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

HIGHLIGHTS:

• Excluding a goodwill impairment charge (net of tax) of $32.6 million, net operating earnings for the quarter was $13.6 million.
• Excluding the goodwill impairment charge, diluted earnings per share for the quarter was $0.19.
• Non-performing assets decreased $12.1 million, or 19 percent annualized, from the prior quarter.
• Early stage delinquencies (accruing 30-89 days past due) decreased $20.0 million, or 49 percent from the prior quarter.
• Non-interest bearing deposits increased $79.4 million, or 9 percent, from the prior quarter.
• Dividend declared of $0.13 per share during the quarter.  

Results Summary

Excluding the goodwill impairment charge (net of tax) of $32.6 million, Glacier Bancorp, Inc. (Nasdaq GS: GBCI) reported operating earnings for the current quarter of $13.6 million or $0.19 per share, an increase of 46 percent from the prior year third quarter of $0.13 per share. Included in the per share quarterly results were gains (net of tax) of $497 thousand from the sale of investment securities in the current quarter and $1.2 million in the prior year third quarter. Operating earnings is considered a non-GAAP financial measure and additional information regarding this measurement and reconciliation is provided herein. "It is unfortunate bank stocks including this Company's stock took such a beating in the months of August and September. As a result, we booked a $32.6 million after-tax goodwill impairment charge." said Mick Blodnick, President and Chief Executive Officer. "This doesn't diminish the continuing improvement in our operating results this past quarter especially in our credit metrics," Blodnick said. Including the goodwill impairment charge, the net loss for the quarter was $19.0 million or $0.27 per share.

Excluding the goodwill impairment charge, operating earnings for the nine month period ended September 30, 2011 was $35.7 million or $0.50 per share, an increase of 4 percent from the prior year first nine months. Including the goodwill impairment charge, net earnings was $3.1 million or $0.04 per share for the nine month period ended September 30, 2011.

Non-GAAP Financial Measures

In addition to the results presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), this press release contains certain non-GAAP financial measures. The Company believes that providing these non-GAAP financial measures provides investors with information useful in understanding the Company's financial performance, performance trends, and financial position. While the Company uses these non-GAAP measures in its analysis of the Company's performance, this information should not be considered an alternative to measurements required by GAAP.

The preceding results summary table provides a reconciliation of certain GAAP financial measures to non-GAAP financial measures. The reconciling item between the GAAP and non-GAAP financial measures was the current quarter goodwill impairment charge (net of tax) of $32.6 million.

• The goodwill impairment charge was $40.2 million with a tax benefit of $7.6 million which resulted in a goodwill impairment charge (net of tax) of $32.6 million.  The tax benefit applied only to the $19.4 million of goodwill associated with taxable acquisitions and was determined based on the Company's marginal income tax rate of 38.9 percent.  
• The diluted earnings per share reconciling item was determined based on the goodwill impairment charge (net of tax) divided by the weighted average diluted shares of 71,915,073.  
• The goodwill impairment charge (net of tax) was included but not annualized in determining annualized earnings for both the GAAP return on average assets and GAAP return on average equity.  The average assets used in the GAAP and non-GAAP return on average assets ratios were $6.996 billion and $6.854 billion for the three and nine month periods, respectively. The average equity used in the GAAP and non-GAAP return on average equity ratios were $877 million and $860 million for the three and nine month periods, respectively.  

Asset Summary

Total assets at September 30, 2011 were $7.043 billion, which was $65 million, or 1 percent, greater than total assets of $6.978 billion at June 30, 2011 and $770 million, or 12 percent, greater than total assets of $6.273 billion at September 30, 2010.

Investment securities, including interest bearing deposits and federal funds sold, increased $152 million, or 5 percent, during the quarter and increased $1.179 billion, or 66 percent, from September 30, 2010. During the previous two quarters, the Company has purchased investment securities to primarily offset the lack of loan growth and to maintain interest income. The investment securities purchased during the current quarter were predominately U.S. Agency Collateralized Mortgage Obligations ("CMO") with short weighted-average-lives. Investment securities represent 42 percent of total assets at September 30, 2011 versus 36 percent at December 31, 2010 and 29 percent at September 30, 2010. Excluding the increase in interest bearing cash deposits and unrealized gain on investment securities, the growth in the investment securities portfolio during the current quarter was $126 million compared to a decrease in the loan portfolio of $78.2 million during the current year.

