Glacier Bancorp (GBCI) 10-Q 2002 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]	Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2002
[   ]	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.

(Exact name of registrant as specified in its charter)

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. Yes [X]      No [   ]

The number of shares of Registrant’s common stock outstanding on November 5^th, 2002 was 17,236,312. No preferred shares are issued or outstanding.

GLACIER BANCORP, INC.
Quarterly Report on Form 10-Q

Index

			Page #
Part I.		Financial Information
	Item 1  —	Financial Statements
		Consolidated Statements of Financial Condition September 30, 2002, December 31, and September 30, 2001 (unaudited)		3
		Consolidated Statements of Operations — Three and Nine months ended September 30, 2002 and 2001 (unaudited)		4
		Consolidated Statements of Stockholders’ Equity and Comprehensive Income — Year ended December 31, 2001 and Nine months ended September 30, 2002 (unaudited)		5
		Consolidated Statements of Cash Flows — Nine months ended September 30, 2002 and 2001 (unaudited)		6
		Notes to Consolidated Financial Statements (unaudited)		7
	Item 2  —	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
	Item 3  —	Quantitative and Qualitative Disclosure about Market Risk		25
	Item 4  —	Controls and Procedures		26
Part II.		Other Information		26
	Item 1  —	Legal Proceedings		26
	Item 2  —	Changes in Securities and Use of Proceeds		27
	Item 3  —	Defaults Upon Senior Securities		27
	Item 4  —	Submission of Matters to a Vote of Security Holders		27
	Item 5  —	Other Information		27
	Item 6  —	Exhibits and Reports on Form 8-K		27
	Signatures			27

2

Glacier Bancorp, Inc.
Consolidated Statements of Financial Condition

(Unaudited – dollars in thousands except per share data)	September 30,			December 31,			September 30,
	2002			2001			2001
Assets:
Cash on hand and in banks	$	62,723			73,456			64,064
Interest bearing cash deposits		18,690			23,970			9,790
Cash and cash equivalents		81,413			97,426			73,854
Investments:
Investment securities, available–for–sale		233,229			158,036			154,721
Mortgage backed securities, available–for–sale		421,966			350,542			346,019
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		42,128			37,007			36,076
Total investments		697,323			545,585			536,816
Net loans receivable:
Real estate loans		383,890			421,996			441,232
Commercial Loans		674,139			620,134			627,110
Consumer and other loans		291,164			298,851			308,010
Allowance for loan losses		(21,342	)		(18,654	)		(18,528	)
Total loans, net		1,327,851			1,322,327			1,357,824
Premises and equipment, net		47,524			50,566			52,071
Real estate and other assets owned, net		852			593			727
Accrued interest receivable		13,447			12,409			14,388
Core deposit intangible, net		7,181			8,261			8,630
Goodwill		33,189			33,510			35,381
Other assets		15,034			15,070			15,274
	$	2,223,814			2,085,747			2,094,965
Liabilities and stockholders’ equity:
Deposits – non-interest bearing	$	292,653			234,318			244,450
Deposits – interest bearing		1,206,000			1,211,746			1,209,469
Advances from Federal Home Loan Bank of Seattle		402,367			367,295			360,654
Securities sold under agreements to repurchase		33,572			32,585			29,392
Other borrowed funds		16,799			1,060			12,020
Accrued interest payable		6,291			9,179			10,657
Current income taxes		1,642			95			3,371
Deferred tax liability		8,240			1,780			2,685
Trust preferred securities		35,000			35,000			35,000
Other liabilities		15,058			15,706			15,672
Total liabilities		2,017,622			1,908,764			1,923,370
Preferred shares, 1,000,000 shares authorized. None outstanding		--			--			--
Common stock, $.01 par value per share
50,000,000 shares authorized		172			169			167
Paid–in capital		171,457			167,371			163,384
Retained earnings – substantially restricted		22,912			7,687			3,761
Accumulated other comprehensive income		11,651			1,756			4,283
Total stockholders' equity		206,192			176,983			171,595
	$	2,223,814			2,085,747			2,094,965
Number of shares outstanding		17,223,574			16,874,422			16,728,482
Book value of equity per share	$	11.97			10.49			10.26
Tangible book value per share	$	9.63			8.01			7.63

See accompanying notes to consolidated financial statements

3

Glacier Bancorp, Inc.
Consolidated Statements of Operations

(unaudited – dollars in thousands except per share data)	Three months ended September 30,						Nine months ended September 30,
	2002			2001			2002			2001
Interest income:
Real estate loans	$	7,190			9,332			22,253			26,313
Commercial loans		12,007			12,824			35,088			34,524
Consumer and other loans		5,643			6,733			17,142			19,221
Investments		8,989			8,211			25,931			22,080
Total interest income		33,829			37,100			100,414			102,138
Interest expense:
Deposits		6,429			11,452			20,544			33,250
FHLB Advances		4,189			5,212			12,555			14,049
Securities sold under agreements to repurchase		144			266			433			791
Trust preferred securities		904			904			2,711			2,410
Other borrowed funds		32			67			72			210
Total interest expense		11,698			17,901			36,315			50,710
Net interest income		22,131			19,199			64,099			51,428
Provision for loan losses		1,665			1,006			4,225			3,429
Net interest income after provision for loan losses		20,466			18,193			59,874			47,999
Non–interest income:
Service charges and other fees		3,726			3,270			10,332			9,009
Miscellaneous loan fees and charges		1,031			995			3,056			2,728
Gains on sale of loans		1,225			1,111			3,497			2,766
Gains on sale of investments, net		—			24			2			88
Other income		475			395			1,753			2,085
Total non–interest income		6,457			5,795			18,640			16,676
Non–interest expense:
Compensation, employee benefits
and related expenses		7,541			7,392			22,856			20,182
Occupancy and equipment expense		2,340			2,187			6,965			6,147
Outsourced data processing expense		547			707			1,508			2,007
Core deposit intangibles amortization		359			383			1,080			957
Goodwill amortization		—			492			—			1,229
Other expenses		3,209			3,948			10,294			10,427
Minority interest		—			—			—			35
Total non–interest expense		13,996			15,109			42,703			40,984
Earnings before income taxes		12,927			8,879			35,811			23,691
Federal and state income tax expense		4,311			3,172			12,170			8,462
Net earnings	$	8,616			5,707			23,641			15,229
Basic earnings per share	$	0.50			0.34			1.38			0.99
Diluted earnings per share	$	0.49			0.33			1.36			0.96
Dividends declared per share	$	0.17			0.15			0.49			0.45
Return on average assets (annualized)		1.58	%		1.06	%		1.48	%		1.06	%
Return on average equity (annualized)		17.03	%		13.50	%		16.42	%		13.41	%
Return on tangible average equity (annualized)		21.32	%		18.09	%		20.94	%		17.91	%
Average outstanding shares – basic		17,209,487			16,676,275			17,120,894			15,344,475
Average outstanding shares – diluted		17,501,540			17,078,578			17,420,288			15,828,650

See accompanying notes to consolidated financial statements.

