Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| þ | Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended March 31, 2004 |
| o | Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the transition period from to |
COMMISSION FILE 0-18911
GLACIER BANCORP, INC.
| DELAWARE | 81-0519541 | |||
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||
| 49 Commons Loop, Kalispell, Montana | 59901 | |||
| (Address of principal executive offices) | (Zip Code) | |||
| Registrant’s telephone number, including area code (406) 756-4200 | ||||
| N/A | ||||
| (Former name, former address, and former fiscal year, if changed since last report) | ||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yesx Noo
The number of shares of Registrant’s common stock outstanding on May 4, 2004 was 24,487,471. No preferred shares are issued or outstanding.
Table of Contents
GLACIER BANCORP, INC.
Quarterly Report on Form 10-Q
Index
| Page # | ||||||||
Part I. Financial Information | ||||||||
| Item 1 – Financial Statements | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| 7 | ||||||||
| 18 | ||||||||
| 23 | ||||||||
| 23 | ||||||||
| 23 | ||||||||
| 23 | ||||||||
| 23 | ||||||||
| 23 | ||||||||
| 23 | ||||||||
| 24 | ||||||||
| 24 | ||||||||
| 24 | ||||||||
| EXHIBIT 31.1 | ||||||||
| EXHIBIT 31.2 | ||||||||
| EXHIBIT 32 | ||||||||
Table of Contents
Glacier Bancorp, Inc.
| March 31, | December 31, | March 31, | ||||||||||
| (Unaudited - dollars in thousands, except per share data) | 2004 | 2003 | 2003 | |||||||||
Assets: | ||||||||||||
| Cash on hand and in banks | $ | 53,213 | 77,093 | 71,092 | ||||||||
| Interest bearing cash deposits | 27,432 | 9,047 | 15,536 | |||||||||
| Cash and cash equivalents | 80,645 | 86,140 | 86,628 | |||||||||
| Investment securities, available-for-sale | 1,109,585 | 1,050,311 | 783,897 | |||||||||
| Federal Home Loan Bank stock, at cost | 42,113 | 41,235 | 38,922 | |||||||||
| Federal Reserve Bank stock, at cost | 5,829 | 5,408 | 5,053 | |||||||||
| Net loans receivable | 1,449,535 | 1,413,392 | 1,253,730 | |||||||||
| Loans held for sale | 16,609 | 16,973 | 37,509 | |||||||||
| Premises and equipment, net | 52,936 | 53,251 | 48,436 | |||||||||
| Real estate and other assets owned | 516 | 587 | 1,077 | |||||||||
| Accrued interest receivable | 14,187 | 14,941 | 12,403 | |||||||||
| Core deposit intangible, net | 5,571 | 5,865 | 6,484 | |||||||||
| Goodwill | 36,951 | 36,951 | 33,189 | |||||||||
| Other assets | 14,564 | 14,579 | 15,178 | |||||||||
| $ | 2,829,041 | 2,739,633 | 2,322,506 | |||||||||
Liabilities and stockholders’ equity: | ||||||||||||
| Non-interest bearing deposits | $ | 366,277 | 369,052 | 307,659 | ||||||||
| Interest bearing deposits | 1,225,169 | 1,228,573 | 1,168,443 | |||||||||
| Advances from Federal Home Loan Bank of Seattle | 801,679 | 777,294 | 500,425 | |||||||||
| Securities sold under agreements to repurchase | 63,453 | 56,968 | 59,518 | |||||||||
| Other borrowed funds | 5,122 | 8,018 | 2,357 | |||||||||
| Accrued interest payable | 5,080 | 4,353 | 5,425 | |||||||||
| Current income taxes | 5,661 | 826 | 3,818 | |||||||||
| Deferred taxes | 10,983 | 7,369 | 7,839 | |||||||||
| Subordinated debentures | 80,000 | 35,000 | 35,000 | |||||||||
| Other liabilities | 12,716 | 14,341 | 12,244 | |||||||||
| Total liabilities | 2,576,140 | 2,501,794 | 2,102,728 | |||||||||
| Preferred shares, 1,000,000 shares authorized. None outstanding | — | — | — | |||||||||
| Common stock, $.01 par value per share. 50,000,000 shares authorized | 245 | 242 | 241 | |||||||||
| Paid-in capital | 225,597 | 222,588 | 220,078 | |||||||||
| Retained earnings (deficit) - substantially restricted | 14,888 | 8,393 | (9,340 | ) | ||||||||
| Accumulated other comprehensive income | 12,171 | 6,616 | 8,799 | |||||||||
| Total stockholders’ equity | 252,901 | 237,839 | 219,778 | |||||||||
| $ | 2,829,041 | 2,739,633 | 2,322,506 | |||||||||
| Number of shares outstanding | 24,450,706 | 24,203,338 | 24,056,473 | |||||||||
| Book value per share | $ | 10.34 | 9.83 | 9.14 | ||||||||
| Tangible book value per share | $ | 8.60 | 8.06 | 7.49 | ||||||||
See accompanying notes to consolidated financial statements.
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Glacier Bancorp, Inc.
| Three months ended March 31, | ||||||||
| (unaudited - dollars in thousands, except per share data) | 2004 | 2003 | ||||||
Interest income: | ||||||||
| Real estate loans | $ | 5,281 | 6,252 | |||||
| Commercial loans | 13,223 | 11,617 | ||||||
| Consumer and other loans | 4,836 | 5,102 | ||||||
| Investment securities and other | 12,125 | 9,091 | ||||||
| Total interest income | 35,465 | 32,062 | ||||||
Interest expense: | ||||||||
| Deposits | 3,483 | 4,947 | ||||||
| Federal Home Loan Bank of Seattle advances | 4,445 | 4,212 | ||||||
| Securities sold under agreements to repurchase | 157 | 158 | ||||||
| Subordinated debentures | 962 | 904 | ||||||
| Other borrowed funds | 29 | 9 | ||||||
| Total interest expense | 9,076 | 10,230 | ||||||
Net interest income | 26,389 | 21,832 | ||||||
| Provision for loan losses | 830 | 841 | ||||||
| Net interest income after provision for loan losses | 25,559 | 20,991 | ||||||
Non-interest income: | ||||||||
| Service charges and other fees | 4,073 | 3,589 | ||||||
| Miscellaneous loan fees and charges | 1,019 | 1,030 | ||||||
| Gains on sale of loans | 1,771 | 2,271 | ||||||
| Gains on sale of investments, net of impairment charge | — | (437 | ) | |||||
| Other income | 548 | 560 | ||||||
| Total non-interest income | 7,411 | 7,013 | ||||||
Non-interest expense: | ||||||||
| Compensation, employee benefits and related expenses | 9,806 | 7,979 | ||||||
| Occupancy and equipment expense | 2,631 | 2,435 | ||||||
| Outsourced data processing expense | 413 | 562 | ||||||
| Core deposit intangibles amortization | 294 | 338 | ||||||
| Other expenses | 4,282 | 3,569 | ||||||
| Total non-interest expense | 17,426 | 14,883 | ||||||
Earnings before income taxes | 15,544 | 13,121 | ||||||
| Federal and state income tax expense | 4,934 | 4,273 | ||||||
Net earnings | $ | 10,610 | 8,848 | |||||
| Basic earnings per share | $ | 0.44 | 0.37 | |||||
| Diluted earnings per share | $ | 0.43 | 0.36 | |||||
| Dividends declared per share | $ | 0.17 | 0.13 | |||||
| Return on average assets (annualized) | 1.55 | % | 1.58 | % | ||||
| Return on average equity (annualized) | 17.28 | % | 16.41 | % | ||||
| Return on tangible average equity (annualized) | 20.89 | % | 20.08 | % | ||||
| Average outstanding shares - basic | 24,346,473 | 23,943,456 | ||||||
| Average outstanding shares - diluted | 24,768,669 | 24,272,608 | ||||||
See accompanying notes to consolidated financial statements.
