Glacier Bancorp, Inc. Announces Results for the Quarter Ended September 30, 2016

3rd Quarter 2016 Highlights:

• Record earnings of $31.0 million for the current quarter, an increase $1.4 million, or 5 percent, over the prior year third quarter net income of $29.6 million.
• Current quarter diluted earnings per share of $0.40, an increase of 3 percent from the prior year third quarter diluted earnings per share of $0.39.
• Organic loan growth of $165 million, or 12 percent annualized for the current quarter.
• Net interest margin of 4.00 percent as a percentage of earning assets, on a tax equivalent basis, for the current quarter compared to 3.96 percent in the prior year third quarter.
• Dividend declared of $0.20 per share, an increase of $0.01 per share, or 5 percent, over the prior year third quarter.  The dividend was the 126th consecutive quarterly dividend declared by the Company.
• The Company successfully completed the fourth phase of the consolidation of its bank divisions’ core database systems into our new “Gold Bank” core database system.
• The Company completed the acquisition of Treasure State Bank based in Missoula, Montana.

Year-to-Date 2016 Highlights:

• Net income of $90.1 million for the first nine months of 2016, an increase of 4 percent over $86.6 million for the same period in the prior year.
• Diluted earnings per share of $1.18, an increase of 3 percent from the first nine months of the prior year diluted earnings per share of $1.15.
• Organic loan growth of $465 million, or 12 percent annualized for the first nine months of the current year.
• Net interest margin of 4.02 percent as a percentage of earning assets, on a tax equivalent basis, for the first nine months of the current year compared to 3.99 percent for the same period last year.

Financial Highlights

KALISPELL, Mont., Oct. 20, 2016 (GLOBE NEWSWIRE) — Glacier Bancorp, Inc. (Nasdaq:GBCI) reported net income of $31.0 million for the current quarter, an increase of $1.4 million, or 5 percent, from the $29.6 million of net income for the prior year third quarter.  Diluted earnings per share for the current quarter was $0.40 per share, an increase of $0.01, or 3 percent, from the prior year third quarter diluted earnings per share of $0.39.  Included in the current quarter was $228 thousand of acquisition-related expenses and $1.4 million of expenses related to the Company’s consolidation of its bank divisions’ core database systems (Core Consolidation Project or “CCP”) including expenses related to the re-issuance of debit cards with chip technology.   As of September 30, 2016, the Company had completed the CCP conversion project for ten of its thirteen bank divisions.   “We again delivered a very good quarter as we reported record earnings, excellent organic loan growth, and a 4 percent net interest margin,” said Mick Blodnick, President and Chief Executive Officer.  “In addition, we are in the final stage of our two year core consolidation project and will have all our Banks, including Treasure State Bank on our new ‘Gold Bank’ platform by the end of October,” Blodnick said.

Net income for the nine months ended September 30, 2016 was $90.1 million, an increase of $3.5 million, or 4 percent, from the $86.6 million of net income for the first nine months of the prior year.  Diluted earnings per share for the first nine months of 2016 was $1.18 per share, an increase of $0.03, or 3 percent, from the diluted earnings per share of $1.15 for the same period in the prior year.

On August 31, 2016, the Company completed the acquisition of Treasure State Bank (“TSB”) based in Missoula, Montana which marks the Company’s 18th acquisition since 2000 and its sixth announced transaction in the past three years.

The Company’s results of operations and financial condition include the acquisition of TSB from the acquisition date and the following table provides information on the fair value of selected classifications of assets and liabilities acquired:

Asset Summary

Total investment securities of $2.972 billion at September 30, 2016 decreased $197 million, or 6 percent, during the current quarter.  The decrease in the investment portfolio resulted from the Company redeploying the investment securities portfolio cash flow into the Company’s higher yielding loan portfolio.  Investment securities represented 32 percent of total assets at September 30, 2016 compared to 36 percent of total assets at December 31, 2015 and 36 percent at September 30, 2015.

Excluding the acquisition of TSB, the loan portfolio grew $165 million, or 12 percent annualized, during the current quarter.  Excluding the acquisition, the loan category with the largest increase was commercial real estate which increased $121 million, or 4 percent.  Excluding the TSB acquisition and the acquisition of Cañon National Bank (“Cañon”) in October 2015, the loan portfolio increased $508 million, or 10 percent, since September 30, 2015 with $283 million and $198 million of the increase coming from growth in commercial real estate and other commercial loans, respectively.  “Loan growth in the third quarter continued at a solid pace led by increases in commercial construction and commercial real estate loans,” Blodnick said.  “During the quarter we continued to add to our residential construction portfolio something we’ve been working hard at the past couple of years.  We were also pleased that with the exception of commercial and industrial loans all other loan categories increased this quarter.”