At September 30, 2011, the loan portfolio was $3.524 billion, a decrease of $78.2 million, or 2 percent, during the quarter. Excluding net charge-offs of $18.9 million and loans transferred to other real estate owned of $14.9 million, loans decreased $44.4 million, or 1 percent, during the current quarter. During the first nine months of 2011, the loan portfolio decreased $226 million, or 6 percent, from total loans of $3.749 billion at December 31, 2010. Excluding net charge-offs of $54.8 million and loans transferred to other real estate owned of $64.5 million, loans decreased $106 million, or 3 percent, from December 31, 2010. During the past twelve months, the loan portfolio decreased $345 million, or 9 percent, over loans receivable of $3.869 billion at September 30, 2010. The largest decrease in dollars was in commercial loans which decreased $179 million, or 7 percent, from September 30, 2010. The largest percentage decrease was in real estate loans which decreased $154 million, or 23 percent, from September 30, 2010. The continued downturn in the economy and resulting lack of loan demand were the primary reasons for the decrease in the loan portfolio.

Other assets decreased $14.4 million from June 30, 2011 and decreased $73.8 million from September 30, 2010, such decreases including the current quarter goodwill impairment charge (net of tax) of $32.6 million.

Credit Quality Summary

At September 30, 2011, the allowance for loan and lease losses ("allowance") was $138 million, an increase of $986 thousand from the prior year end and an increase of $3.8 million from a year ago. The allowance was 3.92 percent of total loans outstanding at September 30, 2011, compared to 3.66 percent at December 31, 2010 and 3.47 percent at September 30, 2010. The allowance was 89 percent of non-performing loans at September 30, 2011, an increase from 70 percent at the prior year end and from 68 percent a year ago.

Non-performing assets decreased $12.1 million, or 19 percent annualized, and non-performing loans decreased $6.2 million, or 15 percent annualized, during the current quarter. In addition to the decrease in non-performing loans, early stage delinquencies (accruing 30-89 days past due) of $21.1 million at September 30, 2011, significantly decreased from the prior quarter early stage delinquencies of $41.2 million and the prior year end early stage delinquencies of $45.5 million. The Company has continued to work diligently on its non-performing loans while maintaining an adequate allowance for loan losses and this was reflected in the credit quality ratios which have improved during the second and third quarters of 2011.

The largest category of non-performing assets was land, lot and other construction loans which was $135 million, or 54 percent, of non-performing assets at September 30, 2011. The majority of the loans in this category was $73.6 million of land development loans at September 30, 2011. Net charged-off land, lot and other construction loans during the nine months ended September 30, 2011 was $26.3 million, or 48 percent, of total net charged-off loans. Although land, lot and other construction loans have historically put pressure on the Company's credit quality, the Company has diligently reduced this category of non-performing assets by $20.2 million, or 13 percent, since prior year end. In addition, the Company has reduced land, lot and other construction loans by $148 million, or 27 percent, since prior year end.

Credit Quality Trends and Provision for Loan Losses

The current quarter provision for loan losses was $17.2 million, a decrease of $2.0 million from the prior quarter and a decrease of $2.0 million from the third quarter in 2010. 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. Net charged-off loans for the current quarter were $18.9 million compared to $20.2 million for the prior quarter and $26.6 million for the third quarter in 2010. A real positive this quarter was the decrease in early stage delinquencies (accruing 30-89 days past due) as a percentage of loans which dropped from 1.14 percent in the prior quarter to 0.60 percent as of September 30, 2011.

"Credit trends continue to move in the right direction. After a slow start in the spring, the activity level and interest in our bank owned property picked up significantly in the most recent quarter," Blodnick said. "Although winter is approaching, we are hopeful that the fourth quarter will continue this trend." For additional information regarding credit quality and identification of the loan portfolio by regulatory classification, see the exhibits at the end of this press release.

Liability Summary

As of September 30, 2011, non-interest bearing deposits of $996 million increased $79.4 million, or 9 percent, since June 30, 2011 and increased $109 million, or 12 percent, since September 30, 2010. The increase in non-interest bearing deposits was driven by the continued growth in the number of personal and business customers, as well as existing customers retaining cash deposits because of the uncertainty in the current economic environment and for liquidity purposes. Interest bearing deposits of $3.774 billion at September 30, 2011 included $186 million of reciprocal deposits (e.g., Certificate of Deposit Account Registry System deposits). Interest bearing deposits increased $108 million, or 3 percent, from the prior year end and included a $69.8 million increase in wholesale deposits including reciprocal deposits. Interest bearing deposits increased $244 million, or 7 percent, since September 30, 2010 and included a $121 million increase in wholesale deposits including reciprocal deposits. The increase in deposits was 92 percent of the increase in total liabilities since prior year end and was 46 percent of the increase in total liabilities in the previous twelve months. These increases in deposits have been beneficial to the Company in funding the investment security growth at low costs over the prior twelve months. Repurchase agreements were $302 million at September 30, 2011, an increase of $52.4 million, or 21 percent, from December 31, 2010 and an increase of $64.2 million, or 27 percent, from September 30, 2010.

