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, 2001
[ ] 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 (IRS Employer
incorporation or organization) 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 October 30,
2001 was 16,769,033. No preferred shares are issued or outstanding.
1
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, 2001, December 31, and September 30, 2000 (unaudited).... 3
Consolidated Statements of Operations --
Three and Nine months ended September 30, 2001 and 2000 (unaudited).... 4
Consolidated Statements of Stockholders' Equity and
Comprehensive Income -- Years ended December 31, 1999
2000 and Nine months ended September 30, 2001 (unaudited).............. 5
Consolidated Statements of Cash Flows --
Nine months ended September 30, 2001 and 2000 (unaudited).............. 6
Notes to Consolidated Financial Statements (unaudited)................. 7
Item 2 -- Management's Discussion and Analysis
of Financial Condition and Results of Operations ............... 21
Item 3 -- Quantitative and Qualitative Disclosure about Market Risk ...... 26
PART II. OTHER INFORMATION ........................................................ 27
Item 1 -- Legal Proceedings............................................... 27
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............. 28
Item 5 -- Other Information............................................... 28
Item 6 -- Exhibits and Reports on Form 8-K................................ 28
Signatures ............................................................... 28
2
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - dollars in thousands except per share data) SEPTEMBER 30, December 31, September 30,
2001 2000 2000
------------ ------------ ------------
ASSETS:
Cash on hand and in banks .......................................... $ 64,064 41,456 33,700
Interest bearing cash deposits ..................................... 9,790 10,330 4,255
------------ ------------ ------------
Cash and cash equivalents .................................... 73,854 51,786 37,955
------------ ------------ ------------
Investments:
Investment securities, available-for-sale .................... 154,721 71,415 65,419
Mortgage backed securities, available-for-sale ............... 346,019 140,473 138,430
------------ ------------ ------------
Total investments ....................................... 500,740 211,888 203,849
------------ ------------ ------------
Net loans receivable:
Real estate loans ............................................ 441,232 231,215 236,071
Commercial Loans ............................................. 627,110 340,391 325,974
Consumer and other loans ..................................... 308,010 169,754 168,789
Allowance for loan losses .................................... (18,528) (7,799) (7,808)
------------ ------------ ------------
Total loans, net ........................................ 1,357,824 733,561 723,026
------------ ------------ ------------
Premises and equipment, net ........................................ 52,071 25,016 25,005
Real estate and other assets owned, net ............................ 727 291 97
Federal Home Loan Bank of Seattle stock, at cost ................... 31,839 16,436 16,146
Federal Reserve stock, at cost ..................................... 4,237 1,662 1,639
Accrued interest receivable ........................................ 14,388 6,637 6,233
Core deposit intangible, net ....................................... 8,630 1,547 1,597
Goodwill, net ...................................................... 35,381 4,946 5,031
Deferred tax asset ................................................. -- -- 1,512
Other assets ....................................................... 15,274 2,942 3,951
------------ ------------ ------------
$ 2,094,965 1,056,712 1,026,041
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits - non-interest bearing .................................... $ 244,450 141,207 152,022
Deposits - interest bearing ........................................ 1,209,469 579,363 564,965
Advances from Federal Home Loan Bank of Seattle .................... 360,654 196,791 177,909
Securities sold under agreements to repurchase ..................... 29,392 24,877 20,699
Other borrowed funds ............................................... 12,020 4,652 7,985
Accrued interest payable ........................................... 10,657 4,591 3,387
Current income taxes ............................................... 3,371 17 941
Deferred tax liability ............................................. 2,685 578 --
Trust preferred securities ......................................... 35,000 -- --
Minority interest .................................................. -- 338 325
Other liabilities .................................................. 15,672 6,185 5,970
------------ ------------ ------------
Total liabilities ............................................ 1,923,370 958,599 934,203
------------ ------------ ------------
Preferred shares, 1,000,000 shares authorized. None outstanding .... -- -- --
Common stock, $.01 par value per share, 50,000,000 shares
authorized ...................................................... 167 114 114
Paid-in capital .................................................... 163,384 101,828 101,756
Retained earnings (deficit) - substantially restricted ............. 3,761 (4,087) (6,057)
Accumulated other comprehensive income (loss) ...................... 4,283 258 (3,975)
------------ ------------ ------------
Total stockholders' equity ................................... 171,595 98,113 91,838
------------ ------------ ------------
$ 2,094,965 1,056,712 1,026,041
============ ============ ============
Number of shares outstanding ....................................... 16,728,482 11,447,150 11,441,234
Book value of equity per share ..................................... $ 10.26 8.57 8.03
Tangible book value per share ...................................... $ 7.63 8.00 7.45
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,
------------------------------ ------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
INTEREST INCOME:
Real estate loans ...................................... $ 9,332 4,891 26,313 14,136
Commercial loans ....................................... 12,824 7,638 34,524 20,943
Consumer and other loans ............................... 6,733 4,002 19,221 11,259
Investments ............................................ 8,211 3,869 22,080 11,601
----------- ----------- ----------- -----------
Total interest income ............................ 37,100 20,400 102,138 57,939
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits ............................................... 11,452 6,025 33,250 16,246
FHLB Advances .......................................... 5,212 3,540 14,049 10,237
Securities sold under agreements to repurchase ......... 266 272 791 643
Trust preferred securities ............................. 904 -- 2,410 --
Other borrowed funds ................................... 67 44 210 234
----------- ----------- ----------- -----------
Total interest expense ........................... 17,901 9,881 50,710 27,360
----------- ----------- ----------- -----------
NET INTEREST INCOME ........................................ 19,199 10,519 51,428 30,579
Provision for loan losses .............................. 1,006 491 3,429 1,483
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 18,193 10,028 47,999 29,096
----------- ----------- ----------- -----------
NON-INTEREST INCOME:
Service charges and other fees ......................... 3,270 1,997 9,009 5,911
Miscellaneous loan fees and charges .................... 995 508 2,728 1,344
Gains on sale of loans ................................. 1,111 545 2,766 1,512
Gains (losses) on sale of investments, net ............. 24 (5) 88 (5)
Other income ........................................... 395 536 2,085 1,335
----------- ----------- ----------- -----------
Total non-interest income ......................... 5,795 3,581 16,676 10,097
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses ............................ 7,392 3,992 20,182 12,078
Occupancy and equipment expense ........................ 2,187 1,221 6,147 3,568
Data processing expense ................................ 707 264 2,007 1,143
Core deposit intangibles amortization .................. 383 50 957 150
Goodwill amortization .................................. 492 91 1,229 269
Other expenses ......................................... 3,948 1,839 10,427 5,842
Minority interest ...................................... -- 16 35 45
----------- ----------- ----------- -----------
Total non-interest expense ........................ 15,109 7,473 40,984 23,095
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES ............................... 8,879 6,136 23,691 16,098
Federal and state income tax expense ................... 3,172 2,283 8,462 5,825
----------- ----------- ----------- -----------
NET EARNINGS ............................................... $ 5,707 3,853 15,229 10,273
=========== =========== =========== ===========
Basic earnings per share ................................... $ 0.34 0.34 0.99 0.90
Diluted earnings per share ................................. $ 0.33 0.33 0.96 0.89
Dividends declared per share ............................... $ 0.15 0.15 0.45 0.44
Return on average assets (annualized) ...................... 1.06% 1.50% 1.06% 1.37%
Return on average equity (annualized) ..................... 13.50% 17.30% 13.41% 15.82%
Return on tangible average equity (annualized) ............. 18.09% 18.76% 17.91% 17.18%
Average outstanding shares - basic ......................... 16,676,275 11,441,234 15,344,475 11,439,462
Average outstanding shares - diluted ....................... 17,078,578 11,536,174 15,828,650 11,547,895
See accompanying notes to consolidated financial statements.
