Glacier Bancorp, Inc. Announces Results for the Quarter Ended December 31, 2015

HIGHLIGHTS: 

• Net income of $29.5 million for the current quarter was basically unchanged from the prior quarter’s $29.6 million net income and was an increase of 5 percent from the prior year fourth quarter net income of $28.1 million.
• Current quarter diluted earnings per share of $0.39 compared to the prior quarter diluted earnings per share of $0.39 and the prior year fourth quarter diluted earnings per share of $0.37, an increase of 5 percent.
• Organic loan growth was $346 million, or 8 percent, for the current year.
• Net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the current quarter was 4.02 percent, an increase of 6 basis points from 3.96 percent in the prior quarter.
• Approved a special dividend of $0.30 per share.  This was the twelfth special dividend the Company has declared.
• Paid a regular quarterly dividend of $0.19 per share in December.  The dividend was the 123rd consecutive quarterly dividend declared by the Company.
• The Company completed the acquisition of Cañon National Bank, a community bank based in Cañon City, Colorado.

Results Summary

KALISPELL, Mont., Jan. 28, 2016 (GLOBE NEWSWIRE) -- Glacier Bancorp, Inc. (Nasdaq:GBCI) reported net income of $29.5 million for the current quarter, an increase of $1.4 million, or 5 percent, from the $28.1 million of net income for the prior year fourth quarter.  Diluted earnings per share for the current quarter was $0.39 per share, an increase of $0.02, or 5 percent, from the prior year fourth quarter diluted earnings per share of $0.37.  Included in the current quarter was $658 thousand of one-time acquisition related expenses.  “The fourth quarter capped off another very good year for Glacier Bancorp,” said Mick Blodnick, President and Chief Executive Officer.  “We produced all time record earnings led by strong loan growth, continued improvement in our credit quality and a solid and consistent net interest margin.  Collectively, this helped us to once again this year post some excellent performance metrics, a feat our entire staff should be very proud of what they helped achieve,” Blodnick said.

Net income for the twelve months ended December 31, 2015 was a record $116.1 million, an increase of $3.4 million, or 3 percent, from the $112.8 million of net income for the same period in the prior year.  Diluted earnings per share for the twelve months ended December 31, 2015 was $1.54 per share, an increase of $0.03, or 2 percent, from the diluted earnings per share for the prior year.

On October 31, 2015, the Company completed the acquisition of Cañon Bank Corporation and its subsidiary Cañon National Bank (collectively, “Cañon”).  Goodwill of $9.8 million resulted from the acquisition which was based on the estimated fair value of the assets acquired and liabilities assumed.  “With the closing of Cañon National Bank this past quarter we add another quality financial institution to our Company,” Blodnick stated.  “This new addition not only gains us access to the “front range” of Colorado with some new and exciting markets, but more importantly gives us some very talented bankers which were the real key to this transaction.”  On February 28, 2015, the Company completed the acquisition of Montana Community Banks, Inc. and its subsidiary, Community Bank, Inc. (collectively, “CB”) which resulted in goodwill of $1.1 million.  The Company incurred $2.3 million of legal and professional expenses in connection with the CB and Cañon acquisitions and the CB data conversion and integration during the current year.  The Company’s results of operations and financial condition include the acquisitions of CB and Cañon from the acquisition dates and the following table provides information on the fair value of selected classifications of assets and liabilities acquired:

Asset Summary

Total investment securities of $3.313 billion at December 31, 2015 increased $130 million, or 4 percent, during the current quarter and increased $404 million, or 14 percent, from December 31, 2014.  The increase in the investment portfolio from the prior quarter and the prior year fourth quarter was the result of continuing to selectively purchase investment securities with the Company’s excess liquidity resulting from the sustained increase in deposits.  Investment securities represented 36 percent of total assets at December 31, 2015 compared to 35 percent at December 31, 2014.

