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GBCI > SEC Filings for GBCI > Form 10-Q on 9-May-2013All Recent SEC Filings

Show all filings for GLACIER BANCORP INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for GLACIER BANCORP INC


9-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to provide a more comprehensive review of the Company's operating results and financial condition than can be obtained from reading the Consolidated Financial Statements alone. The discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in "Part I. Item 1. Financial Statements."

FORWARD-LOOKING STATEMENTS

This Form 10-Q 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. In addition to the factors set forth in the sections titled "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", as applicable, in this report and the Annual Report on Form 10-K for the year ended December 31, 2012 (the "2012 Annual Report"), the following factors, among others, could cause actual results to differ materially from the anticipated results:
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.

Please take into account that forward-looking statements speak only as of the date of this Form 10-Q. 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.


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 2013 COMPARED TO THE
THREE MONTHS ENDED DECEMBER 31, 2012 AND MARCH 31, 2012

Recent and Pending Acquisitions
During the first quarter of 2013, the Company announced the signing of a definitive agreement to acquire First State Bank, a community bank based in Wheatland, Wyoming. As of December 31, 2012, First State Bank had total assets of $281 million, gross loans of $179 million and total deposits of $249 million. The transaction is expected to be completed in the second quarter of 2013.

The Company also announced the signing of a definitive agreement to acquire North Cascades National Bank, a community bank based in Chelan, Washington. As of December 31, 2012, North Cascades National Bank had total assets of $347 million, gross loans of $219 million and total deposits of $300 million. The transaction is expected to be completed in the third quarter of 2013.

                          Financial Condition Analysis

Assets
The following table summarizes the asset balances as of the dates indicated, and
the amount of change from December 31, 2012 and March 31, 2012:
                                                                         $ Change from    $ Change from
                             March 31,     December 31,     March 31,     December 31,      March 31,
(Dollars in thousands)         2013            2012           2012            2012             2012
Cash and cash equivalents  $   129,057         187,040       131,757          (57,983 )         (2,700 )
Investment securities,
available-for-sale           3,658,037       3,683,005     3,239,019          (24,968 )        419,018
Loans receivable
Residential real estate        513,784         516,467       515,405           (2,683 )         (1,621 )
Commercial                   2,307,632       2,278,905     2,283,488           28,727           24,144
Consumer and other             582,429         602,053       634,318          (19,624 )        (51,889 )
Loans receivable             3,403,845       3,397,425     3,433,211            6,420          (29,366 )
Allowance for loan and
lease losses                  (130,835 )      (130,854 )    (136,586 )             19            5,751
Loans receivable, net        3,273,010       3,266,571     3,296,625            6,439          (23,615 )
Other assets                   549,133         610,824       574,444          (61,691 )        (25,311 )
Total assets               $ 7,609,237       7,747,440     7,241,845         (138,203 )        367,392

Investment securities decreased $25.0 million, or 1 percent, during the current quarter and increased $419 million, or 13 percent, from March 31, 2012. The Company continued to purchase investment securities during the current quarter to offset the slow loan growth, however, the Company purchased investment securities (net of principal paydowns) at a slower pace than in the past several quarters. Additionally, the Company has moderately shifted the mix of investment securities through purchase activity in an effort to lessen the impact of the elevated premium amortization on collateralized mortgage obligation ("CMO") securities. The investment securities purchased during the current quarter included U.S. Agency mortgage-backed securities, U.S. Agency CMOs, corporate and municipal bonds. Investment securities represent 48 percent of total assets at March 31, 2013 and December 31, 2012 versus 45 percent at March 31, 2012.


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The loan portfolio increased during the current quarter by $6.4 million, or 76 basis points annualized, to a total of $3.404 billion at March 31, 2013. Excluding charge-offs of $3.6 million and loans of $6.7 million transferred to other real estate owned ("OREO"), loans increased $16.7 million from the prior quarter. The loan portfolio decreased $29.4 million, or 86 basis points, from the prior year first quarter. The largest increase was in commercial loans, which increased $28.7 million, or 1.3 percent, over the prior quarter and increased $24.1 million, or 1.1 percent, from the prior year first quarter. The largest decrease was in consumer and other loans which decreased $19.6 million, or 3 percent, from the prior quarter and decreased $51.9 million, or 8 percent, over the prior year first quarter. The decreases in consumer and other loans was primarily attributable to customers paying off home equity lines of credit. Other assets decreased $61.7 million during the current quarter, of which $57.5 million was from the decrease in loans held for sale resulting from a decline in the levels of refinanced residential loans at quarter end.

