. Glacier primarily takes deposits from and
makes loans to individuals, small to medium sized
businesses, community organizations, and public entities.ii
In terms of size, Glacier currently stands at approximately
$9B in total assets, growing at a 6% CAGR the past 5 years.
For the next 5 years, we expect that Glacier will continue
to grow but at a slightly slower rate of 4.7% CAGR. This
makes sense, as the historical figure is skewed high by
Glacier’s 5 acquisitions the past 3 years. Hence, our CAGR
represents expected organic growth.
Source: Glacier 10K; model projections
Regarding balance sheet makeup, like most banks,
Glacier’s assets primarily consist of loans and investment
securities. Historically, investment securities have made
up approximately 40% of Glacier’s assets, and loans have
made up about 51%.
Source: Glacier 10K
Moving forward, we expect this composition to shift to
approximately 35% in investment securities and 56% in
loans. We expect this shift because in 2014 and 2015
Glacier reduced its investment securities to about 36% of
its total assets and increased its loans to about 55% of its
total assets. Accordingly, we expect Glacier’s balance
sheet proportions to stay in line with the past 2 years,
more than 2013 and prior.
Source: Model projections
Within its asset structure, Glacier’s loan portfolio includes
residential real estate loans, commercial loans, and
consumer and other loans. In 2015, this portfolio was
weighted about 13% residential real estate, 74%
commercial, and 13% consumer and other.
Source: Glacier 10K
Page 2
3. We expect these weightings to shift slightly over the next
5 years, eventuating in a 15% residential real estate, 72%
commercial, and 13% consumer and other breakdown by
2020.
Source: Model projections
This small bump in residential real estate relative to
commercial loans is based on the somewhat rosier
forecasts for housing starts compared to commercial real
estate growth. Specifically, US housing starts are expected
to grow at a 12.20% CAGR the next 3 years, vs. a 9.92%
CAGR the past 3 years.iii
Source: FactSet
Conversely, commercial real estate establishments will
grow at a slower 1.87% CAGR the next 5 years, vs. a 2.28%
CAGR the past 5 years.iv
Source: IBISWorld
In short, both housing and commercial real estate are
expected to grow, but commercial real estate will grow
slower than its historical pace while residential will grow
faster. Thus, we expect Glacier to shift its loan composition
slightly away from commercial loans towards residential.
Loan Growth
Residential real estate loans finance the construction
and/or purchase of 1-4 family residences. Such loans are
secured by the developed land and/or the residence. The
credit risk borne by these loans hinges on macro and
regional economic factors that impact the market value of
the secured property and the borrower’s personal income.
Glacier attempts to offset such risk by lending to a large
number of borrowers, diversifying its geographic and
market area exposure, and originating loans for relatively
small amounts. Mortgage loans have a maximum loan-to-
value (“LTV”) ratio of 80% and loans for constructing the
residence have a maximum LTV of 75%. Given the
optimism of US housing starts discussed above, we expect
Glacier’s residential real estate loans to grow at a 6%
CAGR.
Commercial loans mostly relate to the purchase,
construction, and/or financing of commercial real estate
properties. However, this category also includes loans that
finance working capital, equipment, and expansion for its
small to medium sized business customers. Here, credit
risk depends on the macro regional economic
environment, as well as the borrower’s cash flow position.
Similar to the residential loans, commercial loans are
typically secured by the commercial property or
corresponding asset. The maximum LTV is 75% for
borrowers who will own and occupy the property and 70%
for investment/income properties. Given the decelerating
growth in US commercial real estate discussed above, we
expect Glacier to grow this portion of its portfolio at a 4%
CAGR, slightly lower than the residential portion.
Consumer and other loans consist of a wide-variety loans
ranging from junior lien home equity loans to automobile
loans. These loans tend be shorter-term in nature than the
residential and commercial categories, spanning
anywhere from 3-months to 15 years. Given the
hodgepodge disposition of this category, it is difficult to
use an economic variable as a proxy for growth
expectations here. Hence, we kept its percentage of the
overall loan portfolio stable, resulting in a 5% CAGR.
Page 3
4. In sum, we expect some organic loan growth, driven by the
housing and commercial data cited above. However, our
forecasted CAGR of 4.5% is quite a bit lower than the 2011-
2015 CAGR of 10%. But again, the historical figure is
skewed high by acquisitions. In fact, excluding its most
recent acquisition, Glacier’s annualized 4Q2015 loan
growth rate was 3.5%.v
Moreover, management expects
5% loan growth in 2016, so our annual forecast would be
in-line with that expectation.
The Other Side: Liabilities and Equity
As a commercial bank, Glacier primarily finances its assets
through deposits. In fact, deposits make up about 86% of
its liabilities, with the vast majority (70%+) being interest
bearing. We do not expect these proportions to change
going forward because the deposit make-up has been very
stable and consistent historically, and such make-up is
crucial to the banking business model.
Since Glacier can only invest and lend out what it is able to
bring in, its asset growth must be in line with its deposit
growth. Accordingly, since we expect Glacier’s investment
securities to grow at a 3% CAGR and its loans to grow at a
4.5% CAGR, we anticipate a 5% CAGR for deposits.
In terms of other sources of funding, Glacier enters into
repurchase agreements and takes FHLB advances. Both of
these sources combine for just under 9% of Glacier’s
liabilities, and the lack of clarity regarding both make such
funding sources nearly impossible to predict. Thus, we
kept both sources stable as a percentage of total liabilities
in our forecast. Of Glacier’s remaining liabilities, none
represents more than 1.15% of the total, and as such are
not significant enough to warrant attention in this section.
While deposits, in large part, dictate how much Glacier can
lend and invest, there is another controlling factor:
regulation. In particular, as a bank holding company,
Glacier is governed by the Federal Reserve, and in turn the
Basel Accords. While Basel is a set of international
guidelines, the Fed has decided to use Basel, along with
Dodd-Frank, to establish capital requirements for US banks
within its jurisdiction. Capital requirements mean that
Glacier must finance its assets with a minimum level of
equity. In other words, liabilities can only make-up so
much of the other side of Glacier’s balance sheet.
The minimum level of equity financing required depends
on the corresponding asset, and its perceived “riskiness.”
Glacier is required to assign a risk-weight to each of its
assets (i.e., “RWAs”), and such assignment determines
how much of that asset must be financed by equity.
Because RWAs are measured internally, and are not
disclosed to the public, we have no way of estimating or
projecting Glacier’s RWA capital ratios. However, there is
an overarching capital requirement that pertains to total
assets. This is known as the “Basel Leverage Ratio” or the
“Tier 1 Capital to Average Assets Ratio.”
Tier 1 Capital consists of share capital and retained
earnings. Currently, Tier 1 Capital must represent at least
4% of average total assets, and 5% to be considered “well-
capitalized.” Historically, Glacier has easily surpassed both
of these marks, typically sitting at or around the 12% mark.
Going forward, we expect Glacier to remain very, very
well-capitalized. More specifically, while we project
Glacier’s Basel leverage ratio to slightly drop to 11.36% by
2020, this is still more than double the current level of
“well-capitalized.”
Source: Glacier 10K; model projections
This makes sense, as a bank grows it becomes more
difficult and costly to maintain the same level of equity
financing as when it was smaller. Thus, Glacier will make
the conscious trade-off in favor of less equity financing as
it grows. However, this trade-off is essentially forced upon
Glacier as a byproduct of its increased size.
How Glacier Makes Money
As a bank, Glacier’s business model is quite simple: it
borrows at one rate, lends and invests at another, and
captures the difference between the two rates. The
income Glacier generates from loans and investments is
“interest income”, which makes up about 75% of Glacier’s
total revenue each year. The remaining 25% comes from
fees, selling loans/investments, and fair value adjustments
to certain assets.
Page 4
5. Source: Glacier 10K
We expect this mix to shift closer to 80/20 over the next 5
years, as modest rate hikes slightly boost interest income
and increased price-competition squeezes fees.
Source: Model projections
Within the interest income category, Glacier has
demonstrated a consistent breakdown, and as such do not
project any significant shifts.