4

Glacier Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
and Comprehensive Income
Year ended December 31, 2001 and Nine months ended September 30, 2002

							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, 2000		11,447,150	$	114		101,828		(4,087	)		258		98,113
Comprehensive income:
Net earnings		—		—		—		21,689			—		21,689
Unrealized gain on securities, net of reclassification adjustment		—		—		—		—			1,498		1,498
Total comprehensive income													23,187
Cash dividends declared ($.60 per share)		—		—		—		(9,915	)		—		(9,915	)
Stock options exercised		864,571		9		6,755		—			—		6,764
Tax benefit from stock related compensation		—		—		2,778		—			—		2,778
Conversion of debentures		32,239		1		341		—			—		342
Stock issued in connection with merger of WesterFed Financial Corporation		4,530,462		45		55,669		—			—		55,714
Balance at December 31, 2001		16,874,422	$	169		167,371		7,687			1,756		176,983
Comprehensive income:
Net earnings		—		—		—		23,641			—		23,641
Unrealized gain on securities, net of reclassification adjustment		—		—		—		—			9,895		9,895
Total comprehensive income													33,536
Cash dividends declared ($.49 per share)		—		—		—		(8,416	)		—		(8,416	)
Stock options exercised		349,152		3		4,086		—			—		4,089
Balance at September 30, 2002		17,223,574	$	172		171,457		22,912			11,651		206,192

See accompanying notes to consolidated financial statements

5

Glacier Bancorp, Inc.
Consolidated Statements of Cash Flows

(Unaudited - dollars in thousands except per share data)	Nine months ended September 30,
	2002			2001
OPERATING ACTIVITIES:
Net cash provided by operating activities	$	17,671			11,660
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of
investments available–for–sale		146,080			158,134
Purchases of investments available–for–sale		(280,008	)		(256,425	)
Principal collected on installment and commercial loans		422,530			272,133
Installment and commercial loans originated or acquired		(468,848	)		(352,595	)
Principal collections on mortgage loans		186,291			245,170
Mortgage loans originated or acquired		(136,293	)		(170,680	)
Net purchase of FHLB and FRB stock		(3,583	)		(3,490	)
Acquisition of WesterFed Financial Corporation and several branches		—			107,239
Sale of branches		—			(53,131	)
Net decrease in premises and equipment		91			541
NET CASH USED IN INVESTING ACTIVITIES		(133,740	)		(53,104	)
FINANCING ACTIVITIES:
Net increase in deposits		52,589			26,404
Net increase in FHLB advances and other borrowed funds		50,810			6,194
Net increase (decrease) in securities sold under repurchase agreements		987			(3,336	)
Proceeds from issuance of trust preferred securities		—			35,000
Cash dividends paid to stockholders		(8,416	)		(6,645	)
Proceeds from exercise of stock options and other stock issued		4,086			5,895
NET CASH PROVIDED BY FINANCING ACTIVITIES		100,056			63,512
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(16,013	)		22,068
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		97,426			51,786
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	81,413			73,854
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	39,203			52,230
Income taxes	$	10,619			6,101

See accompanying notes to consolidated financial statements.

6

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 September 30, 2002, December 31, 2001, and September 30, 2001, stockholders’ equity for the nine months ended September 30, 2002 and the year ended December 31, 2001, the results of operations for the three and nine months ended September 30, 2002 and 2001, and the cash flows for the nine months ended September 30, 2002 and 2001.

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, 2001. Operating results for the nine months ended September 30, 2002 are not necessarily indicative of the results anticipated for the year ending December 31, 2002. Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 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 nine wholly owned 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”), Glacier Bank of Whitefish (“Whitefish”), Community First, Inc. (“CFI”), and Glacier Capital Trust I (“Glacier Trust”), all located in Montana, and Mountain West Bank (“Mountain West”) which is located in Idaho and Utah. The Company does not have any off-balance sheet entities.

CFI provides full service brokerage services through Raymond James Financial Services, Inc.

The following abbreviated organizational chart illustrates the various relationships:

7

3) Ratios:

Returns on average assets and average equity were calculated based on daily averages.

4) Cash Dividend Declared:

September 25, 2002, the Board of Directors declared a $.17 per share quarterly cash dividend to stockholders of record on October 8, 2002, payable on October 17, 2002.

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		Nine		Nine
	months ended		months ended		months ended		months ended
	Sept. 30, 2002		Sept. 30, 2001		Sept. 30, 2002		Sept. 30, 2001
Net earnings available to common
stockholders, basic	$	8,616,194		5,707,016		23,641,308		15,229,360
After tax effect of interest on
convertible subordinated debentures		—		4,000		—		12,000
Net earnings available to common
stockholders, diluted	$	8,616,194		5,711,016		23,641,308		15,241,360
Average outstanding shares - basic		17,209,487		16,676,275		17,120,894		15,344,475
Add: Dilutive stock options		292,053		369,278		299,394		451,150
Convertible subordinated debentures		—		33,025		—		33,025
Average outstanding shares - diluted		17,501,540		17,078,578		17,420,288		15,828,650
Basic earnings per share	$	0.50		0.34		1.38		0.99
Diluted earnings per share	$	0.49		0.33		1.36		0.96

6) Investments:

A comparison of the amortized cost and estimated fair value of the Company’s investments is as follows. All investments are held at market value, except the Federal Home Loan Bank of Seattle (FHLB) and Federal Reserve Bank (FRB) stock. The FHLB and FRB stocks are restricted because they may only be sold to another member institution or the FHLB or FRB at their par values. Due to the restrictive terms, and lack of a readily determinable market value, FHLB and FRB stocks are carried at cost.