Excluding the Cañon acquisition, the Company continues to experience growth in the loan portfolio which increased $43.0 million, or 1 percent, during the current quarter.  Excluding the acquisition, the loan category with the largest dollar increase during the current quarter was commercial real estate loans which increased $25.7 million, or 1 percent.  The loan category with the largest percentage increase was residential construction (i.e., regulatory classification) which increased $12.4 million or 11 percent over the prior quarter.  Excluding the CB and Cañon acquisitions, the loan portfolio increased $346 million, or 8 percent, since December 31, 2014 with $278 million of the increase coming from growth in commercial loans.  “Our organic loan growth was well beyond our expectation this past year as a very strong first half of the year gave us the momentum to exceed our loan goal for 2015,” Blodnick said.  “Loan volume in the fourth quarter was much better than what we historically experience even with the customary drop in agricultural lending.  It was especially encouraging to again see an increase in residential construction lending.  We have been working very hard this year to improve our totals in this particular loan category and it’s nice to see it continue to generate positive results.”

Credit Quality Summary

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1 As of December 31, 2015, non-performing assets have not been reduced by U.S. government guarantees of $2.3 million.

Non-performing assets at December 31, 2015 were $80.1 million, a decrease of $4.9 million, or 6 percent, during the current quarter.  Non-performing assets at December 31, 2015 decreased $9.8 million, or 11 percent, from a year ago.  Early stage delinquencies (accruing loans 30-89 days past due) of $19.4 million at December 31, 2015 increased $1.6 million from the prior quarter and decreased $6.5 million from the prior year fourth quarter.

The allowance for loan and lease losses (“allowance”) was $130 million at December 31, 2015 consistent with prior periods.  The allowance was 2.55 percent of total loans outstanding at December 31, 2015 compared to 2.68 percent at September 30, 2015 and 2.89 percent at December 31, 2014. The reduction in the allowance as a percentage of total loans was driven primarily by loan growth, stabilizing credit quality, and no allowance carried over from the bank acquisitions as a result of the acquired loans recorded at fair value.

Credit Quality Trends and Provision for Loan Losses

Net charge-offs of loans for the current quarter were $1.5 million compared to net charge-offs of $577 thousand for the prior quarter and net charge-offs of $1.1 million from the same quarter last year.  The current quarter provision for loan losses of $411 thousand decreased $415 thousand from the prior quarter and increased $220 thousand from the prior year fourth quarter.  Loan portfolio growth, composition, average loan size, credit quality considerations, and other environmental factors will continue to determine the level of the loan loss provision.

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 Cañon acquisition, non-interest bearing deposits of $1.918 billion at December 31, 2015, decreased $64 million, or 3 percent, from the prior quarter which was primarily from seasonality and timing of deposits of large deposit customers.  Excluding the CB and Cañon acquisitions, non-interest bearing deposits increased $155 million, or 10 percent, from December 31, 2014.  Interest bearing deposits of $5.027 billion at December 31, 2015 included $230 million of wholesale deposits (i.e., brokered deposits classified as NOW, money market deposits and certificate accounts).  Excluding the increase of $39.9 million in wholesale deposits and the Cañon acquisition, interest bearing deposits at December 31, 2015 increased $59.1 million, or 1 percent, during the current quarter.  Excluding the decrease of $19.5 million in wholesale deposits and the CB and Cañon acquisitions, core interest bearing deposits at December 31, 2015 increased $80 million, or 2 percent, from December 31, 2014.

Securities sold under agreements to repurchase (“repurchase agreements”) of $423 million at December 31, 2015 decreased $17.6 million, or 4 percent, from the prior quarter and was primarily the result of timing of deposits in existing repurchase agreements.  Federal Home Loan Bank (“FHLB”) advances of $394 million at December 31, 2015 increased $64.8 million, or 20 percent, for the current quarter due to seasonal reduction in deposit balances and increased $97.2 million, or 33 percent, since December 31, 2014 due to deposit fluctuations and the Company taking advantage of attractive term borrowings that were available from FHLB of Seattle prior to its merger with FHLB of Des Moines during the second quarter of 2015.