4
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2000, 1999, AND NINE MONTHS ENDED SEPTEMBER 30, 2001
Retained
earnings Accumulated
(accumulated other comp- Total
Common Stock deficit) rehensive stock-
(Unaudited - dollars in thousands ------------------------ Paid-in substantially income holders'
except per share data) Shares Amount capital restricted (loss) equity
---------- ----------- ----------- ------------- ------------ -----------
Balance at December 31, 1998 ................ 9,344,093 $ 93 66,180 16,700 1,173 84,146
Comprehensive income:
Net earnings ........................... -- -- -- 12,352 -- 12,352
Unrealized loss on securities,
net of reclassification adjustment ... -- -- -- -- (6,604) (6,604)
-----------
Total comprehensive income .................. 5,748
-----------
Cash dividends declared ($.64 per share) .... -- -- -- (6,076) -- (6,076)
Stock options exercised ..................... 113,049 1 1,091 -- -- 1,092
Tax benefit from stock related
compensation .............................. -- -- 240 -- -- 240
10% stock dividend .......................... 936,899 10 19,876 (19,905) -- (19)
Fiscal year conforming adjustment ........... -- -- -- (75) -- (75)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 ................ 10,394,041 104 87,387 2,996 (5,431) 85,056
Comprehensive income:
Net earnings ........................... -- -- -- 14,003 -- 14,003
Unrealized gain on securities, net of
reclassification adjustment .......... -- -- -- -- 5,689 5,689
-----------
Total comprehensive income .................. 19,692
-----------
Cash dividends declared ($.59 per share) .... -- -- -- (6,752) -- (6,752)
Stock options exercised ..................... 14,161 -- 134 -- -- 134
Tax benefit from stock related compensation.. -- -- 16 -- -- 16
10% stock dividend .......................... 1,039,608 10 14,302 (14,334) -- (22)
Dissenting Mountain West shareholders ....... (660) -- (11) -- -- (11)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 ................ 11,447,150 114 101,828 (4,087) 258 98,113
Comprehensive income:
Net earnings ........................... -- -- -- 15,229 -- 15,229
Unrealized gain on securities, net of
reclassification adjustment .......... -- -- -- -- 4,025 4,025
-----------
Total comprehensive income .................. 19,254
-----------
Cash dividends declared ($.45 per share) .... -- -- -- (7,381) -- (7,381)
Stock options exercised ..................... 750,870 7 5,888 -- -- 5,895
Stock issued in connection with merger of
WesterFed Financial Corporation ........... 4,530,462 46 55,668 -- -- 55,714
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2001 ............... 16,728,482 $ 167 163,384 3,761 4,283 171,595
=========== =========== =========== =========== =========== ===========
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,
------------------------------
2001 2000
---------- ------------
OPERATING ACTIVITIES:
Net cash provided in operating activities ................................. $ 11,660 30,280
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of
investments available-for-sale ........................................ 158,134 31,007
Purchases of investments available-for-sale ............................... (256,425) (23,213)
Principal collected on installment and commercial loans ................... 272,133 181,586
Installment and commercial loans originated or acquired ................... (352,595) (261,127)
Principal collections on mortgage loans ................................... 245,170 98,727
Mortgage loans originated or acquired ..................................... (170,680) (109,556)
Net purchase of FHLB and FRB stock ........................................ (3,490) (439)
Acquisition of WesterFed Financial Corporation and several branches,
net of cash and cash equivalents acquired of $162,254 ................ 107,239 --
Sale of branches net of cash paid of $53,454 .............................. (53,131) --
Net decrease (increase) in premises and equipment ......................... 541 (938)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ................................ (53,104) (83,953)
--------- ---------
FINANCING ACTIVITIES:
Net increase in deposits .................................................. 26,404 72,881
Net increase (decrease) in FHLB advances and other borrowed funds ......... 6,194 (29,604)
Net (decrease) increase in securities sold under repurchase agreements .... (3,336) 933
Proceeds from issuance of trust preferred securities ...................... 35,000 --
Cash dividends paid to stockholders ....................................... (6,645) (5,010)
Proceeds from exercise of stock options and other stock issued ............ 5,895 63
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................. 63,512 39,263
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. 22,068 (14,410)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 51,786 52,365
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 73,854 37,955
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest ................................. $ 52,230 19,036
Income taxes ............................. $ 6,101 5,333
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the first quarter ended March 31, 2001, the Company purchased a bank and seven branches with net loans
of $650,398 and deposits of $787,523. During the second quarter ended June 30, 2001, the Company sold six
branches with net loans of $21,800 and deposits of $81,700. At September 30, 2001 and 2000, the Company had
declared dividends, but not yet paid of $2,509 and $1,701, respectively. Dividends payable are included in
other liabilities.
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 and stockholders'
equity as of September 30, 2001, December 31, 2000, and September 30,
2000 and the results of operations and cash flows for the three and
nine months ended September 30, 2001 and 2000.
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, 2000. Operating results for the nine months
ended September 30, 2001 are not necessarily indicative of the results
anticipated for the year ending December 31, 2001. Certain
reclassifications have been made to the 2000 financial statements to
conform to the 2001 presentation.
2) Organizational Structure:
The Company, headquartered in Kalispell, Montana, is the successor
Delaware corporation to 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"); Glacier Bank of Whitefish
("Whitefish"); First Security Bank of Missoula ("Missoula"); Valley
Bank of Helena ("Helena"), Big Sky Western Bank ("Big Sky"), Western
Security Bank ("Western"), Glacier Capital Trust I ("Glacier Trust"),
and Community First, Inc. ("CFI"), all located in Montana, and Mountain
West Bank ("Mountain West") which is located in Idaho and Utah. On July
31, 2001, Glacier Bank of Eureka was merged into Whitefish and the
minority interest of both banks was redeemed.
The Company formed Glacier Trust as a financing subsidiary on December
18, 2000. On January 31, 2001, Glacier Trust sold 1,400,000 preferred
securities at $25 per preferred security. The purchase of the
securities entitles the shareholder to receive cumulative cash
distributions at an annual interest rate of 9.40% from payments on the
junior subordinated debentures of Glacier Bancorp, Inc. The
subordinated debentures will mature and the preferred securities must
be redeemed by February 1, 2031. In exchange for the Company's capital
contribution, the Company obtained all of the outstanding common
securities of the trust.
