Another Great Shareholder Letter
As long as we’re discussing annual CEO letters, be sure to read the one that Glacier Bancorp CEO Mick Blodnick wrote to his shareholders this year. It is a gem.
That Mick Blodnick writes annual letters that are consistently thoughtful and informative should be no surprise: he’s one of the most talented and successful bank CEOs in the business. Since Mick became CEO in 1998, Glacier has grown to $9 billion in assets from $790 million, in part through a series of highly sensible acquisitions (more on that in a minute). Over that time, the company’s earnings per share (split-adjusted) have risen to $1.54 per share from 39 cents (an 8% average annual increase) while its stock has risen by 250%, in a market (measured by the S&P 500) that’s up by 110%.
All this, by the way, in a market, the Mountain West, not known as a banking hotbed. Still, Glacier has been enormously successful there for years. If you want to understand why, read Mick’s letter. Some highlights:
Long-term focus. Glacier’s earnings per share have risen nicely over the past couple of years, Mick notes, but its stock price has lagged. He’s not especially bothered by that, though. “Monthly and yearly movements in stock price are often erratic,” he writes, “thus we tend to focus on a longer term horizon since that’s the way we manage the Company. If we consistently do the right things and continue to increase the intrinsic value of the Company, our share price and total return over time will reflect that accordingly.” Amen to that. Too many CEOs, in the banking business and out of it, obsess over every near-term move of their stock’s price rather than stepping back and running the business for the long term. Some are tempted to make decisions (cutting back on R&D or capital spending, say) that might help earnings near-term but that undercut the long term health of the company. As a long-term investor, I don’t like that sort of thing, and am much happier owning a company run by a management that focuses on long-term value creation—and that knows that the company’s stock price will eventually take care of itself.
Old-fashioned, prudent banking. Mick is, ahem, no Rocky Mountain version of Hugh McColl. Which is putting it mildly. “As I’ve said many times in the past,” he writes, “our focus has never been centered on getting bigger; instead our effort and attention has always been to get better. Creating a fortress balance sheet, ensuring strong asset quality, generating core sustainable profitability, and building long-term shareholder value have always topped our desire to grow the franchise for the sake of growth. Last year was no exception as we grew the franchise at a very methodical and disciplined pace.” Pursuing size for the sake of size, especially in the banking business, rarely makes sense from a value-creation standpoint, and can sometimes lead to catastrophe. Ask Angelo Mozillo. Mick, an old-fashioned banker if there ever was one, understands that and rightly puts profitability and financial strength first.
There’s a difference between good luck and good strategy. Mick understands that, which makes him different from a lot of CEOs. “Entering the year we assumed that absent a strong mortgage refinance market, overall mortgage origination fee income would, at best, be slightly above what we produced in 2014,” he says. “However, a mini refinance boom early in the year got us off to a great start. When mortgage rates increased from their early lows and refinances started to wane, a strong purchase market carried us through the rest of the year.” Mick doesn’t pretend that he anticipated last year’s mortage-lending boom and positioned the bank to take advantage of it. Rather, he admits it took him by surprise (and how many CEO do that?) but—and this is the key part—Glacier was positioned to make the most of it, just the same.
The bad news with the good. Mick doesn’t gloss it over. “Unfortunately, we don’t hit every mark or goal that we set for ourselves. Due in part to an ever demanding regulatory environment, along with a major internal project, . . . operating expenses were much higher than we projected and offset a majority of the increased revenues. As a result, we did not meet our objective to lower the efficiency ratio. Instead of hitting our target of 53%, the ratio actually went the wrong way from the prior year and ended at 55%, compared to 54% in 2014.” A lot of CEOs would minimize news like this, or not mention it at all. Not Mick. The rising efficiency ratio was a significant disappointment to him–which means it was worth sharing with shareholders.
On M&A, true wisdom. As his record shows, Mick will only do deals for the right reason. “Once again this year we hope to announce and close more bank acquisitions” he writes. “As in the past, that will only happen if they are truly strategic, priced right, a strong cultural fit and most important, create additional shareholder value. We are presented with many looks at M & A opportunities. Some make sense, others don’t. Some we will successfully partner with and others, for a multitude of reasons, will not go our way. However, one thing is for certain, we will stay true to our disciplined approach to doing deals, a practice that has served us so well during the past 25 years.” The key point here: Glacier will only make acquisitions that create additional shareholder value, and is willing to walk away from potential deals that don’t. That’s a big reason that Glacier has had such success over the years. More CEOs should have that kind of discipline.
The entire letter is well worth your time. As it happens, Mick will retire at the end of this year; this is the last letter he’s written to Glacier shareholders. He’s left the company very well-positioned for the future. All best wishes to Mick in retirement.
What do you think? Let me know!
2 Responses to “Another Great Shareholder Letter”
I used to follow Glacier Bancorp as an equity analyst. Not only is Mick a great banker, he is an even better person.
Met Mick several times at the DADCO Banking Conference in Seattle. He was always the most understated and humble CEO in attendance. He was comfortable running a “small” bank in Montana and had no visions of becoming a mega-bank, just operating prudently and profitably in shareholders’ best interests. That was (and is) an all too rare quality among CEO’s. Mick was the epitome of a prudent banker, willing to seek reward, but never at the expense of exposing the bank to imprudent levels of risk.
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