Source: Glacier 10K; model projections
The primary driver of interest income is the yield of the
corresponding asset, or “earning asset yield” (“EAY”). In
turn, EAY is driven by the riskiness of the asset and the
overall interest rate environment. In holding risk constant,
especially given management’s preference to keep credit
quality consistent with historical standards, we focused on
the broader rate setting to forecast EAY.
In December, the Federal Reserve raised the fed funds rate
for the first time since 2006.vi
Specifically, the Fed raised
this benchmark rate from 0-0.25% to 0.25%-0.50%.
Initially, it was expected the Fed would hike rates four
times in 2016, but this expectation has since waned to two
times.vii
However, given the Fed’s cautious tone, we would
be surprised if rates increase 50 bps this year. Hence, we
expect the Fed to gradually raise rates (i.e., two to three
25 bps hikes) over the next two to four years, rather than
multiple times this year.
Our expectation regarding interest rate policy has
culminated in an EAY forecast that is higher than Glacier’s
historical average, but not astronomically so. More
specifically, Glacier’s EAY stood at a 3.93% average from
2011-2015 and we see this increasing to 4.19% for 2016-
2020. Thus, we see a 26 bps bump in EAY – not
insignificant, but not ground moving either; just like the
tone we expect for rate hikes.
Source: Glacier 10K; model projections
However, it’s important to note that interest rate hikes will
also impact Glacier’s borrowing costs. Specifically, we
forecast a 3.85% CAGR for interest expenses the next five
years, relative to a -6.41% CAGR from 2012-2015.
Nonetheless, we believe the expected rate environment
will disproportionately favor Glacier’s interest income
relative to its interest expense. This makes sense, if higher
rates impacted both sides of the income statement
equally, the entire banking business model would
breakdown.
Hence, Glacier, like any other bank, must be able to lend
at higher rates than it borrows, otherwise it would not
exist. Accordingly, we expect the higher fed funds rate to
positively impact Glacier’s profitability.
This expectation is best reflected in two measures: net
interest margin (“NIM”) and net interest spread (“NIS”).
Both are very similar metrics that essentially take EAY and
net it out for interest expenses. The only difference is that
when netting interest expense, NIM uses current year
Page 5
6. interest expense, whereas NIS adjusts the interest expense
by averaging the corresponding liabilities. In short, NIM
and NIS are the two main ways of viewing a bank’s
profitability.
We foresee both NIM and NIS growing slightly the next five
years. This is based on our 4 prong belief laid out above:
(1) asset risk is held constant; (2) very gradual fed funds
rate hikes; (3) very modest EAY increase as a result; (4)
even lesser increase in interest expenses.
Specifically, we see NIM reaching 3.85% in 2020, relative
to 3.68% in 2015 and NIS reaching 3.73% in 2020, relative
to 3.54% in 2015.
Source: Glacier 10K; model projections
In sum, we see Glacier’s profitability growing, but similar
to its asset growth, we see the pace being slow and steady.
This seems reasonable, barring a drastic change in Fed
policy – either in the volume or magnitude of expected
rate hikes.
The Curse of $10 Billion
As Glacier reaches the $10B mark in assets (expected by
both us and management to occur in 2017), it will be
subject to increased regulatory oversight. This will include
Federal Reserve stress tests, a higher FDCI surcharge, and
supervision from the Consumer Financial Protection
Bureau (“CFPB”). Such regulatory costs will also constrain
Glacier’s ability to organically grow at rates in line with its
historical numbers. More specifically, it is expected that
the costs of passing the $10B in asset threshold will range
from $8M-$12M a year.viii
This factor and the expected service and loan fee
compression (discussed in Markets and Competition
below), are the main contributors to our five-year net
income CAGR of 4.5% – significantly lower than the 15%
historical rate.
Source: Glacier 10K; model projections
Credit Quality
We would be remiss to project Glacier’s asset growth,
without accounting for the quality of such assets. One way
to chase growth would be to lower underwriting
standards, because more borrowers would be eligible and
thus loan volume would increase accordingly. However,
Glacier management does not appear willing to do this as
“ensuring strong asset quality” is crucial to their approach.
This approach can be measured in 2 ways: loan loss
provision (LLP) and allowance for loan losses (ALL). LLP is
an income statement account, that is charged against net
interest income. ALL is a balance sheet contra account to
loans receivable, and is essentially money set aside to fund
the LLP. In short, these accounts reveal a bank’s credit
evaluation ability and the riskiness of its loans.ix
Over the past five years, Glacier has averaged an ALL of
3.29% of its loans receivable. However, this average is a bit
skewed as the number was 3.97% in 2011 and decreased
every year to 2.55% in 2015. Accordingly, we projected an
ALL of 2.50% for the next 5 years. Similarly, while Glacier’s
LLP 5-year average is 0.23% of loans receivable, it has
demonstrated a downward trend, leading us to forecast a
LLP of 0.10% relative to loans receivable.
In sum, it seems that Glacier is becoming a more prudent
lender as both its ALL and LLP tick down. This indicates that
Glacier is unlikely to sacrifice credit quality for loan
growth. In other words, many banks face a trade-off: lower
standards to boost loan volume, or keep high standards at
the expense of lower loan growth. Glacier is veering
towards the latter, which will likely inhibit its organic loan
growth going forward – contributing to our overall slower
loan growth story for Glacier.
Page 6
7. Variable Interest Entities
A Variable Interest Entity (“VIE”), is the not-so-distant
relative of the Special Purpose Entity and Special Purpose
Vehicle – the creatures that companies such as Enron used
for esoteric transactions to hide debt. More formally, a VIE
is legal entity that does not have enough equity to finance
its operations without subordinated borrowing from third
parties. Alternatively, an entity can be a VIE if its
shareholders do not have the power to make significant
decisions and/or do not absorb a proportionate share of
the losses/returns of the VIE.
Certain VIEs need to be consolidated on Glacier’s balance
sheet, but others do not. Specifically, if Glacier is the
primary beneficiary of the VIE it must consolidate it,
otherwise it is not required to do so. Currently, Glacier
reports two consolidated VIEs, both of which have lost
money the last two years (approx. $2M per year total). The
losses have resulted in income tax credits, which may
explain why Glacier owns these particular VIEs. In other
words, Glacier could be dumping bad assets into the VIE to
generate a loss that triggers a tax credit. In total, as of
December 2015, the two VIEs have approx. $65M in assets
and about $6.3M in liabilities. But even these assets
include the always convoluted “other” category, further
complicating the evaluation of the VIEs.
However, at least the above two VIEs are in the financials.
More worrisome is the unconsolidated VIEs, which Glacier
does not have to include in its financial statements. As of
December 2015, Glacier owns seven VIEs that are
unconsolidated. Glacier claims that these VIEs are used to
issue trust preferred securities as Tier 1 Capital
instruments. Trust preferred securities are essentially a
hybrid debt/equity that get the tax treatment of debt, but
regulatory treatment as equity (think back to Basel).x
Thus,
it appears Glacier is using an off-balance sheet entity to
financially engineer a hybrid security for tax and regulatory
benefits. While most likely within the letter of the law,
such dealings make us uncomfortable as investors.
Moreover, these unconsolidated VIEs have no other
assets, money, or purpose other than issuing trust
preferred securities. Also confusing, Glacier states that it
“reports the trust preferred securities issued to the [VIEs]
as subordinated debentures…” but that seems backwards.
If the whole point of the VIE is to issue trust preferred
securities, it is unclear why Glacier would issue the same
thing “to” the VIE.
Perhaps most concerning, Glacier fully guarantees all
obligations of the unconsolidated VIEs. This means Glacier
is potentially liable for whatever the VIEs owe, an amount
that is unknown because the VIEs are unconsolidated.
Given that the VIEs have no real assets or operations, it is
not implausible that any one (or several) of them could
default on some unidentified obligation, leaving Glacier on
the hook. In simplest terms, as long as Glacier fully
guarantees obligations of VIEs that are completely left off
the balance sheet, we have no idea what Glacier’s true
liability exposure actually is.
We are quite alarmed by the nature of Glacier’s VIEs.
Unfortunately, we cannot directly account for them in our
model because they’re unconsolidated. Nevertheless, we
will certainly consider this VIE factor in our overall
evaluation of Glacier’s stock.
