Glacier Bancorp: strong long-term growth to boost earnings (NYSE: GBCI)

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Earnings at Glacier Bancorp, Inc. (NYSE: GBCI) will likely rise this year, primarily due to strong loan growth expectations. Glacier’s markets in the western states appear to be doing quite well, which will drive loan growth. In addition, a decrease in the loan loss provision charge and an improvement in the efficiency ratio will likely support the bottom line. During this time, the margin is likely to remain flat as the loan portfolio is quite slow to revalue. Overall, I expect Glacier Bancorp to report earnings of $2.97 per share in 2022, up 3.8% year-over-year. The December 2022 target price is quite close to the current market price. Therefore, I’m adopting a hold note on Glacier Bancorp.

Management targets strong loan growth for 2022

After moderate loan growth in the first nine months of 2021, the loan portfolio surged in the last quarter of 2021, mainly due to the acquisition of Altabancorp. According to details given in a press release, Glacier Bancorp completed the acquisition on October 1, 2021, resulting in an increase in loan book size of approximately 17%. Organic loan growth was also quite strong, with total loan growth in the quarter being 19%.

The organic growth of the last quarter shows that the economies of the Glacier markets are doing quite well. As evident from the conference call, management is quite positive about its markets in the eight western states in which Glacier Bancorp operates. Management envisions low double-digit loan growth for 2022. This goal seems achievable given that the company has achieved higher growth in the past.

The only factor that will limit loan growth will be the remaining discount from the Payroll Protection Program (“PPP”) portfolio. As mentioned in the earnings release, PPP loans totaled $169 million at the end of December 2021, or 1.3% of total loans. These loans will likely be canceled in early 2022.

Given these factors, I expect the loan portfolio to grow by 10% by the end of December 2022 compared to the end of 2021. During this time, deposits will likely increase at the same rate as loans. The following table shows my balance sheet estimates.

EX17 EX18 FY19 FY20 FY21 FY22E
Financial situation
Net loans 6,448 8,156 9,388 10,964 13,259 14,636
Net loan growth 16.1% 26.5% 15.1% 16.8% 20.9% 10.4%
Other productive assets 2,570 2,980 3,001 5,934 10,670 10,885
Deposits 7,580 9,494 10,776 14,798 21,337 23,552
Loans and sub-debts 854 989 777 1,178 1,198 1,222
Common equity 1,199 1,516 1,961 2,307 3,178 3,354
Book value per share ($) 15.5 18.1 22.2 24.3 28.7 30.3
Tangible BVPS ($) 13.0 14.0 16.3 18.3 19.3 20.9

Source: SEC Filings, Author’s Estimates

(In millions of dollars, unless otherwise indicated)

Stable returns to limit the impact of rising interest rates

Management last disclosed the results of its interest rate sensitivity analysis in the 2020 10-K filing, which was released in early 2021. According to this analysis, an increase in interest rates of 100 basis points could increase net interest income by only 1.14% over twelve months. Net interest income could rise 3.33% in the second year of the rate hike.

As management’s analysis shows, Glacier Bancorp’s loan portfolio is slow to revalue after changes in interest rates, which is not surprising given that most of Glacier Bancorp’s loans are backed by real estate. Normally, commercial and industrial, C&I loans have shorter terms and/or are based on variable rates, while commercial and residential mortgages have longer terms and/or are based on fixed rates. Management mentioned on the conference call that about 25% of loans will mature or be re-evaluated this year, which is not a lot in my opinion.

Additionally, management mentioned during the conference call that the excess liquidity in the market and the high level of competition will cause a delayed impact of an interest rate change on the company’s margin. Additionally, if Glacier Bancorp wants strong double-digit loan growth, it will have to make concessions on pricing.

Given the factors mentioned above, I expect the margin to remain broadly stable in 2022, compared to 3.21% in the last quarter of 2021.

Earnings are expected to rise 3.8% year-over-year

Strong loan growth will likely be the main driver of earnings this year. Additionally, the efficiency ratio will likely improve following Altabancorp’s conversion in mid-March. As mentioned on the conference call, management identified significant cost savings of approximately 17.5% of Altabancorp’s operating expenses. Glacier Bancorp is on track to achieve these cost savings by mid to late 2022.