Stockholders’ Equity Summary

Tangible stockholders’ equity of $921 million at December 31, 2015 decreased $11.7 million, or 1 percent, from the prior quarter primarily from a decrease in accumulated other comprehensive income and an increase in goodwill and intangibles from the Cañon acquisition, both of which were partially offset by $15.2 million of Company stock issued in connection with the Cañon acquisition.  Tangible stockholders’ equity increased $34.0 million, or 4 percent, from a year ago, the result of earnings retention and Company stock issued in connection with the CB and Cañon acquisitions, both of which offset the decrease in accumulated other comprehensive income and increases in goodwill and intangibles from acquisitions.  At December 31, 2015, the tangible book value per common share was $12.11 a decrease of $0.24 per share from $12.35 the prior quarter.  The decrease resulted from shares issued in the Cañon acquisition and the decrease in accumulated other comprehensive income.  Tangible book value per common share for December 31, 2015, increased $0.28 per share from the prior year fourth quarter.

Cash Dividend
On December 30, 2015, the Company’s Board of Directors declared a special cash dividend of $0.30 per share, which was the twelfth special dividend approved by the Company.  The dividend was payable January 21, 2016 to shareholders of record on January 12, 2016.  On November 24, 2015, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.19 per share.  The dividend was payable December 17, 2015 to shareholders of record on December 8, 2015.  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
In the current quarter, interest income of $83.2 million increased $2.8 million, or 4 percent from the prior quarter and was driven primarily by increases in interest income on investment securities, residential real estate loans and  commercial loans.  Interest income during the current quarter increased $7.0 million, or 9 percent, over the prior year fourth quarter and was principally due to higher interest income on commercial loans which increased $5.2 million, or 14 percent, as a result of an increased volume and yield on commercial loans.  Interest income of $23.7 million on investment securities increased $1.3 million, or 6 percent, over the prior quarter and increased $1.7 million, or 8 percent, over the prior year fourth quarter with both increases the result of higher volume and yield on the investment portfolio.

An interest rate swap with a notional amount of $100 million and a three and a half year deferred start began its  accrual period in December of 2015 with a fixed interest rate of 2.498 percent.  The interest rate swap expense will be offset by the maturity of a $75 million term FHLB borrowing in December with a 3.48 percent rate and was replaced with lower cost funding.  The Company’s total accruing notional amount of interest rate swaps at year end was $260 million. The current quarter interest expense of $7.2 million decreased $94 thousand, or 1 percent, from the prior quarter.  The current quarter interest expense decreased $153 thousand from the prior year fourth quarter.  The total cost of funding (including non-interest bearing deposits) for the current quarter was 37 basis points compared to 39 basis points for the prior quarter and 42 basis points in the prior year fourth quarter.

The Company’s net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the current quarter was 4.02 percent compared to 3.96 percent in the prior quarter. The 6 basis points increase in the current quarter net interest margin was primarily driven by a 4 basis points increase in the yield on the investment portfolio.  Included in the current quarter net interest margin was 2 basis points related to the recovery of interest on loans previously placed on non-accrual compared to 4 basis points in the prior quarter.  The Company’s current quarter net interest margin  increased 10 basis points from the prior year fourth quarter net interest margin of 3.92 percent.  The increase in the net interest margin from the prior year fourth quarter was the result of a 5 basis points reduction in cost of funding, increased yield on investments securities, and increased volume of higher yielding commercial loans.  “Maintaining the stable net interest margin during the challenging interest rate environment of the current quarter and year reflects the Bank divisions’ commitment to pricing loans at higher yields where possible and growing a lower cost deposit base, especially non-interest bearing deposits,” said Ron Copher, Chief Financial Officer.  “The Bank’s non-interest bearing deposit base will serve the Bank well across higher interest rate environments.”