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Glacier Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
and Comprehensive Income
| Retained | ||||||||||||||||||||||||
| earnings | ||||||||||||||||||||||||
| (accumulated | Accumulated | Total | ||||||||||||||||||||||
| Common Stock | deficit) | other comp- | stock- | |||||||||||||||||||||
| Paid-in | substantially | rehensive | holders’ | |||||||||||||||||||||
| (Unaudited - dollars in thousands, except per share data) | Shares | Amount | capital | restricted | income | equity | ||||||||||||||||||
| Balance at December 31, 2002 | 23,768,000 | 238 | 216,927 | (15,027 | ) | 10,111 | 212,249 | |||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Net earnings | — | — | — | 38,008 | — | 38,008 | ||||||||||||||||||
| Unrealized loss on securities, net of reclassification adjustment | — | — | — | — | (3,495 | ) | (3,495 | ) | ||||||||||||||||
| Total comprehensive income | 34,513 | |||||||||||||||||||||||
| Cash dividends declared ($.60 per share) | — | — | — | (14,573 | ) | — | (14,573 | ) | ||||||||||||||||
| Stock options exercised | 435,338 | 4 | 4,670 | — | — | 4,674 | ||||||||||||||||||
| Acquisition of fractional shares | — | — | — | (15 | ) | — | (15 | ) | ||||||||||||||||
| Tax benefit from stock related compensation | — | — | 991 | — | — | 991 | ||||||||||||||||||
| Balance at December 31, 2003 | 24,203,338 | 242 | 222,588 | 8,393 | 6,616 | 237,839 | ||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Net earnings | — | — | — | 10,610 | — | 10,610 | ||||||||||||||||||
| Unrealized gain on securities, net of reclassification adjustment and taxes | — | — | — | — | 5,555 | 5,555 | ||||||||||||||||||
| Total comprehensive income | 16,165 | |||||||||||||||||||||||
| Cash dividends declared ($.17 per share) | — | — | — | (4,115 | ) | — | (4,115 | ) | ||||||||||||||||
| Stock options exercised | 247,368 | 3 | 3,009 | — | — | 3,012 | ||||||||||||||||||
| �� | ||||||||||||||||||||||||
| Balance at March 31, 2004 | 24,450,706 | $ | 245 | 225,597 | 14,888 | 12,171 | 252,901 | |||||||||||||||||
See accompanying notes to consolidated financial statements.
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Glacier Bancorp, Inc.
| Three months ended March 31, | ||||||||
| (Unaudited - dollars in thousands) | 2004 | 2003 | ||||||
OPERATING ACTIVITIES : | ||||||||
| Net cash provided by operating activities | $ | 20,178 | 31,575 | |||||
INVESTING ACTIVITIES: | ||||||||
| Proceeds from sales, maturities and prepayments of investments available-for-sale | 57,513 | 48,770 | ||||||
| Purchases of investments available-for-sale | (110,191 | ) | (97,982 | ) | ||||
| Principal collected on installment and commercial loans | 138,037 | 149,045 | ||||||
| Installment and commercial loans originated or acquired | (175,943 | ) | (178,524 | ) | ||||
| Principal collections on mortgage loans | 57,666 | 67,195 | ||||||
| Mortgage loans originated or acquired | (56,735 | ) | (43,620 | ) | ||||
| Net purchase of FHLB and FRB stock | (886 | ) | (475 | ) | ||||
| Net addition of premises and equipment | (826 | ) | (2,252 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (91,365 | ) | (57,843 | ) | ||||
FINANCING ACTIVITIES: | ||||||||
| Net (decrease) increase in deposits | (6,179 | ) | 16,179 | |||||
| Net increase in FHLB advances and other borrowed funds | 21,489 | 4,035 | ||||||
| Net increase in securities sold under repurchase agreements | 6,485 | 13,312 | ||||||
| Proceeds from issuance of subordinated debentures | 45,000 | — | ||||||
| Cash dividends paid to stockholders | (4,115 | ) | (3,161 | ) | ||||
| Proceeds from exercise of stock options | 3,012 | 3,154 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 65,692 | 33,519 | ||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (5,495 | ) | 7,251 | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 86,140 | 79,377 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 80,645 | 86,628 | |||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid (received) during the period for: Interest | $ | 8,349 | 10,896 | |||||
| Income taxes | $ | 100 | (354 | ) | ||||
See accompanying notes to consolidated financial statements.
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Notes to Consolidated Financial Statements
| 1) | Basis of Presentation: | |||
| In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Glacier Bancorp Inc.’s (the “Company”) financial condition as of March 31, 2004, December 31, 2003, and March 31, 2003, stockholders’ equity for the three months ended March 31, 2004 and the year ended December 31, 2003, the results of operations and cash flows for the three months ended March 31, 2004 and 2003. | ||||
| The accompanying consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results anticipated for the year ending December 31, 2004. Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation. | ||||
| 2) | Organizational Structure: | |||
| The Company, headquartered in Kalispell, Montana, is a Delaware corporation incorporated in 1990, pursuant to the reorganization of Glacier Bank, FSB into a bank holding company. The Company is the parent company for seven wholly owned banking subsidiaries: Glacier Bank (“Glacier”), First Security Bank of Missoula (“First Security”), Western Security Bank (“Western”), Big Sky Western Bank (“Big Sky”), Valley Bank of Helena (“Valley”), and Glacier Bank of Whitefish (“Whitefish”), all located in Montana, and Mountain West Bank (“Mountain West”) which is located in Idaho, Utah, and Washington. In addition, the Company formed two subsidiaries, Glacier Capital Trust I (“Glacier Trust I”), and Glacier Capital Trust II (“Glacier Trust II”), for the purpose of issuing trust preferred securities. The Company does not have any off-balance sheet entities. | ||||
| On March 24, 2004, the Company formed Glacier Trust II and subordinated debentures in the form of trust preferred securities of $45 million, with an interest rate of 5.79 percent, were issued by the Company. The proceeds will be used for general corporate purposes. | ||||
| The following abbreviated organizational chart illustrates the various relationships: | ||||
| 3) | Ratios: | |||
| Returns on average assets and average equity were calculated based on daily averages. | ||||