8

INVESTMENTS AS OF SEPTEMBER 30, 2002

								Gross Unrealized					Estimated
			Weighted			Amortized							Fair
(Dollars in thousands)			Yield			Cost		Gains		Losses			Value
U.S. Government and Federal Agencies
	maturing after ten years			3.58	%	$	1,104		9		(2	)		1,111
				3.58	%		1,104		9		(2	)		1,111
State and Local Governments and other issues:
	maturing within one year			5.68	%		2,148		52		—			2,200
	maturing one year through five years			5.48	%		11,293		52		(118	)		11,427
	maturing five years through ten years			5.69	%		3,127		120		—			3,247
	maturing after ten years			5.54	%		206,161		9,635		(552	)		215,244
				5.54	%		222,729		10,059		(670	)		232,118
Mortgage-Backed Securities				5.63	%		94,644		2,673		(36	)		97,281
Real Estate Mortgage Investment Conduits				5.32	%		317,462		7,361		(138	)		324,685
FHLB and FRB stock, at cost				6.00	%		42,128		—		—			42,128
		Total Investments		5.47	%	$	678,067		20,102		(846	)		697,323

INVESTMENTS AS OF DECEMBER 31, 2001

								Gross Unrealized					Estimated
			Weighted			Amortized							Fair
(Dollars in thousands)			Yield			Cost		Gains		Losses			Value
U.S. Government and Federal Agencies
	maturing after ten years			2.77	%	$	1,330		12		(3	)		1,339
				2.77	%		1,330		12		(3	)		1,339
State and Local Governments and other issues:
	maturing within one year			3.25	%		4,639		28		—			4,667
	maturing one year through five years			5.36	%		13,774		291		(65	)		14,000
	maturing five years through ten years			5.50	%		2,349		57		(6	)		2,400
	maturing after ten years			5.81	%		135,789		1,563		(1,722	)		135,630
				5.67	%		156,551		1,939		(1,793	)		156,697
Mortgage-Backed Securities				6.08	%		129,322		1,868		(126	)		131,064
Real Estate Mortgage Investment Conduits				6.11	%		218,470		2,941		(1,933	)		219,478
FHLB and FRB stock, at cost				6.82	%		37,007		—		—			37,007
		Total Investments		6.01	%	$	542,680		6,760		(3,855	)		545,585

Gross proceeds from sales of investment securities for the three months and nine months ended September 30, 2002 and year ended December 31, 2001 were $0, $24,428,000, and $86,311,000, respectively, resulting in gross gains of approximately $0, $215,000, and $71,000 and gross losses of approximately $0, $213,000, and $7,000. The cost of any investment sold is determined by specific identification.

9

7) Loans

The following table summarizes the Company’s loan portfolio. The loans mature or are repriced at various times.

			At						At
TYPE OF LOAN			09/30/02						12/31/2001
(Dollars in Thousands)			Amount			Percent			Amount			Percent
Real Estate Loans:
	Residential first mortgage loans		$	3543,786			25.9	%	$	395,417			29.9	%
	Loans held for sale			40,832			3.1	%		27,403			2.1	%
		Total		384,618			29.0	%		422,820			32.0	%
Commercial Loans:
	Real estate			395,995			29.8	%		379,346			28.7	%
	Other commercial loans			279,300			21.0	%		241,811			18.3	%
		Total		675,295			50.8	%		621,157			47.0	%
Installment and Other Loans:
	Consumer loans			122,084			9.2	%		142,875			10.8	%
	Home equity loans			169,199			12.7	%		156,140			11.8	%
		Total		291,283			21.9	%		299,015			22.6	%
	Net deferred loan fees, premiums and discounts			(2,003	)		-0.1	%		(2,011	)		-0.2	%
	Allowance for Losses			(21,342	)		-1.6	%		(18,654	)		-1.4	%
Net Loans			$	1,327,851			100.0	%	$	1,322,327			100.0	%

The following table sets forth information regarding the Company’s non-performing assets at the dates indicated:

				At			At
(Dollars in Thousands)				9/30/2002			12/31/2001
Non–accrual loans:
		Mortgage loans		$	2,293			4,044
		Commercial loans			5,508			4,568
		Consumer loans			573			620
			Total	$	8,674			9,232
Accruing Loans 90 days or more overdue:
		Mortgage loans			707			818
		Commercial loans			471			376
		Consumer loans			256			243
			Total	$	1,434			1,437
Real estate and other assets owned, net					852			593
Total non–performing loans, and real estate and other assets owned, net				$	10,960			11,262
	As a percentage of total assets				0.49	%		0.53	%
Interest Income (1)				$	486			658

(1) This is the amount of interest that would have been recorded on loans accounted for on a non–performing basis for the nine months ended September 30, 2002 and the year ended December 31, 2001, if such loans had been current for the entire period.

10

The following table illustrates the loan loss experience:

ALLOWANCE FOR LOAN LOSS				Nine months ended			Year ended
				September 30,			December 31,
(Dollars in Thousands)				2002			2001
Balance at beginning of period				$	18,654			7,799
	Charge offs:
		Residential real estate			(680	)		(677	)
		Commercial loans			(1,039	)		(723	)
		Consumer loans			(916	)		(2,029	)
			Total charge offs	$	(2,635	)		(3,429	)
	Recoveries:
		Residential real estate			254			33
		Commercial loans			261			266
		Consumer loans			583			567
			Total recoveries	$	1,098			866
	Chargeoffs, net of recoveries				(1,537	)		(2,563	)
	Purchased reserve				—			8,893
	Provision				4,225			4,525
Balance at end of period				$	21,342			18,654
Ratio of net charge offs to average loans outstanding during the period					0.16	%		0.20	%

The following table summarizes the allocation of the allowance for loan losses:

		September 30, 2002					December 31, 2001
				Percent					Percent
				of loans in					of loans in
(Dollars in thousands)		Allowance		category			Allowance		category
Residential first mortgage		$	2,604		28.4	%		2,722		31.5	%
Commercial real estate			6,859		29.3	%		5,906		28.3	%
Other commercial			7,945		20.7	%		6,225		18.0	%
Consumer			3,934		21.6	%		3,801		22.2	%
	Totals	$	21,342		100.0	%		18,654		100.0	%

