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 March 31, 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 May 13, 2002
was 17,134,632. 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 --
March 31, 2002, December 31, and March 31, 2001 (unaudited)............... 3
Consolidated Statements of Operations --
Three months ended March 31, 2002 and 2001 (unaudited)................... 4
Consolidated Statements of Stockholders' Equity and
Comprehensive Income -- Years ended December 31, 2000
2001 and Three months ended March 31, 2002 (unaudited).................... 5
Consolidated Statements of Cash Flows --
Three months ended March 31, 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.......................... 18
Item 3 -- Quantitative and Qualitative Disclosure about Market Risk................. 22
PART II. OTHER INFORMATION......................................................... 23
Item 1 -- Legal Proceedings......................................................... 23
Item 2 -- Changes in Securities and Use of proceeds................................. 23
Item 3 -- Defaults Upon Senior Securities........................................... 23
Item 4 -- Submission of Matters to a Vote of Security Holders....................... 23
Item 5 -- Other Information......................................................... 23
Item 6 -- Exhibits and Reports on Form 8-K.......................................... 23
Signatures.......................................................................... 23
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, December 31, March 31,
(Unaudited - dollars in thousands except per share data) 2002 2001 2001
- -------------------------------------------------------- ------------ ----------- -----------
ASSETS:
Cash on hand and in banks ............................................ $ 62,677 73,456 59,715
Interest bearing cash deposits ....................................... 14,565 23,970 3,455
------------ ----------- -----------
Cash and cash equivalents ................................. 77,242 97,426 63,170
------------ ----------- -----------
Investments:
Investment securities, available-for-sale ................. 187,031 158,036 164,135
Mortgage backed securities, available-for-sale ............ 378,841 350,542 354,168
------------ ----------- -----------
Total investments .................................... 565,872 508,578 518,303
------------ ----------- -----------
Net loans receivable:
Real estate loans ......................................... 387,659 421,996 505,840
Commercial Loans .......................................... 625,287 620,134 563,269
Consumer and other loans .................................. 290,317 298,851 339,570
Allowance for loan losses ................................. (19,498) (18,654) (17,047)
------------ ----------- -----------
Total loans, net ..................................... 1,283,765 1,322,327 1,391,632
------------ ----------- -----------
Premises and equipment, net .......................................... 48,898 50,566 58,286
Real estate and other assets owned, net .............................. 921 593 451
Federal Home Loan Bank of Seattle stock, at cost ..................... 33,836 32,822 30,625
Federal Reserve stock, at cost ....................................... 4,202 4,185 1,722
Accrued interest receivable .......................................... 12,489 12,409 12,973
Core deposit intangible, net ......................................... 7,900 8,261 10,343
Goodwill, net ........................................................ 33,487 33,510 37,647
Other assets ......................................................... 14,943 15,070 7,627
------------ ----------- -----------
$ 2,083,555 2,085,747 2,132,779
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits - non-interest bearing ...................................... $ 238,243 234,318 227,362
Deposits - interest bearing .......................................... 1,188,634 1,211,746 1,278,419
Advances from Federal Home Loan Bank of Seattle ...................... 373,985 367,295 355,457
Securities sold under agreements to repurchase ....................... 31,823 32,585 28,270
Other borrowed funds ................................................. 8,146 1,060 12,304
Accrued interest payable ............................................. 7,313 9,179 12,121
Current income taxes ................................................. 3,652 95 887
Deferred tax liability ............................................... 1,449 1,780 3,327
Trust preferred securities ........................................... 35,000 35,000 35,000
Minority interest .................................................... -- -- 351
Other liabilities .................................................... 12,804 15,706 20,568
------------ ----------- -----------
Total liabilities ......................................... 1,901,049 1,908,764 1,974,066
------------ ----------- -----------
Preferred shares, 1,000,000 shares authorized. None outstanding ...... -- -- --
Common stock, $.01 par value per share
50,000,000 shares authorized ....................................... 171 169 161
Paid-in capital ...................................................... 169,386 167,371 158,294
Retained earnings (deficit) - substantially restricted ............... 11,699 7,687 (2,586)
Accumulated other comprehensive income ............................... 1,250 1,756 2,844
------------ ----------- -----------
Total stockholders' equity ................................ 182,506 176,983 158,713
------------ ----------- -----------
$ 2,083,555 2,085,747 2,132,779
============ =========== ===========
Number of shares outstanding ......................................... 17,074,413 16,874,422 16,061,254
Book value of equity per share ....................................... $ 10.69 10.49 9.88
Tangible book value per share ........................................ $ 8.26 8.01 6.89
See accompanying notes to consolidated financial statements
3
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
----------------------------
(unaudited - dollars in thousands except per share data) 2002 2001
- -------------------------------------------------------- ----------- ----------
INTEREST INCOME:
Real estate loans ...................................... $ 7,838 6,689
Commercial loans ....................................... 11,432 9,377
Consumer and other loans ............................... 5,813 5,052
Investments ............................................ 7,995 5,257
----------- ----------
Total interest income ............................ 33,078 26,375
----------- ----------
INTEREST EXPENSE:
Deposits ............................................... 7,442 8,734
FHLB Advances .......................................... 4,185 3,611
Securities sold under agreements to repurchase ......... 156 263
Trust preferred securities ............................. 904 601
Other borrowed funds ................................... 24 64
