Glacier Bancorp, Inc. Announces Results for Quarter Ended December 31, 2010

KALISPELL, Mont., Jan. 27, 2011 /PRNewswire/ --

Glacier Bancorp, Inc. (Nasdaq: GBCI) reported net earnings of $9.6 million for the fourth quarter of 2010, an increase of $119 thousand, or 1 percent, from the $9.5 million for the fourth quarter of 2009.  The diluted earnings per share of $0.13 for the quarter represented a 13 percent decrease from the diluted earnings per share of $0.15 for the same quarter of 2009.  This quarter's earnings per share includes $0.02 per share from the gain on sale of investments, net of tax.  Annualized return on average assets and return on average equity for the fourth quarter were 0.58 percent and 4.47 percent, respectively, which compares with prior year returns for the fourth quarter of 0.62 percent and 5.43 percent, respectively.

Net earnings for the year ended December 31, 2010 were $42.3 million, which is an increase of $8.0 million or 23 percent, over the prior year.  Diluted earnings per share of $0.61 is an increase of 9 percent over $0.56 earned in 2009.  

"Fourth quarter earnings were in line with what we anticipated; however, our performance for the year was again below what we have achieved in the past and expect to deliver in the future," said Mick Blodnick, President and Chief Executive Officer.  "Although the economy is showing some signs of improvement and asset quality looks to be stabilizing, the current rate environment will continue to challenge our net interest margin as it has the past seven quarters," Blodnick said.  "Hopefully in 2011 loan demand will improve which would really help our margin.  Until that time we will continue to deploy our excess liquidity by purchasing short duration agency mortgage-backed-securities.  Unfortunately this type of structure with its low return places further stress on our asset yield."

Total assets at December 31, 2010 were $6.759 billion, which is $487 million, or 8 percent greater than total assets of $6.273 billion at September 30, 2010 and $567 million, or 9 percent greater than total assets of $6.192 billion at December 31, 2009.  

Investment securities, including interest bearing deposits, FHLB and FRB stock, and federal funds sold, have increased $638 million, or 34 percent, from September 30, 2010 and increased $898 million, or 56 percent, since December 31, 2009.  "This quarter we were successful in purchasing a sufficient amount of investment securities to help offset the reduction of our loan portfolio and the increased amount of amortization of our agency mortgage-backed securities portfolio," Blodnick said.  "It has been a challenge this year finding the specific investment structures we desire in any significant quantity.  Fortunately that market opened up some in the latest quarter and we took advantage of it," Blodnick said.  The Company continues to purchase investment securities as loan originations slow, such purchases predominately mortgage-backed securities issued by Freddie Mac and Fannie Mae with short weighted-average-lives.  While mitigating against extension-risk, such securities have lower yields. These security purchases allow the Company to create incremental yield without taking any long-term interest rate risk.  The Company also continues to selectively purchase tax-exempt investment securities.  Investment securities represent 37 percent of total assets at December 31, 2010 versus 26 percent of total assets at December 31, 2009.

At December 31, 2010, gross loans were $3.826 billion, a decrease of $158 million over gross loans of $3.984 billion at September 30, 2010.  Gross loans decreased $305 million, or 7 percent, over gross loans of $4.130 billion at December 31, 2009.  The largest decrease in dollars was in commercial loans which decreased $162 million, or 6 percent, from December 31, 2009.  The largest percentage decrease was in residential real estate loans which decreased $89 million, or 11 percent, from December 31, 2009.  The decrease in each loan category is due to slower loan demand within the Company's market areas.  Excluding net charge-offs of $91 million, loans transferred to other real estate of $72 million, and an increase in loans held for sale of $10 million, loans decreased $152 million, or 4 percent from December 31, 2009.  

Credit Quality

At December 31, 2010, the allowance for loan and lease losses ("allowance") was $137.1 million, an increase of $2.9 million from the prior quarter and a decrease of $5.8 million from prior year end.  The allowance was 3.58 percent of total loans outstanding at December 31, 2010, with such percentage up from the 3.37 percent at September 30, 2010 and the 3.46 percent at December 31, 2009.  "Sales activity slowed down significantly in the fourth quarter which was not a big surprise given that winter is traditionally a difficult time to generate much interest in the sale of real estate lots and land development projects," Blodnick said. "We hope that as spring approaches the activity level experienced last year will improve further and provide an opportunity to again dispose of some of these troubled assets.  In the mean time, we continue to reduce our exposure to the types of loans that have caused us the most loss, mainly land lot and other construction," Blodnick said.  The allowance was 51 percent of non-performing assets at December 31, 2010, compared to 51 percent at the prior quarter and down slightly from 55 percent a year ago.  Non-performing assets as a percentage of total subsidiary assets at December 31, 2010 were at 3.91 percent, down from 4.03 percent as of prior quarter, and down from 4.13 percent at prior year end.  Early stage delinquencies (accruing 30-89 days past due) of $45.5 million at December 31, 2010 increased slightly from prior quarter's $40.9 million, but improved from prior year's $87.5 million.  Loan portfolio growth, composition, average loan size, credit quality considerations, and other environmental factors will continue to determine the level of additional provision for loan loss expense at each subsidiary bank.  