8) Deposits

The following table illustrates the amounts outstanding for deposits greater than $100,000 at September 30, 2002, according to the time remaining to maturity:

		Certificates		Demand
(Dollars in thousands)		of Deposit		Deposits		Totals
Within three months		$	24,794		388,550		413,344
Three to six months			16,483		—		16,483
Seven to twelve months			20,065		—		20,065
Over twelve months			16,139		—		16,139
	Totals	$	77,481		388,550		466,031

11

9) Advances and Other Borrowings

The following chart illustrates the average balances and the maximum outstanding month-end balances for FHLB advances and repurchase agreements:

		September 30,			December 31,
	(Dollars in thousands)	2002				2001
FHLB Advances
	Amount outstanding at end of period	$	402,367				367,295
	Average balance	$	394,270				349,023
	Maximum outstanding at any month–end	$	433,262				416,222
	Weighted average interest rate		4.26	%			5.24	%
Repurchase Agreements:
	Amount outstanding at end of period	$	33,572				32,585
	Average balance	$	33,685				27,375
	Maximum outstanding at any month–end	$	41,113				37,814
	Weighted average interest rate		1.72	%			2.11	%

10) 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 September 30, 2002:

CONSOLIDATED
		Tier 1 (Core)			Tier 2 (Total)			Leverage
(Dollars in thousands)		Capital			Capital			Capital
GAAP Capital		$	206,192			206,192			206,192
Less: Goodwill and intangibles			(40,370	)		(40,370	)		(40,370	)
	Accumulated other comprehensive gain on AFS securities		(11,651	)		(11,651	)		(11,651	)
Plus: Allowance for loan losses			—			18,887			—
	Trust preferred securities		35,000			35,000			35,000
	Other Adjustments		—			110			—
Regulatory capital computed		$	189,171			208,168			189,171
Risk weighted assets		$	1,508,540			1,508,540
Total average assets								$	2,127,792
Capital as % of defined assets			12.54	%		13.80	%		8.89	%
Regulatory “well capitalized” requirement			6.00	%		10.00	%		5.00	%
Excess over “well capitalized” requirement			6.54	%		3.80	%		3.89	%

12

11) 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						For the six months
			ended September 30,						ended September 30,
Dollars in thousands			2002			2001			2002			2001
Net earnings			$	8,616			5,707			23,641			15,229
Unrealized holding gain arising during the period				7,989			3,694			16,354			6,561
Tax expense				(3,153	)		!1,485	)		(6,460	)		(2,590	)
	Net after tax			4,836			2,209			9,894			3,971
Reclassification adjustment for gains included in net income				—			24			2			88
Tax expense				—			(9	)		(1	)		(34	)
	Net after tax			—			15			1			54
	Net unrealized gain on securities			4,836			2,224			9,895			4,025
		Total comprehensive earnings	$	13,452			7,931			33,536			19,254

12) 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. During the third quarter of 2001, certain branches of Western were transferred to other Company owned banks located in the same geographic area which accounted for the change in activity for certain segments.

		Nine months ended and as of September 30, 2002
				First				Mountain
(Dollars in thousands)		Glacier		Security		Western		West		Big Sky
Revenues from external customers		$	28,245		25,651		20,423		18,920		9,517
Intersegment revenues			247		82		8		—		—
Expenses			20,882		19,723		16,338		16,041		7,485
Intercompany eliminations			—		—		—		—		—
	Net income	$	7,610		6,010		4,093		2,879		2,032
	Total Assets	$	486,924		481,290		399,316		387,089		175,368

									Total
		Valley		Whitefish		Other			Consolidated
Revenues from external customers			9,720		6,360		218			119,054
Intersegment revenues			103		—		29,867			30,307
Expenses			8,201		4,762		1,981			95,413
Intercompany eliminations			—		—		(30,307	)		(30,307	)
	Net income		1,622		1,598		(2,203	)		23,641
	Total Assets		1821,356		123,551		(12,065	)		2,223,829

13

		Nine months ended and as of September 30, 2001
				First				Mountain
(Dollars in thousands)		Glacier		Security		Western		West		Big Sky
Revenues from external customers		$	30,584		18,552		33,079		15,278		6,723
Intersegment revenues			937		14		169		192		2
Expenses			25,707		14,743		29,476		15,108		5,756
Intercompany eliminations			—		—		—		—		—
	Net income	$	5,814		3,823		3,772		362		969
	Total Assets	$	528,848		422,687		381,994		318,159		166,879

									Total
		Valley		Whitefish		Other			Consolidated
Revenues from external customers			8,074		6,255		270			118,815
Intersegment revenues			125		14		20,216			21,669
Expenses			6,870		4,995		931			103,586
Intercompany eliminations			—		—		(21,669	)		(21,669	)
	Net income		1,329		1,274		(2,114	)		15,229
	Total Assets		165,859		122,991		(12,452	)		2,094,965

		Three months ended and as of September 30, 2002
				First				Mountain
(Dollars in thousands)		Glacier		Security		Western		West		Big Sky
Revenues from external customers		$	9,589		8,633		6,762		6,467		3,232
Intersegment revenues			77		33		—		—		—
Expenses			6,929		6,549		5,268		5,425		2,478
Intercompany eliminations			—		—		—		—
	Net income	$	2,737		2,117		1,494		1,042		754
	Total Assets	$	486,924		481,290		399,316		387,089		175,368

									Total
		Valley		Whitefish		Other			Consolidated
Revenues from external customers			3,303		2,177		123			40,286
Intersegment revenues			33		—		10,850			10,993
Expenses			2,874		1,594		553			31,670
Intercompany eliminations			—		—		(10,993	)		(10,993	)
	Net income		462		583		(573	)		8,616
	Total Assets		182,356		123,551		(12,065	)		2,223,829

14

		Three months ended and as of September 30, 2001
				First				Mountain
(Dollars in thousands)		Glacier		Security		Western		West		Big Sky
Revenues from external customers		$	10,792		8,230		9,366		5,872		3,130
Intersegment revenues			478		3		161		—		2
Expenses			9,025		6,530		8,796		5,615		2,567
Intercompany eliminations			—		—		—		—		—
	Net income	$	2,245		1,703		731		257		565
	Total Assets	$	528,848		422,687		381,994		318,159		166,879

									Total
		Valley		Whitefish		Other			Consolidated
Revenues from external customers			3,386		2,249		(130	)		42,895
Intersegment revenues			59		8		7,557			8,268
Expenses			2,889		1,791		(25	)		37,188
Intercompany eliminations			—		—		(8,268	)		(8,268	)
	Net income		556		466		(816	)		5,707
	Total Assets		165,859		122,991		(12,452	)		2,094,965

13) 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.