----------- ----------
Total interest expense ........................... 12,711 13,273
----------- ----------
NET INTEREST INCOME ............................................. 20,367 13,102
Provision for loan losses .............................. 1,300 585
----------- ----------
Net interest income after provision for
loan losses ..................................... 19,067 12,517
----------- ----------
NON-INTEREST INCOME:
Service charges and other fees ......................... 3,163 2,443
Miscellaneous loan fees and charges .................... 843 693
Gains on sale of loans ................................. 1,097 467
Gains on sale of investments, net ...................... -- 64
Other income ........................................... 746 460
----------- ----------
Total non-interest income ......................... 5,849 4,127
----------- ----------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses ................................. 7,782 5,257
Occupancy and equipment expense ........................ 2,301 1,459
Data processing expense ................................ 446 261
Core deposit intangibles amortization .................. 361 168
Goodwill amortization .................................. 249 224
Other expenses ......................................... 3,475 3,131
Minority interest ...................................... -- 15
----------- ----------
Total non-interest expense ........................ 14,614 10,515
----------- ----------
EARNINGS BEFORE INCOME TAXES .................................... 10,302 6,129
Federal and state income tax expense ................... 3,554 2,215
----------- ----------
NET EARNINGS .................................................... $ 6,748 3,914
=========== ==========
Basic earnings per share ........................................ $ 0.40 0.30
Diluted earnings per share ...................................... $ 0.39 0.29
Dividends declared per share .................................... $ 0.16 0.15
Return on average assets (annualized) ........................... 1.30% 1.14%
Return on average equity (annualized) ........................... 14.76% 13.14%
Return on tangible average equity (annualized) .................. 19.17% 14.64%
Average outstanding shares - basic .............................. 17,014,148 13,020,217
Average outstanding shares - diluted ............................ 17,298,634 13,569,827
See accompanying notes to consolidated financial statements.
4
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001, 2000, AND THREE MONTHS ENDED MARCH 31, 2002
Retained
earnings Accumulated
(accumulated other com- Total
Common Stock deficit) prehensive stock-
------------------- Paid-in substantially income holders'
(Unaudited - dollars in thousands except per share data) Shares Amount capital restricted (loss) 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 ($.60 per share) ............... -- -- -- (9,915) -- (9,915)
Stock options exercised ................................ 864,571 9 6,755 -- -- 6,764
Tax benefit from stock related compensation ............ -- -- 2,778 -- -- 2,778
Conversion of debentures ............................... 32,239 1 341 -- -- 342
Stock issued in connection with merger of
WesterFed Financial Corporation ...................... 4,530,462 45 55,669 -- -- 55,714
---------- ---- ------- ------- ------ --------
Balance at December 31, 2001 ........................... 16,874,422 169 167,371 7,687 1,756 176,983
Comprehensive income:
Net earnings ...................................... -- -- -- 6,748 -- 6,748
Unrealized loss on securities, net of
reclassification adjustment ..................... -- -- -- -- (506) (506)
--------
Total comprehensive income ............................. 6,242
--------
Cash dividends declared ($.16 per share) ............... -- -- -- (2,736) -- (2,736)
Stock options exercised ................................ 199,991 2 2,100 -- -- 2,102
---------- ---- ------- ------- ------ --------
Balance at March 31, 2002 .............................. 17,074,413 $171 169,471 11,699 1,250 182,591
========== ==== ======= ======= ====== ========
See accompanying notes to consolidated financial statements
5
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
----------------------------
(Unaudited - dollars in thousands except per share data) 2002 2001
- -------------------------------------------------------- ------------- -----------
OPERATING ACTIVITIES :
Net cash provided by (used in) operating activities ....................... $ 35,128 (8,249)
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of
investments available-for-sale ........................................ 48,112 81,243
Purchases of investments available-for-sale ............................... (107,544) (197,529)
Principal collected on installment and commercial loans ................... 139,176 74,874
Installment and commercial loans originated or acquired ................... (150,780) (83,012)
Principal collections on mortgage loans ................................... 62,097 44,102
Mortgage loans originated or acquired ..................................... (39,642) (35,702)
Net purchase of FHLB and FRB stock ........................................ (541) (845)
Acquisition of WesterFed Financial Corporation and several branches ....... -- 109,905
Net decrease (increase) in premises and equipment ......................... 704 (1,990)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES ................................ (48,418) (8,954)
--------- --------
FINANCING ACTIVITIES:
Net decrease in deposits .................................................. (19,188) (2,312)
Net increase in FHLB advances and other borrowed funds .................... 13,775 1,282
Net decrease in securities sold under repurchase agreements ............... (762) (4,459)
Proceeds from issuance of trust preferred securities ...................... -- 35,000
Cash dividends paid to stockholders ....................................... (2,736) (1,723)
Proceeds from exercise of stock options and other stock issued ............ 2,017 799
--------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ................... (6,894) 28,587
--------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .................. (20,184) 11,384
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 97,426 51,786
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 77,242 63,170
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest ................................. $ 14,577 5,743
Income taxes ............................. $ -- 85
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 March 31, 2002, December 31, 2001, and March 31, 2001 and the
results of operations and cash flows for the three months ended March 31,
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 three months ended March 31,
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 operating 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.