Liabilities
The following table summarizes the liability balances as of the dates indicated,
and the amount of change from December 31, 2012 and March 31, 2012:

                                                                               $ Change from    $ Change from
                                  March 31,      December 31,     March 31,     December 31,      March 31,
(Dollars in thousands)              2013             2012           2012            2012             2012
Non-interest bearing deposits   $ 1,180,738        1,191,933     1,039,068          (11,195 )        141,670
Interest bearing deposits         4,192,477        4,172,528     3,888,750           19,949          303,727
Repurchase agreements               312,505          289,508       259,290           22,997           53,215
Federal Home Loan Bank advances     802,004          997,013       995,038         (195,009 )       (193,034 )
Other borrowed funds                 10,276           10,032        10,358              244              (82 )
Subordinated debentures             125,454          125,418       125,311               36              143
Other liabilities                    71,503           60,059        60,033           11,444           11,470
Total liabilities               $ 6,694,957        6,846,491     6,377,848         (151,534 )        317,109

The Company's deposits continued to increase and allowed the Company to fund the investment portfolio at lower funding costs. At March 31, 2013, non-interest bearing deposits of $1.181 billion decreased $11.2 million, or 1 percent, since December 31, 2012 and increased $142 million, or 14 percent, since March 31, 2012. Interest bearing deposits of $4.192 billion at March 31, 2013 included $656 million of wholesale deposits (i.e., brokered deposits classified as NOW, money market deposit and certificate accounts). Interest bearing deposits increased $19.9 million, or 48 basis points, since December 31, 2012 and included an increase of $26.6 million in wholesale deposits. Interest bearing deposits increased $304 million, or 8 percent, from March 31, 2012 and included an increase of $181 million in wholesale deposits. Federal Home Loan Bank ("FHLB") advances decreased $195 million from the prior quarter and decreased $193 million since the prior year first quarter as a result of the decrease in total assets and the decreased need for funding.


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Stockholders' Equity
The following table summarizes the stockholders' equity balances as of the dates
indicated, and the amount of change from December 31, 2012 and March 31, 2012:

                                                                          $ Change from     $ Change from
(Dollars in thousands,       March 31,     December 31,     March 31,     December 31,        March 31,
except per share data)          2013           2012           2012            2012              2012
Common equity               $  864,205         852,987       822,488            11,218            41,717
Accumulated other
comprehensive income            50,075          47,962        41,509             2,113             8,566
Total stockholders' equity     914,280         900,949       863,997            13,331            50,283
Goodwill and core deposit
intangible, net               (111,788 )      (112,274 )    (113,832 )             486             2,044
Tangible stockholders'
equity                      $  802,492         788,675       750,165            13,817            52,327
Stockholders' equity to
total assets                     12.02 %         11.63 %       11.93 %
Tangible stockholders'
equity to total tangible
assets                           10.70 %         10.33 %       10.52 %
Book value per common share $    12.70           12.52         12.01              0.18              0.69
Tangible book value per
common share                $    11.14           10.96         10.43              0.18              0.71
Market price per share at
end of period               $    18.98           14.71         14.94              4.27              4.04

Tangible stockholders' equity and tangible book value per share increased $13.8 million and $0.18 per share from the prior quarter, resulting in tangible stockholders' equity to tangible assets of 10.70 percent and tangible book value per share of $11.14 as of March 31, 2013. The increases were from earnings retention and an increase in accumulated other comprehensive income.

On March 27, 2013, the Company's Board of Directors declared a cash dividend of $0.14 per share, payable April 18, 2013 to shareholders of record on April 9, 2013. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

                             Results of Operations

Performance Summary
                                                         Three Months ended
                                               March 31,    December 31,    March 31,
(Dollars in thousands, except per share data)    2013           2012           2012
Net income                                    $  20,768          20,758       16,333
Diluted earnings per share                    $    0.29            0.29         0.23
Return on average assets (annualized)              1.11 %          1.06 %       0.91 %
Return on average equity (annualized)              9.20 %          9.17 %       7.58 %

The Company reported net income for the current quarter of $20.8 million, an increase of $4.4 million, or 27 percent, from the $16.3 million of net income for the prior year first quarter. Diluted earnings per share for the current quarter was $0.29 per share, an increase of $0.06, or 26 percent, from the prior year first quarter diluted earnings per share of $0.23.


