Glacier Bancorp, Inc. Announces Results for the Quarter Ended September 30, 2013

HIGHLIGHTS:

• All time record net income for the current quarter of $25.6 million, an increase of 32 percent from the prior year third quarter net income of $19.4 million.
• Current quarter diluted earnings per share of $0.35, an increase of 30 percent from the prior year third quarter diluted earnings per share of $0.27.
• Completed the acquisition of North Cascades Bancshares, Inc., and its subsidiary, North Cascades National Bank in Chelan, Washington.
• Excluding the acquisition, the loan portfolio increased $112 million, or 12 percent annualized.
• Current quarter net interest margin, on a tax-equivalent basis, of 3.56 percent, an increase of 26 basis points from the prior quarter net interest margin of 3.30 percent.
• Interest income for the current quarter of $69.5 million, an increase of 12 percent from the prior quarter interest income of $62.2 million.
• Service charges and other fee income of $13.7 million, an increase of 16 percent from the prior quarter service charges and other fee income of $11.8 million.

Results Summary

KALISPELL, Mont., Oct. 24, 2013 (GLOBE NEWSWIRE) -- Glacier Bancorp, Inc. (Nasdaq:GBCI) reported net income of $25.6 million for the current quarter, an increase of $6.2 million, or 32 percent, from the $19.4 million of net income for the prior year third quarter. Diluted earnings per share for the current quarter was $0.35 per share, an increase of $0.08, or 30 percent, from the prior year third quarter diluted earnings per share of $0.27. "We had a good quarter in just about every aspect of the operation, topped off with the completion of our purchase of North Cascades Bancshares, Inc.," said Mick Blodnick President and Chief Executive Officer. "Loan growth for the second consecutive quarter was stronger than expected, we improved our net interest margin substantially during the quarter and credit trends and costs both moved in a positive direction. These results were all the more gratifying considering today's challenging operating environment," Blodnick said. 

Net income for the nine months ended September 30, 2013 was $69.1 million, an increase of $14.3 million, or 26 percent, from the $54.8 million of net income for the prior year first nine months. Diluted earnings per share for the first nine months of the current year was $0.95 per share, an increase of $0.19, or 25 percent, from the diluted earnings per share in the prior year first nine months. 

On July 31, 2013, the Company completed the acquisition of North Cascades Bancshares, Inc. ("NCBI"), and its subsidiary, North Cascades National Bank which has community bank offices in Brewster, Chelan, East Wenatchee, Grand Coulee, Okanogan, Omak, Twisp, Waterville, and Wenatchee, Washington. North Cascades National Bank operates as a division of Glacier Bank under the name "North Cascades Bank, division of Glacier Bank." Cash of $13.8 million and 687,876 shares of the Company's common stock were issued in the acquisition which resulted in $10.2 million of goodwill.   As a result of the NCBI acquisition and the Wheatland Bankshares, Inc. ("Wheatland") acquisition on May 31, 2013, the Company incurred $335 thousand of legal and professional expenses in connection with the acquisitions in the current quarter and $1.1 million in the nine months ended September 30, 2013. The Company's results of operations and financial condition include the acquisition of NCBI and the acquisition of Wheatland from the acquisition dates. The following table provides information on the fair value of selected classifications of assets and liabilities acquired:

Asset Summary

Investment securities decreased $402 million, or 11 percent, during the current quarter and decreased $364 million, or 10 percent, from December 31, 2012 as the Company implemented a strategy to reduce the overall size of this portfolio. The Company continued to purchase investment securities during the current quarter, although at a much slower pace. With the growth in the loan portfolio it affords the Company the opportunity to retain higher yielding assets than what the Company could achieve with investment securities. At September 31, 2013, investment securities represented 41 percent of total assets, down from 48 percent at December 31, 2012 and 47 percent at September 30, 2012. 