CFI provides full service brokerage services through Raymond James
Financial Services, Inc.
7
The following abbreviated organizational chart illustrates the various
relationships:
Glacier Bancorp, Inc.
(Parent Holding Company)
Glacier Bank First Security Bank Glacier Bank Big Sky
(Commercial bank) of Missoula of Whitefish Western Bank
(Commercial bank) (Commercial bank) (Commercial bank)
Western Security Bank Valley Bank Mountain West Bank Community First, Inc.
(Commercial bank) of Helena of Coeur d'Alene (Brokerage services)
(Commercial bank) (Commercial bank)
Glacier Capital
Trust I
3) Ratios:
Returns on average assets and average equity were calculated based on
daily averages.
4) Cash Dividend Declared:
On September 26, 2001, the Board of Directors declared a $.15 per share
quarterly cash dividend to stockholders of record on October 9, 2001,
payable on October 18, 2001.
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. Previous
period amounts are restated for the effect of the 2000 stock dividend.
8
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, 2001 Sept 30, 2000 Sept 30, 2001 Sept 30, 2000
------------- ------------- ------------- -------------
Net earnings available to common
stockholders, basic ....................... $ 5,707,016 3,852,805 15,229,360 10,272,821
After tax effect of interest on
convertible subordinated debentures .... 4,000 4,000 12,000 12,000
----------- ----------- ----------- -----------
Net earnings available to common
stockholders, diluted ..................... $ 5,711,016 3,856,805 15,241,360 10,284,821
=========== =========== =========== ===========
Average outstanding shares - basic ........... $16,676,275 11,441,234 15,344,475 11,439,462
Add: Dilutive stock options ................. 369,278 94,940 451,150 108,433
Convertible subordinated debentures .... 33,025 33,025 33,025 33,025
----------- ----------- ----------- -----------
Average outstanding shares - diluted ......... $17,078,578 11,569,199 15,828,650 11,580,920
=========== =========== =========== ===========
Basic earnings per share ..................... $ 0.34 0.34 0.99 0.90
=========== =========== =========== ===========
Diluted earnings per share ................... $ 0.33 0.33 0.96 0.89
=========== =========== =========== ===========
6) Investments:
A comparison of the amortized cost and estimated fair value of the
Company's investments is as follows:
INVESTMENTS AS OF SEPTEMBER 30, 2001
(Dollars in thousands) Gross Unrealized Estimated
Weighted Amortized ---------------------- Fair
Yield Cost Gains Losses Value
------- --------- -------- -------- ---------
U.S. GOVERNMENT AND FEDERAL AGENCIES
maturing after ten years ....................... 4.65% $ 1,455 13 (5) 1,463
-------- -------- -------- --------
4.65% 1,455 13 (5) 1,463
-------- -------- -------- --------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ....................... 3.81% 5,188 34 (9) 5,213
maturing one year through five years ........... 5.68% 14,065 368 (84) 14,349
maturing five years through ten years .......... 5.53% 2,449 87 (1) 2,535
maturing after ten years ....................... 5.88% 129,860 2,874 (1,573) 131,161
-------- -------- -------- --------
5.78% 151,562 3,363 (1,667) 153,258
-------- -------- -------- --------
MORTGAGE-BACKED SECURITIES ....................... 5.98% 143,834 1,932 (115) 145,651
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ......... 6.36% 196,808 3,609 (49) 200,368
-------- -------- -------- --------
TOTAL AVAILABLE-FOR-SALE INVESTMENTS ...... 6.07% $493,659 8,917 (1,836) 500,740
======== ======== ======== ========
9
INVESTMENTS AS OF DECEMBER 31, 2000
(Dollars in thousands) Gross Unrealized Estimated
Weighted Amortized ---------------------- Fair
Yield Cost Gains Losses Value
------- --------- -------- -------- ---------
U.S. GOVERNMENT AND FEDERAL AGENCIES
maturing within one year ....................... 5.05% $ 500 -- (3) 497
maturing one year through five years ........... 6.33% 4,975 5 (25) 4,955
maturing five years though ten years ........... 6.92% 3,050 24 (11) 3,063
maturing after ten years ....................... 7.20% 1,070 -- (12) 1,058
-------- -------- -------- --------
6.55% 9,595 29 (51) 9,573
-------- -------- -------- --------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ....................... 5.47% 600 1 (19) 582
maturing one year through five years ........... 5.17% 1,635 41 (1) 1,675
maturing five years through ten years .......... 7.53% 4,047 34 (99) 3,982
maturing after ten years ....................... 5.50% 54,561 1,612 (570) 55,603
-------- -------- -------- --------
5.63% 60,843 1,688 (689) 61,842
-------- -------- -------- --------
MORTGAGE-BACKED SECURITIES ....................... 6.79% 39,374 268 (157) 39,485
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ......... 6.94% 101,635 396 (1,043) 100,988
-------- -------- -------- --------
TOTAL AVAILABLE FOR SALE INVESTMENTS ........ 6.52% $211,447 2,381 (1,940) 211,888
======== ======== ======== ========
7) Loans
The following table summarizes the Company's loan portfolio. The loans
mature or are repriced at various times.
(Dollars in Thousands)
At At
9/30/01 12/31/00
------------------------ ----------------------------
Amount Percent Amount Percent
TYPE OF LOAN
REAL ESTATE LOANS:
Residential first mortgage loans $ 419,054 30.86% $ 224,631 30.62%
Loans held for sale $ 23,118 1.70% $ 7,058 0.96%
----------- -----------
Total $ 442,172 32.56% $ 231,689 31.58%
COMMERCIAL LOANS:
Real estate $ 376,308 27.71% $ 198,414 27.05%
Other commercial loans $ 252,969 18.63% $ 142,519 19.43%
----------- -----------
Total $ 629,277 46.34% $ 340,933 46.48%
INSTALLMENT AND OTHER LOANS:
Consumer loans $ 147,648 10.87% $ 86,336 11.77%
Home equity loans $ 159,414 11.74% $ 83,539 11.39%
----------- -----------
Total $ 307,062 22.61% $ 169,875 23.16%
Net deferred loan fees, premiums
and discounts $ (2,159) -0.15% $ (1,137) -0.16%
Allowance for Losses $ (18,528) -1.36% $ (7,799) -1.06%
----------- -----------
NET LOANS $ 1,357,824 100.00% $ 733,561 100.00%
=========== ===========
10
The following table sets forth information regarding the Bank's
non-performing assets at the dates indicated:
NONPERFORMING ASSETS
(Dollars in Thousands) At At
9/30/01 12/31/00
------- --------
NON-ACCRUAL LOANS:
Mortgage loans $ 3,851 $ 687
Commercial loans 3,833 442
Consumer loans 691 25
------- -------
TOTAL 8,375 1,154
ACCRUING LOANS 90 DAYS OR MORE OVERDUE:
Mortgage loans 563 576
Commercial loans 1,385 91
Consumer loans 220 83
------- -------
TOTAL 2,168 750
Troubled debt restructuring: -- --
Real estate and other assets owned, net 727 291
------- -------
TOTAL NON-PERFORMING LOANS, TROUBLED DEBT
RESTRUCTURINGS, AND REAL ESTATE AND OTHER
ASSETS OWNED, NET $11,270 $ 2,195
======= =======
AS A PERCENTAGE OF TOTAL ASSETS 0.54% 0.21%
Interest Income (1) $ 513 $ 101
(1) This is the amount of interest that would have been recorded on loans
accounted for on a non-performing basis as of the end of each period if
such loans had been current for the entire period.