CFI provides full service brokerage services through Raymond James
Financial Services, Inc.
The following abbreviated organizational chart illustrates the various
relationships:
<Table>
Glacier Bancorp, Inc.
(Parent Holding Company)
Glacier Bank First Security Bank Western Security Bank Mountain West Bank
(Commercial bank) of Missoula (Commercial bank) of Coeur d'Alene
(Commercial bank) (Commercial bank)
Big Sky Valley Bank Glacier Bank Community First, Inc.
Western Bank of Helena of Whitefish (Brokerage services)
(Commercial Bank) (Commercial bank) (Commercial bank)
Glacier Capital
Trust 1
</Table>
7
3) Ratios:
Returns on average assets and average equity were calculated based on
daily averages.
4) Cash Dividend Declared:
On March 27, 2002, the Board of Directors declared a $.16 per share
quarterly cash dividend to stockholders of record on April 9, 2002,
payable on April 18, 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
months ended months ended
March 31, 2002 March 31, 2001
-------------- --------------
Net earnings available to common
stockholders, basic ........................... $ 6,747,830 3,914,266
After tax effect of interest on
convertible subordinated debentures ........ -- 4,000
----------- ----------
Net earnings available to common
stockholders, diluted ......................... $ 6,747,830 3,918,266
=========== ==========
Average outstanding shares - basic ............... $17,014,148 13,020,217
Add: Dilutive stock options ..................... 284,486 516,585
Convertible subordinated debentures ........ -- 33,025
----------- ----------
Average outstanding shares - diluted ............. $17,298,634 13,569,827
=========== ==========
Basic earnings per share ......................... $ 0.40 0.30
=========== ==========
Diluted earnings per share ....................... $ 0.39 0.29
=========== ==========
6) Investments:
A comparison of the amortized cost and estimated fair value of the
Company's investments is as follows:
8
INVESTMENTS AS OF MARCH 31, 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 .......................... 3.59% $ 1,313 14 (2) 1,325
-------- ------ -------- -------
3.59% 1,313 14 (2) 1,325
-------- ------ -------- -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .......................... 5.71% 1,633 19 -- 1,652
maturing one year through five years .............. 5.45% 14,016 232 (102) 14,146
maturing five years through ten years ............. 5.66% 1,799 44 (3) 1,840
maturing after ten years .......................... 5.64% 168,259 1,758 (2,108) 167,909
-------- ------ -------- -------
5.63% 185,707 2,053 (2,213) 185,547
-------- ------ -------- -------
MORTGAGE-BACKED SECURITIES .......................... 5.64% 111,696 1,639 (116) 113,219
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ............ 6.04% 265,093 2,717 (2,029) 265,781
-------- ------ -------- -------
TOTAL AVAILABLE-FOR-SALE INVESTMENTS ......... 5.82% $563,809 6,423 (4,360) 565,872
======== ====== ======== =======
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
-------- ------ -------- -------
TOTAL AVAILABLE FOR SALE INVESTMENTS ........... 5.96% $505,673 6,760 (3,855) 508,578
======== ====== ======== =======
9
7) Loans
The following table summarizes the Company's loan portfolio. The loans
mature or are repriced at various times.