Additionally, the provision charge will likely decline in 2022 as the high adjustment for Altabancorp reported in Q4 2021 is unlikely to be repeated this year. Overall, I expect the loan provisioning percentage to return to pre-pandemic levels.

Given these factors, I expect Glacier Bancorp to report earnings of $2.97 per share in 2022, up 3.8% year-over-year. The following table shows my income statement estimates.

EX17 EX18 FY19 FY20 FY21 FY22E
income statement
Net interest income 345 433 503 600 663 847
Allowance for loan losses 11 ten 0 40 23 20
Non-interest income 112 119 131 173 145 125
Non-interest charges 266 320 375 405 435 540
Net income – Common Sh. 116 182 211 266 285 330
BPA – Diluted ($) 1.50 2.17 2.38 2.81 2.86 2.97

Source: SEC Filings, Author’s Estimates

(In millions of dollars, unless otherwise indicated)

Compared to my last report on Glacier Bancorp, I have revised my estimate for net interest income upwards, but have also raised my estimate for non-interest expenses. As a result, my revised revenue estimate is quite close to the previous estimate given in my last report.

Actual earnings may differ materially from estimates due to risks and uncertainties related to the COVID-19 pandemic.

Limited upside warrants a hold rating

Glacier Bancorp offers a dividend yield of 2.7% at the current quarterly dividend rate of $0.32 per share and an annual special dividend of $0.10 per share. Earnings and dividend estimates suggest a payout ratio of 46% for 2022, which is in line with the 2020-2021 average of 48%. Therefore, I do not expect an increase in the level of dividends this year.

I use historical price/tangible (“P/TB”) and price/earnings (“P/E”) multiples to value Glacier Bancorp. The stock has traded at an average P/TB ratio of 2.63 in the past, as shown below.

EX17 EX18 FY19 FY20 FY21 Medium
T. Book value per share ($) 13.0 14.0 16.3 18.3 19.3
Average market price ($) 35.5 41.2 41.5 37.9 55.4
Historical P/TB 2.74x 2.94x 2.55x 2.07x 2.87x 2.63x
Source: Company Financials, Yahoo Finance, Author’s Estimates

Multiplying the average P/TB multiple by the expected tangible book value per share of $20.9 yields a target price of $55.0 for the end of 2022. This price target implies an upside of 7.8% compared to the closing price on February 4. The following table shows the sensitivity of the target price to the P/TB ratio.

Multiple P/TB 2.43x 2.53x 2.63x 2.73x 2.83x
TBVPS – Dec 2022 ($) 20.9 20.9 20.9 20.9 20.9
Target price ($) 50.9 53.0 55.0 57.1 59.2
Market price 51.1 51.1 51.1 51.1 51.1
Up/(down) (0.4)% 3.7% 7.8% 11.9% 16.0%
Source: Author’s estimates

The stock has traded at an average P/E ratio of around 18.6x in the past, as shown below.

EX17 EX18 FY19 FY20 FY21 Medium
Earnings per share ($) 1.50 2.17 2.38 2.81 2.86
Average market price ($) 35.5 41.2 41.5 37.9 55.4
Historical PER 23.7x 19.0x 17.4x 13.5x 19.4x 18.6x
Source: Company Financials, Yahoo Finance, Author’s Estimates

Multiplying the average P/E multiple with the expected earnings per share of $2.97 yields a target price of $55.3 for the end of 2022. This price target implies an upside of 8.3% over at the February 4 closing price. The following table shows the sensitivity of the target price to the P/E ratio.

Multiple P/E 16.6x 17.6x 18.6x 19.6x 20.6x
EPS 2022 ($) 2.97 2.97 2.97 2.97 2.97
Target price ($) 49.4 52.3 55.3 58.3 61.3
Market price ($) 51.1 51.1 51.1 51.1 51.1
Up/(down) (3.4)% 2.5% 8.3% 14.1% 19.9%
Source: Author’s estimates

Equal weighting of target prices from both valuation methods gives a combined result target price of $55.2, which implies an increase of 8.0% compared to the current market price. Adding the forward dividend yield gives an expected total return of 10.7%. As this expected return is not high enough, I am adopting a holding rating on Glacier Bancorp.

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