Glacier Bancorp, Inc. Announces Results for Quarter Ended September 30, 2010

KALISPELL, Mont., Oct. 21 /PRNewswire-FirstCall/ --

Glacier Bancorp, Inc. (Nasdaq: GBCI) reported net earnings of $9.4 million for the third quarter of 2010, an increase of $10.9 million, or 717 percent, from the $1.5 million net loss reported for the third quarter of 2009.  The diluted earnings per share of $0.13 for the quarter represented a 533 percent increase from the diluted loss per share of $0.03 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 third quarter were 0.60 percent and 4.37 percent, respectively, which compares with prior year returns for the third quarter of (0.11) percent and (0.88) percent, respectively.

Net earnings for the nine months ended September 30, 2010 were $32.7 million, which is an increase of $7.8 million or 31 percent, over the prior year.  Diluted earnings per share of $0.48 is an increase of 20 percent over $0.40 earned in 2009.  

"I would categorize our third quarter performance as mixed," said Mick Blodnick, President and Chief Executive Officer.  "We again achieved strong growth in the number and dollars of transaction accounts which is something we work hard at.  In addition, we benefited from higher levels of fee income during the quarter, primarily due to increases in both service charge revenue and mortgage origination fees," Blodnick said.  "However, we also saw further contraction to our net interest margin due to a lack of loan growth and our refusal to take additional interest rate risk at this point in the rate cycle by extending assets.  Also, this past quarter we experienced higher costs associated with the disposition and write down of our problem assets."

Total assets at September 30, 2010 were $6.273 billion, which is $81 million, or 1 percent greater than total assets of $6.192 billion at December 31, 2009.  Total assets increased $564 million, or 10 percent, from September 30, 2009, of which $272 million, including $161 million in loans, related to the acquisition of First National Bank & Trust ("First National") in October 2009.  

Investment securities, including interest bearing deposits, FHLB and FRB stock, and federal funds sold, have increased $261 million, or 16 percent, from December 31, 2009 and increased $594 million, or 47 percent, from September 30, 2009.  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 low yields and short-weighted average lives.  The Company also continues to selectively purchase tax-exempt investment securities.  Investment securities represent 30 percent of total assets at September 30, 2010 versus 22 percent of total assets at September 30, 2009.

At September 30, 2010, gross loans were $3.984 billion, a decrease of $146 million over gross loans of $4.130 billion at December 31, 2009.  The largest category decrease was in commercial loans which decreased $97 million, or 4 percent.  The decrease in each loan category is due to the slowing loan demand within the Company's market areas resulting from the current economic downturn.  Excluding net charge-offs of $66 million, loans transferred to other real estate of $67 million, and an increase in loans held for sale of $49 million, loans decreased $62 million, or 2 percent annualized, from December 31, 2009.  

Credit Quality

At September 30, 2010, the allowance for loan and lease losses ("allowance") was $134.3 million, an increase of $8.9 million from a year ago and a decrease of $8.7 million from year end.  The allowance was 3.37 percent of total loans outstanding at September 30, 2010, such percentage was down from the 3.51 percent at June 30, 2010, but higher than the 3.10 percent at September 30, 2009.  The allowance was 51 percent of non-performing assets at September 30, 2010, compared to 55 percent at the prior year end and down slightly from 52 percent a year ago.  Non-performing assets as a percentage of total subsidiary assets at September 30, 2010 were at 4.03 percent, down from 4.13 percent as of prior year end, and down from 4.10 percent at September 30, 2009.  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 $19.2 million, an increase of $1.9 million from the prior quarter and a decrease of $27.9 million from the same quarter in 2009.  Net charged-off loans for the current quarter were $26.6 million compared to $19.2 million for the prior quarter and $19.1 million for the same quarter in 2009.  "In the recent quarter we continued to see asset quality trends stabilize although non-performing assets did move up slightly from the prior quarter," Blodnick said.  "As expected, a few of our remaining distressed development loans migrated to non-performing status.  On the positive side, early stage delinquencies for the second consecutive quarter remained at a very manageable level.  Hopefully this will allow us to finally start to make some progress reducing the overall level of non-performing assets," Blodnick said.  