An encouraging trend over the last three quarters has been the organic loan growth. Excluding the loans receivable from acquisitions, the loan portfolio increased $111.7 million, or 3 percent, during the current quarter and increased $205.8 million, or 6 percent, from the prior year third quarter with increases in both the commercial real estate and commercial and industrial loan categories. Excluding the acquisitions, the largest dollar increase was in commercial loans, which increased $98.8 million, or 4 percent, from the prior quarter and increased $226.5 million, or 10 percent, from the prior year third quarter. Included in the $98.8 current quarter increase in commercial loans was an increase of $63.9 million of commercial real estate loans and $34.9 million increase in commercial and industrial loans. Excluding the acquisitions, residential real estate loans increased $22.8 million, or 4 percent, from the prior quarter and increased $13.3 million, or 3 percent, from the prior year third quarter. The decreases in consumer and other loans was primarily attributable to customers paying off home equity lines of credit as they refinanced their first mortgage. 

Credit Quality Summary

During the first nine months of 2013, the Company continued to diligently and methodically reduce non-performing assets. Non-performing assets at September 30, 2013 were $125 million, a decrease of $5.5 million, or 4 percent, during the current quarter and a decrease of $51.8 million, or 29 percent, from a year ago. The largest category of non-performing assets was the land, lot and other construction category which was $55.3 million, or 44 percent, of the non-performing assets at September 30, 2013. Included in this category was $25.8 million of land development loans and $15.0 million in unimproved land loans at September 30, 2013. The Company has continued to reduce the land, lot and other construction category over the prior two years. The Company's early stage delinquencies (accruing loans 30-89 days past due) of 26.4 million at September 30, 2013 increased $4.3 million, or 20 percent, from the prior quarter and decreased $2.0 million, or 7 percent, from the prior year third quarter early stage delinquencies.

"We continued to make good progress in improving our overall asset quality and that was again evident this quarter as non-performing assets declined further, delinquencies remained at low levels and net charge-offs through the third quarter were far better than our expectations and in line with our historical averages before the credit downturn," said Blodnick. 

At September 30, 2013, the allowance for loan and lease losses ("allowance") was $131 million, a decrease of $89 thousand, or less than 1 percent, from December 31, 2012 and a decrease of $5.9 million, or 4 percent, from a year ago. The allowance was 3.27 percent of total loans outstanding at September 30, 2013, a decrease of 58 basis points from 3.85 percent at December 31, 2012. Excluding the acquired banks, the allowance was 3.60 percent of total loans outstanding at September 30, 2013, a 33 basis points increase from the 3.27 allowance percentage at September 30, 2013. Such difference was primarily attributable to no allowance carried over from the acquisitions as result of the acquired loans being recorded at fair value. The allowance was 148 percent of non-performing loans at September 30, 2013, an increase from 133 percent at December 31, 2012 and an increase from 115 percent at September 30, 2012. 

Credit Quality Trends and Provision for Loan Losses

Net charged-off loans of $2.0 million during the current quarter increased $995 thousand, or 97 percent, compared to the prior quarter and decreased $1.5 million, or 42 percent, from the prior year third quarter. The current quarter provision for loan losses of $1.9 million increased $829 thousand from the prior quarter and decreased $793 thousand from the prior year third quarter. Loan portfolio growth, composition, average loan size, credit quality considerations, and other environmental factors will continue to determine the level of provision for loan loss expense. 

Supplemental information regarding credit quality and identification of the Company's loan portfolio based on regulatory classification is provided in the exhibits at the end of this press release. The regulatory classification of loans is based primarily on collateral type while the Company's loan segments presented herein are based on the purpose of the loan.

Liability Summary

Excluding the acquisitions, non-interest bearing deposits at September 30, 2013 increased $85.2 million, or 7 percent, during the current quarter and increased $111 million, or 9 percent, since September 30, 2012. Interest bearing deposits of $4.215 billion at September 30, 2013 included $328 million of wholesale deposits (i.e., brokered deposits classified as NOW, money market deposit and certificate accounts). Excluding the acquisitions, interest bearing deposits at September 30, 2013 decreased $125 million, or 3 percent, during the current quarter and included a decrease of $44 million in wholesale deposits. Excluding the acquisition, interest bearing deposits at September 30, 2013 decreased $252 million, or 6 percent, from September 30, 2012 primarily the result of a decrease of $417 million in wholesale deposits. 