At At
3/31/02 12/31/01
------------------------- -------------------------
TYPE OF LOAN Amount Percent Amount Percent
----------- ------- ----------- -------
REAL ESTATE LOANS:
Residential first mortgage loans $ 367,520 28.63% $ 395,417 29.90%
Loans held for sale 20,888 1.63% 27,403 2.07%
----------- -----------
Total 388,408 30.26% 422,820 31.97%
COMMERCIAL LOANS:
Real estate 383,550 29.88% 379,346 28.69%
Other commercial loans 242,851 18.92% 241,811 18.29%
----------- -----------
Total 626,401 48.80% 621,157 46.98%
INSTALLMENT AND OTHER LOANS:
Consumer loans 135,053 10.52% 142,875 10.80%
Home equity loans 155,438 12.11% 156,140 11.81%
----------- -----------
Total 290,491 22.63% 299,015 22.61%
Net deferred loan fees, premiums
and discounts (2,037) -0.17% (2,011) -0.15%
Allowance for Losses (19,498) -1.52% (18,654) -1.41%
----------- -----------
NET LOANS $ 1,283,765 100.00% 1,322,327 100.00%
=========== ===========
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated:
NONPERFORMING ASSETS At At
(Dollars in Thousands) 3/31/2002 12/31/2001
--------- ----------
NON-ACCRUAL LOANS:
Mortgage loans $ 3,297 $ 4,044
Commercial loans 5,245 4,568
Consumer loans 665 620
------- -------
TOTAL 9,207 9,232
ACCRUING LOANS 90 DAYS OR MORE OVERDUE:
Mortgage loans 1,516 818
Commercial loans 1,061 376
Consumer loans 131 243
------- -------
TOTAL 2,708 1,437
Troubled debt restructuring: -- --
Real estate and other assets owned, net 921 593
------- -------
TOTAL NON-PERFORMING LOANS, TROUBLED DEBT
RESTRUCTURINGS, AND REAL ESTATE AND OTHER
ASSETS OWNED, NET $12,836 $11,262
======= =======
AS A PERCENTAGE OF TOTAL ASSETS 0.61% 0.53%
Interest Income(1) $ 175 $ 658
(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.
10
The following table illustrates the loan loss experience:
Three months ended Year ended
March 31, December 31,
(Dollars in Thousands) 2002 2001
------------------ ------------
BALANCE AT BEGINNING OF PERIOD $ 18,654 7,799
CHARGE OFFS:
Residential real estate (63) (677)
Commercial loans (312) (723)
Consumer loans (447) (2,029)
-------- --------
Total charge offs $ (822) (3,429)
-------- --------
RECOVERIES:
Residential real estate 5 33
Commercial loans 61 266
Consumer loans 300 567
-------- --------
Total recoveries $ 366 866
-------- --------
CHARGEOFFS, NET OF RECOVERIES (456) (2,563)
PURCHASED RESERVE -- 8,893
PROVISION 1,300 4,525
-------- --------
BALANCE AT END OF PERIOD $ 19,498 18,654
======== ========
RATIO OF NET CHARGE OFFS TO AVERAGE
LOANS OUTSTANDING DURING THE PERIOD 0.03% 0.20%
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
March 31, 2002 December 31, 2001
--------------------------- --------------------------
Percent Percent
of loans in of loans in
(Dollars in thousands) Allowance category Allowance category
- ---------------------- --------- ----------- --------- -----------
Residential first mortgage
and loans held for sale $ 2,611 29.8% 2,722 31.5%
Commercial real estate 6,163 29.4% 5,906 28.3%
Other commercial 6,922 18.6% 6,225 18.0%
Consumer 3,802 22.2% 3,801 22.2%
------- ----- ------- -----
Totals $19,498 100.0% 18,654 100.0%
======= ===== ======= =====
8) Deposits
The following table illustrates the amounts outstanding for deposits
greater than $100,000 at March 31, 2002, according to the time remaining
to maturity:
Certificates Demand
(Dollars in thousands) of Deposit Deposits Totals
- ---------------------- ------------ -------- ------
Within three months .......... $33,280 311,467 344,747
Three to six months .......... 20,795 -- 20,795
Seven to twelve months ....... 22,872 -- 22,872
Over twelve months ........... 10,767 -- 10,767
------- ------- -------
Totals .................... $87,714 311,467 399,181
======= ======= =======
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:
March 31, December 31,
(Dollars in thousands) 2002 2001
--------- ------------
FHLB Advances
Amount outstanding at end of period ........ $373,985 367,295
Average balance ............................ $368,352 349,023
Maximum outstanding at any month-end ....... $373,985 416,222
Weighted average interest rate ............. 4.61% 5.24%
Repurchase Agreements:
Amount outstanding at end of period ........ $ 31,823 32,585
Average balance ............................ $ 35,124 27,375
Maximum outstanding at any month-end ....... $ 41,113 37,814
Weighted average interest rate ............. 1.80% 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 March 31, 2002:
CONSOLIDATED Tier 1 (Core) Tier 2 (Total) Leverage
(Dollars in thousands) Capital Capital Capital
- ---------------------- ------------- -------------- --------
GAAP Capital ...................................... $ 182,506 182,506 182,506
Less: Goodwill and intangibles .................... (41,387) (41,387) (41,387)
Accumulated other comprehensive
gain on AFS securities ........................ (1,250) (1,250) (1,250)
Plus: Allowance for loan losses ................... -- 16,600 --
Trust preferred securities .................... 35,000 35,000 35,000
----------- ----------- -----------
Regulatory capital computed ....................... $ 174,869 191,469 174,869
=========== =========== ===========
Risk weighted assets .............................. $ 1,394,020 1,394,020
===========
Total average assets .............................. 2,036,631
===========
Capital as % of defined assets .................... 12.54% 13.74% 8.59%
Regulatory "well capitalized" requirement ......... 6.00% 10.00% 5.00%
----------- ----------- -----------
Excess over "well capitalized" requirement ........ 6.54% 3.74% 3.59%
=========== =========== ===========
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
ended March 31,
-------------------------
Dollars in thousands 2002 2001
- -------------------- ------- -------
Net earnings .................................................... $ 6,748 3,914
Unrealized holding (loss) gain arising during the period ........ (834) 4,212
Transfer from held-to-maturity .................................. -- --
Tax expense ..................................................... 328 (1,665)
------- -------
Net after tax ....................................... (506) 2,547
Reclassification adjustment for gains
included in net income ....................................... -- 64
Tax expense ..................................................... -- (25)
------- -------
Net after tax ....................................... -- 39
Net unrealized (loss) gain on securities ............ (506) 2,586
------- -------
Total comprehensive earnings .................... $ 6,242 6,500
======= =======
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, nonbank 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.