The following table illustrates the loan loss experience:
Nine months ended Year ended
(Dollars in Thousands) September 30, December 31,
2001 2000
----------------- ------------
BALANCE AT BEGINNING OF PERIOD $ 7,799 6,722
CHARGE OFFS:
Residential real estate (352) (98)
Commercial loans (401) (450)
Consumer loans (1,410) (424)
-------- --------
Total charge offs $ (2,163) (972)
-------- --------
RECOVERIES:
Residential real estate 20 5
Commercial loans 142 43
Consumer loans 408 137
-------- --------
Total recoveries $ 570 185
-------- --------
CHARGEOFFS, NET OF RECOVERIES (1,593) (787)
PURCHASED RESERVE 8,893 --
PROVISION 3,429 1,864
-------- --------
BALANCE AT END OF PERIOD $ 18,528 7,799
======== ========
RATIO OF NET CHARGE OFFS TO AVERAGE
LOANS OUTSTANDING DURING THE PERIOD 0.13% 0.11%
11
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
September 30, 2001 December 31, 2000
-------------------------- ---------------------------
Percent Percent
of loans in of loans in
(Dollars in thousands) Allowance category Allowance category
--------- ----------- --------- ------------
Residential first mortgage
and loans held for sale $ 5,943 32.0% 1,227 31.2%
Commercial real estate 5,058 27.3% 2,300 26.7%
Other commercial 3,400 18.4% 2,586 19.2%
Consumer 4,127 22.3% 1,686 22.9%
------- ----- ------- -----
Totals $18,528 100.0% 7,799 100.0%
======= ===== ======= =====
8) Deposits
The following table illustrates the amounts outstanding for deposits
greater than $100,000 at September 30, 2001, according to the time
remaining to maturity:
Certificates Demand
(Dollars in thousands) of Deposit Deposits Totals
----------- --------- -------
Within three months ....... $ 57,184 251,504 308,688
Three to six months ....... 24,509 -- 24,509
Seven to twelve months .... 24,479 -- 24,479
Over twelve months ........ 7,758 -- 7,758
-------- -------- --------
Totals ................. $113,930 251,504 365,434
======== ======== ========
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:
(Dollars in thousands) September 30, December 31,
2001 2000
------------ ------------
FHLB Advances
Amount outstanding at end of period ..... $360,654 196,791
Average balance ......................... $346,691 211,217
Maximum outstanding at any month-end .... $416,222 234,688
Weighted average interest rate .......... 5.42% 6.35%
Repurchase Agreements:
Amount outstanding at end of period ..... $ 29,392 24,877
Average balance ......................... $ 24,874 19,052
Maximum outstanding at any month-end .... $ 30,955 24,877
Weighted average interest rate .......... 4.24% 5.39%
12
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, 2001:
CONSOLIDATED Tier 1 (Core) Tier 2 (Total) Leverage
(Dollars in thousands) Capital Capital Capital
----------- ------------- -----------
GAAP Capital ........................................... $ 171,595 171,595 171,595
Less: Goodwill and intangibles ........................ (44,011) (44,011) (44,011)
Accumulated other comprehensive
gain on AFS securities ............................. (4,283) (4,283) (4,283)
Plus: Allowance for loan losses ....................... -- 16,450 --
Trust preferred secuirites ......................... 35,000 35,000 35,000
Other regulatory adjustments ........................... (29) (29) (29)
----------- ----------- -----------
Regulatory capital computed ............................ $ 158,272 174,722 158,272
=========== =========== ===========
Risk weighted assets ................................... $ 1,447,481 1,447,481
=========== ===========
Total average assets ................................... 2,126,230
===========
Capital as % of defined assets ......................... 10.93% 12.07% 7.44%
Regulatory "well capitalized" requirement .............. 6.00% 10.00% 5.00%
----------- ----------- -----------
Excess over "well capitalized" requirement ............. 4.93% 2.07% 2.44%
=========== =========== ===========
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 nine months
ended Sept 30, ended Sept 30,
----------------------- -----------------------
Dollars in thousands 2001 2000 2001 2000
------- ------- ------- -------
Net earnings .......................................... $ 5,707 3,853 15,229 10,273
Unrealized holding gains arising during the period .... 3,694 2,608 6,561 2,470
Transfer from held-to-maturity ........................ -- -- -- (11)
Tax expense ........................................... (1,485) (1,024) (2,590) (1,000)
------- ------- ------- -------
Net after tax ............................. 2,209 1,584 3,971 1,459
Reclassification adjustment for gains (losses)
included in net income ............................. 24 (5) 88 (5)
Tax (expense) benefit ................................. (9) 2 (34) 2
------- ------- ------- -------
Net after tax ............................. 15 (3) 54 (3)
Net unrealized gains on securities ....... 2,224 1,581 4,025 1,456
------- ------- ------- -------
Total comprehensive earnings .......... $ 7,931 5,434 19,254 11,729
======= ======= ======= =======
13
12) Segment Information
The Company evaluates segment performance internally based on
individual bank charter, 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, CFI,
Glacier Trust, and intercompany eliminations. 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 Sept 30, 2001
---------------------------------------------------------------------------
(Dollars in thousands) Glacier Whitefish Missoula Helena Big Sky
-------- --------- -------- -------- --------
Revenues from external customers $ 30,584 6,255 18,552 8,074 6,723
Intersegment revenues 937 14 14 125 2
Expenses 25,707 4,995 14,743 6,870 5,756
Intercompany eliminations -- -- -- -- --
-------- -------- -------- -------- --------
Net income $ 5,814 1,274 3,823 1,329 969
======== ======== ======== ======== ========
Total Assets $528,848 122,991 422,687 165,859 166,879
======== ======== ======== ======== ========
Mountain Total
West Western Other Consolidated
---------- --------- ---------- ------------
Revenues from external customers 15,278 33,079 270 118,815
Intersegment revenues 192 169 20,216 21,669
Expenses 15,108 29,476 931 103,586
Intercompany eliminations -- -- (21,669) (21,669)
---------- --------- ---------- ----------
Net income 362 3,772 (2,114) 15,229
========== ========= ========== ==========
Total Assets 318,159 381,994 (12,452) 2,094,965
========== ========= ========== ==========
Nine months ended and as of Sept 30, 2000
----------------------------------------------------------------------------
(Dollars in thousands) Glacier Whitefish Missoula Helena Big Sky
---------- ---------- ---------- ---------- ----------