Allowance for Loan and Lease Losses

The current quarter provision for loan loss expense was $27.4 million, an increase of $8.2 million from the prior quarter and a decrease of $9.3 million from the fourth quarter in 2009.  Net charged-off loans for the current quarter were $24.5 million compared to $26.6 million for the prior quarter and $19.1 million for the same quarter in 2009.  

During the second quarter of 2010, the Company formed a wholly owned subsidiary, GBCI Other Real Estate ("GORE") to isolate bank foreclosed properties for legal protection and administrative purposes.  During the year, foreclosed properties were transferred to the new entity from bank subsidiaries at fair market value and such properties are currently held for sale.  

For additional information regarding credit quality and a breakout of the loan portfolio by regulatory classification, see the exhibits at the end of this press release.

As of December 31, 2010, non-interest bearing deposits of $856 million decreased $32 million, or 4 percent, since September 30, 2010 and increased $45 million, or 6 percent, since December 31, 2009.  Interest bearing deposits of $3.666 billion at December 31, 2010 include $203 million issued through the Certificate of Deposit Account Registry System ("CDARS").  Interest bearing deposits increased $136 million, or 4 percent, from September 30, 2010 and $376 million, or 11 percent from December 31, 2009.  The increase in interest bearing deposits from September 30, 2010 and December 31, 2009 includes $51 million and $226 million, respectively, from wholesale deposits, including CDARS.  The increase in non-interest bearing deposits from prior year end and the increase in interest bearing deposits from the prior quarter and prior year end was driven by a greater number of personal and business customers, as well as existing customers retaining cash deposits because of the uncertainty in the current interest rate environment and for liquidity purposes.  The decrease in non-interest bearing deposits from the prior quarter resulted primarily from seasonal decreases that typically occur during the fourth quarter.

Increases in deposits have reduced the Company's reliance on the amount of borrowings necessary to fund investment security growth over the prior quarter and prior year end.  Federal Home Loan Bank advances increased $386 million, or 67 percent, from September 30, 2010 and increased $175 million, or 22 percent, from December 31, 2009.  There were no Federal Reserve Bank borrowings through the Term Auction Facility ("TAF") program at December 31, 2010 or September 30, 2010 due to cessation of the TAF program by the Federal Reserve.  Repurchase agreements and other borrowed funds were $269 million at December 31, 2010, an increase of $43 million, or 19 percent, from December 31, 2009.

Total stockholders' equity and book value per share decreased $15 million and $0.21 per share, respectively, from the prior quarter resulting from the decrease in accumulated other comprehensive income representing net unrealized gains or losses (net of tax) on the securities portfolio.  Total stockholders' equity and book value per share increased $152 million and $0.53 per share, respectively, from December 31, 2009, the increase largely the result of the $146 million in net proceeds from the Company's March equity offering of 10.291 million shares.  Tangible stockholders' equity has increased $155 million, or 30 percent, since December 31, 2009 with tangible stockholders' equity to tangible assets at 10.32 percent and 8.72 percent as of December 31, 2010 and December 31, 2009, respectively.  

Cash Dividend

On December 29, 2010, the board of directors declared a cash dividend of $0.13 per share, payable January 20, 2011 to shareholders of record on January 11, 2011.  Future cash dividends will depend on a variety of factors, including net income, capital, asset quality and general economic conditions.

Net Interest Income

Net interest income decreased $1.9 million from the prior quarter and decreased $7.2 million over prior year's fourth quarter.  The current quarter net interest margin as a percentage of earning assets, on a tax-equivalent basis, was 3.91 percent which is 28 basis points lower than the 4.19 percent for the prior quarter which includes a 6 basis points reduction from the reversal of interest on non-accrual loans.  The net interest margin for the current quarter is 79 basis points lower than the 4.70 percent result for the fourth quarter of 2009.  