		Nine Months Ended September 30,
		2002 vs. 2001
		Increase (Decrease) due to:
(Dollars in Thousands)		Volume			Rate			Net
Interest Income
Real Estate Loans		$	(2,691	)		(1,369	)		(4,060	)
Commercial Loans			6,854			(6,290	)		564
Consumer and Other Loans			(110	)		(1,969	)		(2,079	)
Investment Securities			6,898			(3,047	)		3,851
	Total Interest Income		10,951			(12,675	)		(1,724	)
Interest Expense
NOW Accounts			219			(1,048	)		(829	)
Savings Accounts			349			(1,172	)		(823	)
Money Market Accounts			2,280			(4,487	)		(2,207	)
Certificates of Deposit			(1,555	)		(7,292	)		(8,847	)
FHLB Advances			1,941			(3,435	)		(1,494	)
Other Borrowings and Repurchase Agreements			463			(658	)		(195	)
	Total Interest Expense		3,697			(18,092	)		(14,395	)
Net Interest Income		$	7,254			5,417			12,671

15

14) 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.

			For the Nine months ended 9-30-02							For the year ended 12-31-01
					Interest		Average					Interest		Average
AVERAGE BALANCE SHEET			Average		and		Yield/			Average		and		Yield/
(Dollars in Thousands)			Balance		Dividends		Rate			Balance		Dividends		Rate
ASSETS
	Real Estate Loans		$	383,386		22,253		7.74	%	$	428,999		34,012		7.93	%
	Commercial Loans			641,598		35,088		7.31	%		556,907		48,292		8.67	%
	Consumer and Other Loans			289,616		17,142		7.91	%		292,732		25,528		8.72	%
		Total Loans		1,314,600		74,483		7.58	%		1,278,638		107,832		8.43	%
	Investment Securities			637,052		25,931		5.43	%		501,927		30,088		5.99	%
		Total Earning Assets		1,951,652		100,414		6.86	%		1,780,565		137,920		7.75	%
	Non-Earning Assets			171,838							165,687
		TOTAL ASSETS	$	2,123,490						$	1,946,252
LIABILITIES AND STOCKHOLDERS’ EQUITY
	NOW Accounts		$	204,993		578		0.38	%	$	183,399		1,758		0.96	%
	Savings Accounts			127,245		676		0.71	%		102,736		1,855		1.81	%
	Money Market Accounts			349,620		5,316		2.03	%		287,150		9,575		3.33	%
	Certificates of Deposit			506,989		13,974		3.69	%		552,469		29,504		5.34	%
	FHLB Advances			394,270		12,555		4.26	%		349,023		18,280		5.24	%
	Repurchase Agreements and Other Borrowed Funds			74,188		3,216		5.80	%		66,658		4,574		6.86	%
		Total Interest Bearing Liabilities		1,657,305		36,315		2.93	%		1,541,435		65,546		4.25	%
		Non–interest Bearing Deposits		247,358							216,238
		Other Liabilities		26,844							27,847
		Total Liabilities		1,931,507							1,785,520
	Common Stock			171							157
	Paid-In Capital			169,789							152,420
	Retained Earnings			16,921							5,929
	Accumulated Other Comprehensive Earnings			5,102							2,226
		Total Stockholders’ Equity		191,983							160,732
		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,123,490						$	1,946,252
	Net Interest Income				$	64,099						$	72,374
	Net Interest Spread							3.93	%						3.49	%
	Net Interest Margin on average earning assets							4.38	%						4.06	%
	Return on Average Assets							1.48	%						1.11	%
	Return on Average Equity							16.42	%						13.49	%

16

15) Recently Issued Accounting Standards

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement 141,Business Combinations, and Statement 142,Goodwill and Other Intangible Assets. In October 2002, FASB issued Statement 147,Acquisitions of Certain Financial Institutions.Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. However, goodwill recognized in connection with a branch acquisition will follow Statement 147, which states that if certain criteria are met in Statement 147, the amount of unidentifiable intangible asset will be reclassified to goodwill upon adoption of that Statement and follow Statement 142. Prior to October 2002, goodwill associated with branch acquisitions was subject to the provisions of Statement 72,Accounting for Certain Acquisitions of Banking or ThriftInstitutions, which required amortization of the unidentifiable intangible asset. In addition, financial institutions meeting the requirements of Statement 147 will be required to restate previously issued financial statements. The objective of that restatement requirement is to present the balance sheet and income statement as if the amount accounted for under Statement 72 as an unidentifiable intangible asset had been reclassified to goodwill as of the date Statement 142 was initially applied. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement 144,Accounting for the Impairment or Disposal of Long-Lived Assets. The Company adopted the provisions of Statement 141 immediately, and Statement 142 and 144 effective January 1, 2002. Statement 147 was adopted October 1, 2002 and retroactively applied to January 1, 2002.

Statement 141 required upon adoption of Statement 142 that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. The Company was required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption (March 31, 2002). In addition, to the extent an intangible asset was identified as having an indefinite useful life, the Company was required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss would be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation, Statement 142 required the Company to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. To accomplish this, the Company identified its reporting units and determined the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company had up to six months from the date of adoption (June 30, 2002) to determine the fair value of each reporting unit and compare it to the reporting unit’s carrying amount. To the extent a reporting unit’s carrying amount exceeded its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption (January 1, 2002). This second step, if necessary, is required to be completed as soon as possible, but no later than the end of the year of adoption (December 31, 2002). Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company’s consolidated statements of operations.

