When Congress passed the Paycheck Protection Program (PPP) last year to help alleviate the economic pressure caused by the pandemic, banks were tasked with helping distribute the loans. However, distributing hundreds of billions of dollars in loans is no easy feat, and some did this job better than others.
One bank that saw a lot of success with the program is Glacier Bancorp (NASDAQ:GBCI), a regional bank located in the Rocky Mountain region of the U.S. Glacier processed 13,000 PPP loans, and its role in the lending program helped it build up thousands of new relationships with small businesses in its region. Not only that, but the bank is situated in a very advantageous location with strong growth, as seen by housing demand. Its presence in states like Idaho, Montana, Utah, and Arizona makes it perfectly positioned to take advantage of the migration that started last year.
A strong quarter leads to a bolstered balance sheet
Glacier saw a strong first-quarter performance, posting a net income of $80.8 million, up 86% from the same period last year and up 1.3% from the fourth quarter. The bank continued to aggressively add to its holding of debt securities, adding $6.4 billion in the quarter. Since last year, the bank has increased its debt securities by an eye-popping 77%.
Deposit growth at the bank was strong. In fact, deposit growth has been strong across the industry. This growth is driven by two things: high levels of government stimulus and a lack of spending due to the pandemic, which has driven personal savings to record levels. Deposits of $16.1 billion were up 8.8% from the fourth quarter, and up 39.2% from last year.
Glacier sees the growth in deposits, coupled with funds received from forgiven PPP loans, as an opportunity to invest in debt securities and increase net interest income. The bank has taken a cautious approach, targeting shorter-dated liquid investments. This approach allows the bank to take advantage if interest rates continue to tick higher as well as reinvest in new loans as economic conditions get better. Ultimately the bank has a preference toward loan growth, and is using its investment portfolio to put excess cash to work for the time being.
Capitalizing on small business relationships and a hot geographic region
Glacier grew its loan portfolio to $11.2 billion, up $147 million from the previous quarter and up $1.1 billion from last year. The bank benefited from being a strong player in the PPP lending program, building 3,000 new customer relations from the first round of funding. These new relationships helped drive $135 million of the quarter's commercial loan volume.
It saw loan growth in most markets, with Montana, Wyoming, and Washington leading the way. The mortgage business did better than expected. The bank is positioned in a good geographic region, where the housing market is hot and refinancings continue to be strong.
CEO Randy Chesler pointed out that Idaho, Montana, Utah, Arizona, and Washington are "one, two, two, four, and six in terms of home price appreciation." He points to those states opening up sooner than surrounding states as being one catalyst for the trends. If there are any concerns, it's the short supply of homes on the market due to strong demand.
A quality regional bank
Glacier Bancorp is well positioned, in both its location and its business, and it shows in its metrics. During the first quarter, its total non-performing assets made up only 0.19% of its assets, and net charge-offs were a measly 0.02%. Its efficiency ratio, an indication of a bank's profitability, was 46.8% in the quarter, an improvement from an already stellar 50.3% in the prior quarter.
The bank has made the most of the PPP lending program, adding thousands of new customers as a result, and it will work to strengthen these relationships. Not only that, but it should get a boost from hot housing markets in those states in its footprint. The lack of housing supply due to strong demand is not a bad problem to have, and should drive strong homebuilding trends through year-end.
As the economy continues to reorganize, Glacier Bancorp is a quality regional bank that is worth consideration for long-term investors.