The decrease in interest income is primarily due to a lower yield and volume of loans.  In addition, the Company purchased a significant amount of investment securities, 82 percent of which were U.S. Agency-issued mortgage-backed securities, such securities purchased at a premium in order to achieve the structure desired.  The recent increase in refinance activity caused a significant increase in premium amortization of the mortgage-backed securities portfolio during the quarter, the effect of which caused a decrease in interest income and a significant drop in the net interest margin.  As the refinance activity funnels through the mortgage-backed securities portfolio, the premium amortization is expected to slow.  The decrease in interest expense is primarily attributable to the rate decreases on interest bearing deposits and lower cost borrowings. "The additional premium amortization in the quarter resulted in a 28 basis point reduction in the net interest margin compared to the prior quarter and a 56 basis point reduction from the year ago quarter," said Ron Copher, Chief Financial Officer.  

Non-interest Income

Non-interest income for the quarter totaled $26.0 million, an increase of $2.0 million over the prior quarter and a decrease of $119 thousand over the same quarter last year.  Fee income of $12.2 million decreased $1.0 million, or 8 percent, during the quarter.  The decrease from the prior quarter was primarily due to seasonal factors and higher volumes occurring in the third quarter historically.  Gain on sale of loans increased $2.5 million, or 34 percent, over the prior quarter and $3.8 million, or 62 percent, over prior year's fourth quarter, primarily the result of significant mortgage purchase and refinance activity during the fourth quarter of 2010.  "The banks continued to focus on their mortgage lending activity during the recent refinancing 'boomlet' as reflected in the strong mortgage fee income achieved for the quarter," said Ron Copher, Chief Financial Officer.  Net gain on sale of investments was $2.2 million for the current quarter compared to $2.0 million for the previous quarter and $3.3 million for the prior year's fourth quarter.  Such sales were executed with the proceeds used to purchase securities that enable the investment portfolio to perform well across varying interest rate scenarios.  Other income of $1.7 million for the current quarter is an increase of $360 thousand from the prior quarter, such increase includes the $194 thousand gain in the fourth quarter sale of 1^st Bank's merchant card servicing portfolio.  Other income in the prior year's fourth quarter included a $3.5 million one-time bargain purchase gain from the acquisition of First National Bank and Trust ("First National").  Excluding the bargain purchase gain, other income increased $747 thousand from the prior year's fourth quarter.  

Non-interest Expense

Non-interest expense of $45.7 million for the quarter decreased by $6.3 million, or 12 percent, from the prior quarter and increased $1.4 million, or 3 percent, from the prior year fourth quarter.  Compensation and employee benefits of $22.5 million increased $1.1 million, or 5 percent, from the prior year fourth quarter and is primarily due to the increased number of full-time equivalent employees, which increased from 1,643 to 1,674 since the end of the 2009 fourth quarter.  

Occupancy and equipment expense increased $257 thousand, or 4 percent, from the prior quarter and increased $161 thousand, or 3 percent, from the prior year fourth quarter.  Advertising and promotion expense decreased $229 thousand, or 12 percent, from the prior quarter.  The third quarters advertising expense was abnormally high due to the aggressive marketing relating to the other real estate owned.  Advertising and promotion expense increased $248 thousand, or 17 percent, from the fourth quarter of 2009.  Other real estate owned expenses decreased $6.8 million, or 71 percent, from the prior quarter which included $6.4 million in fair value write-downs.  Other real estate owned expenses decreased $523 thousand, or 16 percent, from prior year fourth quarter.  The current quarter other real estate owned expense of $2.8 million included $1.7 million of operating expenses, $707 thousand of fair value write-downs, and $365 thousand of loss on sale of other real estate owned.  FDIC premiums decreased $510 thousand, or 19 percent, from prior quarter and increased $183 thousand, or 9 percent, from the prior year fourth quarter.  Other expenses increased $702 thousand, or 9 percent, from the prior quarter and increased $287 thousand, or 3 percent, from the prior year fourth quarter.  

Efficiency Ratio

In 2010, the Company revised the efficiency ratio calculation to be consistent with industry reporting by SNL Financial and has also revised the efficiency ratio reported for all prior periods.  The efficiency ratio is now calculated as non-interest expense before other real estate owned expenses, core deposit intangible amortization, and non-recurring expense items as a percentage of fully taxable equivalent net interest income and non-interest income, excluding gains and losses on sale of investment securities, other real estate owned income, and non-recurring income items.  The efficiency ratio for the quarter was 52 percent compared to 47 percent for the prior year fourth quarter.  The increase resulted from continuing pressure on net interest income in the current low interest rate environment coupled with increases in operating expenses.

Net Interest Income

Net interest income for the year decreased $10.6 million, or 4 percent, over 2009.  Total interest income decreased $14 million, or 5 percent, while total interest expense decreased $3.5 million, or 6 percent.  The net interest margin as a percentage of earning assets, on a tax equivalent basis, decreased 61 basis points from 4.82 percent for 2009 to 4.21 percent for 2010 which includes a 6 basis points reduction from the reversal of interest on non-accrual loans.  As previously discussed, the continuing decrease in lower yield and volume loans coupled with an increase in lower yielding investment securities continues to put pressure on both the interest income and net interest margin.