RECENT DEVELOPMENTS
Recent Earnings
Glacier has struggled to meet analyst estimates recently.
Specifically, in Q2, Q3, Q4 2015, Glacier has missed the
mean analyst EPS estimate by 2 cents, 3 cents, and 1 cent,
respectively.xi
Additionally, analysts have revised their EPS
forecasts for FY2016 over the past year, from a $1.78 mean
estimate last April to a $1.65 mean estimate this month.xii
We forecast a $1.63 EPS for Glacier in FY2016, which
seems in line with recent history and analyst sentiment. As
for FY2017, we project a $1.71 EPS, which is currently 7
cents lower than the mean analyst estimate.xiii
However,
this gap may be overstated if analysts end up revising their
FY2017 downward, as they have for FY2016 this past year.
Source: Glacier 10K; model projections; FactSet
Page 7
8. Glacier’s recent inability to meet analyst EPS estimates
further bolsters our case that Glacier will not achieve rapid
growth in the next 5 years. Relatedly, we see slow and
steady EPS growth for Glacier, averaging 4.32% annually
for the next 5 years.
It’s also worth noting that Glacier paid a “special dividend”
of $0.30 in 2014 and 2015. This bumped the annual
dividend up to $0.98 and $1.05 respectively. Going
forward, management has specified that earnings, asset
quality, and regulations, will dictate the size and type of
dividend Glacier pays out.xiv
Additionally, Glacier
announced in March that it will increase its Q1 2016
dividend 1 cent, to $0.20.xv
Glacier has paid a dividend for
124 consecutive quarters and increased its dividend in 40
of those quarters.xvi
In short, Glacier is generous with its
dividends and we expect it to remain so for the next 5
years.
Source: Glacier 10K; model projections
The increasing trend in Glacier’s payout ratios also
strengthens our case for slow growth moving ahead. In
other words, this indicates that Glacier is becoming more
of a “mature” company, and needs to pay its shareholders
in dividends what its unable to return in growth/price
appreciation.
Acquisitions
Glacier bought two banks in 2013, one in 2014, and two in
2015. Relative to the size of Glacier’s balance sheet,
approx. $9.1B currently, these acquisitions were not large.
Specifically, the transaction value for each was: $43M,
$35M, $31M, $23M, and $32M.xvii
The targets were all
smaller regional and/or community banks in Wyoming,
Washington, Montana, and Colorado (2x).
All of these deals seem to have integrated smoothly, and
from what we can glean, have not had an adverse impact
on Glacier’s balance sheet. Strategically, Glacier wants to
increase its Colorado presence.xviii
Hence, the two
acquisitions there in the past two years. This makes sense
given Colorado’s 2014 GDP of 4.7% (most recent data),
relative to 2.4% for the US.xix
The acquisition of a
community bank in Montana last year stems from Glacier’s
desire to increase the scale of its larger bank holdings in
existing markets.xx
Although these deals have gone well and seem to have
smart strategic reasoning behind them, over-reliance on
acquisitions for growth is not sustainable. Since
acquisitions are impossible to predict, we have not
forecasted any in our asset growth projections. However,
if Glacier begins to use acquisitions as its main impetus for
growth, this would indicate that Glacier is unable to grow
organically at an accelerating rate. Accordingly, our
assumptions about steady, but slower, organic growth for
Glacier are more likely to be correct.
Managerial Change
Although it’s unclear what impact, if any, this will have on
the share price, it is worth noting that Glacier will be
changing CEOs soon. Michael Blodnick, the CEO of 18
years, is set to retire, and Randy Chesler will take over
effective January 1, 2017.xxi
Mr. Chesler joined Glacier in
August 2015 as a President, with the full intention of him
succeeding Mr. Blodnick. In other words, the succession
plan has been in place for months already, and ideally this
should help smoothen the transition.
Mr. Chesler has 31 years of experience in banking and
credit card services, including stints at Visa and Citi.
xxiii
xxii
He
was also the CEO of a start-up tech company that was
eventually acquired by First Data. And perhaps, most
relevant, he was a President at CIT Group, helping it grow
from $300M to $20B in loans, where he spent time in Salt
Lake City, UT – a state where Glacier has several offices.xxiv
On paper, Mr. Chesler appears well-equipped to take over.
While we are unsure how well this move will translate, and
thus have not accounted for it in our forecasts, a CEO
change is still significant enough to warrant a mention.
INDUSTRY TRENDS
Consolidation
The US commercial banking industry is currently more
consolidated than at any point in modern history. For
example, in 1975 there were 14,268 commercial banks in
the US, 10,451 in 1994, 7,283 in 2007, and 5,410 as of
September 2015.xxv
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Dividendpershare 0.60 0.98 1.05 1.11 1.20 1.25 1.33 1.37
DividendPayoutRatio 46% 65% 68% 68% 70% 70% 72% 72%
Page 8
9. Source: S&P Capital
This long-term trend is further illustrated by the revenue
allocation within this historically small volume of banks.
Specifically, of the 82 banks in the S&P 1500 banks
industry, the six largest banks (JPMorgan Chase, Wells
Fargo, Bank of America, US Bank, Citi, and PNC Financial)
produced 79% of the US banking industry revenue, vs. 21%
for the 76 regional banks. xxvi
Source: S&P Capital
Bank M&A activity is also related to this trend. While such
activity took a slight dip in 2015 relative to 2014, it is still
on an upward trajectory since the financial crisis.
S&P Capital
It is clear that consolidation in this industry is not merely a
transient occurrence but a multi-decade trend. Going
forward, we anticipate that continued M&A activity as a
vehicle for growth, combined with higher regulatory costs,
will further concentrate the broader US banking industry.
However, the impact this will have on Glacier specifically is
unclear. Historically, Glacier has been a buyer, but it is not
out of the realm of possibility that a larger bank could eye
the Rocky Mountains and make Glacier a potential target.
Digital Dash
We are living in a digital world, where consumers
increasingly prefer to handle payments and banking
electronically. More specifically, fewer people are using
branches and ATM, while more people are using online
and mobile banking.
Source: Statista
The banking industry has responded accordingly. Per the
most recent data, the top 15 banks, by number of
branches, combined to close 794 branches in 2014.
Source: St. Louis Federal Reserve; FDIC
Rank (2014) Bank Name
2013-14
change in
branches
1 Wells Fargo 17
2 JPMorgan Chase -15
3 Bank of America -305
4 US Bank 98
5 PNC Bank -127
6 Branch Banking and Trust -8
7 Regions Bank -36
8 SunTrust Bank -69
9 Fifth Third Bank -22
10 TD Bank -7
11 KeyBank -41
12 Citibank -73
13 Capital One -38
14 Citizens Bank -140
15 Woodforest National Bank -28
Page 9
10. Additionally, North American banks are expected to
increase their investments in new technology by about
17% in 2017, relative to 2015.
Source: Celent
Also, while we could not find a delineated number, it
seems that just about every bank now has a mobile
application. In short, as the customer becomes
increasingly digital, banks are cutting unnecessary physical
presences and investing more in new tech – including
mobile apps.
Glacier seems to be somewhat resilient to branch
reduction and tech development. For example, Glacier has
consistently increased its number of branches by about
35% the past 5 years (106 to 144). We see growth here
continuing for the next five years but not as aggressively
(i.e., 12.5% or 144 to 162).
This is reasonable because the higher rate of branch
expansion in 2013-2015 stems from acquisitions, and we
are unable to forecast those.
Source: Glacier 10K; model projections
As for technology, Glacier does not report any related line
items, so we cannot discern its level of tech investment.
Also, while Glacier does have a mobile banking app, the
app does not seem to be widely used. iPhone data was not
available, but the app only has 5,000-10,000 installs on
android software.xxvii
xxviii
The app does seem to be somewhat
well-received though, as its average rating is 4/5 stars,
based on a sample-size of 95.