Repurchase agreements of $314 million at September 30, 2013 decreased $100 million, or 24 percent, from the prior year third quarter and was primarily a result of a decrease of $107 million in wholesale repurchase agreements. Federal Home Loan Bank ("FHLB") advances have remained relatively stable compared to the prior year end and the prior year third quarter and will fluctuate as necessary as the need for funding changes.

Stockholders' Equity Summary

Tangible stockholders' equity of $808 million increased $19.2 million, or 2 percent, from the prior year end as a result of Company stock issued in connection with the acquisitions and an increase in earnings retention which was offset by the decrease in accumulated other comprehensive income.   Tangible book value per common share of $10.87 decreased $0.09 per share from the prior year end as a result of the increased Company stock issued in the acquisitions.  

Cash Dividend

On September 26, 2013, the Company's Board of Directors declared a cash dividend of $0.15 per share, payable October 17, 2013 to shareholders of record on October 8, 2013. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

Net Interest Income

The current quarter interest income of $69.5 million increased $7.4 million, or 12 percent, over the prior quarter primarily as a result of the increase in interest income on commercial loans and the increase in interest income on the investment portfolio. The $4.4 million, or 15 percent, increase in commercial loan interest income from the prior quarter was driven by an increased volume of commercial loans during the current quarter. The current quarter increase in interest income on the investment portfolio was primarily a result of a decrease in premium amortization (net of discount accretion) on the investment securities ("premium amortization"). The Company experienced a decrease in premium amortization for a third consecutive quarter, compared to significant increases experienced during the preceding seven quarters. Included in the current quarter's interest income was $15.2 million of premium amortization on investment securities compared to $18.4 million in the prior quarter. The current quarter decrease in premium amortization on investment securities was $3.2 million compared to a decrease of $3.0 million in premium amortization in the prior quarter. 

The current quarter interest income of $69.5 million increased $7.5 million, or 12 percent, over the prior year third quarter and was also driven by the increase in interest income on the commercial loans and the increase in interest income on the investment portfolio. The current quarter interest income on commercial loans of $34.3 million increased $4.0 million, or 13 percent, over the prior year third quarter as a result of increased volume of commercial loans. The current quarter interest income on investment securities of $19.5 million increased $4.3 million, or 28 percent, over the prior year third quarter of which $4.3 million was attributable to the decrease in premium amortization.

The current quarter interest expense of $7.2 million was unchanged from the prior quarter and decreased $1.7 million, or 19 percent, from the prior year third quarter. The decrease in interest expense from the prior year third quarter was a result of decreases in borrowing and deposit interest rates. The cost of total funding (including non-interest bearing deposits) for the current quarter was 41 basis points compared to 43 basis points for the prior quarter and 54 basis points for the prior year third quarter. 

The current quarter net interest margin as a percentage of earning assets, on a tax-equivalent basis, was 3.56 percent, an increase of 26 basis points from the prior quarter net interest margin of 3.30 percent. The increase in the net interest margin was driven by an increased yield on the investment securities and a shift in the earning assets from investment securities to the higher yielding loan portfolio. The current quarter increase in the investment securities yield was primarily attributable to a decrease in the premium amortization which was consistent with the prior quarter. Of the 33 basis points increase in yield on the investment securities during the current quarter, 28 basis points was due to the decrease in premium amortization. The premium amortization in the current quarter accounted for a 82 basis points reduction in the net interest margin compared to a 103 basis points reduction in the prior quarter and 111 basis points reduction in the net interest margin in the prior year third quarter. "The Bank's continued focus on quality loan growth was significant to the improvement in net interest income and the net interest margin," said Ron Copher, Chief Financial Officer.  "The reduction in premium amortization combined with the changing mix of the earning assets should trend well for the remainder of 2013."

