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 June 30, 2004
[ ] 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)
MONTANA 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 ___
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes X No ___
The number of shares of Registrant's common stock outstanding on July 28, 2004
was 24,470,409. No preferred shares are issued or outstanding.
GLACIER BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page#
-----
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Financial Condition -
June 30, 2004, December 31, 2003 and June 30, 2003 (unaudited)... 3
Condensed Consolidated Statements of Operations -
Three and six months ended June 30, 2004 and 2003 (unaudited)..... 4
Condensed Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Year ended December 31, 2003
and six months ended June 30, 2004 (unaudited).................... 5
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 2004 and 2003 (unaudited)............... 6
Notes to Condensed Consolidated Financial Statements (unaudited).. 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations................. 19
Item 3 - Quantitative and Qualitative Disclosure about Market Risk............ 25
Item 4 - Controls and Procedures.............................................. 25
PART II OTHER NFORMATION.................................................. 26
Item 1 - Legal Proceedings.................................................... 26
Item 2 - Changes in Securities and Use of Proceeds............................ 26
Item 3 - Defaults Upon Senior Securities...................................... 26
Item 4 - Submission of Matters to a Vote of Security Holders................. 26
Item 5 - Other Information.................................................... 27
Item 6 - Exhibits and Reports on Form 8-K..................................... 27
Signatures.................................................................... 28
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, December 31, June 30,
(UNAUDITED - dollars in thousands, except per share data) 2004 2003 2003
--------------------------------------------------------- ------------ ---------- ----------
ASSETS:
Cash on hand and in banks................................................... $ 69,848 77,093 71,738
Interest bearing cash deposits ............................................. 13,302 9,047 11,387
------------ ---------- ----------
Cash and cash equivalents ............................................... 83,150 86,140 83,125
Investment securities, available-for-sale .................................. 1,086,219 1,050,311 884,451
Federal Home Loan Bank stock, at cost ...................................... 43,579 41,235 39,431
Federal Reserve Bank stock, at cost ........................................ 5,800 5,408 5,250
Net loans receivable ....................................................... 1,555,159 1,413,392 1,333,604
Loans held for sale ........................................................ 16,085 16,973 48,831
Premises and equipment, net ................................................ 53,037 53,251 48,658
Real estate and other assets owned ......................................... 448 587 682
Accrued interest receivable ................................................ 15,480 14,941 13,213
Core deposit intangible, net ............................................... 5,468 5,865 6,193
Goodwill ................................................................... 37,375 36,951 33,189
Other assets ............................................................... 14,109 14,579 14,734
------------ ---------- ----------
$ 2,915,909 2,739,633 2,511,361
============ ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits............................................... $ 402,337 369,052 337,193
Interest bearing deposits .................................................. 1,233,418 1,228,573 1,165,386
Advances from Federal Home Loan Bank of Seattle ............................ 848,770 777,294 625,670
Securities sold under agreements to repurchase ............................. 72,268 56,968 74,808
Other borrowed funds ....................................................... 14,051 8,018 12,383
Accrued interest payable ................................................... 5,667 4,353 5,092
Current income taxes ....................................................... 1,744 826 1,314
Deferred taxes ............................................................. 128 7,369 10,244
Subordinated debentures .................................................... 80,000 35,000 35,000
Other liabilities .......................................................... 15,462 14,341 14,006
Total liabilities ....................................................... 2,673,845 2,501,794 2,281,096
------------ ---------- ----------
Preferred shares, 1,000,000 shares authorized. None outstanding ............ - - -
Common stock, $.01 par value per share. 62,500,000 shares authorized ...... 245 242 241
Paid-in capital ............................................................ 224,933 222,588 220,576
Retained earnings (deficit) - substantially restricted ..................... 21,489 8,393 (3,089)
Accumulated other comprehensive (loss) income .............................. (4,603) 6,616 12,537
------------ ---------- ----------
Total stockholders' equity .............................................. 242,064 237,839 230,265
------------ ---------- ----------
$ 2,915,909 2,739,633 2,511,361
============ ========== ==========
Number of shares outstanding 24,457,033 24,203,338 24,100,074
Book value per share $ 9.90 9.83 9.55
Tangible book value per share $ 8.15 8.06 7.92
See accompanying notes to condensed consolidated financial statements.