Revenues from external customers $ 29,340 5,650 14,190 6,230 4,648
Intersegment revenues 866 8 -- 75 --
Expenses 25,244 4,585 11,326 5,458 4,259
Intercompany eliminations -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income $ 4,962 1,073 2,864 847 389
========== ========== ========== ========== ==========
Total Assets $ 459,096 86,113 202,782 86,678 72,806
========== ========== ========== ========== ==========
Mountain Total
West Other Consolidated
---------- ---------- ------------
Revenues from external customers 7,634 344 68,036
Intersegment revenues -- 12,513 13,462
Expenses 6,943 (52) 57,763
Intercompany eliminations -- (13,462) (13,462)
---------- ---------- ----------
Net income 691 (553) 10,273
========== ========== ==========
Total Assets 116,477 2,089 1,026,041
========== ========== ==========
14
Three months ended and as of Sept 30, 2001
-----------------------------------------------------------------------------
(Dollars in thousands) Glacier Whitefish Missoula Helena Big Sky
---------- ---------- ---------- ---------- ----------
Revenues from external customers $ 10,792 2,249 8,230 3,386 3,130
Intersegment revenues 478 8 3 59 2
Expenses 9,025 1,791 6,530 2,889 2,567
Intercompany eliminations -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income $ 2,245 466 1,703 556 565
========== ========== ========== ========== ==========
Total Assets $ 528,848 122,991 422,687 165,859 166,879
========== ========== ========== ========== ==========
Mountain Total
West Western Other Consolidated
---------- ---------- ---------- ------------
Revenues from external customers 5,872 9,366 (130) 42,895
Intersegment revenues -- 161 7,557 8,268
Expenses 5,615 8,796 (25) 37,188
Intercompany eliminations -- -- (8,268) (8,268)
---------- ---------- ---------- ----------
Net income 257 731 (816) 5,707
========== ========== ========== ==========
Total Assets 318,159 381,994 (12,452) 2,094,965
========== ========== ========== ==========
Three months ended and as of Sept 30, 2000
-----------------------------------------------------------------------------
(Dollars in thousands) Glacier Whitefish Missoula Helena Big Sky
---------- ---------- ---------- ---------- ----------
Revenues from external customers $ 10,246 1,990 4,924 2,231 1,687
Intersegment revenues 236 1 -- 25 --
Expenses 8,722 1,624 3,880 1,885 1,528
Intercompany eliminations -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income $ 1,760 367 1,044 371 159
========== ========== ========== ========== ==========
Total Assets $ 459,096 86,113 202,782 86,678 72,806
========== ========== ========== ========== ==========
Mountain Total
West Other Consolidated
---------- ---------- ------------
Revenues from external customers 2,715 188 23,981
Intersegment revenues -- 4,524 4,786
Expenses 2,434 55 20,128
Intercompany eliminations -- (4,786) (4,786)
---------- --------- ----------
Net income 281 (129) 3,853
========== ========= ==========
Total Assets 116,477 2,089 1,026,041
========== ========= ==========
15
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,
(Dollars in Thousands) 2001 vs. 2000
Increase (Decrease) due to:
-----------------------------------
INTEREST INCOME Volume Rate Net
--------- -------- ---------
Real Estate Loans $12,929 (752) 12,177
Commercial Loans 15,496 (1,915) 13,581
Consumer and Other Loans 8,598 (636) 7,962
Investment Securities 11,547 (1,068) 10,479
------- ------- -------
Total Interest Income 48,570 (4,371) 44,199
NOW Accounts 611 7 618
Savings Accounts 769 112 881
Money Market Accounts 3,599 (1,418) 2,181
Certificates of Deposit 13,519 (195) 13,324
FHLB Advances 6,181 (2,369) 3,812
Other Borrowings and
Repurchase Agreements 2,631 (97) 2,534
------- ------- -------
Total Interest Expense 27,310 (3,960) 23,350
------- ------- -------
NET INTEREST INCOME $21,260 (411) 20,849
======= ======= =======
14) Average Balance Sheet
The following schedule provides 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.
16
--------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET For the Nine months ended 9/30/01 For the year ended 12-31-00
--------------------------------------------------------------------------------------
(Dollars in Thousands) Interest Average Interest Average
Average and Yield/ Average and Yield/
ASSETS Balance Dividends Rate Balance Dividends Rate
--------------------------------------------------------------------------------------
Real Estate Loans $ 427,425 26,313 8.21% $ 230,661 19,557 8.48%
Commercial Loans 535,796 34,524 8.59% 312,434 28,784 9.21%
Consumer and Other Loans 289,182 19,221 8.86% 164,262 14,856 9.04%
----------- ------- ----------- -----------
Total Loans 1,252,403 80,058 8.52% 707,357 63,197 8.93%
Investment Securities 469,388 22,080 6.27% 236,287 15,640 6.62%
----------- ------ ----------- -----------
Total Earning Assets 1,721,791 102,138 7.91% 943,644 78,837 8.35%
------- -----------
Non-Earning Assets 171,378 64,151
----------- -----------
TOTAL ASSETS $ 1,893,169 $ 1,007,795
=========== ===========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW Accounts $ 177,366 1,407 1.06% $ 96,737 1,068 1.10%
Savings Accounts 97,734 1,498 2.04% 44,996 806 1.79%
Money Market Accounts 275,337 7,524 3.64% 167,533 7,447 4.45%
Certificates of Deposit 545,374 22,821 5.58% 230,024 13,353 5.81%
FHLB Advances 346,691 14,049 5.40% 211,217 13,454 6.37%
Repurchase Agreements
and Other Borrowed Funds 68,018 3,411 6.69% 31,799 1,229 3.86%
----------- ----------- ----------- -----------
Total Interest Bearing Liabilities 1,510,520 50,710 4.48% 782,306 37,357 4.78%
----------- -----------
Non-interest Bearing Deposits 208,619 135,840
Other Liabilities 24,313 1,181
----------- -----------
Total Liabilities 1,743,452 919,327
----------- -----------
Common Stock 154 110
Paid-In Capital 148,628 95,554
Retained Earnings (421) (2,250)
Accumulated Other
Comprehensive Earnings (Loss) 1,356 (4,946)
----------- -----------
Total Stockholders' Equity 149,717 88,468
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,893,169 $ 1,007,795
=========== ===========
NET INTEREST INCOME $ 51,428 $ 41,480
=========== ===========
NET INTEREST SPREAD 3.34% 3.57%
NET INTEREST MARGIN
ON AVERAGE EARNING ASSETS 3.98% 4.40%
RETURN ON AVERAGE ASSETS 1.06% 1.39%
RETURN ON AVERAGE EQUITY 13.41% 15.83%
17
15) Recent Acquisitions
On February 28, 2001 the Company completed the acquisition of WesterFed
Financial Corporation. The Company issued 4,530,462 shares and $37.274
million cash to shareholders as consideration for the merger. The
acquisition was accounted for under the purchase method of accounting.