Non-interest Income

Non-interest income increased for the year by $1.0 million over the same period in 2009.  Fee income for 2010 increased $2.1 million, or 5 percent, compared to the prior year primarily from an increase in debit card income.  Gain on sale of loans has remained at historical highs of $27.2 million for the year, which is an increase of $310 thousand, or 1 percent, over last year.  Included in current year other income is $2.0 million in one-time gains on merchant card servicing portfolios and included in prior year other income is $3.5 million in a one-time bargain purchase gain from the acquisition of First National.  Excluding one-time gains, other income increased $1.3 million over the same period in 2009, much of which related to income and gain on sale of other real estate owned.  

Non-interest Expense

Non-interest expense for 2010 increased by $19.1 million, or 11 percent, from the same period last year.  Compensation and employee benefits increased $2.8 million, or 3 percent, from 2009 which relates to the increase in full-time equivalent employees including the addition of First National employees in October 2009.  Occupancy and equipment expense increased $790 thousand, or 3 percent, from 2009.  Advertising and promotion expense increased by $354 thousand, or 5 percent, from 2009.  The primary category that saw much higher expense was the other real estate owned which increased $13.1 million, or 144 percent, from the prior year.  The other real estate owned expenses of $22.2 million for 2010 included $5.1 million of operating expenses, $10.4 million of fair value write-downs, and $6.7 million of loss on sale of other real estate owned.  FDIC premiums increased $482 thousand, or 6 percent, from the prior year which included a second quarter special assessment of $2.5 million.  Other expense increased $1.6 million, or 5 percent, from the prior year.  

Allowance for Loan and Lease Losses

The provision for loan loss expense was $84.7 million for 2010, a decrease of $39.9 million, or 32 percent, from the same period in 2009.  Net charged-off loans during the year ended December 31, 2010 was $90.5 million, an increase of $32.1 million from the same period in 2009.

Efficiency Ratio

The efficiency ratio for 2010 was 50 percent compared to 46 percent for 2009.  The increase in efficiency ratio resulted from continuing pressure on net interest income in the current low interest rate environment coupled with small increases in operating expenses.

About Glacier Bancorp, Inc.

Glacier Bancorp, Inc. is a regional multi-bank holding company providing commercial banking services in 60 communities in Montana, Idaho, Utah, Washington, Wyoming and Colorado.  Glacier Bancorp, Inc. is headquartered in Kalispell, Montana, and conducts its operations principally through eleven community bank subsidiaries. These subsidiaries include: six banks domiciled in Montana - Glacier Bank of Kalispell, First Security Bank of Missoula, Valley Bank of Helena, Big Sky Western Bank of Bozeman, Western Security Bank of Billings, and First Bank of Montana of Lewistown; two banks domiciled in Idaho - Mountain West Bank of Coeur d'Alene and Citizens Community Bank of Pocatello; two banks domiciled in Wyoming - 1st Bank of Evanston and First National Bank & Trust of Powell; and one bank domiciled in Colorado - Bank of the San Juans of Durango.

This news release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements include, but are not limited to, statements about management's plans, objectives, expectations and intentions that are not historical facts, and other statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "should," "projects," "seeks," "estimates" or words of similar meaning. These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations in the forward-looking statements, including those set forth in this news release:

• the risks associated with lending and potential adverse changes of the credit quality of loans in the Company's portfolio, including as a result of declines in the housing and real estate markets in its geographic areas;
• increased loan delinquency rates;
• the risks presented by a continued economic downturn, which could adversely affect credit quality, loan collateral values, other real estate owned values, investment values, liquidity and capital levels, dividends and loan originations;
• changes in market interest rates, which could adversely affect the Company's net interest income and profitability;
• legislative or regulatory changes that adversely affect the Company's business, ability to complete pending or prospective future acquisitions, limit certain sources of revenue, or increase cost of operations;
• costs or difficulties related to the integration of acquisitions;
• the goodwill recorded in connection with acquisitions could become impaired, which may have an adverse impact on the Company's earnings and capital;
• reduced demand for banking products and services;
• the risks presented by public stock market volatility, which could adversely affect the Company's stock value and the ability to raise capital in the future;
• competition from other financial services companies in our markets; and
• the Company's success in managing risks involved in the foregoing.

The Company does not undertake any obligation to publicly correct or update any forward-looking statement if we later become aware that it is not likely to be achieved.

Visit our website at www.glacierbancorp.com

SOURCE Glacier Bancorp, Inc.