3
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - dollars in thousands, except per share data) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------- --------------------------- --------------------------
2004 2003 2004 2003
----------- ---------- ---------- ----------
INTEREST INCOME:
Real estate loans ........................................ $ 5,408 5,849 10,689 12,101
Commercial loans ......................................... 13,715 12,362 26,938 23,979
Consumer and other loans ................................. 4,912 5,030 9,748 10,132
Investment securities and other .......................... 11,406 8,372 23,531 17,463
----------- ---------- ---------- ----------
Total interest income .............................. 35,441 31,613 70,906 63,675
----------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits ................................................. 3,413 4,431 6,896 9,378
Federal Home Loan Bank of Seattle advances ............... 4,491 4,087 8,936 8,299
Securities sold under agreements to repurchase ........... 177 175 334 333
Subordinated debentures .................................. 1,555 909 2,517 1,813
Other borrowed funds ..................................... 26 47 55 56
----------- ---------- ---------- ----------
Total interest expense ............................. 9,662 9,649 18,738 19,879
----------- ---------- ---------- ----------
NET INTEREST INCOME 25,779 21,964 52,168 43,796
Provision for loan losses ................................ 965 1,051 1,795 1,892
----------- ---------- ---------- ----------
Net interest income after provision for loan losses.. 24,814 20,913 50,373 41,904
----------- ---------- ---------- ----------
NON-INTEREST INCOME:
Service charges and other fees ........................... 4,982 3,846 9,055 7,435
Miscellaneous loan fees and charges ...................... 1,340 1,132 2,359 2,162
Gains on sale of loans ................................... 2,026 3,211 3,797 5,482
Gains on sale of investments, net of impairment charge ... - 1,685 - 1,248
Other income ............................................. 500 439 1,048 999
----------- ---------- ---------- ----------
Total non-interest income ........................... 8,848 10,313 16,259 17,326
----------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses .............................. 9,851 9,050 19,657 17,029
Occupancy and equipment expense .......................... 2,733 2,295 5,364 4,730
Outsourced data processing expense ....................... 368 266 781 828
Core deposit intangibles amortization .................... 251 291 545 629
Other expenses ........................................... 4,805 4,418 9,087 7,987
----------- ---------- ---------- ----------
Total non-interest expense .......................... 18,008 16,320 35,434 31,203
----------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 15,654 14,906 31,198 28,027
Federal and state income tax expense ..................... 4,891 4,974 9,825 9,247
----------- ---------- ---------- ----------
NET EARNINGS $ 10,763 9,932 21,373 18,780
=========== ========== ========== ==========
Basic earnings per share ...................................... $ 0.44 0.41 0.88 0.78
Diluted earnings per share .................................... $ 0.43 0.41 0.86 0.77
Dividends declared per share .................................. $ 0.17 0.15 0.34 0.28
Return on average assets (annualized) ......................... 1.51% 1.67% 1.53% 1.63%
Return on average equity (annualized) ......................... 17.60% 17.51% 17.54% 16.95%
Return on tangible average equity (annualized) ................ 21.27% 21.20% 21.23% 20.62%
Average outstanding shares - basic ............................ 24,454,851 24,084,445 24,400,662 24,014,340
Average outstanding shares - diluted .......................... 24,864,868 24,461,768 24,817,045 24,369,273
See accompanying notes to condensed consolidated financial statements.
4
GLACIER BANCORP, INC
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Year ended December 31, 2003 and Six months ended June 30, 2004
Retained
earnings
(accumulated Accumulated Total
Common Stock deficit) other comp- stock-
--------------------- Paid-in substantially rehensive holders'
(UNAUDITED - dollars in thousands, except per share data) Shares Amount capital restricted income equity
----------- ------ -------- ------------- --------- --------
Balance at December 31, 2002 ............................... 23,768,000 $ 238 216,927 (15,027) 10,111 212,249
Comprehensive income:
Net earnings .......................................... -- -- -- 38,008 -- 38,008
Unrealized loss on securities, net of reclassification
adjustment and taxes ................................ -- -- -- -- (3,495) (3,495)
-------
Total comprehensive income ................................. 34,513
-------
Cash dividends declared ($ 60 per share) ................... -- -- -- (14,573) -- (14,573)
Stock options exercised .................................... 435,338 4 4,670 -- -- 4,674
Acquisition of fractional shares ........................... -- -- -- (15) -- (15)
Tax benefit from stock related compensation ................ -- -- 991 -- -- 991
----------- ----- -------- ------ ------ -------
Balance at December 31, 2003 ............................... 24,203,338 $ 242 222,588 8,393 6,616 237,839
Comprehensive income:
Net earnings .......................................... -- -- -- 21,373 -- 21,373
Unrealized loss on securities, net of reclassification
adjustment and taxes .............................. -- -- -- -- (11,219) (11,219)
-------
Total comprehensive income ................................. 10,154
-------
Cash dividends declared ($ 34 per share) ................... -- -- -- (8,277) -- (8,277)