Credit Quality Summary

Non-performing assets at September 30, 2016 were $78.2 million, an increase of  $2.7 million, or 4 percent, during the current quarter and a decrease of $6.8 million, or 8 percent, from a year ago.  Early stage delinquencies (accruing loans 30-89 days past due) of $27.4 million at September 30, 2016 increased $3.9 million from the prior quarter.

The allowance loan and lease losses (“allowance”) as a percent of total loans outstanding at September 30, 2016 was 2.37 percent, a decrease of 18 basis points from 2.55 percent at December 31, 2015 and a decrease of 31 basis points from 2.68 percent at September 30, 2015 which was driven by loan growth combined with stabilized credit quality.

Credit Quality Trends and Provision for Loan Losses

Net charge-offs for the current quarter were $478 thousand compared to net recoveries of $2.3 million for the prior quarter and net charge-offs of $577 thousand from the same quarter last year.  The net recoveries and charge-offs continue to trend in the right direction with a fair amount of volatility during the quarters.  There was $626 thousand of current quarter provision for loan losses, compared to no provision in the prior quarter and $826 thousand in 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 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 TSB acquisition, non-interest bearing deposits increased $179 million, or 9 percent, from the prior quarter which was driven by seasonal fluctuations and a strong inflow of new accounts.  Excluding the TSB and Cañon acquisitions, non-interest bearing deposits increased $103 million, or 5 percent, from September 30, 2015.  Excluding the TSB acquisition, core interest bearing deposits decreased $17.9 million, or 37 basis points, from the prior quarter.  Excluding the TSB and Cañon acquisitions, core interest bearing deposits at September 30, 2016 increased $88 million, or 2 percent, from September 30, 2015.  Wholesale deposits (i.e., brokered deposits classified as NOW, DDA, money market deposit and certificate accounts) of $340 million at September 30, 2016 increased $110 million since December 31, 2015 and increased $150 million over the prior year third quarter.  A majority of the increase was driven by a need to obtain wholesale deposits necessary for an interest rate swap.

Securities sold under agreements to repurchase (“repurchase agreements”) of $401 million at September 30, 2016 decreased $13.1 million, or 3 percent, from the prior quarter and decreased $39.8 million, or 9 percent, from the prior year third quarter.  Repurchase agreements fluctuated as certain customers had significant deposit cash flows.  Federal Home Loan Bank (“FHLB”) advances of $212 million at September 30, 2016 decreased $117 million, or 36 percent, during the current quarter as the Company’s funding needs decreased because of the increase in non-interest deposits during the current quarter.

Stockholders’ Equity Summary

Tangible stockholders’ equity of $988 million at September 30, 2016 increased $16.7 million, or 2 percent, from the prior quarter primarily from earnings retention and $10.5 million of Company stock issued in connection with the TSB acquisition, both of which more than offset the decrease in accumulated other comprehensive income and the increase in intangibles from the acquisition of TSB.  Tangible stockholders’ equity increased $54.6 million, or 6 percent, from a year ago, the result of earnings retention, an increase in accumulated other comprehensive income and $25.6 million of Company stock issued in connection with the TSB and Cañon acquisitions; such increases more than offset the increase in goodwill and other intangibles from the acquisitions. Tangible book value per common share at quarter end increased $0.16 per share from the prior quarter and increased $0.56 per share from the prior year third quarter and was principally due to earnings retention.

Cash Dividend
On September 28, 2016, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share.  The dividend was payable October 20, 2016 to shareholders of record October 11, 2016.  Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

Operating Results for Three Months Ended September 30, 2016
Compared to June 30, 2016, March 31, 2016 and September 30, 2015

Income Summary

Net Interest Income
In the current quarter, interest income of $85.9 million decreased $125 thousand, or 15 basis points, from the prior quarter and was primarily driven by the decrease in interest income from investment securities.  As a result of loan growth, commercial loan interest income increased $692 thousand, or 1 percent, during the current quarter and residential real estate loan income increased $414 thousand, or 5 percent, during the current quarter.  Current quarter interest income increased $5.6 million, or 7 percent, over the prior year third quarter because of increases in interest income on commercial loans which increased $5.6 million, or 13 percent.  As a result of the decreased investment portfolio, the investment income decreased during the current quarter by $1.2 million and decreased $610 thousand compared to the prior year third quarter.