To fund growth in the investment securities portfolios, the Company's level of borrowings has increased as needed to supplement deposit growth. Since prior year end, the Company's level of borrowings has remained stable with a decrease of $76.1 million in Federal Home Loan Bank ("FHLB") advances being partially offset by the increase in Federal funds purchased of $45.0 million. The Company's FHLB advances increased $310 million and federal funds purchased increased $45.0 million since September 30, 2010.

Stockholders' Equity Summary

Tangible stockholders' equity increased $40.6 million, or $0.56 per share since September 30, 2010 resulting in tangible stockholders' equity to tangible assets of 10.63 percent and tangible book value per share of $10.24 as of September 30, 2011. Total stockholders' equity and book value per share increased $13.2 million and $0.18 per share from the prior year end. The increase came primarily from accumulated other comprehensive income representing net unrealized gains or losses (net of tax) on the investment securities portfolio which was largely offset by the current quarter goodwill impairment charge (net of tax) of $32.6 million. The current quarter decrease in market price per share resulted from the high levels of volatility and dislocation in bank stock prices nationwide during the third quarter 2011.

Cash Dividend

On September 28, 2011, the Company's Board of Directors declared a cash dividend of $0.13 per share, payable October 20, 2011 to shareholders of record on October 11, 2011. 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 net interest income of $60.1 million remained stable compared to the prior quarter. There was a small decrease in interest income compared to the prior quarter as loan interest income decreased which was largely offset by the increased investment income as the asset mix continued to shift to investments. The current quarter net interest margin as a percentage of earning assets, on a tax-equivalent basis, was 3.92 percent, a decrease of 9 basis points from the prior quarter net interest margin of 4.01 percent. Such decrease was a result of the decrease of 11 basis points in yields on earning assets, most of which was from lower yielding investment securities. "As expected, we did see some compression in the net interest margin during the quarter as we continued replacing higher yielding assets with investment securities," said Ron J. Copher, Chief Financial Officer. "The banks did a good job of lowering their funding cost, but it was not enough to offset the contraction in yields."

Net interest income for the current quarter increased by $1.6 million from the same quarter last year. The primary reason for the increase was the reduction in interest expense of $2.3 million, or 17 percent, as a result of the bank subsidiaries continuing reduction in deposit rates and obtaining lower cost borrowings. The funding cost for the current quarter was 87 basis points compared to 89 basis points for the prior quarter and 119 basis points for the prior year third quarter. The current quarter interest income included $7.6 million of premium amortization (net of discount accretion) on CMOs, such amount was an increase of $3.4 million over the prior year third quarter premium amortization. The premium amortization in the current quarter accounted for a 46 basis point reduction in the net interest margin compared to a 28 basis point reduction in the net interest margin for the prior year third quarter. The current quarter net interest margin was 3.92 percent, a decrease of 27 basis points from the 4.19 percent net interest margin for the prior year third quarter. In addition to the CMO premium amortization, the lower yield and volume of loans along with an increase in lower yielding investment securities has continued to put pressure on the net interest margin. The current quarter net interest margin included a 4 basis points reduction from the reversal of interest on non-accrual loans.

Non-interest Income

Non-interest income for the current quarter totaled $20.9 million, an increase of $3.1 million over the prior quarter and a decrease of $3.0 million over the same quarter last year. Service charge fee income of $12.5 million increased $278 thousand, or 2 percent, from the prior quarter and decreased $686 thousand, or 5 percent, from the prior year third quarter. Gain on sale of loans increased $830 thousand, or 19 percent, over the prior quarter and decreased $2.2 million, or 30 percent, over the same quarter last year. Such changes were the result of an increase in refinance activity during the third quarter of 2011, although at much lower levels than the refinance volume in the third quarter of 2010. Gain on the sale of investment securities was $813 thousand for the current quarter compared to a loss of $591 thousand on the sale of investment securities in the prior quarter and a gain of $2.0 million in the prior year third quarter. Other income of $2.5 million for the current quarter was an increase of $573 thousand from the prior quarter and an increase of $1.1 million from prior year third quarter. Increases from the prior quarter and the prior year third quarter in other income are attributable to other real estate owned operating revenue, gain on sale of other real estate owned and rental income from low income housing tax credit investments. Other real estate owned operating revenue and gain on sale of other real estate owned was $903 thousand for the current quarter compared to $697 thousand for the prior quarter and $469 thousand for the prior year quarter.

Non-interest Expense Summary

Excluding the goodwill impairment charge, non-interest expense of $48.1 million for the quarter increased by $1.9 million, or 4 percent, from the prior quarter and decreased by $3.9 million, or 7 percent, from the prior year third quarter. Other real estate owned expense increased $2.1 million, or 42 percent, from the prior quarter and decreased $2.5 million, or 25 percent, from the prior year third quarter. The current quarter other real estate owned expense of $7.2 million included $1.3 million of operating expense, $4.5 million of fair value write-downs, and $1.4 million of loss on sale of other real estate owned. Other real estate owned expense will fluctuate as the Company continues to work through non-performing loans and dispose of foreclosure properties.