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Income Summary
The following tables summarize revenue for the periods indicated, including the
amount and percentage change from December 31, 2012 and March 31, 2012:
                                                      Three Months ended
                                            March 31,    December 31,    March 31,
(Dollars in thousands)                        2013           2012           2012
Net interest income
Interest income                            $  57,955          59,666       67,884
Interest expense                               7,458           8,165        9,598
Total net interest income                     50,497          51,501       58,286
Non-interest income
Service charges, loan fees, and other fees    11,675          12,845       11,438
Gain on sale of loans                          9,089           9,164        6,813
Loss on sale of investments                     (137 )             -            -
Other income                                   2,323           3,384        2,087
Total non-interest income                     22,950          25,393       20,338
                                           $  73,447          76,894       78,624
Net interest margin (tax-equivalent)            3.14 %          3.05 %       3.73 %



                                      $ Change from     $ Change from     % Change from      % Change from
                                      December 31,        March 31,        December 31,        March 31,
(Dollars in thousands)                    2012              2012               2012               2012
Net interest income
Interest income                      $      (1,711 )   $      (9,929 )          (3 )%             (15 )%
Interest expense                              (707 )          (2,140 )          (9 )%             (22 )%
Total net interest income                   (1,004 )          (7,789 )          (2 )%             (13 )%
Non-interest income
Service charges, loan fees, and
other fees                                  (1,170 )             237            (9 )%               2  %
Gain on sale of loans                          (75 )           2,276            (1 )%              33  %
Loss on sale of investments                   (137 )            (137 )         n/m                n/m
Other income                                (1,061 )             236           (31 )%              11  %
Total non-interest income                   (2,443 )           2,612           (10 )%              13  %
                                     $      (3,447 )   $      (5,177 )          (4 )%              (7 )%


__________
n/m - not measurable


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Net Interest Income
The current quarter net interest income of $50.5 million decreased $1.0 million, or 2 percent, over the prior quarter and decreased $7.8 million, or 13 percent, over the prior year first quarter. The current quarter interest income of $58.0 million decreased $1.7 million, or 3 percent, over the prior quarter as a result of the decrease in interest income on the loan portfolio. Included in the current quarter interest income was $21.4 million of premium amortization (net of discount accretion) on investment securities compared to $23.3 million in the prior quarter. The decrease of $1.9 million in premium amortization (net of discount accretion) on investment securities during the current quarter was the first quarterly decrease in seven quarters. The current quarter interest income decreased $9.9 million, or 15 percent, over the prior year first quarter primarily due to an $8.1 million increase in premium amortization (net of discount accretion) on investment securities coupled with a decrease of $4.2 million in loan interest income from the prior year first quarter. The current quarter decrease in interest expense of $707 thousand, or 9 percent, from the prior quarter and the decrease of $2.1 million, or 22 percent, in interest expense from the prior year first quarter was the result of a decrease in interest rates on deposits and a decrease in the amount of borrowings. The cost of total funding (including non-interest bearing deposits) for the current quarter was 46 basis points compared to 48 basis points for the prior quarter and 61 basis points for the prior year first quarter.

The current quarter net interest margin as a percentage of earning assets, on a tax-equivalent basis, was 3.14 percent, an increase of 9 basis points from the prior quarter net interest margin of 3.05 percent. The increase in the net interest margin during the current quarter was the first increase in seven quarters and was primarily attributable to the increased yield on the investment securities. Of the 13 basis points increase in yield on the investment securities, 12 basis points was due to the decrease in premium amortization. The premium amortization in the current quarter accounted for a 123 basis points reduction in the net interest margin compared to a 128 basis points reduction in the prior quarter and 79 basis points reduction in the net interest margin in the prior year first quarter.

Non-interest Income
Non-interest income for the current quarter totaled $23.0 million, a decrease of $2.4 million over the prior quarter and an increase of $2.6 million over the same quarter last year. Service charge fee income decreased $1.2 million, or 9 percent, from the prior quarter as a result of seasonal activity and fewer days in the quarter. Service charge fee income increased $237 thousand, or 2 percent, from the prior year first quarter. Gain on sale of loans of $9.1 million for the current quarter remained at historically high levels, but decreased $75 thousand, or 1 percent, from the prior quarter. Compared to the prior year period, the Company recorded a $2.3 million increase on the gain on sale of loans. Other income of $2.3 million for the current quarter decreased $1.1 million, or 31 percent, from the prior quarter primarily a result of decreases in income related to OREO and gains on the sale of bank assets. Included in other income was operating revenue of $62 thousand from OREO and gains of $664 thousand on the sale of OREO, which totaled $726 thousand for the current quarter compared to $910 thousand for the prior quarter and $528 thousand for the prior year first quarter.