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| 4) | Dividends Declared: | |||
| On April 28, 2004, the Board of Directors declared a five-for-four stock split payable May 20, 2004 to owners of record on May 11, 2004, and all per share amounts have been restated to reflect the effects of the stock split. On March 10, 2004, the Board of Directors declared a $.17 per share quarterly cash dividend to stockholders of record on April 13, 2004, payable on April 22, 2004. | ||||
| 5) | Computation of Earnings Per Share: | |||
| Basic earnings per common share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares if dilutive outstanding stock options were exercised, using the treasury stock method. | ||||
| The following schedule contains the data used in the calculation of basic and diluted earnings per share. | ||||
| Three | Three | |||||||
| months ended | months ended | |||||||
| March 31, 2004 | March 31, 2003 | |||||||
| Net earnings available to common stockholders | $ | 10,610,000 | 8,848,000 | |||||
| Average outstanding shares - basic | 24,346,473 | 23,943,456 | ||||||
| Add: Dilutive stock options | 422,196 | 329,152 | ||||||
| Average outstanding shares - diluted | 24,768,669 | 24,272,608 | ||||||
| Basic earnings per share | $ | 0.44 | 0.37 | |||||
| Diluted earnings per share | $ | 0.43 | 0.36 | |||||
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| 6) | Investments: | |||
| A comparison of the amortized cost and estimated fair value of the Company’s investment securities, available for sale, is as follows. | ||||
INVESTMENTS AS OF MARCH 31, 2004
| Estimated | ||||||||||||||||||||
| Weighted | Amortized | Gross Unrealized | Fair | |||||||||||||||||
| (Dollars in thousands) | Yield | Cost | Gains | Losses | Value | |||||||||||||||
U.S. Government and Federal Agencies | ||||||||||||||||||||
| maturing within one year | 1.29 | % | 257 | — | (1 | ) | 256 | |||||||||||||
| maturing five years through ten years | 3.90 | % | 189 | 7 | — | 196 | ||||||||||||||
| maturing after ten years | 2.34 | % | 734 | 8 | (1 | ) | 741 | |||||||||||||
| 2.37 | % | 1,180 | 15 | (2 | ) | 1,193 | ||||||||||||||
State and Local Governments and other issues: | ||||||||||||||||||||
| maturing within one year | 5.06 | % | 1,055 | 15 | — | 1,070 | ||||||||||||||
| maturing one year through five years | 4.31 | % | 5,869 | 81 | (55 | ) | 5,895 | |||||||||||||
| maturing five years through ten years | 5.37 | % | 6,503 | 352 | — | 6,855 | ||||||||||||||
| maturing after ten years | 5.15 | % | 297,424 | 15,167 | (379 | ) | 312,212 | |||||||||||||
| 5.14 | % | 310,851 | 15,615 | (434 | ) | 326,032 | ||||||||||||||
Mortgage-Backed Securities | 4.83 | % | 69,909 | 1,498 | (199 | ) | 71,208 | |||||||||||||
Real Estate Mortgage Investment Conduits | 3.26 | % | 707,559 | 5,748 | (2,155 | ) | 711,152 | |||||||||||||
FHLB and FRB stock, at cost | 4.24 | % | 47,942 | — | — | 47,942 | ||||||||||||||
Total Investments | 3.91 | % | $ | 1,137,441 | 22,876 | (2,790 | ) | 1,157,527 | ||||||||||||
INVESTMENTS AS OF DECEMBER 31, 2003
| Estimated | ||||||||||||||||||||
| (Dollars in thousands) | Weighted | Amortized | Gross Unrealized | Fair | ||||||||||||||||
| Yield | Cost | Gains | Losses | Value | ||||||||||||||||
U.S. Government and Federal Agencies | ||||||||||||||||||||
| maturing within one year | 0.85 | % | $ | 352 | — | — | 352 | |||||||||||||
| maturing one year through five years | 1.29 | % | 259 | — | (1 | ) | 258 | |||||||||||||
| maturing after ten years | 2.97 | % | 957 | 15 | (1 | ) | 971 | |||||||||||||
| 2.22 | % | 1,568 | 15 | (2 | ) | 1,581 | ||||||||||||||
State and Local Governments and other issues: | ||||||||||||||||||||
| maturing within one year | 5.69 | % | 4,346 | 41 | — | 4,387 | ||||||||||||||
| maturing one year through five years | 4.30 | % | 5,485 | 84 | (102 | ) | 5,467 | |||||||||||||
| maturing five years through ten years | 5.35 | % | 4,910 | 197 | — | 5,107 | ||||||||||||||
| maturing after ten years | 5.13 | % | 296,237 | 10,170 | (1,683 | ) | 304,724 | |||||||||||||
| 5.13 | % | 310,978 | 10,492 | (1,785 | ) | 319,685 | ||||||||||||||
Mortgage-Backed Securities | 4.30 | % | 64,123 | 1,465 | (342 | ) | 65,246 | |||||||||||||
Real Estate Mortgage Investment Conduits | 4.03 | % | 662,727 | 4,983 | (3,911 | ) | 663,799 | |||||||||||||
FHLB and FRB stock, at cost | 5.34 | % | 46,643 | — | — | 46,643 | ||||||||||||||
Total Investments | 4.41 | % | $ | 1,086,039 | 16,955 | (6,040 | ) | 1,096,954 | ||||||||||||
| Interest income includes tax-exempt interest for the three months ended March 31, 2004 and 2003 of $3,465,000 and $2,590,000, respectively. |
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| Gross proceeds from sales of investment securities for the three months ended March 31, 2004 and 2003 were $0, and $2,031,000 respectively, resulting in gross gains of approximately $0, and $17,000, respectively. The cost of any investment sold is determined by specific identification. | ||||
| There was an impairment charge for the three months ended March 31, 2003, of $454,000, for the impairment of value on collateralized mortgage obligations. The impairment charge is included in the net gain on sale of investments. | ||||
| 7) | Loans | |||
| The following table summarizes the Company’s loan portfolio. | ||||
| TYPE OF LOAN | At | At | At | |||||||||||||||||||||
| (Dollars in thousands) | 3/31/2004 | 12/31/2003 | 03/31/2003 | |||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||
| Real Estate Loans: | ||||||||||||||||||||||||
| Residential first mortgage loans | $ | 300,278 | 20.5 | % | $ | 301,511 | 21.1 | % | $ | 286,379 | 22.2 | % | ||||||||||||
| Loans held for sale | 16,609 | 1.1 | % | 16,973 | 1.2 | % | 37,509 | 2.9 | % | |||||||||||||||
| Total | 316,887 | 21.6 | % | 318,484 | 22.3 | % | 323,888 | 25.1 | % | |||||||||||||||
| Commercial Loans: | ||||||||||||||||||||||||
| Real estate | 497,059 | 33.9 | % | 483,684 | 33.8 | % | 427,420 | 33.1 | % | |||||||||||||||
| Other commercial loans | 378,133 | 25.8 | % | 359,030 | 25.1 | % | 278,544 | 21.6 | % | |||||||||||||||
| Total | 875,192 | 59.7 | % | 842,714 | 58.9 | % | 705,964 | 54.7 | % | |||||||||||||||
| Consumer and Other Loans: | ||||||||||||||||||||||||
| Consumer loans | 94,310 | 6.4 | % | 95,739 | 6.7 | % | 106,158 | 8.2 | % | |||||||||||||||