The current quarter interest expense of $7.3 million decreased $106 thousand, or 1 percent, from the prior quarter and increased $9 thousand from the prior year third quarter.  The total cost of funding (including non-interest bearing deposits) for the current quarter was 37 basis points compared to 38 basis points for the prior quarter and 39 basis points in the prior year third quarter.

The Company’s net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the current quarter was 4.00 percent compared to 4.06 percent in the prior quarter.  During the current quarter, the earning asset yield decreased by 8 basis points and was primarily driven by a 4 basis point decrease from the recovery of interest on loans previously placed on non-accrual and a 4 basis point decrease in discount accretion associated with the fair value of previously acquired loans.  The Company’s current quarter net interest margin increased 4
basis points from the prior year third quarter net interest margin of 3.96 percent.  The increase was driven by the shift in earning assets from the lower yielding investment securities to higher yielding loans and lower funding cost.  “During the quarter, the bank divisions achieved excellent growth in their non-interest bearing deposits,” said Ron Copher, Chief Financial Officer.  “The continuing shift in earning assets from investment securities to the higher yielding loan portfolio has benefited the Company.”

Non-interest Income
Non-interest income for the current quarter totaled $28.3 million, an increase of $1.5 million, or 6 percent, from the prior quarter and an increase of $2.5 million, or 10 percent, over the same quarter last year.  Service fee income of $16.3 million, increased $535 thousand, or 3 percent, from the prior quarter.  Service fee income for the current quarter increased by $950 thousand, or 6 percent, from the prior year third quarter because of the increased number of deposit accounts.  Gain on sale of residential loans for the current quarter increased $1.3 million, or 16 percent, from the prior quarter due to the third quarter traditionally experiencing stronger mortgage loan originations.  Gain on sale of residential loans for the current quarter increased $2.3 million, or 31 percent, from the prior year third quarter as a result of the housing market continuing to strengthen during the current year coupled with the low interest rate environment.  Included in other income was operating revenue of $34 thousand from other real estate owned (“OREO”) and a gain of $134 thousand from the sale of OREO, a combined total of $168 thousand for the current quarter compared to $182 thousand for the prior quarter and $129 thousand for the prior year third quarter.

Non-interest Expense Summary

Compensation and employee benefits for the current quarter increased by $810 thousand, or 2 percent, from the prior quarter.  Compensation and employee benefits for the current quarter increased by $4.8 million, or 14 percent, from the prior year third quarter due to the increased number of employees, including increases from the Cañon acquisition, and annual salary increases.  Current quarter occupancy and equipment expense decreased $275 thousand, or 4 percent, from the prior quarter and decreased $267 thousand, or 4 percent, from the prior year third quarter.  The current quarter data processing expense increased $142 thousand, or 4 percent, from the prior quarter.  The current quarter data processing expense increased $1.4 million from the prior year third quarter; such increases primarily from expenses associated with CCP.  The current quarter OREO expense of $215 thousand included $162 thousand of operating expense, $13 thousand of fair value write-downs, and $40 thousand of loss from the sales of OREO.  Current quarter other expenses of $12.3 million remained stable in total compared to the prior quarter, however several areas experienced increases or decreases related to acquisitions, CCP, and expenses connected with equity investments in New Markets Tax Credit (“NMTC”) projects.  Current quarter other expenses increased $1.6 million, or 15 percent, from the prior year third quarter and was primarily driven by increases from costs associated with CCP.

Efficiency Ratio
The current quarter efficiency ratio was 55.84 percent, a 26 basis points decrease from the prior quarter efficiency ratio of 56.10 percent which was driven by the increase in gain on sale of residential loans which outpaced the increase in operating expenses.  The current quarter efficiency ratio of 55.84 percent compared to 54.32 percent in the prior year third quarter.  The 1.52 percent increase in the efficiency ratio was the result of additional costs associated with CCP and increased compensation expense, which was greater than the benefits experienced in net interest income and non-interest income.