17

As of September 30, 2002, the Company has identified its reporting units as its banking subsidiaries and has allocated goodwill accordingly. Intangibles with definite useful lives have been re-assessed and the useful lives and residual values were determined to be adequate. Intangibles with indefinite useful lives have been tested for impairment loss. The Company estimated the fair value of each reporting unit, and determined that each unit’s fair value exceeds the carrying value of each reporting unit, and consequently no impairment is evident at this time. The Company has evaluated the goodwill recognized in connection with branch acquisitions and determined that it meets the criteria of statement 147, and therefore the unidentifiable intangible asset has been reclassified to goodwill and is subject to Statement 142. The reclassification was retroactively applied to January 1, 2002, which resulted in the restatement of previously filed financial statements. On an annual basis, prior to the end of the third quarter, the Company will revaluate the useful lives, residual value, and test goodwill for impairment, as required by Statement 142.

The following table sets forth information regarding the Company’s core deposit intangibles and mortgage servicing rights:

		Core Deposit			Mortgage
(Dollars in thousands)		Intangible			Servicing Rights(1)		Total
	Gross carrying value	$	9,836
	Accumulated Amortization		(2,655	)
	Net carrying value	$	7,181			2,188		9,299
Weighted–Average amortization period
	(Period in years)		10.0			8.8		9.7
Aggregate Amortization Expense
	For the three months ended September 30, 2002	$	359			115		474
	For the nine months ended September 30, 2002	$	1,080			301		1,381
Estimated Amortization Expense
	For the year ended December 31, 2002	$	1,439			294		1,733
	For the year ended December 31, 2003		1,219			280		1,499
	For the year ended December 31, 2004		1,011			267		1,278
	For the year ended December 31, 2005		847			253		1,100
	For the year ended December 31, 2006		779			239		1,018

(1) Gross carrying value and accumulated amortization are not readily available

18

The changes in the carrying amount of goodwill for the nine months ended September 30, 2002 are as follows.

	Balance		Goodwill			Balance
	At		Adjustments			At
(Dollars in thousands)	12/31/2001		2002(1)			9/30/2002
Parent	$	2,151		(2,151	)		—
Glacier Bank		4,074		10			4,084
First Security		3,796		861			4,657
Western		4,193		(345	)		3,848
Mountain		16,818		—			16,818
Big Sky		1,752		—			1,752
Valley		726		1,044			1,770
Whitefish		—		260			260
	$	33,510		(321	)		33,189

(1) Adjustments are purchase accounting adjustments and recovery of contingencies related to the WesterFed Financial Corporation acquisition on February 28, 2001 and reclassification of goodwill from the parent to the apropriate subsidiary.

The following pro forma information presents the consolidated results of operations as if the adoption of Statement 142 and 147 had occurred on January 1, 2001. The table is for comparison purposes only:

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
(Dollars in thousands)	2002		2001		2002		2001
Reported net income	$	8,616		5,707		23,641		15,229
Add back goodwill amortization, net of tax		—		395		—		995
Adjusted net income	$	8,616		6,102		23,641		16,224

	For the Three Months Ended September 30,
	2002				2001
	Basic EPS		Diluted EPS		Basic EPS		Diluted EPS
Reported net income	$	0.50		0.49		0.34		0.33
Add back goodwill amortization, net of tax		—		—		0.03		0.03
Adjusted net income	$	0.50		0.49		0.37		0.36

	For the Nine Months Ended September 30,
	2002				2001
	Basic EPS		Diluted EPS		Basic EPS		Diluted EPS
Reported net income	$	1.38		1.36		0.99		0.96
Add back goodwill amortization, net of tax		—		—		0.07		0.07
Adjusted net income	$	1.38		1.36		1.06		1.03

19

The following table illustrates the affect of the adoption of Statement 147, which was retroactively applied to January 1, 2002.

	Three		Three		Six
	months ended		months ended		months ended
(Dollars in thousands)	Mar 31, 2002		June 30, 2002		June 30, 2002
Reported net income	$	6,748		7,979		14,727
Add back goodwill amortization, net of tax		149		149		298
Adjusted net income	$	6,897		8,128		15,025

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 September 30, 2001 and December 31, 2001, to September 30, 2002.

												$ change from			$ change from
			September 30,			December 31,			September 30,			December 31,			September 30,
Assets ($ in thousands)			2002			2001			2001			2001			2001
Cash on hand and in banks			$	62,723			73,456			64,064			(10,733	)		(1,341	)
Investment securities and interest bearing deposits				673,885			532,548			510,530			141,337			163,355
Loans:
	Real estate			383,890			421,996			441,232			(38,106	)		(57,342	)
	Commercial and Agricultural			674,139			620,134			627,110			54,005			47,029
	Consumer			291,164			298,851			308,010			(7,687	)		(16,846	)
		Total loans		1,349,193			1,340,981			1,376,352			8,212			(27,159	)
	Allowance for loan losses			(21,342	)		(18,654	)		(18,528	)		(2,688	)		(2,814	)
		Total loans net of allowance for loan losses		1,327,851			1,322,327			1,357,824			5,524			(29,973	)
Other assets				159,355			157,416			162,547			1,939			(3,192	)
	Total Assets		$	2,223,814			2,085,747			2,094,965			138,067			128,849

At September 30, 2002 total assets were $2.224 billion which is $129 million larger than the September 30, 2001 assets of $2.095 billion, an increase of 6 percent. Total assets have increased $138 million from December 31, 2001.

Total loans, net of the allowance for loan losses, have decreased $30 million from September 30, 2001. With lower interest rates during the past year a large number of real estate loans have been refinanced, which coupled with our decision to sell the majority of the real estate loan production, has resulted in a reduction in real estate loans of $57 million. Total loans, net of the allowance for loan losses, have increased $6 million from December 31, 2001, partly due to the increase in commercial loans which have increased $54 million and continue to be the lending focus. Consumer loans have declined $17 million, since September 30, 2001, of which $8 million of the decline occurred in 2002, with a significant portion of the decline attributed to the planned runoff in the WesterFed auto dealer originated consumer loans. We are focusing on home-equity loans as the primary source for the consumer loan portfolio.

Investment securities, including interest bearing deposits in other financial institutions, have increased $163 million from September 30, 2001, of which $141 million occurred in 2002. Much of the cash received from the reduction in real estate loans has been redeployed in mortgage related investment securities with characteristics that result in less interest rate risk than retaining 30 year loans.