Accordingly, the assets and liabilities of WesterFed were recorded by
the Company at their respective fair values at the time of the
completion of the merger and the results of WesterFed have been
included with those of the Company since the date of the acquisition.
The excess of the Company's purchase price over the net fair value of
the assets acquired and liabilities assumed, including identifiable
intangible assets, was recorded as goodwill and will be amortized over
a useful life of 20 years during the current year. Subsequent to 2001,
the goodwill will not be amortized due to a recently issued accounting
standard. See footnote 17 for further discussion regarding FASB
Statements No. 141 and 142.
The estimated fair values of net assets acquired at the acquisition
date are summarized as follows:
(Dollars in thousands)
----------------------
Cash and due from banks ............ $ 24,891
Investments available-for-sale ..... 185,688
FHLB stock ......................... 13,062
Loans .............................. 613,825
Premises and equipment ............. 25,432
Goodwill ........................... 16,530
Core deposit intangible ............ 7,449
Other assets ....................... 10,965
--------
897,842
--------
Deposits ........................... $603,555
FHLB advances ...................... 165,386
Repurchase agreements .............. 7,851
Other liabilities .................. 27,338
--------
804,130
--------
Total consideration paid ......... $ 93,712
========
On March 15, 2001, the Company completed the acquisition, subject to
certain adjustments, of seven Wells Fargo & Company and First Security
Corporation subsidiary banks located in Idaho and Utah. The acquisition
was accounted for under the purchase method of accounting. Accordingly,
the assets and liabilities of the acquired banks were recorded by the
Company at their respective fair values at the date of the acquisition
and the results of the banks operations have been included with those
of the Company since the date of acquisition. The excess of the
Company's purchase price over the net fair value of the assets acquired
and liabilities assumed, including identifiable intangible assets, was
recorded as goodwill and will be amortized over a useful life of 20
years. Subsequent to 2001, the goodwill will not be amortized due to a
recently issued accounting standard. See footnote 17 for further
discussion regarding FASB Statements No. 141 and 142.
18
The estimated fair values of the branches net assets acquired at the
acquisition date are summarized as follows:
(Dollars in thousands)
----------------------
Cash and due from banks .................. $122,149
Loans .................................... 36,573
Premises and equipment ................... 6,449
Core deposit intangible .................. 1,514
Other assets ............................. 196
--------
166,881
--------
Deposits ................................. $183,968
Other liabilities ........................ 463
--------
184,431
--------
Net liabilities assumed in excess of
identifiable net assets acquired ..... $ 17,550
========
The following pro forma information presents the consolidated results
of operations as if the acquisitions had occurred at the beginning of
January 1, 2000 and 2001. The table is for comparison purposes only.
For the three months For the nine months
ended Sept 30, ended Sept 30,
------------------------------ ------------------------------
(dollars in thousands except per share data) 2001 2000 2001 2000
---------- ---------- ---------- ----------
Total interest and non-interest income ..... $ 43,039 47,387 155,786 138,256
========== ========== ========== ==========
Net earnings ............................... $ 5,707 5,416 16,144 14,960
========== ========== ========== ==========
Net earnings per common share - basic ...... $ 0.34 0.34 0.99 0.94
Net earnings per common share - diluted .... $ 0.33 0.33 0.95 0.91
The pro forma information does not purport to be indicative of the
results of operations that would have occurred had the transactions
taken place at the beginning of the periods presented or of future
results of operations. For example, these results do not take into
affect any efficiencies or revenue enhancements that might have been
realized had the acquisition occurred at the beginning of the periods.
16) Sale of Branches
On June 23, 2001 the Company completed the sale of six branch
locations in north central Montana with assets of $23.5 million to
Stockman Bank. Stockman acquired five Western Security Bank offices and
one Glacier Bank office. Included in the sale were loans of
approximately $21.8 million, property and equipment with a book value
of approximately $1.7 million, and deposits of $81.7 million. A gain of
$511 thousand was recognized on the sale.
17) Impact of Recently Issued Accounting Standards
On July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. 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
19
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, noting that any purchase price allocable to an assembled
workforce may not be accounted for separately. Statement 142 will
require 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.
Statement 142 will also require 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 SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately, and Statement 142 effective January 1, 2002. Furthermore,
any goodwill and any intangible asset determined to have an indefinite
useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue
to be evaluated for impairment in accordance with the appropriate
pre-Statement 142 accounting literature. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require 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. Upon adoption of
Statement 142, the Company will be 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. In
addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will
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 will require the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date
of adoption. To accomplish this the Company must identify its reporting
units and determine 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 will then have up to six months from the date of
adoption 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 exceeds 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 it 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. This second step is required to be completed as soon
as possible, but no later than the end of the year of adoption. Any
transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement
of earnings.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $34,800,000 and unamortized identifiable
intangible assets in the amount of $8,200,000, all of which will be
subject to the transition provisions of Statements 141 and 142.
Amortization expense related to goodwill was $360,000 and $1,229,000
for the year ended December 31, 2000 and the nine months ended
20
September 30, 2001, respectively. Because of the extensive effort
needed to comply with adopting Statements 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these
Statements on the Company's financial statements at the date of this
report, including whether any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in
accounting principle.
In September 2000, the FASB issued SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- a replacement of FASB Statement No. 125. SFAS No. 140
revises accounting standards for securitizations and transfers of
financial assets and collateral and requires certain disclosures, but
carries forward most of SFAS No. 125's provisions without change. SFAS
No. 140 is effective for recognition and reclassification of collateral
and disclosures relating to securitization transactions and collateral
for fiscal years ended after December 15, 2000. Adoption of these
provisions did not have a material effect on the consolidation
financial statements, results of operations or liquidity of the
Company. SFAS No. 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
March 31, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Recent Developments
Recently Completed Acquisitions
The acquisition of Missoula, Montana based WesterFed with December 31, 2000
assets of $929 million, loans of $623 million, and deposits of $606 million was
completed on February 28, 2001. WesterFed shareholders received 4,530,462 shares
of Glacier Bancorp stock and $37.274 million in cash as consideration for the
acquisition. WesterFed was the holding company for Western Security Bank,
Montana's largest savings bank with twenty-seven offices in fourteen Montana
communities. Western Security Bank is a separate banking subsidiary of the
Company.
The acquisition of seven Wells Fargo & Company and First Security Corporation
branches located in Boise, Nampa, Hailey, and Ketchum, Idaho and Brigham City
and Park City, Utah by Mountain West Bank of Coeur d'Alene, Idaho was completed
on March 15, 2001. The purchase included approximately $184 million in deposits,
$37 million in loans, and real estate and equipment of the branches.