Excluding other real estate owned expense, the Company and its bank subsidiaries continue to effectively manage other operating expenses. Compensation and employee benefits increased by $437 thousand, or 2 percent, from the prior quarter and decreased $628 thousand, or 3 percent, from the prior year third quarter. Occupancy and equipment expense increased $299 thousand, or 5 percent, from the prior quarter and was stable compared to the same quarter last year. Federal Deposit Insurance Corporation ("FDIC") premiums decreased $559 thousand, or 25 percent, from the prior quarter and decreased $995 thousand, or 38 percent, from the prior year third quarter as a result of a change in the FDIC assessment calculation. Other expense decreased $479 thousand, or 5 percent, from the prior quarter and increased $573 thousand, or 7 percent, from the same quarter last year.

Efficiency Ratio

The efficiency ratio for the current quarter was 48 percent compared to 50 percent for the prior year third quarter. The lower efficiency ratio was primarily the result of a decrease in operating expenses and a decrease in interest expense.

Net Interest Income

Net interest income for the first nine months of 2011 decreased $1.0 million, or 1 percent, over the same period last year as total interest income decreased $8.0 million, or 4 percent, while total interest expense decreased $6.9 million, or 17 percent. The decrease in interest income from the prior year resulted from the increase in premium amortization (as interest rates declined) coupled with the reduction in loan balances, the combination of which put further pressure on earning assets. Interest income also continues to reflect the Company's purchase of a significant amount of investment securities over the course of several quarters at lower yields than the loans they replaced. Interest income included $24.2 million in premium amortization (net of discount accretion) on CMOs which was an increase of $15.1 million from prior year, such increase the result of the increased purchases of CMOs combined with the continued refinance activity. The premium amortization in the first nine months of 2011 accounted for a 51 basis point reduction in the net interest margin compared to a 21 basis point reduction in the net interest margin for the same period last year. The decrease in interest expense was primarily attributable to the rate decreases on interest bearing deposits and lower cost borrowings. The funding cost for the first nine months of 2011 was 91 basis points compared to 120 basis points for the same period last year.

The net interest margin decreased 37 basis points from 4.32 percent for the first nine months of 2010 to 3.95 for the same period in 2011, such decrease attributable to a lower yield and volume of loans coupled with an increase in lower yielding investment securities and higher premium amortization.

Non-interest Income

Non-interest income of $56.2 million for the first nine months of 2011 decreased $5.4 million over the same period in 2010. Gain on sale of loans decreased $3.3 million, or 19 percent, from the same period in 2010 due to a significant reduction in refinance activity. Excluding the prior year $1.8 million gain on the sale of Mountain West Bank's merchant card servicing portfolio, other income increased $1.7 million over the same period in 2010 of which $796 thousand relates to other real estate owned operating revenue and gain on sale of other real estate owned.

Non-interest Expense Summary

Excluding the goodwill impairment charge, non-interest expense for the first nine months of 2011 decreased by $5.4 million, or 4 percent, from the same period in 2010. Compensation and employee benefits decreased $863 thousand, or 1 percent, and occupancy and equipment expense decreased $261 thousand, or 1 percent, from the prior year same period. Other real estate owned expense of $14.4 million decreased $5.0 million, or 26 percent, from the prior year period. The other real estate owned expense for the first nine months of 2011 included $4.0 million of operating expenses, $6.9 million of fair value write-downs, and $3.5 million of loss on sale of other real estate owned. FDIC premiums decreased $839 thousand, or 12 percent, from the prior year period as a result of a change in the FDIC assessment calculation. Other expense increased $2.2 million, or 10 percent, from the prior year period primarily due to an increase of $988 thousand from debit card expenses and various other expense categories.

Provision for loan losses

The provision for loan losses was $55.8 million for 2011, a decrease of $1.5 million, or 3 percent, from the same period in 2010. Net charged-off loans during the first nine months of 2011 was $54.8 million, a decrease of $11.1 million from the same period in 2010.

Efficiency Ratio

The efficiency ratio was 50 percent for both the first nine months of 2011 and 2010. There was a notable decrease in gain on sale of loans for the first nine months of 2011 compared to 2010 as refinance activity slowed during 2011. The decrease in gain on sale of loans was offset by increases in tax-exempt investment security income.

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 Bank of Wyoming; and one bank domiciled in Colorado - Bank of the San Juans of Durango.

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 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 the Company has recorded in connection with acquisitions could become additionally impaired, which may have an adverse impact on our 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 our common stock and our ability to raise additional capital in the future;
• competition from other financial services companies in our markets;  
• loss of services from the senior management team; 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