20

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 increases in interest rates of holding long-term, fixed rate loans in the loan portfolio. 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 September 30, 2002 was approximately $265 million.

								$ change from			$ change from
		September 30,		December 31,		September 30,		December 31,			September 30,
Liabilities ($ in thousands)		2002		2001		2001		2001			2001
Deposits — non–interest bearing		$	292,653		234,318		244,450		58,335			48,203
Deposits — interest bearing			1,206,000		1,211,746		1,209,469		(5,746	)		(3,469	)
Advances from Federal Home Loan Bank			402,367		367,295		360,654		35,072			41,713
Other borrowed funds			50,371		33,645		41,412		16,726			8,959
Other liabilities			31,231		26,760		32,385		4,471			(1,154	)
Trust preferred securities			35,000		35,000		35,000		—			—
	Total liabilities	$	2,017,622		1,908,764		1,963,370		108,858			94,252

Total deposits have increased $45 and $53 million from September 30, 2001 and December 31, 2001, respectively. Non-interest bearing deposits are up $48 million, or 20 percent, and interest-bearing deposits are down $3 million from September 30, 2001. Federal home loan bank advances, other borrowed funds, and repurchase agreements, have also increased $51 million from September 30, 2001.

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 September 30, 2002, the Company had $761 million of available FHLB line of which $402 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 2002, 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 unadvanced 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.

21

											$ change from		$ change from
Stockholders’ equity		September 30,			December 31,			September 30,			December 31,		September 30,
($ in thousands except per share data)		2002			2001			2001			2001		2001
Common equity		$	194,541			175,227			167,312			19,314		27,229
Net unrealized gain on securities			11,651			1,756			4,283			9,895		7,368
	Total stockholders’ equity	$	206,192			176,983			171,595			29,209		34,597
Stockholders’ equity to total assets			9.27	%		8.49	%		8.19	%
Tangible equity to total assets			7.59	%		6.62	%		6.22	%
Book value per common share		$	11.97			10.49			10.26			1.48		1.71
Tangible book value per common share		$	9.63			8.01			7.63			1.62		2.00

Each of the equity ratios and book value per share amounts have increased substantially from the prior year, primarily the result of earnings retention, stock options exercised, and net unrealized gains on securities. Our equity to asset ratio is near historic highs for the Company.

	September 30,			June 30,			December 31,			September 30,
Credit quality information ($ in thousands)	2002			2002			2001			2001
Allowance for loan losses	$	21,342			19,941			18,654			18,528
Non–performing assets	$	10,960			9,214			11,262			11,089
Allowance as a percentage of non performing assets		194.73	%		216.42	%		165.64	%		167.08	%
Non–performing assets as a percentage of total assets		0.49	%		0.43	%		0.53	%		0.53	%
Allowance as a percentage of total loans		1.58	%		1.52	%		1.39	%		1.35	%

Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at September 30, 2002 were .49 percent versus .53 percent at the same time last year, which compares to the Peer Group average of .63 percent at June 30, 2002, the most recent information available. The allowance for loan losses was 195 percent of non-performing assets at September 30, 2002, up from 167 percent a year ago.

With the continuing change in loan mix from residential real estate to commercial and consumer loans, which historically have greater credit risk, the Company has increased the balance in the allowance for loan losses account. The allowance balance has increased $2.814 million, or 15 percent over September 30, 2001, to $21.342 million, which is 1.58 percent of total loans outstanding, up from 1.35 percent a year ago and 1.39 percent at December 31, 2001. The third quarter provision expense for loan losses was $1.665 million, an increase of $659 thousand from the same quarter in 2001.

The 2002 provision expense for loan losses through September was $4.225 million which is an increase of $796 thousand over the first nine months of 2001. The reserve has increased because of the increased percentage of commercial loans which historically carry a higher risk profile than residential real estate loans which now comprise a smaller percentage of the loans outstanding. Net charged off loans as a percentage of loans outstanding were .11 for the first nine months of 2002 which is down from .12 for the same period in 2001.

22

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 losses 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 operation or liquidity.

Results of Operations – The three months ended September 30, 2002 compared to the three months ended
September 30, 2001.

			Three months ended September 30,
Revenue summary
($ in thousands)			2002			2001			$ change		% change
Net interest income			$	22,131			19,199			2,932		15.3	%
Fees and other revenue:
	Service charges, loan fees, and other fees			4,757			4,265			492		11.5	%
	Gain on sale of loans			1,225			1,111			114		10.3	%
	Other income			475			419			56		13.4	%
		Total non–interest income		6,457			5,795			662		11.4	%
	Total revenue		$	28,588			24,994			3,594		14.4	%
Tax equivilent net interest margin				4.58	%		3.93	%

Net Interest Income
Net interest income for the quarter increased $2.932 million, or 15 percent, over the same period in 2001. Total interest income is $3.271 million, or 9 percent lower that the same quarter in 2001, while total interest expense is $6.203 million, or 35 percent lower. The increase in non-interest bearing deposits contributed to the reduced interest expense. Lower interest rates in 2002 have also reduced interest income and interest expense. The net interest margin as a percentage of earning assets, on a tax equivalent basis, increased from 3.9 percent for the 2001 quarter to 4.6 percent in 2002. The net interest margin for the third quarter was the same as the prior quarter and an increase over the 4.4 percent margin in the first quarter of 2002.

Non-interest Income
Fee income increased 12 percent over the same period last year, driven primarily by increased deposit account activity, increases in service fee rates, and interchange fees on electronic check cards. The increase in gain on sale of loans reflects the low level of mortgage rates and resulting purchase and refinancing activity. Other non-interest income increases were from a variety of volume related activity increases over this quarter of last year.