Three months ended and as of March 31, 2002
---------------------------------------------------------------
First Mountain
(Dollars in thousands) Glacier Security Western West Big Sky
- ---------------------- ------- -------- ------- -------- -------
Revenues from external customers $ 9,157 8,482 6,852 5,950 3,219
Intersegment revenues 101 7 6 -- --
Expenses 6,988 6,620 5,662 5,331 2,608
Intercompany eliminations -- -- -- -- --
-------- -------- -------- -------- ---------
Net income $ 2,270 1,869 1,196 619 611
======== ======== ======== ======== =========
Total Assets $476,815 434,346 392,493 345,861 166,766
======== ======== ======== ======== =========
Total
Valley Whitefish Other Consolidated
-------- -------- -------- ------------
Revenues from external customers 3,147 2,055 65 38,927
Intersegment revenues 19 -- 8,873 9,006
Expenses 2,616 1,594 760 32,179
Intercompany eliminations -- -- (9,006) (9,006)
-------- -------- -------- ---------
Net income 550 461 (828) 6,748
======== ======== ======== =========
Total Assets 165,601 117,891 (16,218) 2,083,555
======== ======== ======== =========
13
Three months ended and as of March 31, 2001
----------------------------------------------------------------
First Mountain
(Dollars in thousands) Glacier Security Western West Big Sky
- ---------------------- -------- -------- -------- -------- --------
Revenues from external customers $ 9,487 5,068 6,280 3,716 1,714
Intersegment revenues 311 10 -- 143 --
Expenses 8,173 4,098 5,480 3,694 1,548
Intercompany eliminations -- -- -- -- --
-------- -------- -------- -------- ---------
Net income $ 1,625 980 800 165 166
======== ======== ======== ======== =========
Total Assets $462,992 212,027 916,113 308,467 77,955
======== ======== ======== ======== =========
Total
Valley Whitefish Other Consolidated
------ --------- ----- ------------
Revenues from external customers 2,037 1,974 226 30,502
Intersegment revenues 31 3 5,244 5,742
Expenses 1,741 1,616 238 26,588
Intercompany eliminations -- -- (5,742) (5,742)
-------- -------- -------- ---------
Net income 327 361 (510) 3,914
======== ======== ======== =========
Total Assets 86,992 91,224 (22,991) 2,132,779
======== ======== ======== =========
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.
Three Months Ended March 31,
2002 vs. 2001
(Dollars in Thousands) Increase (Decrease) due to:
----------------------------------
INTEREST INCOME Volume Rate Net
------- ------- -------
Real Estate Loans $ 1,676 (527) 1,149
Commercial Loans 4,594 (2,539) 2,055
Consumer and Other Loans 1,711 (950) 761
Investment Securities 4,193 (1,455) 2,738
------- ------- -------
Total Interest Income 12,174 (5,471) 6,703
NOW Accounts 192 (299) (107)
Savings Accounts 258 (351) (93)
Money Market Accounts 1,165 (1,823) (658)
Certificates of Deposit 2,350 (2,784) (434)
FHLB Advances 1,867 (1,293) 574
Other Borrowings and
Repurchase Agreements 402 (246) 156
------- ------- -------
Total Interest Expense 6,234 (6,796) (562)
------- ------- -------
NET INTEREST INCOME $ 5,940 1,325 7,265
======= ======= =======
14
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.