Non-interest Income

Non-interest income for the current quarter totaled $23.9 million, an increase of $651 thousand over the prior quarter and a decrease of $101 thousand over the same quarter last year. Service charge fee income increased $2.1 million, or 17 percent, from the prior quarter and increased $2.1 million, or 16 percent, from the prior year third quarter which was driven by increases in deposit accounts and changes in internal deposit processing. Gain of $7.0 million on the sale of loans for the current quarter decreased $451 thousand, or 6 percent, from the prior quarter and decreased $1.7 million, or 20 percent, from the prior year third quarter. As expected, the Company experienced a slowdown in refinance activity as mortgage rates moved up significantly in the third quarter. The decrease in gain on sale of loans was more than offset by the decrease in premium amortization on investment securities, both of which were attributable to the continuing slowdown of refinance activity. Other income of $2.1 million for the current quarter decreased $402 thousand, or 16 percent, from the prior quarter primarily as a result of a decrease in income related to other real estate owned ("OREO"). Included in other income was operating revenue of $92 thousand from OREO and gain of $341 thousand on the sales of OREO, which totaled $433 thousand for the current quarter compared to $715 thousand for the prior quarter and $531 thousand for the prior year third quarter.

Non-interest Expense Summary

Non-interest expense of $50.4 million for the current quarter increased by $1.9 million, or 4 percent, from the prior quarter and increased by $190 thousand, or 38 basis points, from the prior year third quarter. Compensation and employee benefits increased by $2.6 million, or 10 percent, from the prior quarter and increased $3.4 million, or 14 percent, from the prior year third quarter primarily as a result of the acquisitions. Outsourced data processing expense increased $419 thousand, or 52 percent, from the prior quarter and increased $431 thousand, or 54 percent, from the prior year third quarter again as a result of the acquired banks' outsourced data processing expense. OREO expense decreased $1.9 million, or 65 percent, from the prior quarter and decreased $5.3 million, or 84 percent, from the prior year third quarter. The current quarter OREO expense of $1.0 million included $418 thousand of operating expense, $394 thousand of fair value write-downs, and $237 thousand of loss on sale of OREO. OREO expense will fluctuate as the Company continues to work through non-performing loans and dispose of foreclosed properties.    Other expense increased by $1.4 million, or 16 percent, over the prior year third quarter primarily from legal and professional expenses associated with the acquisitions and other miscellaneous expense.

Efficiency Ratio

The efficiency ratio for the current quarter was 54 percent compared to 55 percent for the prior year third quarter. The decrease in the efficiency ratio was primarily driven by the increase in net interest income which exceeded the increase non-interest expense. 

Net Interest Income

Net interest income for the first nine months of the current year increased $1.3 million, or 1 percent, over the same period last year. Interest income for the first nine months of the current year decreased $4.5 million, or 2 percent, from the prior year first nine months and was principally due to the increase in premium amortization on investment securities earlier this year and the reduction of yields on the loan portfolio. Interest income was reduced by $55.0 million in premium amortization on investment securities during the first nine months of the current year which was an increase of $6.3 million from the first nine months of the prior year.   Such decrease in interest income were partially offset by an increased volume in commercial loans and investment securities. 

Interest expense for the first nine months of the current year decreased $5.7 million, or 21 percent, from the prior year first nine months and was primarily attributable to the decreases in interest rates on interest bearing deposits and borrowings.  The funding cost (including non-interest bearing deposits) for the first nine months of 2013 was 43 basis points compared to 57 basis points for the first nine months of 2012. 

The net interest margin, on a tax-equivalent basis, for the first nine months of 2013 was 3.34 percent, a 14 basis points reduction from the net interest margin of 3.48 percent for the first nine months of 2012.  The reduction was a result of lower yields on loans and higher premium amortization on investment securities, both of which outpaced the reduction in funding cost. The premium amortization for the first nine months of 2013 accounted for a 103 basis points reduction in the net interest margin, which was an increase of 8 basis points compared to the 95 basis points reduction in the net interest margin for the same period last year. 