Stock options exercised .................................... 324,945 4 4,158 -- -- 4,162
Repurchase and retirement of stock ......................... (71,250) (1) (1,804) -- -- (1,805)
Acquisition of fractional shares ........................... -- -- (9) -- -- (9)
----------- ----- -------- ------ ------ -------
Balance at June 30, 2004 ................................... 24,457,033 $ 245 224,933 21,489 (4,603) 242,064
=========== ===== ======== ====== ====== =======
See accompanying notes to condensed consolidated financial statements
5
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - dollars in thousands) SIX MONTHS ENDED JUNE 30,
- ------------------------------------------------------------- --------------------------
2004 2003
----------- ----------
OPERATING ACTIVITIES :
Net cash provided by operating activities....................... $ 35,876 33,038
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of
investments available-for-sale.............................. 124,561 162,984
Purchases of investments available-for-sale .................... (185,351) (308,689)
Principal collected on installment and commercial loans......... 283,618 307,486
Installment and commercial loans originated or acquired......... (403,443) (413,141)
Principal collections on mortgage loans......................... 146,440 143,767
Mortgage loans originated or acquired........................... (170,138) (124,939)
Net purchase of FHLB and FRB stock.............................. (1,901) (672)
Acquisition of Ione branch...................................... 14,524 -
Net addition of premises and equipment.......................... (2,046) (3,459)
---------- --------
NET CASH USED IN INVESTING ACTIVITIES...................... (193,736) (236,663)
---------- --------
FINANCING ACTIVITIES:
Net increase in deposits........................................ 22,990 42,656
Net increase in FHLB advances and other borrowed funds.......... 77,509 139,305
Net increase in securities sold under repurchase agreements..... 15,300 28,602
Proceeds from issuance of subordinated debentures............... 45,000 -
Cash dividends paid to stockholders............................. (8,277) (6,827)
Proceeds from exercise of stock options......................... 4,162 3,637
Repurchase and retirement of stock.............................. (1,805) -
Cash paid for stock split....................................... (9) -
---------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 154,870 207,373
---------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (2,990) 3,748
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................ 86,140 79,377
---------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 83,150 83,125
========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest............. $ 17,423 20,879
Income taxes......... $ 8,907 5,908
See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Presentation:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of Glacier
Bancorp Inc.'s (the "Company") financial condition as of June 30, 2004,
December 31, 2003, and June 30, 2003, stockholders' equity for the six
months ended June 30, 2004 and the year ended December 31, 2003, the
results of operations for the three and six months ended June 30, 2004 and
2003, and cash flows for the six months ended June 30, 2004 and 2003.
The accompanying consolidated financial statements do not include all of
the information and footnotes required by U. S. generally accepted
accounting principles for complete financial statements. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
Operating results for the six months ended June 30, 2004 are not
necessarily indicative of the results anticipated for the year ending
December 31, 2004. Certain reclassifications have been made to the 2003
financial statements to conform to the 2004 presentation.
2) Organizational Structure:
The Company, headquartered in Kalispell, Montana, is a Montana corporation
incorporated in 2004 as a successor corporation to the Delaware
corporation incorporated in 1990, pursuant to the reorganization of
Glacier Bank, FSB into a bank holding company. The Company is the parent
company for seven wholly owned banking subsidiaries: Glacier Bank
("Glacier"), First Security Bank of Missoula ("First Security"), Western
Security Bank ("Western"), Big Sky Western Bank ("Big Sky"), Valley Bank
of Helena ("Valley"), and Glacier Bank of Whitefish ("Whitefish"), all
located in Montana, and Mountain West Bank ("Mountain West") which is
located in Idaho, Utah, and Washington. In addition, the Company formed
two subsidiaries, Glacier Capital Trust I ("Glacier Trust I"), and Glacier
Capital Trust II ("Glacier Trust II"), for the purpose of issuing trust
preferred securities. The Company does not have any off-balance sheet
entities.
On March 24, 2004, the Company formed Glacier Trust II and subordinated
debentures in the form of trust preferred securities of $45 million, with
an interest rate of 5.79 percent, were issued by the Company. The proceeds
were used for general corporate purposes.
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 Glacier Capital Trust I
Western Bank of Helena of Whitefish and
(Commercial Bank) (Commercial bank) (Commercial bank) Glacier Capital Trust II
</Table>
3) Ratios:
Returns on average assets and average equity were calculated based on
daily averages.
7
4) Dividends Declared:
On April 28, 2004, the Board of Directors declared a five-for-four stock
split payable May 20, 2004 to owners of record on May 11, 2004, and all
share and per share amounts have been restated to reflect the effects of
the stock split. On June 30, 2004, the Board of Directors declared a $.17
per share quarterly cash dividend to stockholders of record on July 13,
2004, payable on July 22, 2004.