Our inclination is that Glacier’s size and geographic
footprint explains this. Glacier is a much smaller bank,
relative to the top 15 highlighted above, with a focus on
non-metropolitan areas. In other words, rural area bank
customers are not as tech driven as those in metropolitan
areas. In fact, 32% of bank customers who owned a mobile
phone and lived in “remote areas of the US” used mobile
banking in 2015, vs. 39% in “non-remote areas.”xxix
MARKETS AND COMPETITION
The overall US commercial banking market stands at
approximately $460B as of 2015.xxx
We know that this
revenue is split about 80/20 diversified and regionals (see
Industry Trends section above). Accordingly, Glacier, at
total revenue of about $419M only represents 0.09% of
the of the overall market, and about 0.45% of the more
relevant regional banking market. Thus, Glacier is a very
minor player in the banking world, even by regional bank
standards.
It is unlikely that Glacier will ever be able to compete on a
national scale with the large regional banks, let alone the
diversified conglomerates. Part of this is by design, and
part of this is by circumstance. Glacier will never have the
investment banking deals or trading desks that the big
banks have. But it does not appear that Glacier desires
such activities to be part of its operations.
In terms of its geographic niche, Glacier seems to be doing
decent. As of June 2015, Glacier had the following share of
FDIC insured deposits:
Given Glacier’s size and the rurality of its markets, its main
competitors are smaller savings banks, community banks,
and credit unions. This indicates that Glacier’s particular
space is more fragmented and competitive than the
broader commercial banking industry. Such competition
could put a squeeze on Glacier’s profitability, especially for
non-interest items such as fees. This is why we have
Glacier DepositShare(per countypresence)
Wyoming Montana Utah Idaho Colorado Washington
Counties 8 13 3 9 9 6
Depositshare 26% 24% 11% 7% 5% 4%
Page 10
11. forecasted “misc. fees” to grow 0% for the next 5 years (vs.
the 2.75% historical average), and “service fees” at 4% (vs.
the 6.75% historical average).
Source: Glacier 10K; model projections
Glacier also notes that it is facing increasing competition
from “internet-based competitors.” Younger tech
companies are now offering an assortment of services that
were historically provided by banks only.
xxxii
xxxi
For example,
Lending Club is an online platform that enables peer-to-
peer personal loans, business loans, and elective medical
procedure financing. Such companies are collectively
referred to as “FinTech.”
While the exact magnitude of the FinTech threat is
uncertain, the increasing money pouring into the
companies shows that it is worth keeping in mind.
Source: Accenture
It will be interesting to see whether banks respond to the
FinTech boom competitively or attempt to form
partnerships with FinTech to prevent destructive
competition. As noted in the “Digital Dash” trend above,
banks are increasingly investing more in new technology.
It is reasonable to assume that such investments are not
only a response to customer preferences, but also a tool
for mitigating the FinTech threat.
One the one hand, given Glacier’s size and geographic
profile, it could be somewhat insulated from the effects of
FinTech. On the other, the fact that Glacier mentions
competition from “internet-based competitors” in its
annual report indicates that it is cognizant of FinTech.
Nonetheless, without a word on tech strategy or a line
item dedicated to technology, it is impossible to predict
how Glacier will respond – let alone account for such
response(s) in our model.
Peer Comparisons
We defined Glacier’s peer group as other regional banks
that have comparable market caps (+/- $2B), asset
amounts (+/- $5B), trade multiples and offer the same
services. This narrowed the field to 4 peers: CVB Financial
(“CVBF”), Cathay General (“CATY”), First Interstate
(“FIBK”) and Western Alliance (“WAL”). CVBF operates
exclusively in California; CATY operates in California,
Illinois, Massachusetts, Maryland, New Jersey, New York,
Nevada, and Washington; FIBK operates in Montana,
Wyoming, and South Dakota; WAL operates in Arizona,
California, and Nevada.
Source: FactSet
Other than WAL, which is clearly crushing the competition,
Glacier outperforms its peers. Per NIM, the best measure
of bank profitability, Glacier is more profitable than 3 of
the 4 by at least 16 bps. This may not sound like a lot, but
for banks every 1 bps matters. Looking at ROE, again
Glacier does well against 3 of the 4, and this holds even
when adjusted for leverage, as evident by the ROA
numbers. It does seem odd that Glacier is the most levered
GBCI CVBF CATY FIBK WAL
Market Cap (billions) 1.86 1.78 2.29 1.24 3.4
Assets FY15 (billions) 9 8 13 9 14
Loans FY15 (billions) 5.08 4.02 10.16 5.25 11.1
LLP FY15 (as % of loans) 0.05% -0.14% -0.11% 0.13% 0.03%
ALL FY15 (as % of loans) 2.56% 1.47% 1.37% 1.47% 1.07%
ROE FY15 11.04% 10.95% 9.62% 9.34% 14.99%
Debt:Equity FY15 88% 83% 47% 65% 25%
ROA FY15 1.33% 1.31% 1.30% 1.00% 1.68%
NIM FY15 3.68% 3.52% 3.39% 3.46% 4.51%
P/B FY15 1.87 1.95 1.45 1.39 2.32
Page 11
12. in this group since it far surpasses Basel’s “well-
capitalized” standard. In other words, Glacier would not be
considered too levered in absolute terms, but appears to
be relative to its peers.
In terms of lending standards, while Glacier is becoming a
more prudent lender (see Company Description above), it
is still not as prudent as its peers. This is indicated by
Glacier’s highest ALL number, and second highest LLP
number, among its four closest comparables.
In sum, Glacier stacks up well versus every competitor but
WAL. It appears that WAL is benefiting from its focus on
tech lending – something none of the other peer members
do.xxxiii
xxxiv
More specifically, its presence in Silicon Valley
enables it to provide loans to tech companies, which
seems to be quite profitable. The market seems to
appreciate WAL’s performance, hence its relatively high
P/B. Unfortunately for Glacier, none of its geographic
markets present the growth opportunities that tech in
Silicon Valley does. Thus, while Glacier performs solidly
overall, unless a particular sector takes off that is unique
to Glacier’s territory, it will suffer an inherent
disadvantage versus the likes of WAL.
ECONOMIC OUTLOOK
Bank performance largely hinges the state of the overall
economy. For regional banks, such as Glacier, the 6 state
economies, in which it operates, are also crucial. Key
variables such as housing, commercial real estate, and the
fed funds rate have been covered sufficiently above.
Therefore, this section will focus on GDP and
unemployment, both nationally and regionally.
GDP
Real US GDP has grown at 2.4% the past 2 years, and
economists project it to grow at 2.1%, 2.4%, and 2.0% the
next 3 years.xxxv
The Henry Fund’s most recent 2-year
outlook produced a median of 2.3% real US GDP. In other
words, the post-crisis status quo of sluggish growth is likely
to endure. Such expectations support our case for very
gradual and modest rate hikes, and in turn, slight EAY
increases for Glacier moving forward.
Regionally, forecasts are unavailable and the most recent
data we have the six Glacier states is 3Q 2015. In 2013-
2015 these states, per a simple average, have
outperformed the US, but in 2010-2012 the US fared
better.
Source: FactSet; US Joint Economic Committee
Therefore, there is a bit of conflict in the available data,
making it nearly impossible to predict which relationship
will hold. Thus, we assume that the states’ GDP will grow
in line with the US overall, further bolstering our case of
moderate organic growth for Glacier.
Unemployment
Unemployment has decreased drastically, nationally and
in the Glacier region, since recession. More specifically,
national unemployment has dropped by 5% and the 6
Glacier states, on average, dropped by 4.38%.xxxvi
xxxvii
Currently, the average unemployment rate of the 6 Glacier
states stands at 4.22% versus the US at 5%.
Source: US Joint Economic Committee
Given the capacity of labor markets, we believe we are at,
or near, full employment nationally, hence our median
unemployment forecast of 4.80% for the next 2 years.
Since the Glacier states’ average unemployment rate is
even lower than the national rate, it is likely that it has
even less room to budge. In other words, we do not believe
that the regional unemployment rate will decrease much
more during our forecast period.
Page 12
13. In sum, national and regional GDP will continue to plod
along, and unemployment will remain stable at or near its
current level. This economic view contributes to our belief
that Glacier will grow, organically, at a slow and steady
pace for the next five years.
CATALYSTS FOR GROWTH
• Interest rate hikes
• Higher GDP growth, nationally and regionally
• Continued low unemployment
• Accretive acquisitions
• Increase in housing starts and commercial real
estate activity
INVESTMENT POSITIVES
• Glacier is very well-capitalized, with a Basel
leverage ratio that is double the “well-capitalized”
standard (12% vs. 5%).