Non-interest Income

Non-interest income of $70.0 million for the first nine months of 2013 increased $3.9 million, or 6 percent, over the same period last year. Gains of $23.6 million on the sale of loans for the first nine months of 2013 increased $519 thousand, or 2 percent, from the first nine months of 2012. Other income for the first nine months of 2013 increased $818 thousand, or 13 percent, over the first nine months of 2012. Included in other income was operating revenue of $247 thousand from OREO and gains of $1.6 million on the sale of OREO, which totaled $1.9 million for the first nine months of 2013 compared to $1.5 million for the same period in the prior year.

Non-interest Expense Summary

Compensation and employee benefits for the first nine months of 2013 increased $5.7 million, or 8 percent, from the same period last year. OREO expense of $4.9 million in the first nine months of 2013 decreased $10.5 million, or 68 percent, from the first nine months of the prior year. Outsourced data processing expense increased $435 thousand, or 18 percent, from the prior year first nine months as a result of the acquired banks outsourced data processing expense. The OREO expense for the first nine months of 2013 included $2.0 million of operating expenses, $2.4 million of fair value write-downs, and $538 thousand of loss on sale of OREO. Other expense for the first nine months of 2013 increased by $1.7 million, or 6 percent, from the first nine months of the prior year and was principally attributable to the legal and professional expenses associated with the acquisitions.

Provision for loan losses

The provision for loan losses was $5.1 million for the first nine months of 2013, a decrease of $14.2 million, or 74 percent, from the same period in the prior year. Net charged-off loans during the first nine months of 2013 was $5.2 million, a decrease of $14.9 million from the first nine months of 2012. 

Efficiency Ratio

The efficiency ratio was 55 percent for the first nine months of 2013 and 53 percent for the first nine months of 2012. Although there was an increase in non-interest income and net interest income during the first nine months of the current year over the prior year, it was not enough to offset the increase in non-interest expense, excluding OREO expense, resulting in the increased efficiency ratio.

About Glacier Bancorp, Inc.

Glacier Bancorp, Inc. is a regional bank holding company providing commercial banking services in 72 communities in Montana, Idaho, Utah, Washington, Wyoming and Colorado. Glacier Bancorp, Inc. is headquartered in Kalispell, Montana, and  is the parent company for Glacier Bank, Kalispell and bank divisions First Security Bank of Missoula; Valley Bank of Helena; Big Sky Western Bank, Bozeman; Western Security Bank, Billings; and First Bank of Montana, Lewistown; all operating in Montana; as well as Mountain West Bank, Coeur d'Alene operating in Idaho, Utah and Washington; Citizens Community Bank, Pocatello, operating in Idaho; 1st Bank, Evanston, operating in Wyoming and Utah;  First Bank of Wyoming, Powell and First State Bank, Wheatland,   operating in Wyoming; North Cascades Bank, Chelan, operating in Washington; and Bank of the San Juans, Durango, operating in Colorado. 

Forward Looking Statements

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 a slow recovery in the housing and real estate markets in its geographic areas;
• increased loan delinquency rates;
• the risks presented by a slow economic recovery, 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 completion and integration of acquisitions;
• the goodwill the Company has recorded in connection with acquisitions could become additionally impaired, which may have an adverse impact on earnings and capital;
• reduced demand for banking products and services;
• the risks presented by public stock market volatility, which could adversely affect the market price of the Company's common stock and the ability to raise additional capital in the future;
• competition from other financial services companies in the Company's markets;
• loss of services from the CEO and senior management team;
• potential interruption or breach in security of the Company's systems; 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 it later becomes aware that actual results are likely to differ materially from those expressed in such forward-looking statement.

Visit our website at www.glacierbancorp.com