5) Computation of Earnings Per Share:
Basic earnings per common share is computed by dividing net earnings by
the weighted average number of shares of common stock outstanding during
the period presented. Diluted earnings per share is computed by including
the net increase in shares if dilutive outstanding stock options were
exercised, using the treasury stock method.
The following schedule contains the data used in the calculation of basic
and diluted earnings per share.
Three Three Six Six
months ended months ended months ended months ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- -------------- -------------
Net earnings available to common
stockholders................................ $ 10,763,000 9,932,000 21,373,000 18,780,000
Average outstanding shares - basic............. 24,454,851 24,084,445 24,400,662 24,014,340
Add: Dilutive stock options................... 410,017 377,323 416,383 354,933
------------- ---------- ---------- ----------
Average outstanding shares - diluted........... 24,864,868 24,461,768 24,817,045 24,369,273
============= ========== ========== ==========
Basic earnings per share....................... $ 0.44 0.41 0.88 0.78
============= ========== ========== ==========
Diluted earnings per share..................... $ 0.43 0.41 0.86 0.77
============= ========== ========== ==========
8
6) Investments:
A comparison of the amortized cost and estimated fair value of the
Company's investment securities, available for sale, is as follows.
INVESTMENTS AS OF JUNE 30, 2004
(Dollars in thousands) Estimated
Weighted Amortized Gross Unrealized Fair
Yield Cost Gains Losses Value
----------- ------------ ------ -------- ----------
U.S. GOVERNMENT AND FEDERAL AGENCIES
maturing within one year......................... 1.29% 255 - (1) 254
maturing one year through five years............. 3.66% 21,168 11 (15) 21,164
maturing five years through ten years............ 2.94% 366 13 - 379
maturing after ten years......................... 1.97% 495 3 (1) 497
----------- ----- ------- ---------
3.59% 22,284 27 (17) 22,294
----------- ----- ------- ---------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year......................... 5.02% 948 6 - 954
maturing one year through five years............. 4.64% 5,749 73 (22) 5,800
maturing five years through ten years............ 5.37% 6,502 256 - 6,758
maturing after ten years 5.15% 297,700 4,628 (7,263) 295,065
----------- ----- ------- ---------
5.14% 310,899 4,963 (7,285) 308,577
----------- ----- ------- ---------
MORTGAGE-BACKED SECURITIES......................... 4.56% 65,231 1,077 (1,197) 65,111
REAL ESTATE MORTGAGE INVESTMENT CONDUITS........... 4.34% 695,400 3,479 (8,642) 690,237
FHLB AND FRB STOCK, AT COST........................ 4.23% 49,379 - - 49,379
----------- ----- ------- ---------
TOTAL INVESTMENTS 4.55% $ 1,143,193 9,546 (17,141) 1,135,598
=========== ===== ======= ==========
INVESTMENTS AS OF DECEMBER 31, 2003
Estimated
(Dollars in thousands) Weighted Amortized Gross Unrealized Fair
Yield Cost Gains Losses Value
----------- ------------ ------ -------- ----------
U.S. GOVERNMENT AND FEDERAL AGENCIES
maturing within one year......................... 0.85% $ 352 - - 352
maturing one year through five years............. 1.29% 259 - (1) 258
maturing after ten years ........................ 2.97% 957 15 (1) 971
------------ ------ ------ -------
2.22% 1,568 15 (2) 1,581
------------ ------ ------ -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year......................... 5.69% 4,346 41 - 4,387
maturing one year through five years............. 4.30% 5,485 84 (102) 5,467
maturing five years through ten years............ 5.35% 4,910 197 - 5,107
maturing after ten years......................... 5.13% 296,237 10,170 (1,683) 304,724
------------ ------ ------ -------
5.13% 310,978 10,492 (1,785) 319,685
------------ ------ ------ -------
MORTGAGE-BACKED SECURITIES......................... 4.30% 64,123 1,465 (342) 65,246
REAL ESTATE MORTGAGE INVESTMENT CONDUITS........... 4.03% 662,727 4,983 (3,911) 663,799
FHLB AND FRB STOCK, AT COST........................ 5.34% 46,643 - - 46,643
------------ ------ ------ -------
TOTAL INVESTMENTS 4.41% $ 1,086,039 16,955 (6,040) 1,096,954
============ ====== ====== =========
9
Interest income includes tax-exempt interest for the six months ended June
30, 2004 and 2003 of $6,959,000 and $5,179,000, respectively, and the
three months ended June 30, 2004 and 2003 of $3,494,000 and $2,589,000,
respectively.