• Glacier has shown an ability to execute successful
acquisitions, including 5 in the last 3 years.
• Glacier is becoming a more prudent lender, as
evidenced by its lower LLP and ALL percentages in
recent years.
• Glacier fares well in terms of profitability (i.e.,
NIM, ROE, ROA) relative to 3 of its closest peers.
• Even modest, infrequent, rate hikes should help
boost Glacier’s interest income.
• Regional GDP has recently outpaced US GDP,
potentially creating a geographic competitive
advantage for Glacier.
INVESTMENT NEGATIVES
• Acquisitions have masked Glacier’s lack of organic
growth. For example, in 2015, organic loan growth
was 3.5% vs. 8% when accounting for acquisitions.
• Glacier has missed analyst EPS estimates for 3
consecutive quarters now.
• National GDP continues to be sluggish, impeding
rate hikes and lending activity (both of which
boost interest income).
• While regional GDP has outperformed national
GDP the last 3 years, over a larger sample size, that
trend does not hold up.
• Both us and management expect Glacier to
surpass the $10B assets mark in 2017. This mark is
significant in that it brings additional regulatory
pressures that will cost $8M-$12M annually.
• The commercial real estate market appears to be
growing at a decelerating rate, which will likely
hurt Glacier’s growth prospects in its largest loan
portfolio segment.
VALUATION
Glacier currently trades at a market price of $24.36, and
none of our models produce an intrinsic value above
$23.64. Hence, our SELL recommendation.
Projections already covered: Our predictions and
underlying reasoning for assets, loan portfolio, deposits,
EAY/interest income, profitability, and LLP/ALL have been
explained at length in the Company Description.
PP&E: Branch growth, which was discussed in the Industry
Trends, drives the relevant property asset projections. This
is because the number of branches dictates the land,
space, furniture, etc. needed for Glacier. We took the 4
related balance sheet accounts (land, office buildings,
furniture, and leasehold improvements) and examined the
value per branch ratio. For example, land per location had
a historical average ratio of 224, but a declining trend
(from 236 to 209 the past five years). Therefore, we used
an average ratio of 205 to arrive at our “land” projections.
The same process was used for the three other related
accounts. It’s also important to note that branch size
drives two income statement items (“compensation” and
“occupancy and equipment”). For example, equipped with
the historical numbers for employees and branches, we
were able to discern an employee per branch ratio and
project accordingly.
Remaining assets: We forecasted “other real estate
owned” (a label for foreclosures) as a percentage of
beginning loans receivable because foreclosures tend to
be related to the loans used to purchase the real estate.
The historical average here was 0.84%, but has declined
from 1.30% to 0.60% the past five years. Therefore, we
projected this item at 0.55% of loans receivable in our
model.
“Accrued interest receivable” was measured as a
percentage of interest income, since it is essentially
interest income owed to Glacier that has yet to be repaid.
The historical average has been stable around 14%. Thus,
Page 13
14. we projected this item at 14.14% of interest income in our
model.
We forecasted “other assets” as a percentage of beginning
total assets to avoid a circular reference. The historical
average was 0.75%, but has grown from 0.58% to 0.86%
over the past five years. Therefore, we projected “other
assets” at 0.95% of beginning total assets in our model.
We amortized the “core deposit intangible” according to
the schedule provided in Glacier’s most recent 10K. This
also led to the related amortization expense on the income
statement.
We forecasted “non-marketable equity securities” at 50M
going forward. There is very little information about this
account in Glacier’s footnotes, and no relationship to base
a solid projection on here. However, in four of the past five
years this account has stayed between $48-$53M,
therefore $50M seemed like a safe bet.
Non-deposit liabilities: We projected a CAGR of 5% for
“repurchase agreements” in line with deposit growth,
since it is another form short-term funding. Additionally,
this number is in line with the 7% outlier-adjusted
historical growth rate. “Subordinated debentures” has
grown exactly at 0.11% every year the past five years, and
we saw no reason to change that growth rate for our
model. The remaining liabilities were all projected as a
percentage of beginning total liabilities to avoid circular
reference, and in line with the historical averages.
Non-interest income: The two fee account projections and
assumptions were explained adequately in the Markets
and Competition section. “Gain on sale of loans” and
“other income” are unpredictable accounts, and displayed
no useful trends. Therefore, we used a 3-year rolling
average for these two accounts in our model forecasts.
“Gain (loss) on sale of investments” was even more volatile
and impossible to predict so we set that at 0 in our model.
Interest expense: Each interest expense item was
projected as a percentage of the corresponding average
liability. For example, “deposits” historically represented
about 0.30% of average “interest bearing deposits”, we
adjusted this up five bps to 0.35% in our forecast because
of the expected modest rate hikes. The remaining
accounts were projected the same way.
Non-interest expense: “Compensation and employee
benefits” and “occupancy and equipment” projections
were already discussed above. As was “core deposit
intangible amortization.” The remaining accounts in this
section were projected in line with historical averages
adjusted for any consistent trend displayed or a rolling
average if no trend existed.
Risk premium: The Henry Fund consensus is 5%.
Beta: We used a Beta of 1.20 because this was the median
of the weekly Betas over the last five years, as calculated
by Bloomberg.
CV growth: We believe long-term nominal US GDP will be
about 3.30%-3.60%. Thus, we set Glacier’s CV growth rate
at 2.50% since we do not expect it outgrow the economy.
US GDP is the appropriate benchmark as Glacier has no
international operations.
DDM: The DDM produced a price of $21.15, just lower
than the Formal FCFE and Simple FCFE/EEP numbers of
$22.61 and $21.84, respectively. This likely stems from
slightly higher FCFE growth projections relative to dividend
growth projections. We analyzed the payout ratio in the
Recent Developments section. Such analysis is also
supported by our cash projections – as Glacier has more
cash, it will look to distribute it accordingly.
Relative valuation: As a bank, price-to-book (“P/B”) is the
most appropriate relative valuation model here. This
produces a price of $23.64, the highest of all our models.
This likely means that the market is slightly more
optimistic about the regional bank industry’s growth
prospects than we are. However, this difference is
insignificant given that our Formal FCFE model gives a
price of $22.61 – about a $1 difference. The peer group
used to arrive at the P/B multiple was explained in the
Markets and Competition section.
Henry Fund vs. other analysts: Our EPS projections
relative to analyst estimates was analyzed in the Recent
Development sections. While our target prices differ a bit,
$23 vs. a median analyst target of $26.50, some of our key
projections are pretty close. For example, we project a net
income of about $124M next year, while analysts project
$125M. The gap slightly increases for 2017, as we foresee
net income of $130M, while analysts are a bit more
optimistic at $135M. In terms of total assets, both us and
analysts expect Glacier to reach about $9.5B in 2016, and
about $10B in 2017. In short, both parties are envisioning
similar growth for Glacier regarding overall size, but
Page 14
15. analysts believe that Glacier will be able to churn a bit
more income from such assets going forward.
Model evaluation: We used the Formal FCFE model to
determine our target price. The Formal FCFE model is the
most comprehensive model, and thus best captures the
underlying economics of Glacier and its operations. More
specifically, it accounts for the value that banks create
using both sides of the balance sheet. Additionally, the
model is quite robust – as can be seen in our sensitivity
analysis. We tested several variables, including beta, risk
premium, EAYs, growth rates, etc., and in the vast majority
of scenarios the price was lower than the current market
price. For example, it would take a 100 bps decrease in risk
premium, at the same beta level, for the price to turn
bullish. Another scenario, would require an investment
securities yield, for the next five years, 80 bps higher than
the previous five years – a big jump given how precious
every 1 bps is in today’s rate environment.
In sum, the Formal FCFE best reflects the fundamentals of
Glacier’s business and our beliefs about its future.
Accordingly, we used the Formal FCFE price of $22.61 as
the benchmark for our $23 target price. This represents
about a 6.50% discount to current market price.
KEYS TO MONITOR
• Randy Chesler – how the new CEO handles
managing Glacier, what his vision is, how he
implements it, etc. will have a major impact on
Glacier’s future.