AVERAGE BALANCE SHEET For the Three months ended 3-31-02 For the year ended 12-31-01
------------------------------------- ----------------------------------
(Dollars in Thousands) Interest Average Interest Average
Average and Yield/ Average and Yield/
ASSETS Balance Dividends Rate Balance Dividends Rate
------------ --------- ------- ---------- --------- -------
Real Estate Loans $ 402,041 7,838 7.80% $ 428,999 34,012 7.93%
Commercial Loans 619,317 11,432 7.49% 556,907 48,292 8.67%
Consumer and Other Loans 292,149 5,813 8.07% 292,732 25,528 8.72%
------------ ------- ---------- -------
Total Loans 1,313,507 25,083 7.74% 1,278,638 107,832 8.43%
Investment Securities 590,430 7,995 5.42% 501,927 30,088 5.99%
------------ ------- ---------- -------
Total Earning Assets 1,903,937 33,078 6.95% 1,780,565 137,920 7.75%
------- -------
Non-Earning Assets 165,708 165,687
------------ ----------
TOTAL ASSETS $ 2,069,645 $1,946,252
============ ==========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW Accounts $ 201,484 215 0.43% $ 183,399 1,758 0.96%
Savings Accounts 123,398 242 0.79% 102,736 1,855 1.81%
Money Market Accounts 332,262 1,713 2.09% 287,150 9,575 3.33%
Certificates of Deposit 525,475 5,272 4.07% 552,469 29,504 5.34%
FHLB Advances 368,352 4,185 4.61% 349,023 18,280 5.24%
Repurchase Agreements
and Other Borrowed Funds 76,621 1,084 5.73% 66,658 4,574 6.86%
------------ ------- ---------- -------
Total Interest Bearing
Liabilities 1,627,592 12,711 3.17% 1,541,435 65,546 4.25%
------- -------
Non-interest Bearing Deposits 228,533 216,238
Other Liabilities 30,646 27,847
------------ ----------
Total Liabilities 1,886,771 1,785,520
------------ ----------
Common Stock 170 157
Paid-In Capital 167,750 152,420
Retained Earnings 11,461 5,929
Accumulated Other
Comprehensive Earnings (Loss) 3,493 2,226
------------ ----------
Total Stockholders' Equity 182,874 160,732
------------ ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,069,645 $1,946,252
============ ==========
NET INTEREST INCOME $20,367 $72,374
======= =======
NET INTEREST SPREAD 3.78% 3.49%
NET INTEREST MARGIN
ON AVERAGE EARNING ASSETS 4.28% 4.06%
RETURN ON AVERAGE ASSETS 1.30% 1.11%
RETURN ON AVERAGE EQUITY 14.76% 13.49%
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. Statement 141 requires that the purchase method
of accounting be used for all business combinations initiated after June
30, 2001 as
15
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 continue to be
subject to provisions of Statement 72, Accounting for Certain Acquisitions
of Banking or Thrift Institutions. 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 effective
January 1, 2002.
Statement 141 requires 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 is 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 is identified as having an indefinite useful life, the Company is
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. The Company evaluated its existing intangible
assets and goodwill as required by Statement 142, and determined that no
adjustments are required at this time.
In connection with the transitional goodwill impairment evaluation,
Statement 142 requires 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 (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 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 (January 1, 2002).
This second step 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.
16
The following table sets forth information regarding the Company's core
deposit intangibles, amortizable goodwill, and mortgage servicing rights:
As of March 31, 2002
--------------------------------------------------------------
Core Deposit Amortizable Mortgage
(Dollars in thousands) Intangible Goodwill Servicing Rights(1) Total
- ---------------------- ------------ ----------- ------------------- -----
Gross carrying value $ 9,836 20,489
Accumulated Amortization (1,936) (1,242)
------- ------
Net carrying value $ 7,900 19,247 2,188 29,335
======= ======
AGGREGATE AMORTIZATION EXPENSE
For the three months ended March 31, 2002 $ 361 249 91 701
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2002 $ 1,439 995 294 2,728
For the year ended December 31, 2003 1,219 995 266 2,480
For the year ended December 31, 2004 1,011 995 260 2,266
For the year ended December 31, 2005 847 995 253 2,095
For the year ended December 31, 2006 779 995 246 2,020
(1) Gross carrying value and accumulated amortization are not readily available
At March 31, 2002, the Company's goodwill totaled $33.487 million, of
which $14.240 million represents goodwill that is no longer being
amortized as of January 1, 2002 pursuant to Statement 142. The changes in
the carrying amount of goodwill for the three months ended March 31, 2002
are as follows.