Gross proceeds from sales of investment securities for the six months
ended June 30, 2004 and 2003 were $0, and $19,597,000 respectively,
resulting in gross gains of approximately $0, and $3,497,000,
respectively. Gross proceeds from sales of investment securities for the
three months ended June 30, 2004 and 2003 were $0, and $17,566,000
respectively, resulting in gross gains of approximately $0, and
$3,480,000, respectively. The cost of any investment sold is determined by
specific identification.
There was an impairment charge for the three and six months ended June 30,
2003, of $1,795,000 and $2,249,000, respectively, for the impairment of
value on collateralized mortgage obligations. The impairment charge is
included in the net gain on sale of investments.
7) Loans
The following table summarizes the Company's loan portfolio.
At At At
6/30/2004 12/31/2003 6/30/2003
TYPE OF LOAN ----------------------- ------------------------- -------------------------
(Dollars in Thousands) Amount Percent Amount Percent Amount Percent
- -------------------------------- ----------- ------- ----------- ------- ----------- --------
Real Estate Loans:
Residential first mortgage loans $ 324,755 20.7% $ 301,511 21.1% $ 290,844 21.0%
Loans held for sale 16,085 1.0% 16,973 1.2% 48,831 3.5%
----------- ----- ----------- ----- ----------- -----
Total 340,840 21.7% 318,484 22.3% 339,675 24.5%
Commercial Loans:
Real estate 459,909 29.3% 483,684 33.8% 447,315 32.3%
Other commercial loans 475,744 30.3% 359,030 25.1% 334,236 24.2%
----------- ----- ----------- ----- ----------- -----
Total 935,653 59.6% 842,714 58.9% 781,551 56.5%
Consumer and Other Loans:
Consumer loans 94,346 6.0% 95,739 6.7% 97,627 7.1%
Home equity loans 228,216 14.5% 199,693 14.0% 187,885 13.6%
----------- ----- ----------- ----- ----------- -----
Total 322,562 20.5% 295,432 20.7% 285,512 20.7%
Net deferred loan fees, premiums
and discounts (2,665) -0.2% (2,275) -0.2% (1,949) -0.1%
Allowance for Losses (25,146) -1.6% (23,990) -1.7% (22,354) -1.6%
----------- ----- ----------- ----- ----------- -----
Net Loans $ 1,571,244 100.0% $ 1,430,365 100.0% $ 1,382,435 100.0%
=========== ===== =========== ===== =========== =====
10
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated:
NONPERFORMING ASSETS
(Dollars in Thousands) At At At
6/30/2004 12/31/2003 6/30/2003
------- ---------- ---------
Non-accrual loans:
Real estate loans $ 756 1,129 2,035
Commercial loans 8,008 8,246 6,189
Consumer and other loans 380 687 317
------- ------ ------
Total $ 9,144 10,062 8,541
Accruing Loans 90 days or more overdue:
Real estate loans 160 379 351
Commercial loans 796 1,798 1,014
Consumer and other loans 106 242 87
------- ------ ------
Total $ 1,062 2,419 1,452
Real estate and other assets owned 448 587 682
Total non-performing loans, and real
------- ------ ------
estate and other assets owned $10,654 13,068 10,675
======= ====== ======
As a percentage of total assets 0.37% 0.48% 0.42%
Interest Income (1) $ 281 665 292
(1) This is the amount of interest that would have been recorded on loans
accounted for on a non-accrual basis for the six months ended June 30,
2004 and 2003 and the year ended December 31, 2003, if such loans had been
current for the entire period.
The following table illustrates the loan loss experience:
ALLOWANCE FOR LOAN LOSS Six months ended Year ended Six months ended
June 30, December 31, June 30,
(Dollars in Thousands) 2004 2003 2003
-------- -------------- ----------------
Balance at beginning of period $ 23,990 20,944 20,944
Charge offs:
Real estate loans (128) (416) (184)
Commercial loans (439) (912) (293)
Consumer and other loans (377) (1,078) (429)
-------- ------- -------
Total charge offs $ (944) (2,406) (906)
-------- ------- -------
Recoveries:
Real estate loans 50 126 137
Commercial loans 84 274 118
Consumer and other loans 171 284 169
-------- ------- -------
Total recoveries $ 305 684 424
-------- ------- -------
Chargeoffs, net of recoveries (639) (1,722) (482)
Acquisition (1) - 959 -
Provision 1,795 3,809 1,892
-------- ------- -------
Balance at end of period $ 25,146 23,990 22,354
======== ======= =======
Ratio of net charge offs to average
loans outstanding during the period 0.04% 0.12% 0.03%
(1) Acquisition of Pend Oreille Bancorp, Inc.