| Home equity loans | 206,608 | 14.1 | % | 199,693 | 14.0 | % | 178,728 | 13.8 | % | |||||||||||||||
| Total | 300,918 | 20.5 | % | 295,432 | 20.7 | % | 284,886 | 22.0 | % | |||||||||||||||
| Net deferred loan fees, premiums and discounts | (2,284 | ) | -0.1 | % | (2,275 | ) | -0.2 | % | (1,872 | ) | -0.1 | % | ||||||||||||
| Allowance for Losses | (24,569 | ) | -1.7 | % | (23,990 | ) | -1.7 | % | (21,627 | ) | -1.7 | % | ||||||||||||
| Net Loans | $ | 1,466,144 | 100.0 | % | $ | 1,430,365 | 100.0 | % | $ | 1,291,239 | 100.0 | % | ||||||||||||
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| The following table sets forth information regarding the Company’s non-performing assets at the dates indicated: |
| NONPERFORMING ASSETS | At | At | At | |||||||||
| (Dollars in thousands) | 3/31/2004 | 12/31/2003 | 3/31/2003 | |||||||||
| Non-accrual loans: | ||||||||||||
| Real estate loans | $ | 1,191 | 1,129 | 2,341 | ||||||||
| Commercial loans | 8,287 | 8,246 | 5,283 | |||||||||
| Consumer and other loans | 409 | 687 | 416 | |||||||||
| Total | $ | 9,887 | 10,062 | 8,040 | ||||||||
| Accruing Loans 90 days or more overdue: | ||||||||||||
| Real estate loans | 249 | 379 | 140 | |||||||||
| Commercial loans | 701 | 1,798 | 654 | |||||||||
| Consumer and other loans | 288 | 242 | 116 | |||||||||
| Total | $ | 1,238 | 2,419 | 910 | ||||||||
| Real estate and other assets owned | 516 | 587 | 1,076 | |||||||||
| Total non-performing loans, and real estate and other assets owned | $ | 11,641 | 13,068 | 10,026 | ||||||||
| As a percentage of total assets | 0.42 | % | 0.48 | % | 0.43 | % | ||||||
| Interest Income (1) | $ | 154 | 665 | 140 | ||||||||
| (1) | This is the amount of interest that would have been recorded on loans accounted for on a non-accrual basis for the three months ended March 31, 2004 and 2003 and the year ended December 31, 2003, if such loans had been current for the entire period. |
The following table illustrates the loan loss experience:
| Three months ended | Year ended | Three months ended | ||||||||||
| ALLOWANCE FOR LOAN LOSS | March 31, | December 31, | March 31, | |||||||||
| (Dollars in thousands) | 2004 | 2003 | 2003 | |||||||||
| Balance at beginning of period | $ | 23,990 | 20,944 | 20,944 | ||||||||
| Charge offs: | ||||||||||||
| Real estate loans | (137 | ) | (416 | ) | (124 | ) | ||||||
| Commercial loans | (140 | ) | (912 | ) | (32 | ) | ||||||
| Consumer and other loans | (166 | ) | (1,078 | ) | (227 | ) | ||||||
| Total charge offs | $ | (443 | ) | (2,406 | ) | (383 | ) | |||||
| Recoveries: | ||||||||||||
| Real estate loans | 42 | 126 | 61 | |||||||||
| Commercial loans | 24 | 274 | 79 | |||||||||
| Consumer and other loans | 126 | 284 | 85 | |||||||||
| Total recoveries | $ | 192 | 684 | 225 | ||||||||
| Chargeoffs, net of recoveries | (251 | ) | (1,722 | ) | (158 | ) | ||||||
| Acquisition (1) | — | 959 | — | |||||||||
| Provision | 830 | 3,809 | 841 | |||||||||
| Balance at end of period | $ | 24,569 | 23,990 | 21,627 | ||||||||
| Ratio of net charge offs to average loans outstanding during the period | 0.02 | % | 0.12 | % | 0.01 | % | ||||||
| (1) | Acquisition of Pend Oreille Bancorp, Inc. |
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| The following table summarizes the allocation of the allowance for loan losses: |
| March 31, 2004 | December 31, 2003 | March 31, 2003 | ||||||||||||||||||||||
| Percent | Percent | Percent | ||||||||||||||||||||||
| of loans in | of loans in | of loans in | ||||||||||||||||||||||
| (Dollars in thousands) | Allowance | category | Allowance | category | Allowance | category | ||||||||||||||||||
| Real estate loans | $ | 2,154 | 21.2 | % | 2,147 | 21.8 | % | 2,029 | 24.6 | % | ||||||||||||||
| Commercial real estate | 7,650 | 33.3 | % | 7,464 | 33.2 | % | 7,170 | 32.5 | % | |||||||||||||||
| Other commercial | 10,339 | 25.3 | % | 9,951 | 24.7 | % | 8,023 | 21.2 | % | |||||||||||||||
| Consumer and other loans | 4,426 | 20.2 | % | 4,428 | 20.3 | % | 4,405 | 21.7 | % | |||||||||||||||
| Totals | $ | 24,569 | 100.0 | % | 23,990 | 100.0 | % | 21,627 | 100.0 | % | ||||||||||||||
| 8) | Intangible Assets | |||
| The following table sets forth information regarding the Company’s core deposit intangibles and mortgage servicing rights as of March 31, 2004: | ||||
| Core Deposit | Mortgage | |||||||||||
| (Dollars in thousands) | Intangible | Servicing Rights (1) | Total | |||||||||
| Gross carrying value | $ | 10,122 | ||||||||||
| Accumulated Amortization | (4,551 | ) | ||||||||||
| Net carrying value | $ | 5,571 | 1,335 | 6,906 | ||||||||
Weighted-Average amortization period | ||||||||||||
| (Period in years) | 10.0 | 9.6 | 9.9 | |||||||||
Aggregate Amortization Expense | ||||||||||||
| For the three months ended March 31, 2004 | $ | 294 | 89 | 383 | ||||||||
Estimated Amortization Expense | ||||||||||||
| For the year ended December 31, 2004 | $ | 1,061 | 157 | 1,218 | ||||||||
| For the year ended December 31, 2005 | 891 | 88 | 979 | |||||||||
| For the year ended December 31, 2006 | 818 | 86 | 904 | |||||||||
| For the year ended December 31, 2007 | 800 | 83 | 883 | |||||||||
| For the year ended December 31, 2008 | 790 | 80 | 870 | |||||||||
| (1) The mortgage servicing rights are included in other assets and the gross carrying value and accumulated amortization are not readily available. |
| 9) | Deposits | |||
| The following table illustrates the amounts outstanding for deposits greater than $100,000 at March 31, 2004, according to the time remaining to maturity: | ||||
| Certificates | Non-Maturity | |||||||||||
| (Dollars in thousands) | of Deposit | Deposits | Totals | |||||||||
| Within three months | $ | 18,033 | 506,831 | 524,864 | ||||||||
| Three to six months | 19,836 | — | 19,836 | |||||||||
| Seven to twelve months | 16,225 | — | 16,225 | |||||||||
| Over twelve months | 18,731 | — | 18,731 | |||||||||
| Totals | $ | 72,825 | 506,831 | 579,656 | ||||||||
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| 10) | Advances and Other Borrowings | |||
| The following chart illustrates the average balances and the maximum outstanding month-end balances for Federal Home Loan Bank of Seattle (FHLB) advances and repurchase agreements: | ||||
| As of and | As of and | As of and | ||||||||||