Non-interest Income
Non-interest income for the current quarter totaled $24.5 million, a decrease of $1.3 million, or 5 percent, from the prior quarter and an increase of $489 thousand, or 2 percent, over the same quarter last year.  Service fee income of $16.0 million, increased $837 thousand, or 6 percent, from the prior year fourth quarter driven by the increased number of deposit accounts.  The Company generated $6.0 million on the sale of residential loans in the current quarter a decrease of $1.3 million, or 18 percent, from the prior quarter as a result of seasonal fluctuations.   Gain on sale of residential loans for the current quarter increased $609 thousand, or 11 percent, from the prior year fourth quarter as a result of an increase in mortgage purchase activity.  Other non-interest income for the current quarter decreased $1.1 million, or 33 percent, over the prior year fourth quarter primarily due to insurance proceeds recognized in the prior year fourth quarter from a bank owned life insurance policy.  Included in other income was operating revenue of $28 thousand from OREO and a gain of $211 thousand from the sale of OREO, a combined total of $239 thousand for the current quarter compared to $129 thousand for the prior quarter and $442 thousand for the prior year fourth quarter.

Non-interest Expense Summary

Compensation and employee benefits for the current quarter increased by $2.4 million, or 7 percent, from the prior quarter as a result of an increased number of employees from the Cañon acquisition and benefit accruals from higher performance.  Compensation and employee benefits for the current quarter increased by $5.1 million, or 17 percent, from the prior year fourth quarter due to the increased number of employees from the CB and Cañon acquisitions, annual salary increases, and an increase in the number of employees.  Current quarter occupancy and equipment expense increased $899 thousand, or 13 percent, from the prior year fourth quarter as a result of added costs associated with the CB and Cañon acquisitions and equipment expense related to additional information technology infrastructure.  The current quarter advertising expense decreased $424 thousand, or 17 percent, from the prior quarter as a result of timing of advertising expense. The current quarter data processing expense increased $475 thousand, or 38 percent, from the prior quarter primarily from outsourced data processing expense from the Cañon acquisition.  The current quarter OREO expense of $511 thousand was a decrease of $536 thousand from the prior quarter and included $358 thousand of operating expense, $54 thousand of fair value write-downs, and $99 thousand of loss from the sales of OREO.  Current quarter other expenses of $11.7 million increased by $951 thousand, or 9 percent, from the prior quarter primarily from professional expenses associated with the Cañon acquisition and expenses connected with equity investments in New Market Tax Credits (“NMTC”) projects.  The NMTC expenses were more than offset by the tax benefits included in federal income tax expense.  Federal and state income tax expense of $8.3 million in the current quarter decreased $964 thousand from the prior quarter and was primarily the result of the increase in NMTC credits recognized during the current quarter.

Efficiency Ratio
The efficiency ratio for the current quarter was 56.52 percent compared to 54.32 percent in the prior quarter.  The  2.20 percent increase in efficiency ratio was from increased compensation expense from the Cañon acquisition and increased benefit accruals combined with seasonal decreases in gain on sale of residential loans, both of which were higher than the increased interest income the Company experienced during the current quarter.  The current quarter efficiency ratio of 56.52 percent compares to 55.11 percent in the prior year fourth quarter.  The 1.41 percent increase in efficiency ratio resulted primarily from increased compensation expense from recent acquisitions and increased salary and benefits which outpaced the increases to net interest income and non-interest income for the same period. 

Net Interest Income
Interest income for 2015 increased $19.8 million, or 7 percent, from the prior year and was principally due to an increase in income from commercial loans.  Current year interest income of $165 million on commercial loans increased $19.3 million, or 13 percent, from the prior year and was primarily the result of an increased volume of commercial loans.  Current year interest income of $91.1 million on investment securities decreased $2.0 million, or 2 percent, over the same period last year, due to a decreased yield on investment securities.  On a tax-equivalent  basis, the current year interest income of $118.8 million on investment securities increased $2.8 million, or 2 percent, over the prior year.

Interest expense for 2015 increased $2.3 million, or 9 percent, from the prior year and was primarily due to the interest expense associated with the interest rate swaps.  Excluding the impact of the interest rate swaps, interest expense for 2015 decreased by $1.7 million, or 7 percent, from the prior year.  The total funding cost (including non-interest bearing deposits) for the current year was 40 basis points compared to 39 basis points for the prior year.