11
The following table summarizes the allocation of the allowance for loan losses:
June 30, 2004 December 31, 2003 June 30, 2003
------------------------- ------------------------ -------------------------
Percent Percent Percent
of loans in of loans in of loans in
(Dollars in thousands) Allowance category Allowance category Allowance category
------------ ----------- ------------ ----------- ---------- -------------
Real estate loans $ 2,303 21.3% 2,147 21.8% 2,085 24.1%
Commercial real estate 8,051 28.8% 7,464 33.2% 6,686 31.8%
Other commercial 10,343 29.7% 9,951 24.7% 9,242 23.8%
Consumer and other loans 4,449 20.2% 4,428 20.3% 4,341 20.3%
------------ ------ ------- ---- ------ ------
Totals $ 25,146 100.0% 23,990 100.0% 22,354 100.0%
============ ====== ======= ===== ====== ======
8) Intangible Assets
The following table sets forth information regarding the Company's core
deposit intangibles and mortgage servicing rights as of June 30, 2004:
Core Deposit Mortgage
(Dollars in thousands) Intangible Servicing Rights (1) Total
- ------------------------------------------- ------------ ------------------- ---------
Gross carrying value $ 10,270
Accumulated Amortization (4,802)
--------
Net carrying value $ 5,468 1,267 6,735
========
WEIGHTED-AVERAGE AMORTIZATION PERIOD
(Period in years) 10.0 9.7 9.9
AGGREGATE AMORTIZATION EXPENSE
For the three months ended June 30, 2004 $ 251 90 341
For the six months ended June 30, 2004 $ 545 179 724
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2004 $ 1,074 222 1,296
For the year ended December 31, 2005 917 82 999
For the year ended December 31, 2006 841 81 922
For the year ended December 31, 2007 820 78 898
For the year ended December 31, 2008 807 76 883
(1) The mortgage servicing rights are included in other assets and the gross
carrying value and accumulated amortization are not readily available.
On June 4, 2004, the Company acquired Ione branch, which resulted in
additional core deposit intangible of $148,000 and goodwill of $424,000.
12
9) Deposits
The following table illustrates the amounts outstanding for deposits
greater than $100,000 at June 30, 2004, according to the time remaining to
maturity:
Certificates Non-Maturity
(Dollars in thousands) of Deposit Deposits Totals
- ------------------------------------ ------------- ------------ ----------
Within three months.............. $ 32,845 538,712 571,557
Three to six months.............. 14,436 - 14,436
Seven to twelve months........... 13,616 - 13,616
Over twelve months............... 22,256 - 22,256
------------- ----------- ----------
Totals $ 83,153 538,712 621,865
============= =========== ==========
10) Advances and Other Borrowings
The following chart illustrates the average balances and the maximum
outstanding month-end balances for Federal Home Loan Bank of Seattle
(FHLB) advances and repurchase agreements:
As of and As of and As of and
for the six for the twelve for the six
(Dollars in thousands) months ended months ended months ended
June 30, 2004 December 31, 2003 June 30, 2003
------------- ----------------- -------------
FHLB Advances
Amount outstanding at end of period....... $848,770 777,294 625,670
Average balance........................... $823,016 601,679 515,349
Maximum outstanding at any month-end $862,136 777,294 625,670
Weighted average interest rate 2.18% 2.80% 3.25%
Repurchase Agreements:
Amount outstanding at end of period....... $ 72,268 56,968 74,808
Average balance $ 66,790 61,609 59,710
Maximum outstanding at any month-end...... $ 72,268 74,808 74,808
Weighted average interest rate............ 1.00% 1.09% 1.12%
13
11) Stockholders' Equity:
The Federal Reserve Board has adopted capital adequacy guidelines that are
used to assess the adequacy of capital in supervising a bank holding
company. The following table illustrates the Federal Reserve Board's
capital adequacy guidelines and the Company's compliance with those
guidelines as of June 30, 2004.