| for the three | for the twelve | for the three | ||||||||||
| (Dollars in thousands) | months ended | months ended | months ended | |||||||||
| March 31, 2004 | December 31, 2003 | March 31, 2003 | ||||||||||
| FHLB Advances | ||||||||||||
| Amount outstanding at end of period | $ | 801,679 | 777,294 | 500,425 | ||||||||
| Average balance | $ | 815,825 | 601,679 | 490,510 | ||||||||
| Maximum outstanding at any month-end | $ | 830,855 | 777,294 | 500,425 | ||||||||
| Weighted average interest rate | 2.19 | % | 2.80 | % | 3.48 | % | ||||||
| Repurchase Agreements: | ||||||||||||
| Amount outstanding at end of period | $ | 63,453 | 56,968 | 59,518 | ||||||||
| Average balance | $ | 63,271 | 61,609 | 55,849 | ||||||||
| Maximum outstanding at any month-end | $ | 67,558 | 74,808 | 59,518 | ||||||||
| Weighted average interest rate | 1.00 | % | 1.09 | % | 1.15 | % | ||||||
| 11) | Stockholders’ Equity: | |||
| The Federal Reserve Board has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company. The following table illustrates the Federal Reserve Board’s capital adequacy guidelines and the Company’s compliance with those guidelines as of March 31, 2004. | ||||
| CONSOLIDATED | Tier 1 (Core) | Tier 2 (Total) | Leverage | |||||||||
| (Dollars in thousands) | Capital | Capital | Capital | |||||||||
| GAAP Capital | $ | 252,901 | 252,901 | 252,901 | ||||||||
| Less: Goodwill and intangibles | (42,522 | ) | (42,522 | ) | (42,522 | ) | ||||||
| Accumulated other comprehensive gain on AFS securities | (12,171 | ) | (12,171 | ) | (12,171 | ) | ||||||
| Plus: Allowance for loan losses | — | 22,036 | — | |||||||||
| Subordinated debentures | 80,000 | 80,000 | 80,000 | |||||||||
| Other adjustments | — | 147 | — | |||||||||
| Regulatory capital computed | $ | 278,208 | 300,391 | 278,208 | ||||||||
| Risk weighted assets | $ | 1,762,881 | 1,762,881 | |||||||||
| Total average assets | $ | 2,720,291 | ||||||||||
| Capital as % of defined assets | 15.78 | % | 17.04 | % | 10.23 | % | ||||||
| Regulatory “well capitalized” requirement | 6.00 | % | 10.00 | % | 5.00 | % | ||||||
| Excess over “well capitalized” requirement | 9.78 | % | 7.04 | % | 5.23 | % | ||||||
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| 12) | Comprehensive Earnings: | |||
| The Company’s only component of other comprehensive earnings is the unrealized gains and losses on available-for-sale securities. | ||||
| For the three months ended March 31, | ||||||||
| Dollars in thousands | 2004 | 2003 | ||||||
| Net earnings | $ | 10,610 | 8,848 | |||||
| Unrealized holding gain (loss) arising during the period | 9,169 | (2,119 | ) | |||||
| Tax (expense) benefit | (3,614 | ) | 797 | |||||
| Net after tax | 5,555 | (1,322 | ) | |||||
| Reclassification adjustment for gains included in net income | — | 17 | ||||||
| Tax expense | — | (7 | ) | |||||
| Net after tax | — | 10 | ||||||
| Net unrealized gain (loss) on securities | 5,555 | (1,312 | ) | |||||
| Total comprehensive earnings | $ | 16,165 | 7,536 | |||||
| 13) | Stock Based Compensation | |||
| The exercise price of all options granted has been equal to the fair market value of the underlying stock at the date of grant and, accordingly, no compensation cost has been recognized for stock options in the financial statements. Had the company determined compensation cost based on the fair value of the option itself at the grant date for its stock options and earnings per share under FASB Statement 123,Accounting for Stock-Based Compensation,the Company’s net income would have been reduced to the pro forma amounts indicated below: | ||||
| Three months ended March 31, | ||||||||||
| 2004 | 2003 | |||||||||
| Net earnings (in thousands): | As reported | $ | 10,610 | 8,848 | ||||||
| Compensation cost | (123 | ) | (187 | ) | ||||||
| Pro forma | 10,487 | 8,661 | ||||||||
| Basic earnings per share: | As reported | 0.44 | 0.37 | |||||||
| Compensation cost | (0.01 | ) | (0.01 | ) | ||||||
| Pro forma | 0.43 | 0.36 | ||||||||
| Diluted earnings per share: | As reported | 0.43 | 0.36 | |||||||
| Compensation cost | (0.01 | ) | — | |||||||
| Pro forma | 0.42 | 0.36 | ||||||||
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| 14) | Segment Information |
| The Company evaluates segment performance internally based on individual bank charters, and thus the operating segments are so defined. The following schedule provides selected financial data for the Company’s operating segments. Centrally provided services to the Banks are allocated based on estimated usage of those services. The operating segment identified as “Other” includes the Parent, non-bank units, and eliminations of transactions between segments. |
| Three months ended and as of March 31, 2004 | ||||||||||||||||||||
| First | Mountain | |||||||||||||||||||
| (Dollars in thousands) | Glacier | Security | Western | West | Big Sky | |||||||||||||||
| Revenues from external customers | $ | 9,335 | 8,820 | 6,344 | 9,224 | 3,412 | ||||||||||||||
| Intersegment revenues | 68 | 4 | 2 | — | — | |||||||||||||||
| Expenses | (6,719 | ) | (5,997 | ) | (4,618 | ) | (7,605 | ) | (2,518 | ) | ||||||||||
| Intercompany eliminations | — | — | — | — | — | |||||||||||||||
| Net income | $ | 2,684 | 2,827 | 1,728 | 1,619 | 894 | ||||||||||||||
| Total Assets | $ | 603,740 | 598,702 | 449,044 | 558,012 | 214,116 | ||||||||||||||
| Total | ||||||||||||||||
| Valley | Whitefish | Other | Consolidated | |||||||||||||
| Revenues from external customers | 3,387 | 2,261 | 93 | 42,876 | ||||||||||||
| Intersegment revenues | 36 | — | 13,137 | 13,247 | ||||||||||||
| Expenses | (2,525 | ) | (1,602 | ) | (682 | ) | (32,266 | ) | ||||||||
| Intercompany eliminations | — | — | (13,247 | ) | (13,247 | ) | ||||||||||
| Net income | 898 | 659 | (699 | ) | 10,610 | |||||||||||
| Total Assets | 220,461 | 155,173 | 29,793 | 2,829,041 | ||||||||||||
| Three months ended and as of March 31, 2003 | ||||||||||||||||||||
| First | Mountain | |||||||||||||||||||
| (Dollars in thousands) | Glacier | Security | Western | West | Big Sky | |||||||||||||||
| Revenues from external customers | $ | 9,080 | 8,360 | 6,162 | 7,056 | 3,094 | ||||||||||||||
| Intersegment revenues | 51 | — | — | — | — | |||||||||||||||