Both acquisitions were accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities were recorded by the Company at their
respective fair values at the time of the completion of the acquisitions and the
results of operations include the results of the acquired operations since the
dates of acquisitions.
The sale of six branches located in North Central Montana to Stockman Bank was
completed on June 23, 2001. The sale included loans of $21.8 million and
deposits of $81.7 million.
As a result of these transactions, the Company is now the largest publicly
traded bank holding company headquartered in the inland northwest, with assets
exceeding $2 billion.
Western Security Bank converted to Company's system
On July 21, 2001 Company employees, assisted by several representatives of our
software vendor, successfully completed the conversion of the data systems from
an outside servicer to the Company's in-house computer system. This conversion
will now allow us to take advantage of the cost savings from this fully
integrated system.
21
Western Security Bank, Billings, Montana
Western Security Bank is now operated as a stand-alone community bank with
offices in Billings, Laurel, and Lewistown. A new board of directors for the
bank, comprised of local businesspeople, took office in September. Western
Security Bank serves Montana's largest market with total assets of over $400
million.
Geographic alignment of branches
As part of the plan for the acquisition of WesterFed certain branches of
subsidiary banks were transferred to other Company owned banks located in the
same geographic area expanding the market share of those community banks. As of
September 30, 2001 all branch transfers have been completed.
Glacier Bank of Eureka merged into Glacier Bank of Whitefish
The merger of the two banks, and redemption of the minority shares that were
outstanding in these banks, was completed as of July 31, 2001. The banks had
relatively small total assets, are in close proximity, have similar clients, and
share management staff. It is anticipated that cost reductions will result
without disturbing the community banking focus.
Financial Condition
This section discusses the changes in Statement of Financial Condition items
from September 30, 2000 to September 30, 2001.
September 30,
-------------------------------
ASSET GROWTH ($ IN THOUSANDS) 2001 2000 $ change % change
----------- ----------- ----------- ------
Cash on hand and in banks $ 64,064 33,700 30,364 90.10%
Interest bearing investments 546,606 225,889 320,717 141.98%
Loans:
Real estate 441,232 236,071 205,161 86.91%
Commercial and Agricultural 627,110 325,974 301,136 92.38%
Consumer 308,010 168,789 139,221 82.48%
----------- ----------- ----------- ------
Total loans 1,376,352 730,834 645,518 88.33%
Allowance for loan losses (18,528) (7,808) (10,720) 137.30%
----------- ----------- ----------- ------
Total loans net of allowance for loan losses 1,357,824 723,026 634,798 87.80%
----------- ----------- ----------- ------
Other assets 126,471 43,426 83,045 191.23%
----------- ----------- ----------- ------
Total Assets $ 2,094,965 1,026,041 1,068,924 104.18%
=========== =========== =========== ======
Since September 30, 2000 total assets have increased $1.069 billion, or 104
percent, to $2.095 billion, primarily the result of the completion of the
WesterFed Financial Corporation acquisition, and branch purchases in Idaho and
Utah from Wells Fargo and First Security Corporation, in the first quarter of
2001. Those acquisitions were accounted for as purchases and accordingly the
financial information includes the assets and results of operations of those
locations from the dates of purchase.
Loans sold to the secondary market amounted to $203.058 million and $87.860
million during the first nine months of 2001 and 2000, respectively.
The amount of loans serviced for others on September 30, 2001 was approximately
$287 million.
All seven banking subsidiaries are members of the FHLB. 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
22
as the Company as a whole. As of September 30, 2001, the Company had
$707,514,000 of available FHLB line of which $360,654,000 was utilized.
Total loans, net of the reserve for loan losses, have increased $635 million. We
continue to sell the majority of the real estate loan production. Acquired with
WesterFed were dealer originated consumer loans. We have discontinued the
origination and purchase of these loan types. Commercial loans continue to
increase.
September 30,
-----------------------------
LIABILITY GROWTH ($ IN THOUSANDS) 2001 2000 $ change % change
---------- ---------- ---------- --------
Non-interest bearing deposits $ 244,450 152,022 92,428 60.80%
Interest-bearing deposits 1,209,469 564,965 644,504 114.08%
Advances from Federal Home Loan Bank 360,654 177,909 182,745 102.72%
Other borrowed funds 41,412 28,684 12,728 44.37%
Other liabilities 32,385 10,623 21,762 204.86%
Trust preferred securities 35,000 -- 35,000 100.00%
---------- ---------- ---------- ------
Total liabilities $1,923,370 934,203 989,167 105.88%
========== ========== ========== ======
Total deposits have increased $737 million over the September 30, 2000 balances.
Total deposits acquired, net of branch sales, were $712 million, leaving an
increase of $25 million from internal activity. Non-interest bearing deposits
are up $92 million, or 61 percent, and interest-bearing deposits have increased
$645 million, or 114 percent. Federal home loan bank advances, other borrowed
funds, including the subordinated debentures issued with the trust preferred
security, and repurchase agreements, have increased $230 million.
Capital as a percentage of assets ratio is at 8.2 percent at September 30, 2001.
The book value per share has increased from $8.57 at December 31, 2000 to $10.26
at September 30, 2001.
September 30, June 30, March 31,
CREDIT QUALITY INFORMATION ($ IN THOUSANDS) 2001 2001 2001
---------- ---------- ----------
Allowance for loan losses $ 18,528 18,466 17,047
Non-performing assets $ 11,089 11,918 7,892
Allowance as a percentage of non performing assets 167.08% 154.94% 216.00%
Non-performing assets as a percentage of total assets 0.53% 0.55% 0.37%
Allowance as a percentage of total loans 1.35% 1.32% 1.21%
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at September 30, 2001 were
.53 percent versus .28 percent at the same time last year, which compares to the
Peer Group average of .56 percent at June 30, 2001, the most recent information
available. The reserve for loan losses was 167 percent of non-performing assets
at September 30, 2001, down from 389 percent a year ago.
With the growth in loan balances, and 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 reserve
for loan losses account. The reserve balance has increased $10.720 million,
including $8.893 million of acquired reserves as a result of the acquisitions,
or 137 percent, to $18.528 million, which is 1.35 percent of total
23
loans outstanding, up from 1.08 percent of loans at September 30, 2000. The
third quarter provision expense for loan losses was $1.006 million, up from $491
thousand during the same quarter in 2000.
Results of Operations -- The three months ended September 30, 2001 compared
to the three months ended September 30, 2000.