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Non-interest Expense
The following tables summarize non-interest expense for the periods indicated,
including the amount and percentage change from December 31, 2012 and March 31,
2012:

                                                Three Months ended
                                     March 31,      December 31,     March 31,
(Dollars in thousands)                 2013             2012            2012
Compensation and employee benefits $    24,577           24,083         23,560
Occupancy and equipment                  5,825            6,043          5,968
Advertising and promotions               1,548            1,478          1,402
Outsourced data processing                 825              889            846
Other real estate owned                    884            3,570          6,822
Federal Deposit Insurance
Corporation premiums                     1,304            1,306          1,712
Core deposit intangibles
amortization                               486              491            552
Other expense                            7,985           10,148          8,183
Total non-interest expense         $    43,434           48,008         49,045



                                      $ Change from     $ Change from     % Change from      % Change from
                                      December 31,        March 31,        December 31,        March 31,
(Dollars in thousands)                    2012              2012               2012               2012
Compensation and employee benefits   $         494     $       1,017             2  %               4  %
Occupancy and equipment                       (218 )            (143 )          (4 )%              (2 )%
Advertising and promotions                      70               146             5  %              10  %
Outsourced data processing                     (64 )             (21 )          (7 )%              (2 )%
Other real estate owned                     (2,686 )          (5,938 )         (75 )%             (87 )%
Federal Deposit Insurance
Corporation premiums                            (2 )            (408 )           -  %             (24 )%
Core deposit intangibles
amortization                                    (5 )             (66 )          (1 )%             (12 )%
Other expense                               (2,163 )            (198 )         (21 )%              (2 )%
Total non-interest expense           $      (4,574 )   $      (5,611 )         (10 )%             (11 )%

Non-interest expense of $43.4 million for the current quarter decreased by $4.6 million, or 10 percent, from the prior quarter and decreased by $5.6 million, or 11 percent, from the prior year first quarter primarily driven by the decrease in OREO. OREO expense decreased $2.7 million, or 75 percent, from the prior quarter and decreased $5.9 million, or 87 percent, from the prior year first quarter. The current quarter OREO expense of $884 thousand included $422 thousand of operating expense, $227 thousand of fair value write-downs, and $235 thousand of loss on sale of other real estate owned. OREO expense will fluctuate as the Company continues to work through non-performing loans and dispose of foreclosed properties. Compensation and employee benefits increased by $494 thousand, or 2 percent, from the prior quarter and increased $1.0 million, or 4 percent, from the prior year first quarter. Other expense decreased by $2.2 million, or 21 percent, from the prior quarter and decreased by $198 thousand, or 2 percent, from the prior year first quarter and was the result of changes in several miscellaneous categories.


Table of Contents

Efficiency Ratio
The efficiency ratio for the current quarter was 55 percent compared to 51 percent for the prior year first quarter. Although there was an increase in non-interest income during the current quarter, it was not enough to offset the decrease in net interest income.

Provision for Loan Losses
The following table summarizes the provision for loan losses, net charge-offs
and select ratios relating to the provision for loan losses for the previous
eight quarters:
                                                                                  Accruing
                                                                                Loans 30-89         Non-Performing
                              Provision                           ALLL         Days Past Due          Assets to
                               for Loan           Net         as a Percent    as a Percent of     Total Sub-sidiary
(Dollars in thousands)          Losses        Charge-Offs       of Loans           Loans                Assets
First quarter 2013          $      2,100           2,119           3.84 %             0.95 %               1.79 %
Fourth quarter 2012                2,275           8,081           3.85 %             0.80 %               1.87 %
Third quarter 2012                 2,700           3,499           4.01 %             0.83 %               2.33 %
Second quarter 2012                7,925           7,052           3.99 %             1.41 %               2.69 %
First quarter 2012                 8,625           9,555           3.98 %             1.24 %               2.91 %
Fourth quarter 2011                8,675           9,252           3.97 %             1.42 %               2.92 %
Third quarter 2011                17,175          18,877           3.92 %             0.60 %               3.49 %
Second quarter 2011               19,150          20,184           3.88 %             1.14 %               3.68 %

Net charged-off loans of $2.1 million during the current quarter decreased $6.0 million, or 74 percent, compared to the prior quarter. Although there has been fluctuation in the amount of charged-off loans the past several quarters, the Company continues to see overall better results as credit trends improve. The current quarter provision for loan losses was $2.1 million, which decreased $175 thousand compared to the $2.3 million provision for loan losses for the prior quarter and decreased $6.5 million from the first quarter of the prior year. 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.

. . .

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