Operating Results for Nine Months ended September 30, 2016
Compared to September 30, 2015

Income Summary

Net Interest Income
Net interest income for the first nine months of the current year was $234 million, an increase of $19.6 million, or 9 percent, over the same period last year.  Interest income for the first nine months of the current year increased $19.9 million, or 8 percent, from the prior year first nine months and was principally due to a $17.3 million increase in income from commercial loans.  Additional increases included $1.4 million in interest income from investment securities and $1.4 million in interest income from residential loans.

Interest expense of $22.4 million for the first nine months of the current year increased $357 thousand, or 2 percent, over the same period in the prior year.  Deposit interest expense for the first nine months of the current year increased $1.7 million, or 14 percent, from the prior year first nine months and was driven by the increase in wholesale deposits and the additional interest expense for an interest rate swap with a notional $100 million that began its accrual period in December 2015.  FHLB interest expense decreased $1.8 million, or 28 percent, which resulted from long-term advances maturing which were replaced by lower rate short-term advances.  The total funding cost (including non-interest bearing deposits) for the first nine months of 2016 was 38 basis points compared to 40 basis points for the first nine months of 2015.

The net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the first nine months of 2016 was 4.02 percent, a 3 basis point increase from the net interest margin of 3.99 percent for the first nine months of 2015.  The increase in the margin was primarily attributable to a shift in earning assets to higher yielding loans combined with a continued increase in low cost deposits.

Non-interest Income
Non-interest income of $79.3 million for the first nine months of 2016 increased $5.0 million, or 7 percent, over the same period last year.  Service charges and other fees of $46.8 million for the first nine months of 2016 increased $2.9 million, or 7 percent, from the same period last year as a result of an increased number of deposit accounts and increases from recent acquisitions.  The gain of $23.8 million on the sale of residential loans for the first nine months of 2016 increased $3.5 million, or 17 percent, from the first nine months of 2015 which was attributable to the stronger housing market and the low interest rate environment.  Included in other income was operating revenue of $84 thousand from OREO and gains of $479 thousand from the sales of OREO, which totaled $563 thousand for the first nine months of 2016 compared to $869 thousand for the same period in the prior year.

Non-interest Expense Summary

Compensation and employee benefits for the first nine months of 2016 increased $14.4 million, or 15 percent, from the same period due to the increased number of employees including from the acquired banks and annual salary increases.  Occupancy and equipment expense of $19.3 million for the first nine months of 2016 increased $360 thousand, or 2 percent. Outsourced data processing expense increased $3.2 million, or 38 percent, from the prior year first nine months as a result of additional costs from CCP.  OREO expense of $819 thousand in the first nine months of 2016 decreased $2.4 million, or 74 percent, from the first nine months of the prior year.  OREO expense for the first nine months of 2016 included $443 thousand of operating expenses, $92 thousand of fair value write-downs, and $284 thousand of loss from the sales of OREO.  Current year other expenses of $35.2 million increased $2.1 million, or 6 percent, from the prior year and was driven by increases from costs associated with CCP which were partially offset by decreases in expenses connected with the equity investments in NMTC projects.

Provision for Loan Losses
The provision for loan losses was $1.2 million for the first nine months of 2016, a decrease of $679 thousand, or 36 percent, from the same period in the prior year.  Net recovery of loans during the first nine months of 2016 was $1.6 million compared to net charge-offs of $858 thousand from the first nine months of 2015.

Efficiency Ratio
The efficiency ratio was 56.15 percent for the first nine months of 2016 and 55.01 percent for the first nine months of 2015.   Although there were increases in both net interest income and non-interest income, such increases were outpaced by the increases in CCP expenses and compensation expenses which contributed to the higher efficiency ratio in 2016.

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 trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System or the Federal Reserve Board, which could adversely affect the Company’s net interest income and profitability;
• legislative or regulatory changes, including increased banking and consumer protection regulation 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 continued 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 technological changes which could expose us to new risks, fraud or system failures; 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.

Conference Call Information
A conference call for investors is scheduled for 11:00 a.m. Eastern Time on Friday, October 21, 2016.  The conference call will be accessible by telephone and through the Internet.  Interested individuals are invited to listen to the call by telephone at 877-561-2748 and the conference ID is 91975601.  To participate on the webcast, log on to: http://edge.media-server.com/m/p/hgo5vjek. If you are unable to participate during the live webcast, the call will be archived on our Web site, www.glacierbancorp.com, or by calling 855-859-2056 with the ID 91975601 until November 4, 2016.

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.