REVENUE SUMMARY
($ IN THOUSANDS) Three months ended September 30,
-------------------------------------------------------------
2001 2000 $ change % change
------- ------- -------- --------
Net interest income $19,199 10,519 8,680 82.52%
Fees and other revenue:
Service charges and fees 4,265 2,505 1,760 70.26%
Gain on sale of loans 1,111 545 566 103.85%
Other income 419 531 (112) -21.09%
------- ------- ------- ------
Total non-interest income 5,795 3,581 2,214 61.83%
------- ------- ------- ------
Total revenue $24,994 14,100 10,894 77.26%
======= ======= ======= ======
Net interest margin 4.08% 4.50%
======= ======
Net Interest Income
Net interest income for the quarter increased $8.680 million, or 82 percent,
over the same period in 2000. The growth in earning assets and the increase in
non-interest bearing deposits resulted in a significant increase in net interest
income. The net interest margin as a percentage of earning assets, on a tax
equivalent basis, has declined from 4.5 percent at September 30, 2000 to 4.08
percent in 2001. The margin on assets acquired in the purchase transactions were
lower than the margin on existing assets.
Non-interest Income
Fee income was $1.760 million, or 70 percent higher in the third quarter of 2001
than the same quarter in 2000. Gain on sale of loans increased $566 thousand, or
104 percent, and other income was down $112 thousand primarily because of gain
on sale of a branch office in 2000. Account volume increases and strong mortgage
origination activity continues to drive revenue growth.
EXPENSE SUMMARY
($ IN THOUSANDS) Three months ended September 30,
----------------------------------------------------------
2001 2000 $ change % change
------- ------ -------- --------
Compensation and employee benefits $ 7,392 $ 3,992 $ 3,400 85.17%
Occupancy and equipment expense 2,187 1,221 966 79.12%
Outsourced data processing 707 264 443 167.80%
Core deposit intangible amortization 383 50 333 666.00%
Goodwill amortization 492 91 401 440.66%
Other expenses 3,948 1,855 2,093 112.83%
------- ------- ------- ------
Total non-interest expense $15,109 $ 7,473 $ 7,636 102.18%
------- ------- ------- ------
24
Non-interest Expense
Non-interest expense increased by $7.636 million, or 102 percent, over the same
quarter of 2000. Included in the 2001 total is $325 thousand in merger and
conversion expense. Intangible asset amortization in the form of core deposit
and goodwill was $383 thousand and $492 thousand, respectively, which is an
increase of $734 thousand over the prior year.
Results of Operations -- The nine months ended September 30, 2001 compared
to the nine months ended September 30, 2000.
REVENUE SUMMARY
($ IN THOUSANDS) Nine months ended September 30,
-----------------------------------------------------------
2001 2000 $ change % change
------- ------- -------- --------
Net interest income $51,428 30,579 20,849 68.18%
Fees and other revenue:
Service charges and fees 11,737 7,255 4,482 61.78%
Gain on sale of loans 2,766 1,512 1,254 82.94%
Other income 2,173 1,330 843 63.38%
------- ------- ------- -----
Total non-interest income 16,676 10,097 6,579 65.16%
------- ------- ------- -----
Total revenue $68,104 40,676 27,428 67.43%
======= ======= ======= =====
Net interest margin 3.98% 4.40%
======= ======
Net Interest Income
Net interest income for the nine months was $51.428 million, an increase of
$20.849 million, or 68 percent, over the same period in 2000. The growth in
earning assets and the increase in non-interest bearing deposits resulted in a
significant increase in net interest income. The net interest margin continues
to be a challenge as the spread on assets acquired is less than from the
previous asset base. As a percentage of earning assets, the year-to-date margin
has declined from 4.40 percent to 3.98 percent in 2001.
Non-interest Income
Fee income was $4.482 million, or 62 percent, higher in the first nine months of
2001 than the same period in 2000. Gain on sale of loans increased $1.254
million, or 83 percent, and other income was up $843 thousand, of which $511
thousand was from the gain on sale of the Glacier Bank Cut Bank branch.
EXPENSE SUMMARY
($ IN THOUSANDS) Nine months ended September 30,
----------------------------------------------------------
2001 2000 $ change % change
------- ------- -------- --------
Compensation and employee benefits $20,182 $12,078 $ 8,104 67.10%
Occupancy and equipment expense 6,147 3,568 2,579 72.28%
Outsourced data processing 2,007 1,143 864 75.59%
Core deposit intangible amortization 957 150 807 538.00%
Goodwill amortization 1,229 269 960 356.88%
Other expenses 10,462 5,887 4,575 77.71%
------- ------- ------- ------
Total non-interest expense $40,984 $23,095 $17,889 77.46%
------- ------- ------- ------
25
Non-interest Expense
Non-interest expense increased by $17.889 million, or 77 percent, over the same
nine months of 2000. Included in the 2001 total is $1.250 million in merger and
conversion expense. Without those non-recurring expenses non-interest expense
increased by $16.639 million, or 72 percent. Compensation and employee benefits
increased $8.104 million or 67 percent. Occupancy and equipment expense was up
$2.579 million, or 72 percent. Outsourced data processing expense increased $864
thousand, or 76 percent, and other expenses were up $4.575 million, or 78
percent. Intangible asset amortization in the form of core deposit and goodwill
was $957 thousand and $1.229 million, respectively, which is an increase of
$1.767 million over the prior year.
Loan Loss Provision
The year-to-date provision expense for loan losses was $3.429 million, up from
$1.483 million during the same period in 2000, an increase of 131 percent. The
reserve has increased because of the increased volume of loans, and the
continuing shift in the mix of loans to commercial from residential. Commercial
loans historically carry a higher risk profile than residential real estate
loans. Net charged off loans as a percentage of loans outstanding were .12 for
the first nine months of 2001 which is slightly higher than the full year 2000
percentage of .09.
Forward-Looking Statements
When used in this press release, the words or phrases `will likely result in',
`are expected to', `will continue', `is anticipated', `estimate', or `project'
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected including general economic conditions,
business conditions in the banking industry, the regulatory environment, new
legislation, vendor quality and efficiency, employee retention factors, rapidly
changing technology and evolving banking industry standards, competitive
standards, competitive factors including increased competition among financial
institutions and fluctuating interest rate environments. Readers are cautioned
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made. Readers should also care review the risk factors
described in the company's most recent quarterly report on Form 10-Q for the
periods ending March 31, 2001, and June 30, 2001, its Annual Report on Form 10-K
for the period ending December 31, 2000 and other documents the company files
from time to time with the Securities Exchange Commission.
Headquartered in Kalispell, Montana, Glacier Bancorp, Inc. conducts business
from Glacier Bank of Kalispell, First Security Bank of Missoula, Glacier Bank of
Whitefish, Valley Bank of Helena, Big Sky Western Bank, Western Security Bank,
all located in Montana, and Mountain West Bank located in Idaho with two
branches in Utah.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT 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
26
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.
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 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 July 31, 2001, the most recent
information available, as compared to the 10% Board approved policy limit
(dollars in thousands).
Interest Rate Sensitivity
+200 bp -200 bp
------- -------
Estimated sensitivity -2.74% 0.55%
Estimated increase (decrease) in net interest income $ (2,439) 493
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.
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
27
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
None
(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 9, 2001 /s/Michael J. Blodnick
President/CEO
November 9, 2001 /s/James H. Strosahl
Executive Vice President/CFO
28