Balance Goodwill Amortization Balance
At Adjustments for three months At
(Dollars in thousands) 12/31/2001 2002 ended 3/31/02 3/31/2002
- ---------------------- ---------- ----------- ---------------- ---------
Parent $ 2,151 -- -- 2,151
Glacier Bank 4,074 9 (29) 4,054
First Security 3,796 -- -- 3,796
Western 4,193 217 -- 4,410
Mountain 16,818 -- (220) 16,598
Big Sky 1,752 -- -- 1,752
Valley 726 -- -- 726
Whitefish -- -- -- --
------- ------- ------- -------
$33,510 226 (249) 33,487
======= ======= ======= =======
17
The impact of the adoption of Statement 142 on earnings is as follows:
For the Three Months
Ended March 31,
---------------------------
(Dollars in thousands) 2002 2001
- ---------------------- ------ -----
Reported net income $6,748 3,914
Add back goodwill amortization, net of tax -- 80
------ -----
Adjusted net income $6,748 3,994
====== =====
For the Three Months Ended March 31,
----------------------------------------------------------------------
2002 2001
------------------------------ ------------------------------
Basic EPS Diluted EPS Basic EPS Diluted EPS
--------- ----------- --------- -----------
Reported net income $0.40 0.39 0.30 0.29
Add back goodwill amortization, net of tax -- -- 0.01 --
----- ----- ----- -----
Adjusted net income $0.40 0.39 0.31 0.29
===== ===== ===== =====
As of March 31, 2002, the Company has identified its reporting units as
its banking subsidiaries and has allocated goodwill accordingly. Because
of the extensive effort needed to comply with adopting Statements 141 and
142, it is not practicable to reasonably estimate the full impact of
adopting these Statements on the Company's consolidated financial
statements at the date of this report, except that upon adoption the
Company does not anticipate any significant adjustments to the useful
lives or residual values of its intangible assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
This section discusses the changes in Statement of Financial Condition items
from March 31, 2002 to March 31, 2001.
March 31,
--------------------------
ASSETS ($ IN THOUSANDS) 2002 2001 $ change % change
- ----------------------- ----------- --------- -------- --------
Cash on hand and in banks $ 62,677 59,715 2,962 5.0%
Investment securities and interest bearing deposits 618,475 554,105 64,370 11.6%
Loans:
Real estate 387,659 505,840 (118,181) -23.4%
Commercial and Agricultural 625,287 563,269 62,018 11.0%
Consumer 290,317 339,570 (49,253) -14.5%
----------- --------- -------
Total loans 1,303,263 1,408,679 (105,416) -7.5%
Allowance for loan losses (19,498) (17,047) (2,451) 14.4%
----------- --------- -------
Total loans net of allowance for loan losses 1,283,765 1,391,632 (107,867) -7.8%
----------- --------- -------
Other assets 118,638 127,327 (8,689) -6.8%
----------- --------- -------
Total Assets $ 2,083,555 2,132,779 (49,224) -2.3%
=========== ========= =======
18
Since March 31, 2001 total assets have decreased $49 million, or 2 percent, to
$2.084 billion. The sale of six north central Montana branches in June of 2001
reduced assets by $82 million. After adjusting for the branch sale, assets have
increased $33 million, or 2 percent.
Total loans, net of the reserve for loan losses, have decreased $108 million of
which $22 million was from the branch sale. 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 $118 million.
Commercial loans have increased $62 million and continue to be the lending
focus. Consumer loans have declined $49 million with a significant portion of
the decline attributed to the runoff in the WesterFed dealer originated consumer
loans. We have discontinued the origination and purchase of these loan types and
are focusing on home-equity loans for the consumer loan portfolio.
Investment securities, including Federal Home Loan Bank and Federal Reserve Bank
stock, have increased $64 million offsetting some of the reduction in loans.
The amount of loans serviced for others on March 31, 2002 was approximately $278
million.
March 31,
------------------------------
LIABILITY CHANGE ($ IN THOUSANDS) 2002 2001 $ change % change
---------- --------- -------- --------
Non-interest bearing deposits $ 238,243 227,362 10,881 4.8%
Interest-bearing deposits 1,188,634 1,278,419 (89,785) -7.0%
Advances from Federal Home Loan Bank 373,985 355,457 18,528 5.2%
Other borrowed funds 39,969 40,574 (605) -1.5%
Other liabilities 25,218 37,254 (12,036) -32.3%
Trust preferred securities 35,000 35,000 -- 0.0%
---------- --------- -------
Total liabilities $1,901,049 1,974,066 (73,017) -3.7%
========== ========= =======
Total deposits have decreased $79 million from the March 31, 2001 balances, with
$81 million attributed to the branch sales. Non-interest bearing deposits are up
$11 million, or 5 percent, and interest-bearing deposits are down $90 million,
or 7 percent. Approximately $75 million of the decline in interest-bearing
deposits is the result of the branch sale, with the remainder due primarily to
pricing strategies in the low interest rate environment. Federal home loan bank
advances, other borrowed funds, and repurchase agreements, have increased $18
million. Other liabilities which include accrued interest, dividends, and income
taxes payable have declined $12 million due to the decline in interest bearing
deposits, lower interest rates, and the payment of accrued expenses during 2001
associated with the acquisitions.
Liquidity
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. This 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. 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. As of March 31, 2002, the Company had $700 million of available FHLB line
of which $374 million was utilized. During 2002, all seven financial
institutions maintained liquidity levels in excess of regulatory requirements
and deemed sufficient to meet operation cash needs.