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 second and third quarters, 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 September 30, 2010, non-interest bearing deposits of $888 million increased $77 million, or 13 percent annualized, since December 31, 2009 and increased $86 million, or 11 percent, since September 30, 2009.  Interest bearing deposits of $3.530 billion at September 30, 2010 include $187 million issued through the Certificate of Deposit Account Registry System ("CDARS").  Interest bearing deposits increased $241 million, or 10 percent annualized, from December 31, 2009 and $720 million, or 26 percent from September 30, 2009.  The increase in interest bearing deposits from December 31, 2009 and September 30, 2009 includes $175 million and $292 million, respectively, from wholesale deposits, including CDARS.  The increase in non-interest bearing deposits and interest bearing deposits from September 30, 2009 includes $39 million and $197 million, respectively, from the First National acquisition.  The increase in both interest bearing and non-interest bearing deposits 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.

Increases in both interest and non-interest bearing deposits have allowed the Company to reduce overall borrowings.  Federal Home Loan Bank advances decreased $211 million, or 27 percent, from December 31, 2009 and decreased $62 million, or 10 percent, from September 30, 2009.  There were no Federal Reserve Bank borrowings through the Term Auction Facility program ("TAF") at September 30, 2010 due to cessation of the TAF program by the Federal Reserve.  TAF borrowings totaled $225 million at December 31, 2009 and $345 million at September 30, 2009.  Repurchase agreements and other borrowed funds were $255 million at September 30, 2010, an increase of $29 million from December 31, 2009 and September 30, 2009.

Total stockholders' equity and book value per share increased $168 million and $0.74 per share and $156 million and $0.52 per share, from December 31, 2010 and September 30, 2009, respectively, such increases are 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 $170 million, or 32 percent, and $155 million, or 29 percent, since December 31, 2009 and September 30, 2009, respectively, with tangible stockholders' equity to tangible assets at 11.38 percent, 8.72 percent, and 9.75 percent as of September 30, 2010, December 31, 2010, and September 30, 2009, respectively.  Accumulated other comprehensive income (loss), representing net unrealized gains or losses (net of tax) on investment securities, increased $16.8 million since December 31, 2009 and $1.3 million from September 30, 2009.  

Cash Dividend

On September 29, 2010, the board of directors declared a cash dividend of $0.13 per share, payable October 21, 2010 to shareholders of record on October 12, 2010.  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 $1.5 million from the prior quarter and decreased $2.1 million over prior year's third quarter.  The current quarter net interest margin as a percentage of earning assets, on a tax-equivalent basis, was 4.19 percent which is 16 basis points lower than the 4.35 percent for the prior quarter and included a 7 basis points reduction from the reversal of interest on non-accrual loans.  The net interest margin for the current quarter is 61 basis points lower than the 4.80 percent result for the third quarter of 2009.  The decrease in interest income is due to a lower yield and volume of loans coupled with an increase in lower yielding investment securities.  The decrease in interest expense is primarily attributable to the rate decreases on interest bearing deposits and lower cost borrowings.  

Non-interest Income

Non-interest income for the quarter totaled $24.0 million, an increase of $2.6 million over the prior quarter and $2.3 million over the same quarter as last year.  Fee income of $13.2 million increased $1.3 million, or 11 percent, during the quarter and $1.1 million, or 9 percent over prior year's quarter, such increases resulting from significant growth in debit card income.  Gain on sale of loans increased $1.2 million, or 20 percent, over the prior quarter due to a reduction in mortgage interest rates during the second quarter which continued in the third quarter and led to greater loan origination volume.  Gain on sale of loans increased $1.8 million, or 31 percent, over the same period last year, primarily the result of significant purchase and refinance activity this period compared to the third quarter 2009.  Net gain on sale of investments was $2.0 million for the current quarter 2010 compared to $242 thousand for the previous quarter and $2.7 million for the prior year's quarter.  Such sales were executed with the proceeds used to purchase securities that enable the investment portfolio to perform well across varying interest rates.  Other income of $1.4 million for the current quarter is a decrease of $1.8 million from the prior quarter, such decrease relates to the second quarter sale of Mountain West Bank's merchant card servicing portfolio.  "Service fee income growth was solid for the banks this quarter.  In addition, the strong focus on mortgage lending activity during the quarter showed in the increased gain on loan sales, a real bright spot for the banks," said Ron Copher, Chief Financial Officer.