• Analyst expectations – whether Glacier will
continue to miss analyst EPS estimates and/or
whether analysts continue to revise their EPS
estimates downward.
• The Fed Funds rate – the rate at which it rises will
largely dictate how Glacier’s income and net
interest margin perform.
• National and regional GDP, housing, commercial
real estate, and unemployment – these variables
largely influence Glacier’s lending activity and
overall growth trajectory.
• Consolidation (or lack thereof) relating to VIEs – if
Glacier beings to take more VIEs off the balance-
sheet it could present red flags about its true
liability exposure.
• Customers and technology – if Glacier’s customers
being to prefer a more digital banking experience,
Glacier will have to increase its investments in that
area accordingly.
• Regulatory environment adaptability – as Glacier
surpasses the $10B in asset mark, how it manages
the associated regulatory costs will be imperative.
• Credit quality – whether Glacier’s LLP and ALL
numbers continue to signal a firm belief in high
underwriting standards, or if Glacier will begin to
sacrifice such standards in favor of easier growth.
• Continued M&A activity – whether Glacier
continues to be a buyer in the bank M&A market
or becomes a target at some point.
Ultimately, we are not confident that Glacier will achieve
the accelerated growth, organically, necessary to justify its
current market price. This belief is founded in the sluggish
macro-economic growth environment, the expected pace
of small rate hikes, a lack of comfort with Glacier’s VIEs,
and the associated costs that come with a bigger balance
sheet. While it is plausible that Glacier could undertake
acquisitions that amplify its growth enough to potentially
alter this recommendation, we cannot base our reasoning
on such inherent uncertainties. Hence, Glacier is currently
overvalued at $24.36, by about 6.50%, and we recommend
a SELL.
Page 15
16. REFERENCES
i
Glacier Bancorp 10K, February 2016
ii
Note all the historical facts and explanations in this section
relating to Glacier, its structure, loan definitions/categories,
Basel, management, VIEs, etc. are from its most recent 10K
iii
FactSet, Economics, US, Estimates, Country Summary, April
2016
iv
IBISWorld, US Commercial Real Estate Key Statistics
v
ThompsonONE, Piper Jaffray Company Note, “More Selective
Appetite Calls for Slower Growth Outlook; Trimming Estimates
and Price Target”, February 2016
vi
Federal Reserve Bank of St. Louis, Economic Research, March
2016, https://research.stlouisfed.org/fred2/series/FEDFUNDS
vii
Torres, Craig. “Yellen Says Caution in Raising Rates is
‘Especially Warranted’”, Bloomberg, March 2016,
http://www.bloomberg.com/news/articles/2016-03-29/yellen-
says-caution-in-raising-rates-is-especially-warranted-
imdmq9pu
viii
Buckley, Phil. “What does the $10 billion asset barrier mean
for banks?”, Precision Lender, March 2016,
https://precisionlender.com/blog/resources/podcast/10-
billion-asset-barrier-for-banks/
ix
Net Advantage, S&P Capital Industry Surveys, “Banks”,
February 2016
x
Investopedia, Trust Preferred Securities – TruPS, April 2016,
http://www.investopedia.com/terms/t/trustpreferredsecurity.
asp
xi
FactSet, Company/Security, GBCI-US, Estimate History, April
2016
xii
FactSet, see viii
xiii
FactSet, see viii
xiv
Glacier 10K, see i
xv
GlobeNewswire, “Glacier Bancorp Inc. Increases Quarterly
Dividend”, March 2016,
http://finance.yahoo.com/news/glacier-bancorp-inc-increases-
quarterly-221410759.html
xvi
GlobeNewswire, see xii
xvii
FactSet, Company/Security, GBCI-US, Transactions, Deal
Summary, April 2016
xviii
Glacier 10K, see i
xix
FactSet, Economics, US, National Accounts, GDP by State,
April 2016
xx
Glacier 10K, see i
xxi
Glacier 10K, see i
xxii
LinkedIn, Randy Chesler, April 2016,
https://www.linkedin.com/in/randallchesler
xxiii
LinkedIn, see xix
xxiv
LinkedIn, see xix
xxv
S&P Capital, see viii
xxvi
S&P Capital, see viii
xxvii
Google Play, April 2016,
https://play.google.com/store/apps/details?id=com.fi6205.god
ough&hl=en
xxviii
Google Play, see xxvi
xxix
Heggestuen, John. “Mobile banking adoption lags in rural
areas”, Business Insider, April 2015,
http://www.businessinsider.com/mobile-banking-adoption-
lags-in-rural-areas-2015-4
xxx
S&P Capital, see viii
xxxi
Hart, Patricia. “Banks Are Right To Be Afraid of the FinTech
Boom”, Time Magazine, July 2015,
http://time.com/3949469/financial-technology-boom/
xxxii
Lendingclub.com,
https://www.lendingclub.com/public/about-us.action
xxxiii
Nasdaq, “Tech Lending Gives New Lift To Western Alliance
Bank”, November 2015, http://www.nasdaq.com/article/tech-
lending-gives-new-lift-to-western-alliance-bank-cm538498
xxxiv
Nasdaq, see xxxiii
xxxv
FactSet, see iii
xxxvi
State Economic Snapshots, Joint Economic Committee,
United States Congress, March 2016,
http://www.jec.senate.gov/public/_cache/files/d34ae724-
6397-42bb-96a9-980e306b2b92/jec-state-economic-
snapshots-march-2016.pdf
xxxvii
United States Congress, see xxxvi
IMPORTANT DISCLAIMER
Henry Fund reports are created by student enrolled in the
Applied Securities Management (Henry Fund) program at
the University of Iowa’s Tippie School of Management.
These reports are intended to provide potential employers
and other interested parties an example of the analytical
skills, investment knowledge, and communication abilities
of Henry Fund students. Henry Fund analysts are not
registered investment advisors, brokers or officially
licensed financial professionals. The investment opinion
contained in this report does not represent an offer or
solicitation to buy or sell any of the aforementioned
securities. Unless otherwise noted, facts and figures
included in this report are from publicly available sources.
This report is not a complete compilation of data, and its
accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the Henry
Fund may hold a financial interest in the companies
mentioned in this report.