23

		Three months ended September 30,
Non–interest expense summary
($ in thousands)		2002		2001		$ change			% change
Compensation and employee benefits		$	7,541		7,392		149			2.0	%
Occupancy and equipment expense			2,340		2,187		153			7.0	%
Outsourced data processing expense			547		707		(160	)		-22.6	%
Core deposit intangible amortization			359		383		(24	)		-6.3	%
Goodwill amortization			—		492		(492	)		-100.0	%
Other expenses			3,209		3,948		(739	)		-18.7	%
	Total non–interest expense	$	13,996		15,109		(1,113	)		-7.4	%

Non-interest Expense
Non-interest expense decreased by $1.113 million, or 7 percent, from the same quarter of 2001, however, 2001 includes $325 thousand in merger and conversion expense, and $492 thousand in goodwill amortization. The decrease in goodwill amortization is the result of the adoption of Statement of Financial Accounting Standards 142 and 147, see footnote 15 for further information. During the third quarter of 2002 there was a $323 thousand reversal of a merger related accrual, so non-interest expense from operations is $27 thousand higher than last year. During the third quarter of 2001 the data processing functions for Western Security Bank were converted to our in-house system. This has reduced the outsourced data processing costs and increased compensation and benefits expense. Compensation and benefit expense has increased $149 thousand, or 2 percent from the third quarter of 2001. Core deposit intangible asset amortization was $359 thousand which is a decrease of $24 thousand from the prior year. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 49 percent ratio for the 2002 quarter which is an improvement over the 60 percent ratio for the quarter in 2001.

Results of Operations – The nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001.

			Nine months ended September 30,
Revenue Summary
($ in thousands)			2002			2001			$ change			% change
Net interest income			$	64,099			51,428			12,671			24.6	%
Fees and other revenue:
	Service charges, loan fees, and other fees			13,388			11,737			1,651			14.1	%
	Gain on sale of loans			3,497			2,766			731			26.4	%
	Other income			1,755			2,173			(418	)		-19.2	%
		Total non–interest income		18,640			16,676			1,964			11.8	%
	Total revenue		$	82,739			68,104			14,635			21.5	%
	Tax equivilent net interest margin			4.52	%		3.99	%

Net Interest Income
Net interest income for the nine months ended September 30, 2002 was $64.099 million, an increase of $12.671 million, or 25 percent over the same nine months of 2001. The WesterFed acquisition on February 28, 2001, and the Idaho and Utah branch acquisitions in March 2001 are the primary reasons for the increase. Interest income has decreased $1.724 million, or 2 percent, while interest expense has declined $14.395 million, or 28 percent. The increase in non-interest bearing deposits and significant reductions in rates paid on deposits and borrowed funds, are the primary reasons for the decreased interest expense. As a percentage of earning assets, on a tax equivalent basis, the year-to-date interest margin has improved from 4.0 percent to 4.5 percent.

24

Non-interest Income
Fee income increased $1.651 million, or 14 percent, primarily the result of the acquisition in the later part of the first quarter in 2001. Gain on sale of loans increased $731 thousand, or 26 percent. Mortgage interest rates have been very attractive to consumers during the past year and have led to higher levels of mortgage originations from both purchases and refinances. Included in other income in 2001 was a $511 thousand gain-on-sale of the Glacier Bank Cut Bank office, as a result other income was $93 thousand higher this year.

		Nine months ended September 30,
Non–interest expense summary
($ in thousands)		2002		2001		$ change			% change
Compensation and employee benefits		$	22,856		20,182		2,674			13.2	%
Occupancy and equipment expense			6,965		6,147		818			13.3	%
Outsourced data processing expense			1,508		2,007		(499	)		-24.9	%
Core deposit intangible amortization			1,080		957		123			12.9	%
Goodwill amortization			—		1,229		(1,229	)		-100.0	%
Other expenses			10,294		10,462		(168	)		-1.6	%
	Total non–interest expense	$	42,703		40,984		1,719			4.2	%

Non-interest Expense
Non-interest expense increased $1.719 million, or 4 percent, over 2001, however, 2001 also includes $1.250 million in merger and conversion expense, and goodwill amortization of $1.229 million, and 2002 includes a reversal of a merger related accrual of $323 thousand, so non-interest expense from operations has increased $4.521 million over last year. The 2001 acquisitions are much of the reason for this increase. The decrease in goodwill amortization is the result of the adoption of Statement of Financial Accounting Standards 142 and 147, see footnote 15 for further information. During the third quarter of 2001 the data processing functions for Western Security Bank were converted to the in-house system. This has reduced the outsourced data processing costs and increased compensation and benefits expense. Core deposit asset amortization was $1.080 million, which is an increase of $123 thousand. The efficiency ratio in 2002 is 52 percent which is an improvement over the 60 percent ratio in 2001.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

Market Risk:
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company’s primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability management process which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to the Asset/Liability Committee (ALCO). In this capacity ALCO develops guidelines and strategies impacting the Company’s asset/liability management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends.

Interest Rate Risk:
Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change the interest income and expense streams associated with the Company’s financial instruments also change thereby impacting net interest income (NII), the primary component of the Company’s earnings. ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While ALCO routinely monitors simulated NII sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk.

25

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s balance sheet. This sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance level for NII exposure over a one year horizon, assuming no balance sheet growth, given a 200 basis point (bp) upward and 100 bp downward shift in interest rates. A parallel and pro rata shift in rates over a 12 month period is assumed. The following reflects the Company’s NII sensitivity analysis as of June 30, 2002, the most recent information available, as compared to the 10% Board approved policy limit (dollars in thousands). There have been no significant changes in operation or the market that would materially affect the estimated sensitivity. The table illustrates the estimated change in net interest income over a twelve month period based on the nine months activity ended September 30, 2002.

Interest Rate Sensitivity	+200 bp			-100 bp
Estimated sensitivity		-2.58	%		0.80	%
Estimated increase (decrease) in net interest income	$	(2,205	)		684

The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of assets and liability cashflows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates.

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 a date within 90 days before the filing 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.

26

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

Item 5. Other Information

      None

Item 6.  Exhibits and Reports on Form 8-K.

(a)	Exhibits
	Exhibit 99 – 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
	None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly cause this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GLACIER BANCORP, INC.
November 11, 2002	By:	/s/ Michael J. Blodnick
		Michael J. Blodnick President/CEO
November 11, 2002	By:	/s/ James H. Strosahl
		James H. Strosahl Executive Vice President/CFO

27

I, Michael J. Blodnick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Glacier Bancorp, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

November 11, 2002

By:	/s/ Michael J. Blodnick
	Michael J. Blodnick President/CEO

28

I, James H. Strosahl, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Glacier Bancorp, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

November 11, 2002

By:	/s/ James H. Strosahl
	James H. Strosahl Executive Vice President/CFO

29