Owing mainly to a defunct real estate development in northern Idaho under foreclosure and a decision to plow $47 million into a reserve to provision for loan losses, Glacier Bancorp, Inc. reported a $1.5 million-net loss for the third quarter.
The loss marks a significant decrease of $14.316 million, or 112 percent, from the $12.785 million net income reported for the third quarter in 2008. Glacier Bancorp’s earnings for the year were $24.9 million as of Sept. 30, marking a $23.743-million decrease from the same time last year, or 49 percent, according to a release by the company.
Founded in 1955 and headquartered in Kalispell, Glacier Bancorp operates in six states throughout the West with total assets of $5.7 billion. In Montana, its subsidiaries include 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 in Lewistown.
In an Oct. 16 conference call, Michael J. Blodnick, Glacier Bancorp’s president and CEO, said the main reason for the loss was the decision to put $47 million into the allowance for loan and lease losses (ALLL), which is money set aside in case loans aren’t repaid, bringing that allowance to $88 million for the year – compared to a $16.3 million-ALLL for the first nine months of last year.
“As we have been saying throughout this year, we want to make sure the ALLL is adequate to handle all our credit issues,” Blodnick said on the call.
“Charge-offs,” or loans no longer expected to be repaid, rose significantly for Glacier Bancorp in the third quarter, from what is usually between $10 million and $12 million per quarter to more than $19 million. As a result, Blodnick said, beefing up Glacier Bancorp’s ALLL greatly improved its ability to deal with that bad debt, noting that the additional $47 million allowed it to cover its net charge-offs 2.5 times over, making that allowance for loan loss more than 3.10 percent of all its loans.
In an interview with the Beacon, Blodnick said he planned to keep adding funds to the ALLL and could see it growing to around 4 percent of loans.
“We’re going to continue to build reserves,” Blodnick said. “We’ve got the earnings to do it.”
Blodnick noted Glacier Bancorp’s operating income continues to be strong, with net interest income up 13 percent from last year, along with low interest rates that encouraged many bank customers to refinance mortgages. Many of Glacier Bancorp’s banks have also cut back on their overhead costs, he added.
The strongest Montana performers for Glacier Bancorp were those banks operating in areas that did not experience the development boom of the last several years, like those in Helena and Lewistown.
“We’ve got three banks in the state of Montana that are having all-time record years, because they don’t have some of the asset quality issues that they have to provision for,” Blodnick said. “They’ve been able to more than weather the slowdown.”
But the decline in real estate and development, and the accompanying drop-off in lending, continues to create issues for banks. Glacier Bancorp took a $7.5 million write-down on a north Idaho development Blodnick declined to name, because the property had been sold, he said. That development accounted for most of the $8.8 million in land development charged off or written down by Glacier in the third quarter.
“We would never have had a loss for the quarter if it wasn’t for that project in northern Idaho,” Blodnick said.
In the third quarter Glacier Bancorp also charged off $2.8 million in residential construction, $2.1 million in term residential loans and wrote off $1 million in home equity lines of credit.
“It continues to be a difficult operating environment for banks, and the uncertainty sways us to take a very conservative posture as the economy still faces some difficult hurdles,” Blodnick said on the conference call. “We are confident that our strong capital base is more than adequate to withstand the most difficult of scenarios.”
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