CONSOLIDATED
- -------------------------------------------- Tier 1 (Core) Tier 2 (Total) Leverage
(Dollars in thousands) Capital Capital Capital
- -------------------------------------------- ----------- ---------- --------
GAAP Capital.................................... $ 242,064 242,064 242,064
Less: Goodwill and intangibles.................. (42,843) (42,843) (42,843)
Accumulated other comprehensive
Unrealized loss on AFS equity securities.... (246) (246) (246)
Plus: Allowance for loan losses - - -
Unrealized loss on AFS securities........... 4,603 4,603 4,603
Subordinated debentures..................... 80,000 80,000 80,000
----------- ---------- -----------
Regulatory capital computed..................... $ 283,578 307,072 283,578
=========== ========== ===========
Risk weighted assets............................ $ 1,879,552 1,879,552
=========== ==========
Total average assets............................ $ 2,800,069
===========
Capital as % of defined assets.................. 15.09% 16.34% 10.13%
Regulatory "well capitalized" requirement....... 6.00% 10.00% 5.00%
----------- ---------- -----------
Excess over "well capitalized" requirement...... 9.09% 6.34% 5.13%
=========== ========== ===========
12) Comprehensive Earnings:
The Company's only component of other comprehensive earnings is the
unrealized gains and losses on available-for-sale securities.
For the three months For the six months
ended June 30, ended June 30,
Dollars in thousands 2004 2003 2004 2003
- --------------------------------------------------- --------- ------- ------- --------
Net earnings....................................... $ 10,763 9,932 21,373 18,780
Unrealized holding (loss) gain arising during
the period....................................... (27,680) 2,663 (18,511) 544
Tax benefit (expense).............................. 10,906 (1,048) 7,292 (251)
--------- ------- ------- ------
Net after tax.................................. (16,774) 1,615 (11,219) 293
Reclassification adjustment for gains
included in net income........................... - 3,480 - 3,497
Tax expense........................................ - (1,357) - (1,364)
--------- ------- ------- ------
Net after tax.................................. - 2,123 - 2,133
Net unrealized (loss) gain on securities....... (16,774) 3,738 (11,219) 2,426
--------- ------- ------- ------
Total comprehensive (loss) earnings......... $ (6,011) 13,670 10,154 21,206
========= ======= ======= ======
14
13) Stock Based Compensation
The exercise price of all options granted has been equal to the fair
market value of the underlying stock at the date of grant and,
accordingly, no compensation cost has been recognized for stock options in
the financial statements. Had the company determined compensation cost
based on the fair value of the option itself at the grant date for its
stock options and earnings per share under FASB Statement 123, Accounting
for Stock-Based Compensation, the Company's net income would have been
reduced to the pro forma amounts indicated below:
Three months ended June 30, Six months ended June 30,
--------------------------- -----------------------------
2004 2003 2004 2003
----------- ------------ ------------ -------------
Net earnings (in thousands): As reported $ 10,763 9,932 21,373 18,780
Compensation cost (123) (187) (245) (374)
----------- ------------ ----------- ------------
Pro forma 10,640 9,745 21,128 18,406
=========== =========== =========== ============
Basic earnings per share: As reported 0.44 0.41 0.88 0.78
Compensation cost - (0.01) (0.01) (0.01)
----------- ----------- ----------- ------------
Pro forma 0.44 0.40 0.87 0.77
=========== =========== =========== ============
Diluted earnings per share: As reported 0.43 0.41 0.86 0.77
Compensation cost - (0.01) (0.01) (0.01)
----------- ----------- ----------- ------------
Pro forma 0.43 0.40 0.85 0.76
=========== =========== =========== ============
14) Segment Information
The Company evaluates segment performance internally based on individual
bank charters, and thus the operating segments are so defined. The
following schedule provides selected financial data for the Company's
operating segments. Centrally provided services to the Banks are allocated
based on estimated usage of those services. The operating segment
identified as "Other" includes the Parent, non-bank units, and
eliminations of transactions between segments.