| Expenses | (6,539 | ) | (5,961 | ) | (4,846 | ) | (5,730 | ) | (2,374 | ) | ||||||||||
| Intercompany eliminations | — | — | — | — | — | |||||||||||||||
| Net income | $ | 2,592 | 2,399 | 1,316 | 1,326 | 720 | ||||||||||||||
| Total Assets | $ | 507,853 | 490,927 | 404,824 | 412,816 | 186,439 | ||||||||||||||
| Total | ||||||||||||||||
| Valley | Whitefish | Other | Consolidated | |||||||||||||
| Revenues from external customers | 3,246 | 2,017 | 60 | 39,075 | ||||||||||||
| Intersegment revenues | 33 | — | 11,158 | 11,242 | ||||||||||||
| Expenses | (2,566 | ) | (1,502 | ) | (709 | ) | (30,227 | ) | ||||||||
| Intercompany eliminations | — | — | (11,242 | ) | (11,242 | ) | ||||||||||
| Net income | 713 | 515 | (733 | ) | 8,848 | |||||||||||
| Total Assets | 187,375 | 134,972 | (2,700 | ) | 2,322,506 | |||||||||||
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| 15) | Rate/Volume Analysis |
| Net interest income can be evaluated from the perspective of relative dollars of change in each period. Interest income and interest expense, which are the components of net interest income, are shown in the following table on the basis of the amount of any increases (or decreases) attributable to changes in the dollar levels of the Company’s interest-earning assets and interest-bearing liabilities (“Volume”) and the yields earned and rates paid on such assets and liabilities (“Rate”). The change in interest income and interest expense attributable to changes in both volume and rates has been allocated proportionately to the change due to volume and the change due to rate. |
| Three Months Ended March 31, | ||||||||||||
| 2004 vs. 2003 | ||||||||||||
| Increase (Decrease) due to: | ||||||||||||
| (Dollars in Thousands) | Volume | Rate | Net | |||||||||
Interest Income | ||||||||||||
| Real Estate Loans | $ | (446 | ) | (525 | ) | (971 | ) | |||||
| Commercial Loans | 2,916 | (1,310 | ) | 1,606 | ||||||||
| Consumer and Other Loans | 228 | (494 | ) | (266 | ) | |||||||
| Investment Securities | 3,627 | (593 | ) | 3,034 | ||||||||
| Total Interest Income | 6,325 | (2,922 | ) | 3,403 | ||||||||
Interest Expense | ||||||||||||
| NOW Accounts | 23 | (29 | ) | (6 | ) | |||||||
| Savings Accounts | 28 | (72 | ) | (44 | ) | |||||||
| Money Market Accounts | 96 | (414 | ) | (318 | ) | |||||||
| Certificates of Deposit | (266 | ) | (830 | ) | (1,096 | ) | ||||||
| FHLB Advances | 2,793 | (2,560 | ) | 233 | ||||||||
| Other Borrowings and Repurchase Agreements | 137 | (60 | ) | 77 | ||||||||
| Total Interest Expense | 2,811 | (3,965 | ) | (1,154 | ) | |||||||
Net Interest Income | $ | 3,514 | 1,043 | 4,557 | ||||||||
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| 16) | Average Balance Sheet |
| The following schedule provides (i) the total dollar amount of interest and dividend income of the Company for earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest and dividend income; (iv) interest rate spread; and (v) net interest margin. Non-accrual loans are included in the average balance of the loans. |
AVERAGE BALANCE SHEET
(Dollars in Thousands)
| For the Three months ended 3-31-04 | For the Three months ended 3-31-03 | |||||||||||||||||||||||
| Interest | Average | Interest | Average | |||||||||||||||||||||
| Average | and | Yield/ | Average | and | Yield/ | |||||||||||||||||||
| Balance | Dividends | Rate | Balance | Dividends | Rate | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
| Real Estate Loans | $ | 312,096 | 5,281 | 6.77 | % | $ | 336,018 | 6,252 | 7.44 | % | ||||||||||||||
| Commercial Loans | 859,587 | 13,223 | 6.19 | % | 687,118 | 11,617 | 6.86 | % | ||||||||||||||||
| Consumer and Other Loans | 296,506 | 4,836 | 6.56 | % | 283,807 | 5,102 | 7.29 | % | ||||||||||||||||
| Total Loans | 1,468,189 | 23,340 | 6.39 | % | 1,306,943 | 22,971 | 7.13 | % | ||||||||||||||||
| Tax -Exempt Investment Securities (1) | 281,218 | 3,465 | 4.93 | % | 204,221 | 2,590 | 5.07 | % | ||||||||||||||||
| Investment Securities | 834,147 | 8,660 | 4.15 | % | 593,105 | 6,501 | 4.38 | % | ||||||||||||||||
| Total Earning Assets | 2,583,554 | 35,465 | 5.49 | % | 2,104,269 | 32,062 | 6.09 | % | ||||||||||||||||
| Non-Earning Assets | 178,411 | 165,927 | ||||||||||||||||||||||
TOTAL ASSETS | $ | 2,761,965 | $ | 2,270,196 | ||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||
| NOW Accounts | $ | 246,298 | 113 | 0.18 | % | $ | 206,086 | 119 | 0.23 | % | ||||||||||||||
| Savings Accounts | 152,943 | 108 | 0.28 | % | 129,495 | 152 | 0.48 | % | ||||||||||||||||
| Money Market Accounts | 389,865 | 857 | 0.88 | % | 360,443 | 1,175 | 1.32 | % | ||||||||||||||||
| Certificates of Deposit | 432,271 | 2,405 | 2.24 | % | 467,744 | 3,501 | 3.04 | % | ||||||||||||||||
| FHLB Advances | 815,825 | 4,445 | 2.19 | % | 490,510 | 4,212 | 3.48 | % | ||||||||||||||||
| Repurchase Agreements and Other Borrowed Funds | 106,994 | 1,148 | 4.31 | % | 94,863 | 1,071 | 4.58 | % | ||||||||||||||||
| Total Interest Bearing Liabilities | 2,144,196 | 9,076 | 1.70 | % | 1,749,141 | 10,230 | 2.37 | % | ||||||||||||||||
| Non-interest Bearing Deposits | 343,350 | 274,226 | ||||||||||||||||||||||
| Other Liabilities | 27,464 | 28,203 | ||||||||||||||||||||||
| Total Liabilities | 2,515,010 | 2,051,570 | ||||||||||||||||||||||
| Common Stock | 195 | 174 | ||||||||||||||||||||||
| Paid-In Capital | 223,790 | 175,070 | ||||||||||||||||||||||
| Retained Earnings | 13,567 | 32,616 | ||||||||||||||||||||||
| Accumulated Other Comprehensive Earnings | 9,403 | 10,766 | ||||||||||||||||||||||
| Total Stockholders’ Equity | 246,955 | 218,626 | ||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,761,965 | $ | 2,270,196 | ||||||||||||||||||||
| Net Interest Income | $ | 26,389 | $ | 21,832 | ||||||||||||||||||||
| Net Interest Spread | 3.79 | % | 3.72 | % | ||||||||||||||||||||
| Net Interest Margin on average earning assets | 4.11 | % | 4.21 | % | ||||||||||||||||||||
| Return on Average Assets | 1.55 | % | 1.58 | % | ||||||||||||||||||||
| Return on Average Equity | 17.28 | % | 16.41 | % | ||||||||||||||||||||
(1) Excludes tax effect on non-taxable investment security income
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition
This section discusses the changes in Statement of Financial Condition items from March 31, 2003 and December 31, 2003, to March 31, 2004.
