Glacier Bancorp Solid Or Melting?

| About: Glacier Bancorp, (GBCI)

Our firm manages risk versus performing fundamental analysis on individual stocks. Why? There are tons of people out there diving through balance sheets and 10-K, but most have a track record similar to mutual fund managers. Poor. When a client recently asked our opinion on a long held legacy position (passed down from past generations), we decided to do what we do best. Since the client was not actively looking to sell shares (this is a really long-term position), our approach was to analyze the last two- and ten-year periods to determine if it has recently been worth it to buy and hope.

We broke it down into three stages covering performance, volatility, and correlation. Is there anything more important? After reviewing the data the most interesting observations were best illustrated by first looking at where the stock has been recently, then adding a longer time period for perspective. The results were not what we expected. Skip to the last paragraph if you want the punch line.

Two-year total return was poor at best; we found GBCI performed at the bottom of a sampling of finance ETFs. Oddly, what we thought was the best fit, the SPDR KBW Regional Banking ETF (NYSEARCA:KRE), which seeks to track a regional bank index, was almost flat during a period GBCI was showing close to a 20% loss. The stock simply has more downside capture. Volatility was also highest between the broad, small cap, and banking ETF sampling. Two-year beta was almost a perfect 0.97 against the small-cap index and 1.19 to the S+P 500 (NYSEARCA:SPY). By any measure the beta is on target with both large and small indexes with the added bonus of exceptional downside capture! Correlation was dim. A 78% correlation between GBCI and KRE versus 62% for the S+P 500 tells us the day-to-day movements still move in tandem.

2 yr. Returns (percentage)

2-year Returns (percentage)

2-year daily & annual volatility and avg. return (

Are we too hard on the stock by looking at too short a time frame? Not for a pragmatic style of investing. However, if you have been holding the stocks for 20 years with a buy and hope strategy, let’s meet GBCI half way and look a the last 10 years. Was it worth it?

When we look at total return going back 10 years from October 2011, the chart screams out at us. GBCI was almost identical to the small-cap index ETF IJR. The three financial ETFs that were available back then were solidly in the red. While GBCI blew away finance indexes and the S+P 500, it did little to make a case for single stock risk when compared with a basket of other small-cap securities during the same period. GBCI was about 20% more volatile than both the large- and small-cap indexes. What does the rainbow bright correlation table tell us? That everything was pretty much tracking the other. At the end of the day there was no longer-term diversification. While GBCI was not 90% correlated to other assets, a non-correlating asset it was not.

10-year Returns (percentage)

10-year beta

Colorful Correlation Chart (10 year)

The punch line? Over ten years GBCI was like a small-cap index fund with higher taxes due and more volatility. The only prize was the bragging right that you owned a bank stock that made money over the last ten years. On the short term, GBCI stinks. The stock, not the company, treats investor’s money poorly relative to the banking stock universe.

Getting back to the long haul, it experienced more risk and tax due on dividends than the broad markets, and you were paid handsomely for that tradeoff with more return and higher current yield. However, there was still little diversification effect along with performance that was almost identical with a small-cap index fund. We can’t tell the future, and would not want to be in the banking industry right now. The old static system of borrow at 2%, lend at 6%, and be at the golf course by 3pm is dead. Only time will tell if GBCI will keep up the pace during the next ten years as the industry changes. What we do know is that for years it blew away the overall market and its own industry for years when it was flat. So what if it gives up a little more? Trend followers may want to be short, value players may see a buy, and those who held it for years can gain perspective on how the market treats the stock.

-- Co-written by Brandon Ogle

Disclosure: I am long GBCI.