19
STOCKHOLDERS' EQUITY March 31,
--------------------------------------
($ IN THOUSANDS EXCEPT PER SHARE DATA) 2002 2001
----------- -----------
Common equity $ 181,256 $ 155,869
Net unrealized gain on securities 1,250 2,844
----------- -----------
Total stockholders' equity $ 182,506 $ 158,713
=========== ===========
Stockholders' equity to total assets 8.76% 7.44%
Tangible equity to total assets 6.91% 5.31%
Book value per common share $ 10.69 $ 9.88
Tangible book value per common share $ 8.26 $ 6.89
Allowance for Loan Loss and Non-Performing Assets
March 31, December 31, March 31,
CREDIT QUALITY INFORMATION ($ IN THOUSANDS) 2002 2001 2001
---------- ------------ ---------
Allowance for loan losses $ 19,498 18,654 17,047
Non-performing assets $ 12,766 11,275 7,892
Allowance as a percentage of non-performing assets 152.73% 165.45% 216.00%
Non-performing assets as a percentage of total assets 0.61% 0.53% 0.37%
Allowance as a percentage of total loans 1.50% 1.39% 1.21%
Non-performing assets as a percentage of total assets at March 31, 2002 were .61
percent versus .37 percent at the same time last year, which compares to the
Peer Group average of .59 percent at December 31, 2001, the most recent
information available. The reserve for loan losses was 153 percent of
non-performing assets at March 31, 2002, down from 216 percent a year ago. Three
credits are the primary reason for the increase in non-performing assets, and
the Company will continue to work diligently to improve this area.
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 reserve for loan losses account. The
reserve balance has increased $2.451 million from March 31, 2001, or 14 percent,
to $19.498 million, which is 1.50 percent of total loans outstanding, up from
1.21 percent a year ago and 1.39 percent at December 31, 2001. The first quarter
provision expense for loan losses was $1.300 million, up from $585 thousand
during the same quarter in 2001.
20
Results of Operations -- The three months ended March 31, 2002 compared to the
three months ended March 31, 2001.
REVENUE SUMMARY Three months ended March 31,
-----------------------------------------------
($ IN THOUSANDS) 2002 2001 $ change % change
------- ------ -------- --------
Net interest income $20,367 13,102 7,265 55.4%
Fees and other revenue:
Service charges and fees 4,006 3,136 870 27.7%
Gain on sale of loans 1,097 467 630 134.9%
Other income 746 524 222 42.4%
------- ------- ------
Total non-interest income 5,849 4,127 1,722 41.7%
------- ------- ------
Total revenue $26,216 17,229 8,987 52.2%
======= ======= ======
Net interest margin 4.39% 4.11%
======= =======
Net Interest Income
Net interest income for the quarter increased $7.265 million, or 55 percent,
over the same period in 2001. The WesterFed, and Idaho and Utah branch
acquisitions were completed late in the first quarter of 2001 and had limited
impact on net interest income in that quarter. The larger asset base in 2002 and
an increase in the net interest margin as a percentage of earning assets, on a
tax equivalent basis, from 4.1 percent in 2001 to 4.4 percent in 2002
contributed to this increase in net interest income.
Non-interest Income
Fee income increased $870 thousand, or 28 percent higher in the first quarter of
2002 than the same quarter in 2001. Gain on sale of loans increased $630
thousand, or 135 percent, and other income was up $222 thousand. Account volume
increases and strong mortgage origination activity continued to drive revenue
growth in the first quarter.
NON-INTEREST EXPENSE SUMMARY Three months ended March 31,
-------------------------------------------------
($ IN THOUSANDS) 2002 2001 $ change % change
------- ----- -------- --------
Compensation and employee benefits $ 7,782 5,257 2,525 48.0%
Occupancy and equipment expense 2,301 1,459 842 57.7%
Outsourced data processing 446 261 185 70.9%
Core deposit intangible amortization 361 168 193 114.9%
Goodwill amortization (a) 249 224 25 11.2%
Other expenses 3,475 3,146 329 10.5%
------- ------ -----
Total non-interest expense $14,614 10,515 4,099 39.0%
------- ------ -----
(a) 2001 amortization would have been $97 thousand if current accounting rules
for goodwill amortization would have been in place.
Non-interest Expense
Non-interest expense increased by $4.099 million, or 39 percent, over the same
quarter of 2001. The impact of the first quarter 2001 acquisitions along with
normal cost increases are the reasons for the 2002 increase. Included in the
2001 total is $406 thousand in merger and conversion expense. Intangible asset
amortization in the form of
21
core deposit and goodwill was $361 thousand and $249 thousand, respectively,
which is an increase of $218 thousand over the prior year.
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 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 December 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 0.77% -3.20%
Estimated increase (decrease) in net interest income $ 627 (2,607)
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
22
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
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.
May 14, 2002 /s/Michael J. Blodnick
President/CEO
May 14, 2002 /s/James H. Strosahl
Executive Vice President/CFO
23