| $ change from | $ change from | |||||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | ||||||||||||||||
| Assets ($ in thousands) | 2004 | 2003 | 2003 | 2003 | 2003 | |||||||||||||||
| Cash on hand and in banks | $ | 53,213 | 77,093 | 71,092 | (23,880 | ) | (17,879 | ) | ||||||||||||
| Investment securities and interest bearing deposits | 1,184,959 | 1,106,001 | 843,408 | 78,958 | 341,551 | |||||||||||||||
| Loans: | ||||||||||||||||||||
| Real estate | 316,227 | 317,774 | 323,311 | (1,547 | ) | (7,084 | ) | |||||||||||||
| Commercial | 873,743 | 841,306 | 704,751 | 32,437 | 168,992 | |||||||||||||||
| Consumer | 300,743 | 295,275 | 284,804 | 5,468 | 15,939 | |||||||||||||||
| Total loans | 1,490,713 | 1,454,355 | 1,312,866 | 36,358 | 177,847 | |||||||||||||||
| Allowance for loan losses | (24,569 | ) | (23,990 | ) | (21,627 | ) | (579 | ) | (2,942 | ) | ||||||||||
| Total loans net of allowance for loan losses | 1,466,144 | 1,430,365 | 1,291,239 | 35,779 | 174,905 | |||||||||||||||
| Other assets | 124,725 | 126,174 | 116,767 | (1,449 | ) | 7,958 | ||||||||||||||
| Total Assets | $ | 2,829,041 | 2,739,633 | 2,322,506 | 89,408 | 506,535 | ||||||||||||||
| At March 31, 2004 total assets were $2.829 billion which is $507 million greater than the March 31, 2003 assets of $2.323 billion, an increase of 22 percent, of which $89 million of the increase occurred in the first quarter 2004. In addition to the internal growth, the third quarter 2003 Pend Oreille Bank (POB) acquisition added $66 million to the asset base. | ||||
| Total loans have increased $178 million from March 31, 2003 and $36 million from December 31, 2003, of which $50 million was from the POB acquisition. Commercial loans have increased $169 million, or 24 percent, and continue to be the focus of our lending. Real estate loan volume was at record levels through much of 2003, with $805 million originated for the year, up from $588 million in 2002. The majority of the real estate loan production was sold with loans held in the loan portfolio increasing by only $14 million from March 31, 2003. Loans held for sale declined $21 million from the March 31, 2003 total resulting in a net reduction of $7 million in real estate loan balances at March 31, 2004. Consumer loans have increased $16 million resulting from increases in home equity loans. Home-equity loans continue to be the primary source of our consumer loan originations and have increased approximately $28 million from a year ago. | ||||
| Investment securities, including interest bearing deposits in other financial institutions, have increased $342 million from March 31, 2003 and $79 million from December 31, 2003. Additional investments were made to utilize funding liquidity that exceeded loan growth opportunities, and to capture the value of the spread between short term funding rates and the rate on two-to-five year maturity assets. | ||||
| The Company typically sells a majority of mortgage loans originated, retaining servicing only on loans sold to certain lenders. The sale of loans in the secondary mortgage market reduces the Company’s risk of holding long-term, fixed rate loans in the loan portfolio. Mortgage loans sold for the three months ended March 31, 2004 and 2003 were $67 million and $145 million, respectively. The Company has also been active in generating commercial SBA loans. A portion of some of those loans are sold to other investors. The amount of loans sold and serviced for others on March 31, 2004 was approximately $184 million. | ||||
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| $ change from | $ change from | |||||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | ||||||||||||||||
| Liabilities ($ in thousands) | 2004 | 2003 | 2003 | 2003 | 2003 | |||||||||||||||
| Non-interest bearing deposits | $ | 366,277 | 369,052 | 307,659 | (2,775 | ) | 58,618 | |||||||||||||
| Interest bearing deposits | 1,225,169 | 1,228,573 | 1,168,443 | (3,404 | ) | 56,726 | ||||||||||||||
| Advances from Federal Home Loan Bank | 801,679 | 777,294 | 500,425 | 24,385 | 301,254 | |||||||||||||||
| Securities sold under agreements to repurchase and other borrowed funds | 68,575 | 64,986 | 61,875 | 3,589 | 6,700 | |||||||||||||||
| Other liabilities | 34,440 | 26,889 | 29,326 | 7,551 | 5,114 | |||||||||||||||
| Subordinated debentures | 80,000 | 35,000 | 35,000 | 45,000 | 45,000 | |||||||||||||||
| Total liabilities | $ | 2,576,140 | 2,501,794 | 2,102,728 | 74,346 | 473,412 | ||||||||||||||
Total deposits have increased $115 million from March 31, 2003, of which $59 million came with the POB acquisition, and there was a decrease of $6 million from December 31, 2003. There was an increase of $59 million, or 19 percent, in non-interest bearing deposits. This growth in low cost stable funding gives us increased flexibility in managing our asset mix. Interest-bearing deposits are up $57 million, or 5 percent, of which $49 million was added by the POB acquisition. Federal Home Loan Bank advances have also increased $301 million as we continue to take advantage of the flexibility of that funding source in this current period of low interest rates. On March 24, 2004 subordinated debentures in the form of trust preferred securities of $45 million, with an interest rate of 5.79 percent, were issued by the Company. The proceeds will be used for general corporate purposes.
Liquidity and Capital Resources
The objective of liquidity management is to maintain cash flows adequate to meet current and future needs for credit demand, deposit withdrawals, maturing liabilities and corporate operating expenses. The principal source of the Company’s cash revenues is the dividends received from the Company’s banking subsidiaries. The payment of dividends is subject to government regulation, in that regulatory authorities may prohibit banks and bank holding companies from paying dividends which would constitute an unsafe or unsound banking practice. The subsidiaries source of funds is generated by deposits, principal and interest payments on loans, sale of loans and securities, short and long-term borrowings, and net income. In addition, all seven banking subsidiaries are members of the FHLB. As of March 31, 2004, the Company had $1.045 billion of available FHLB line of which $802 million was utilized. Accordingly, management of the Company has a wide range of versatility in managing the liquidity and asset/liability mix for each individual institution as well as the Company as a whole. During 2004, all seven financial institutions maintained liquidity and regulatory capital levels in excess of regulatory requirements and operational needs.
Commitments
In the normal course of business, there are various outstanding commitments to extend credit, such as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying consolidated financial statements. Management does not anticipate any material losses as a result of these transactions.
19
Table of Contents
| $ change from | $ change from | |||||||||||||||||||
| Stockholders' equity | March 31, | December 31, | March 31, | December 31, | March 31, | |||||||||||||||
| ($ in thousands except per share data) | 2004 | 2003 | 2003 | 2003 | 2003 | |||||||||||||||
| Common equity | $ | 240,730 | 231,223 | 210,979 | 9,507 | 29,751 | ||||||||||||||
| Net unrealized gain on securities | 12,171 | 6,616 | 8,799 | 5,555 | 3,372 | |||||||||||||||
| Total stockholders’ equity | $ | 252,901 | 237,839 | 219,778 | 15,062 | 33,123 | ||||||||||||||
| Stockholders’ equity to total assets | 8.94 | % | 8.68 | % | 9.46 | % | ||||||||||||||
| Tangible equity to total assets | 7.55 | % | 7.23 | % | 7.89 | % | ||||||||||||||
| Book value per common share | $ | 10.34 | 9.83 | 9.14 | 0.51 | 1.20 | ||||||||||||||
| Tangible book value per common share | $ | 8.60 | 8.06 | 7.49 | 0.54 | 1.11 | ||||||||||||||
| Market price per share at end of quarter | $ | 25.80 | 25.98 | 19.46 | (0.18 | ) | 6.34 | |||||||||||||
Total equity and book value per share amounts have increased substantially from the prior year, primarily the result of earnings retention, and stock options exercised. Net unrealized gains on securities increased $3.4 million from a year ago primarily the result of intermediate term interest rate changes. On April 28, 2004, the Board of Directors declared a five-for-four stock split payable May 20, 2004 to owners of record on May 11, 2004, and all per share amounts have been restated to reflect the effects of the stock split. On April 28, 2004, the Board of Directors also authorized the repurchase of up to five percent of the Company’s common shares. Such repurchases will be effected from time to time in the open market at prices acceptable to the Company.
| March 31, | December 31, | March 31, | ||||||||||
| Credit quality information ($ in thousands) | 2004 | 2003 | 2003 | |||||||||
| Allowance for loan losses | $ | 24,569 | 23,990 | 21,627 | ||||||||
| Non-performing assets | $ | 11,641 | 13,068 | 10,026 | ||||||||
| Allowance as a percentage of non performing assets | 211 | % | 184 | % | 216 | % | ||||||
| Non-performing assets as a percentage of total assets | 0.42 | % | 0.48 | % | 0.43 | % | ||||||
| Allowance as a percentage of total loans | 1.65 | % | 1.65 | % | 1.65 | % | ||||||
| Net charge-offs as a percentage of loans | 0.02 | % | 0.12 | % | 0.01 | % | ||||||
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at March 31, 2004 were at ..42 percent, a decrease from .43 percent at March 31, 2003 and from .48 percent at December 31, 2003. This compares to the Peer Group average of .62 percent at December 31, 2003, the most recent information available. The allowance for loan losses was 211 percent of non-performing assets at March 31, 2004, compared to 216 percent a year ago. The allowance has increased $2.942 million, or 14 percent, from a year ago to $24.569 million, remaining at 1.65 percent of total loans outstanding. The first quarter provision expense for loan losses was $830 thousand, a decrease of $11 thousand from the same quarter in 2003.
Results of Operations – The three months ended March 31, 2004 compared to the three months ended March 31, 2003.
Operating results for the three months ended March 31, 2004 include amounts related to the operation of the three branches acquired from the POB acquisition as of July 15, 2003.