Page 16
17. Glacier Bancorp
Revenue Decomposition (in thousands)
Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E (CV)
Avg. earning assets (beg. + ending/2)
Investment securities 3,452,917 3,065,627 3,110,629 3,370,807 3,488,785 3,602,020 3,700,943 3,793,466
YOY growth 1.41% ‐11.22% 1.47% 8.36% 3.50% 3.25% 2.75% 2.50%
Residential real estate 547,028 594,526 650,188 711,302 757,536 804,823 851,041 897,849
YOY growth 5.88% 8.68% 9.36% 9.40% 6.50% 6.24% 5.74% 5.50%
Commercial 2,590,094 3,082,366 3,498,483 3,817,521 3,989,310 4,158,636 4,314,381 4,465,384
YOY growth 13.23% 19.01% 13.50% 9.12% 4.50% 4.24% 3.75% 3.50%
Consumer and other 593,010 598,575 634,718 674,299 711,385 748,686 784,202 819,492
YOY growth ‐5.53% 0.94% 6.04% 6.24% 5.50% 5.24% 4.74% 4.50%
Total avg. earning assets 7,183,049 7,341,094 7,894,017 8,573,928 8,947,016 9,314,164 9,650,567 9,976,191
YOY growth 5.07% 2.20% 7.53% 8.61% 4.35% 4.10% 3.61% 3.37%
Interest income (net of tax effects, as reported on income statement)
Investment securities 74,512 93,052 91,086 101,124 104,664 108,061 111,028 113,804
YOY growth 12.24% 24.88% ‐2.11% 11.02% 3.50% 3.25% 2.75% 2.50%
Residential real estate loans 29,525 30,721 32,153 36,988 39,392 41,851 44,254 46,688
YOY growth ‐4.29% 4.05% 4.66% 15.04% 6.50% 6.24% 5.74% 5.50%
Commercial loans 127,450 145,631 164,966 185,150 193,482 201,694 209,247 216,571
YOY growth 4.96% 14.27% 13.28% 12.24% 4.50% 4.24% 3.75% 3.50%
Consumer and other loans 32,089 30,515 31,476 35,064 36,992 38,932 40,779 42,614
YOY growth ‐8.57% ‐4.91% 3.15% 11.40% 5.50% 5.24% 4.74% 4.50%
Total interest income 263,576 299,919 319,681 358,325 374,529 390,537 405,308 419,677
YOY growth 3.87% 13.79% 6.59% 12.09% 4.52% 4.27% 3.78% 3.55%
Interest income yield (interest income/avg. earning asset)
Investment securities yield 2.16% 3.04% 2.93% 3.00% 3.00% 3.00% 3.00% 3.00%
Residential real estate yield 5.40% 5.17% 4.95% 5.20% 5.20% 5.20% 5.20% 5.20%
Commercial yield 4.92% 4.72% 4.72% 4.85% 4.85% 4.85% 4.85% 4.85%
Consumer and other yield 5.41% 5.10% 4.96% 5.20% 5.20% 5.20% 5.20% 5.20%
Total interest income yield 3.67% 4.09% 4.05% 4.18% 4.19% 4.19% 4.20% 4.21%
Non‐Interest Income
Service charges and other fees 49,478 54,089 57,321 59613.84 61998.3936 64478.32934 67057.46252 69739.76102
Miscellaneous loan fees and charges 4,982 4,696 4,276 4276 4276 4276 4276 4276
Gain on sale of loans 28,517 19,797 26,389 24901 23696 24995 24531 24407
Gain (loss) on sale of investments (299) (188) 19 0 0 0 0 0
Other income 10,369 11,908 10,756 11,011 11,225 10,997 11,078 11,100
Total non‐interest income 93,047 90,302 98,761 99,802 101,195 104,747 106,942 109,523
Total revenue (total interest + total non‐interest) 356,623 390,221 418,442 458,127 475,724 495,284 512,250 529,200
YOY growth 3.29% 9.42% 7.23% 9.48% 3.84% 4.11% 3.43% 3.31%
Net Interest Income 234,818 272,953 290,406 328,471 343,450 357,995 371,342 384,309
YOY growth 7.69% 16.24% 6.39% 13.11% 4.56% 4.23% 3.73% 3.49%
Provision for loan losses 6,887 1,912 2,284 5,203 5,458 5,712 5,950 6,183
Net interest income after provision for loan losses 227,931 271,041 288,122 323,268 337,992 352,283 365,392 378,126
YOY growth 15.98% 18.91% 6.30% 12.20% 4.55% 4.23% 3.72% 3.49%
Margins
Net interest margin (net interest income/avg. earning assets) 3.27% 3.72% 3.68% 3.83% 3.84% 3.84% 3.85% 3.85%
Net interest margin after provision for loan losses 3.17% 3.69% 3.65% 3.77% 3.78% 3.78% 3.79% 3.79%
18. Glacier Bancorp
Income Statement (in thousands, except share data)
Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E (CV)
Interest Income
Investment securities 74,512 93,052 91,086 101,124 104,664 108,061 111,028 113,804
Residential real estate loans 29,525 30,721 32,153 36,988 39,392 41,851 44,254 46,688
Commercial loans 127,450 145,631 164,966 185,150 193,482 201,694 209,247 216,571
Consumer and other loans 32,089 30,515 31,476 35,064 36,992 38,932 40,779 42,614
Total interest income 263,576 299,919 319,681 358,325 374,529 390,537 405,308 419,677
Interest Expense
Deposits 13,870 13,195 16,138 18,077 19,072 20,071 21,024 21,970
Securities sold under agreements to repurchase 867 865 1,021 1,305 1,377 1,449 1,518 1,586
Federal Home Loan Bank advances 10,610 9,570 8,841 7,047 7,178 7,556 7,947 8,321
Other borrowed funds 206 199 81 151 175 184 193 202
Subordinated debentures 3,205 3,137 3,194 3,274 3,277 3,281 3,285 3,288
Total interest expense 28,758 26,966 29,275 29,854 31,079 32,542 33,967 35,368
Net Interest Income 234,818 272,953 290,406 328,471 343,450 357,995 371,342 384,309
Provision for loan losses 6,887 1,912 2,284 5,203 5,458 5,712 5,950 6,183
Net interest income after provision for loan losses 227,931 271,041 288,122 323,268 337,992 352,283 365,392 378,126
Non‐Interest Income
Service charges and other fees 49,478 54,089 57,321 59,614 61,998 64,478 67,057 69,740
Miscellaneous loan fees and charges 4,982 4,696 4,276 4,276 4,276 4,276 4,276 4,276
Gain on sale of loans 28,517 19,797 26,389 24,901 23,696 24,995 24,531 24,407
Gain (loss) on sale of investments (299) (188) 19 0 0 0 0 0
Other income 10,369 11,908 10,756 11,011 11,225 10,997 11,078 11,100
Total non‐interest income 93,047 90,302 98,761 99,802 101,195 104,747 106,942 109,523
Non‐Interest Expense
Compensation and employee benefits 104,221 118,571 134,409 153,000 157,080 162,495 165,600 170,100
Occupancy and equipment 24,875 27,498 31,149 31,275 31,835 32,407 32,958 33,406
Advertising and promotions 6,913 7,912 8,661 9,318 9,794 10,282 10,750 11,214
Data processing 4,493 6,607 5,833 6,523 6,856 7,197 7,525 7,850
Other real estate owned 7,196 2,568 3,693 4,486 3,582 3,920 3,996 3,833
Regulatory assessments and insurance 6,362 5,064 5,283 6,523 6,856 7,197 7,525 7,850
Core deposit intangible amortization 2,401 2,811 2,964 2,923 2,027 1,598 1,512 1,458
Goodwill impairment charge 0 0 0 0 0 0 0 0
Other expenses 38,856 41,648 44,765 48,100 51,683 55,534 59,671 64,117
Total non‐interest expense 195,317 212,679 236,757 262,148 269,714 280,630 289,536 299,827
Income Before Income Taxes 125,661 148,664 150,126 160,922 169,473 176,400 182,798 187,823
Federal and state income tax expense 30,017 35,909 33,999 37,173 39,148 40,748 42,226 43,387
Net Income 95,644 112,755 116,127 123,749 130,325 135,651 140,572 144,436
Weighted avg. shares outstanding ‐ basic 73,191,713 74,641,957 75,542,455 76,086,288 76,086,288 76,086,288 76,086,288 76,086,288
Year end shares outstanding 74,373,296 75,026,092 76,086,288 76,086,288 76,086,288 76,086,288 76,086,288 76,086,288
EPS ‐ basic 1.31 1.51 1.54 1.63 1.71 1.78 1.85 1.90
Dividends per common share 0.60 0.98 1.05 1.11 1.20 1.25 1.33 1.37
20. Glacier Bancorp
Cash Flow Statement
Fiscal Years Ending Dec. 31 2013 2014 2015
Operating Activities
Net income 95,644 112,755 116,127
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 6,887 1,912 2,284
Net amortization of investment securities premiums and discounts 64,066 27,491 26,709
Federal Home Loan Bank stock dividends 0 0 0
Loans held for sale originated or acquired (918,451) (669,144) (888,676)
Proceeds from sales of loans held for sale 1,084,799 705,178 925,353
Gain on sale of loans (28,517) (19,797) (26,389)
(Gain) loss on sale of investments 299 188 (19)
Bargain purchase gain 0 (680) 0
Stock‐based compensation expense, net of tax benefits 1,011 859 1,087
Excess tax (benefits) deficiencies from stock‐based compensation 223 (138) (102)