Non-interest Expense

Non-interest expense of $52.0 million for the quarter increased by $3.8 million, or 8 percent, from the prior quarter and increased $10.1 million, or 24 percent, from the prior year third quarter.  Compensation and employee benefits of $22.2 million increased $583 thousand, or 3 percent, from the previous quarter, partly the result of higher commission expense paid on mortgage originations, and $1.3 million, or 6 percent, from the prior year third quarter which is primarily due to the addition of First National employees in October 2009.  The number of full-time equivalent employees increased from 1,654 to 1,658 during the quarter, and increased from 1,577 since the end of the 2009 third quarter.  

Occupancy and equipment expense increased $46 thousand, or 1 percent, from the prior quarter and increased $199 thousand, or 3 percent, from the prior year third quarter.  Advertising and promotion expense increased $268 thousand, or 16 percent, from prior quarter and increased $316 thousand, or 20 percent, from the third quarter of 2009.  The majority of such increases were driven by aggressive advertising relating to the disposal of other real estate owned.  Other real estate owned expenses increased $2.3 million, or 31 percent, from prior quarter and increased $6.8 million, or 235 percent, from the prior year third quarter.  The current quarter other real estate owned expense of $9.7 million included $1.2 million of operating expenses, $6.4 million of fair value write-downs, and $2.1 million of loss on sale of other real estate owned.  The other real estate owned expenses have increased as the Company continues to aggressively dispose of problem assets and other real estate owned.  FDIC premiums increased $468 thousand, or 22 percent, from prior quarter and increased $934 thousand, or 55 percent, from the prior year third quarter.  Other expenses increased $143 thousand, or 2 percent, from the prior quarter and increased $633 thousand, or 9 percent, from the prior year third quarter.   "The past two quarters we have taken much larger write downs and charge-offs of other real estate owned which should allow us to aggressively dispose and move these properties," Blodnick said.  "This higher level of other real estate owned expense will probably continue unless real estate values improve significantly, something we don't expect to see at least in the near term."

Efficiency Ratio

In the current quarter, the Company has 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 50 percent compared to 47 percent for the prior year third quarter.  The increase resulted from continuing pressure on net interest margin in the current low interest rate environment coupled with small increases in operating expenses.

Net Interest Income

Net interest income for the nine month period decreased $3.4 million, or 2 percent, over the same period in 2009.  Total interest income decreased $5.1 million, or 2 percent, while total interest expense decreased $1.7 million, or 4 percent.  The net interest margin as a percentage of earning assets, on a tax equivalent basis, decreased 55 basis points from 4.87 percent for 2009 to 4.32 percent for 2010 and included a 6 basis points reduction from the reversal of interest on non-accrual loans.

Non-interest Income

Non-interest income increased for the nine month period of 2010 by $1.2 million over the same period in 2009.  Fee income for the first nine months of 2010 has increased $2.1 million, or 6 percent, compared to the prior year primarily from an increase in debit card income.  Gain on sale of loans decreased $3.4 million, or 17 percent, over the first nine months of last year, primarily the result of significant refinance activity in the first half of 2009.  Other income increased $2.6 million over the same period in 2009, of which $1.8 million relates to the second quarter 2010 sale of Mountain West Bank's merchant card servicing portfolio.  

Non-interest Expense

Non-interest expense for the first nine months of 2010 increased by $17.7 million, or 14 percent, from the same period last year.  Compensation and employee benefits increased $1.7 million, or 3 percent, from 2009.  Occupancy and equipment expense increased $629 thousand, or 4 percent, from 2009.  Advertising and promotion expense increased by $106 thousand, or 2 percent, from 2009.  Other real estate owned expense increased $13.6 million, or 238 percent, from the prior year first nine months.  The other real estate owned expenses of $19.3 million for the first nine months of 2010 included $3.3 million of operating expenses, $9.7 million of fair value write-downs, and $6.3 million of loss on sale of other real estate owned.  FDIC premiums increased $298 thousand, or 4 percent, from the prior year which included a second quarter special assessment of $2.5 million.  Other expense increased $1.3 million, or 6 percent, from the prior year.  

Allowance for Loan and Lease Losses

The provision for loan loss expense was $57.3 million for the first nine months of 2010, a decrease of $30.6 million, or 35 percent, from the same period in 2009.  Net charged-off loans during the nine months ended September 30, 2010 was $66.0 million, an increase of $26.7 million from the same period in 2009.

Efficiency Ratio

The efficiency ratio for the first nine months of 2010 was 50 percent compared to 46 percent for the prior year's first nine months.  The increase in efficiency ratio resulted from continuing pressure on net interest margin 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.