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The Company reported net quarterly earnings of $10.610 million which is an increase of $1.762 million, or 20 percent, over the $8.848 million for the first quarter of 2003. Diluted earnings per share of $.43, is an increase of 19 percent over the per share earnings of $.36 for the same quarter of 2003. Return on average assets and return on average equity for the quarter were 1.55 percent and 17.28 percent, respectively, which compares with prior year returns of 1.58 percent and 16.41 percent
Revenue summary | Three months ended March 31, | |||||||||||||||
| ($ in thousands) | 2004 | 2003 | $ change | % change | ||||||||||||
| Net interest income | $ | 26,389 | 21,832 | 4,557 | 20.9 | % | ||||||||||
| Fees and other revenue: | ||||||||||||||||
| Service charges, loan fees, and other fees | 5,092 | 4,619 | 473 | 10.2 | % | |||||||||||
| Gain on sale of loans | 1,771 | 2,271 | (500 | ) | -22.0 | % | ||||||||||
| Gain on sale of investments, net of impairment charge | — | (437 | ) | 437 | -100.0 | % | ||||||||||
| Other income | 548 | 560 | (12 | ) | -2.1 | % | ||||||||||
| Total non-interest income | 7,411 | 7,013 | 398 | 5.7 | % | |||||||||||
| Total revenue | $ | 33,800 | 28,845 | 4,955 | 17.2 | % | ||||||||||
| Tax equivalent net interest margin | 4.29 | % | 4.35 | % | ||||||||||||
Net Interest Income
Net interest income for the quarter increased $4.557 million, or 21 percent, over the same period in 2003. Total interest income was $3.403 million, or 11 percent higher than the same quarter in 2003, while total interest expense was $1.154 million or 11 percent lower. The decrease in interest expense is partly attributed to the increase in non-interest bearing deposits which reduced the need to borrow funds. The net interest margin as a percentage of earning assets, on a tax equivalent basis, decreased from 4.35 percent for the 2003 quarter to 4.29 percent for the first quarter of 2004. The net interest margin increased from the 4.17 percent for the fourth quarter of 2003 and was higher than any of the last three quarters of 2003. Premium amortization on mortgage related investments for the current quarter was $2.553 million, down from the $3.884 million during the fourth quarter of 2003, and approximately the same level as last year’s quarter. Mortgage security prepayments have slowed resulting in less amortization expense allowing our net interest margin to stabilize. We continue to deploy a strategy of investing in short term securities that carry lower current yields. We believe it is inappropriate in this rate environment to extend maturities in order to achieve higher yields.
Non-interest Income
Fee income increased 10 percent over the same period last year, driven primarily by an increased number of loan and deposit accounts. Gain on sale of loans decreased $500 thousand from the first quarter of last year and $163 thousand from the fourth quarter of 2003, reflecting the reduced mortgage loan refinancing activity. Other income, which includes a variety of activities, was $12 thousand lower than the prior year’s quarter. In the first quarter of 2003 a valuation impairment charge of $454 thousand, due to rapid prepayment of mortgage-backed securities, was netted against a $17 thousand gain on sale of investments and recorded as a net loss on sale of investments. There were no realized gains or losses on investments in the first quarter of 2004.
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Non-interest expense summary | Three months ended March 31, | |||||||||||||||
| ($ in thousands) | 2004 | 2003 | $ change | % change | ||||||||||||
| Compensation and employee benefits | $ | 9,806 | 7,979 | 1,827 | 22.9 | % | ||||||||||
| Occupancy and equipment expense | 2,631 | 2,435 | 196 | 8.0 | % | |||||||||||
| Outsourced data processing expense | 413 | 562 | (149 | ) | -26.5 | % | ||||||||||
| Core deposit intangible amortization | 294 | 338 | (44 | ) | -13.0 | % | ||||||||||
| Other expenses | 4,282 | 3,569 | 713 | 20.0 | % | |||||||||||
| Total non-interest expense | $ | 17,426 | 14,883 | 2,543 | 17.1 | % | ||||||||||
Non-interest Expense
Non-interest expense increased by $2.543 million, or 17 percent, from the same quarter of 2003. Current year includes expenses of the three branches from the POB acquisition, two additional branches in Boise, Idaho, and a new branch in downtown Bozeman, one of the fastest growing cities in Montana. Compensation and benefit expense increased $1.827 million, or 23 percent from the first quarter of 2003 with the additional bank branches, and normal compensation increases for job performance, accounting for the majority of the increase. Outsourced data processing expense decreased by $149 thousand, the result of bringing the core processing for all subsidiaries onto our in-house data system. Other expenses increased $713 thousand, or 20 percent, primarily from start up expenses on implementing the High Performance Checking program at the four banks not previously on the program, additional advertising expense, and costs associated with the new branch offices. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 52 percent for the 2004 quarter the same as the 2003 quarter.
Critical Accounting Policies
Companies may apply certain critical accounting policies requiring management to make subjective or complex judgments, often as a result of the need to estimate the effect of matters that are inherently uncertain. The Company considers its only critical accounting policy to be the allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged against earnings. The balance of allowance for loan loss is maintained at the amount management believes will be adequate to absorb known and inherent losses in the loan portfolio. The appropriate balance of allowance for loan losses is determined by applying estimated loss factors to the credit exposure from outstanding loans. Estimated loss factors are based on subjective measurements including management’s assessment of the internal risk classifications, changes in the nature of the loan portfolio, industry concentrations and the impact of current local, regional and national economic factors on the quality of the loan portfolio. Changes in these estimates and assumptions are reasonably possible and may have a material impact on the Company’s consolidated financial statements, results of operations and liquidity.
Effect of inflation and changing prices
Generally accepted accounting principles require the measurement of financial position and operating results in terms of historical dollars, without consideration for change in relative purchasing power over time due to inflation. Virtually all assets of a financial institution are monetary in nature; therefore, interest rates generally have a more significant impact on a company’s performance than does the effect of inflation.
Forward Looking Statements
This Form 10-Q may be deemed to include forward looking statements, which management believes are a benefit to shareholders. These forward looking statements describe management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of the Company’s style of banking and the strength of the local economy. The words “will,” “believe,” “expect,” “should,” and “anticipate” and words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are
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subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company’s filings with the SEC, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national, and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the Company’s ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches are lower than expected; (4) costs or difficulties related to the integration of acquisitions are greater than expected; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged; and (7) the Company’s ability to realize the efficiencies it expects to receive from its investments in personnel and infrastructure.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company believes that there has not been any material changes in information about the Company’s market risk that was provided in the Form 10-K report for the year ended December 31, 2003.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of the date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely, providing them with material information relating to the Company required to be disclosed in the reports we file or submit under the Exchange Act.
Changes in Internal Controls
There have not been any significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending material legal proceedings to which the registrant or its subsidiaries are a party.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
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Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
| Exhibit 31.1 – | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 | |
| Exhibit 31.2 – | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 | |
| Exhibit 32 – | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002 |
(b) Current Report on Form 8-K
| On February 5, 2004, a Form 8-K was filed announcing fourth quarter financial results for 2003. |
| On March 24, 2004, a Form 8-K was filed announcing the completion of the private sale of $45 million in capital securities representing preferred beneficial interests in Glacier Capital Trust II. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GLACIER BANCORP, INC. | ||||
| May 6, 2004 | /s/ Michael J. Blodnick | |||
| Michael J. Blodnick | ||||
| President/CEO | ||||
| May 6, 2004 | /s/ James H. Strosahl | |||
| James H. Strosahl | ||||
| Executive Vice President/CFO | ||||
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