Depreciation of premises and equipment 10,485 12,108 14,365
Loss (gain) on sale of other real estate owned and write‐downs, net 1,450 (937) 938
Amortization of core deposit intangibles 2,401 2,811 2,964
Goodwill impairment charge 0 0 0
Deferred tax (benefit) expense 4,633 5,931 (4,080)
Net (increase) decrease in accrued interest receivable (265) 2,648 (2,377)
Net (increase) decrease in other assets 19,881 (5,702) (793)
Net (decrease) increase in accrued interest payable (1,354) 567 (828)
Net increase (decrease) in other liabilities (9,097) 6,684 4,903
Net cash provided by operating activities 334,095 182,734 171,466
Investing Activities
Proceeds from sales, maturities, and prepayments of available‐for‐sale securities 1,864,334 797,610 800,605
Purchases of available‐for‐sale securities (1,426,262) (281,332) (961,224)
Maturities, prepayments and calls of held‐to‐maturity securities 0 8,930 20,997
Purchases of held‐to‐maturity securities 0 (49,691) (203,554)
Principal collected on loans 1,224,222 1,418,517 1,737,508
Loans originated or acquired (1,559,353) (1,735,155) (2,112,154)
Net addition of premises and equipment and other real estate owned (8,977) (14,389) (18,224)
Proceeds from sale of other real estate owned 28,535 15,714 10,278
Net proceeds from sale of non‐marketable equity securities 583 801 27,770
Net cash received (paid) in acquisitions 26,155 (2,112) 21,427
Net cash (used in) provided by investing activities 149,237 158,893 (676,571)
Financing Activities
Net increase (decrease) in deposits (334,672) 455,604 215,650
Net increase in securities sold under agreements to repurchase 23,886 83,713 24,951
Net increase (decrease) in short‐term Federal Home Loan Bank advances (204,467) (421,000) 140,000
Proceeds from long‐term Federal Home Loan Bank advances 1,147,451 192,500 50,000
Repayments of long‐term Federal Home Loan Bank advances (1,105,282) (314,738) (94,749)
Net decrease in other borrowed funds (1,502) (933) (566)
Cash dividends paid (44,232) (50,944) (79,456)
Excess tax benefits (deficiencies) from stock‐based compensation (223) 138 102
Stock‐based compensation activity 4,326 785 17
Net cash provided by (used in) financing activities (514,715) (54,875) 255,949
Net (decrease) increase in cash and cash equivalents (31,383) 286,752 (249,156)
Cash and cash equivalents at beginning of period 187,040 155,657 442,409
Cash and cash equivalents at end of period 155,657 442,409 193,253
21. Glacier Bancorp
Cash Flow Statement
Fiscal Years Ending Dec. 31
2016E 2017E 2018E 2019E 2020E (CV)
Operating Activities
Net income 123,749 130,325 135,651 140,572 144,436
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of premises and equipment 8,147 4,299 3,284 2,463 2,463
Amortization of core deposit intangibles 2,923 2,027 1,598 1,512 1,458
Change in deferred tax assets (1,023) (5,554) (3,457) (2,800) (2,586)
Net (increase) decrease in accrued interest receivable (6,159) (2,292) (2,264) (2,089) (2,032)
Net (increase) decrease in other assets (15,231) (4,354) (4,690) (4,566) (4,330)
Net (decrease) increase in accrued interest payable 1,157 240 265 257 243
Net increase (decrease) in other liabilities 7,779 6,249 6,912 6,690 6,332
Net cash provided by operating activities 121,342 130,939 137,300 142,037 145,983
Investing Activities
Change in investment securities (115,949) (120,007) (106,464) (91,381) (93,666)
Change in loans (247,367) (256,851) (242,142) (224,320) (233,381)
Change in gross PP&E (11,024) (8,420) (6,315) (6,315) (4,210)
Change in other real estate owned (1,118) (1,369) (1,437) (1,356) (1,257)
Change in non‐marketable securities (22,505) 0 0 0 0
Net cash (used in) provided by investing activities (397,963) (386,648) (356,358) (323,372) (332,513)
Financing Activities
Net increase (decrease) in deposits 381,975 402,984 386,498 365,241 381,677
Net increase in securities sold under agreements to repurchase 23,288 24,569 23,564 22,268 23,270
Net increase (decrease) in short‐term Federal Home Loan Bank advances (5,302) 19,942 22,058 21,348 20,207
Change in other borrowed funds 1,914 437 483 468 443
Change in subordinated debentures 138 139 139 139 139
Cash dividends paid (84,149) (91,227) (94,956) (101,212) (103,994)
Change in AOCI 7,804 0 0 0 0
Change in share capital and APIC 0 0 0 0 0
Net cash provided by (used in) financing activities 325,667 356,843 337,786 308,251 321,741
Net (decrease) increase in cash and cash equivalents 49,046 101,134 118,728 126,916 135,211
Cash and cash equivalents at beginning of period 193,253 242,299 343,434 462,162 589,078
Cash and cash equivalents at end of period 242,299 343,434 462,162 589,078 724,289
22. Glacier Bancorp
Common Size Income Statement (as % of assets)
Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E (CV)
Interest income
Investment securities 0.95% 1.12% 1.00% 1.06% 1.04% 1.03% 1.01% 0.99%
Residential real estate loans 0.37% 0.37% 0.35% 0.39% 0.39% 0.40% 0.40% 0.41%
Commercial loans 1.62% 1.75% 1.81% 1.94% 1.93% 1.92% 1.91% 1.89%
Consumer & other loans 0.41% 0.37% 0.35% 0.37% 0.37% 0.37% 0.37% 0.37%
Total interest income 3.34% 3.61% 3.52% 3.75% 3.73% 3.71% 3.69% 3.67%
Interest expense
Deposits 0.18% 0.16% 0.18% 0.19% 0.19% 0.19% 0.19% 0.19%
Securities sold under agreements to repurchase 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
Federal Home Loan Bank advances 0.13% 0.12% 0.10% 0.07% 0.07% 0.07% 0.07% 0.07%
Federal funds purchased and other borrowed funds 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Subordinated debentures 0.04% 0.04% 0.04% 0.03% 0.03% 0.03% 0.03% 0.03%
Total interest expense 0.36% 0.32% 0.32% 0.31% 0.31% 0.31% 0.31% 0.31%
Net Interest Income 2.98% 3.29% 3.20% 3.44% 3.42% 3.40% 3.38% 3.36%
Provision for loan losses 0.09% 0.02% 0.03% 0.05% 0.05% 0.05% 0.05% 0.05%
Net interest income after provision for loan losses 2.89% 3.26% 3.17% 3.39% 3.37% 3.35% 3.33% 3.30%
Non-Interest Income
Service charges and other fees 0.63% 0.65% 0.63% 0.62% 0.62% 0.61% 0.61% 0.61%
Miscellaneous loan fees and charges 0.06% 0.06% 0.05% 0.04% 0.04% 0.04% 0.04% 0.04%
Gain on sale of loans 0.36% 0.24% 0.29% 0.26% 0.24% 0.24% 0.22% 0.21%
Gain (loss) on sale of investments 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other income 0.13% 0.14% 0.12% 0.12% 0.11% 0.10% 0.10% 0.10%
Total non-interest income 1.18% 1.09% 1.09% 1.05% 1.01% 1.00% 0.97% 0.96%
Non-Interest Expense
Compensation and employee benefits 1.32% 1.43% 1.48% 1.60% 1.56% 1.54% 1.51% 1.49%
Occupancy and equipment 0.32% 0.33% 0.34% 0.33% 0.32% 0.31% 0.30% 0.29%
Advertising and promotions 0.09% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Data processing 0.06% 0.08% 0.06% 0.07% 0.07% 0.07% 0.07% 0.07%
Other real estate owned 0.09% 0.03% 0.04% 0.05% 0.04% 0.04% 0.04% 0.03%
Regulatory assessments and insurance 0.08% 0.06% 0.06% 0.07% 0.07% 0.07% 0.07% 0.07%
Core deposit intangible amortization 0.03% 0.03% 0.03% 0.03% 0.02% 0.02% 0.01% 0.01%
Goodwill impairment charge 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other expenses 0.49% 0.50% 0.49% 0.50% 0.51% 0.53% 0.54% 0.56%
Total non-interest expense 2.48% 2.56% 2.60% 2.75% 2.69% 2.67% 2.64% 2.62%
Income Before Income Taxes 1.59% 1.79% 1.65% 1.69% 1.69% 1.68% 1.67% 1.64%
Federal and state income tax expense 0.38% 0.43% 0.37% 0.39% 0.39% 0.39% 0.38% 0.38%
Net Income 1.21% 1.36% 1.28% 1.30% 1.30% 1.29% 1.28% 1.26%