The net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the current year was 4.00 percent, an increase of 2 basis point from the prior year net interest margin of 3.98 percent.  The 2 basis points increase was attributable to a combination of items including a shift in earning assets to the higher yielding loan portfolio and an increased yield on the investment securities portfolio.  In addition, the continued decreased yield on core deposits offset the increased interest expense from the interest rate swaps.  Excluding the effects of the interest rate swaps, the current year cost of funds was 33 basis points compared to 38 basis points in the prior year.

Non-interest Income
Non-interest income of $98.8 million for the current year increased $8.5 million, or 9 percent, over the same period last year.  Service charges and other fees of $61.6 million for the current year increased $2.8 million, or 5 percent, from last year and was driven by the increased number of deposit accounts and higher usage of deposit services from legacy customers.  The gain of $26.4 million on the sale of residential loans for the current year increased $6.6 million, or 33 percent, from the prior year which was attributable to an increase in mortgage refinancing and purchase activity.  Other income of $10.8 million for the current year decreased $1.2 million, or 10 percent, over the prior year due to a decrease in gain on sale of OREO and insurance proceeds recognized in the prior year fourth quarter from a bank owned life insurance policy.  Included in other income was operating revenue of $123 thousand from OREO and gains of $986 thousand from the sales of OREO, which totaled $1.1 million for 2015 compared to $2.3 million for the same period in the prior year.

Non-interest Expense Summary

Compensation and employee benefits for the current year increased $15.8 million, or 13 percent, from last year due to the increased number of employees primarily from the acquired banks, additional benefit costs and annual salary increases.  Occupancy and equipment expense increased $3.7 million, or 13 percent, as a result of increased costs associated with  acquisitions and equipment expense related to additional information technology infrastructure. Outsourced data processing expense decreased $774 thousand, or 12 percent, from the prior year as a result of a decrease in conversion related expenses and outsourced data processing expense from an acquired bank.  OREO expense of $3.7 million in the current year increased $1.1 million, or 44 percent, from the prior year.  OREO expenses continue to fluctuate based on the level of activity in various quarters.  OREO expense for 2015 included $1.8 million of operating expenses, $1.6 million of fair value write-downs, and $349 thousand of loss from the sales of OREO.  OREO expense for 2014 included $1.4 million of operating expenses, $691 thousand of fair value write-downs, and $442 thousand of loss from the sales of OREO.  Other expense of $44.8 million for the current year increased by $3.1 million, or 7 percent, from the prior year primarily due to increases in conversion and acquisition related expenses.

Provision for Loan Losses
The provision for loan losses was $2.3 million for the current year, an increase of $372 thousand, or 19 percent, from the same period in the prior year.  Net charged-off loans during 2015 were $2.3 million, a decrease of $170 thousand from 2014.

Efficiency Ratio
The efficiency ratio was 55.40 percent for 2015 compared to 54.31 percent for 2014.  The increase in the efficiency ratio resulted primarily from compensation expense from increased acquired bank employees and salary increases outpacing the increase in net interest income primarily from commercial loans and non-interest income principally from the increase in gain on sale of loans.

About Glacier Bancorp, Inc.
Glacier Bancorp, Inc. is a regional bank holding company providing commercial banking services in 88 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,   each 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;
• 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 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 or grow the Company through acquisitions;
• consolidation in the financial services industry in the Company’s markets resulting in the creation of larger financial institutions who may have greater resources could change the competitive landscape;
• dependence on the Chief Executive Officer, the senior management team and the Presidents of Glacier Bank divisions;
• 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.

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1    Includes tax effect of $719 thousand and $2.6 million on tax-exempt municipal loan and lease income for the three months and year  ended December 31, 2015.
²   Total loans are gross of the allowance for loan and lease losses, net of unearned income and include loans held for sale.  Non-accrual loans were included in the average volume for the entire period.
³    Includes tax effect of $7.3 million and $26.3 million on tax-exempt investment security income for the three months and year ended December 31, 2015.
⁴    Includes tax effect of $362 thousand and $1.4 million on federal income tax credits for the three months and year ended December 31, 2015.
⁵    Wholesale deposits include brokered deposits classified as NOW, money market deposit and certificate accounts.

Visit our website at www.glacierbancorp.com