Six months ended and as of June 30, 2004
------------------------------------------------------
First Mountain
(Dollars in thousands) Glacier Security Western West Big Sky
--------- ------- ------- -------- --------
Revenues from external customers $ 18,962 17,612 12,607 19,224 6,874
Intersegment revenues 130 10 2 - -
Expenses (13,628) (11,949) (15,612)
Intercompany eliminations - - - - -
--------- ------- ------- -------- --------
Net income $ 5,464 5,673 3,402 3,612 1,689
========= ======= ======= ======== ========
Total Assets $ 638,338 605,066 454,773 582,529 223,596
========= ======= ======= ======== ========
Total
Valley Whitefish Other Consolidated
-------- -------- ------- ------------
Revenues from external customers 6,863 4,511 512 87,165
Intersegment revenues 69 - 26,666 26,877
Expenses (5,102) (3,210) (1,899) (65,792)
Intercompany eliminations - - (26,877) (26,877)
-------- -------- ------- ----------
Net income 1,830 1,301 (1,598) 21,373
======== ======== ======= ===========
Total Assets 230,095 161,775 19,737 2,915,909
======== ======== ======= ===========
15
Six months ended and as of June 30, 2003
-------------------------------------------------------------
First Mountain
(Dollars in thousands) Glacier Security Western West Big Sky
- -------------------------------- --------- --------- --------- --------- ---------
Revenues from external customers $ 18,041 17,154 12,957 15,413 5,973
Intersegment revenues 102 12 1 3 -
Expenses (13,053) (12,213) (9,914) (12,505) (4,671)
Intercompany eliminations - - - - -
--------- --------- --------- --------- ---------
Net income $ 5,090 4,953 3,044 2,911 1,302
========= ========= ========= ========= =========
Total Assets $ 551,650 539,435 439,631 450,821 192,697
========= ========= ========= ========= =========
Total
Valley Whitefish Other Consolidated
---------- ---------- ---------- ------------
Revenues from external customer 7,390 3,931 141 81,000
Intersegment revenues 65 1 23,442 23,626
Expenses (5,538) (2,954) (1,372) (62,220)
Intercompany eliminations - - (23,626) (23,626)
---------- ---------- ---------- ----------
Net income 1,917 978 (1,415) 18,780
========== ========== ========== ==========
Total Assets 200,035 141,915 (4,823) 2,511,361
========== ========== ========== ==========
Three months ended and as of June 30, 2004
--------------------------------------------------------------------------
First Mountain
(Dollars in thousands) Glacier Security Western West Big Sky
- -------------------------------- --------- --------- --------- --------- ---------
Revenues from external customers $ 9,627 8,792 6,263 10,000 3,462
Intersegment revenues 62 6 - - -
Expenses (6,909) (5,952) (4,589) (8,007) (2,667)
Intercompany eliminations - - - - -
--------- --------- --------- --------- ---------
Net income $ 2,780 2,846 1,674 1,993 795
========= ========= ========= ========= =========
Total Assets $ 638,338 605,066 454,773 582,529 223,596
========= ========= ========= ========= =========
Total
Valley Whitefish Other Consolidated
---------- ---------- ---------- ------------
Revenues from external customers 3,476 2,250 419 44,289
Intersegment revenues 33 - 13,529 13,630
Expenses (2,577) (1,608) (1,217) (33,526)
Intercompany eliminations - - (13,630) (13,630)
---------- ---------- ---------- ----------
Net income 932 642 (899) 10,763
========== ========== ========== ==========
Total Assets 230,095 161,775 19,737 2,915,909
========== ========== ========== ==========
16
Three months ended and as of June 30, 2003
-------------------------------------------------------------
First Mountain
(Dollars in thousands) Glacier Security Western West Big Sky
- -------------------------------- --------- --------- --------- --------- ---------
Revenues from external customers $ 8,961 8,794 6,795 8,357 2,879
Intersegment revenues 51 12 1 3 -
Expenses (6,514) (6,252) (5,068) (6,775) (2,297)
Intercompany eliminations - - - - -
--------- --------- --------- --------- ---------
Net income $ 2,498 2,554 1,728 1,585 582
========= ========= ========= ========= =========
Total Assets $ 551,650 539,435 439,631 450,821 192,697
========= ========= ========= ========= =========
Total
Valley Whitefish Other Consolidated
---------- ---------- ---------- ------------
Revenues from external customers 4,144 1,914 81 41,925
Intersegment revenues 32 1 12,284 12,384
Expenses (2,972) (1,452) (663) (31,993)
Intercompany eliminations - - (12,384) (12,384)
---------- ---------- ---------- ----------
Net income 1,204 463 (682) 9,932
========== ========== ========== ==========
Total Assets 200,035 141,915 (4,823) 2,511,361
========== ========== ========== ==========
15) Rate/Volume Analysis
Net interest income can be evaluated from the perspective of relative
dollars of change in each period. Interest income and interest expense,
which are the components of net interest income, are shown in the
following table on the basis of the amount of any increases (or decreases)
attributable to changes in the dollar levels of the Company's
interest-earning assets and interest-bearing liabilities ("Volume") and
the yields earned and rates paid on such assets and liabilities ("Rate").
The change in interest income and interest expense attributable to changes
in both volume and rates has been allocated proportionately to the change
due to volume and the change due to rate.
Six Months Ended June 30,
2004 vs. 2003
(Dollars in Thousands) Increase (Decrease) due to:
--------------------------------
Volume Rate Net
-------- -------- --------
INTEREST INCOME
Real Estate Loans $ (448) (964) (1,412)
Commercial Loans 5,636 (2,677) 2,959
Consumer and Other Loans 676 (1,060) (384)
Investment Securities 6,501 (433) 6,068
-------- -------- --------
Total Interest Income 12,365 (5,134) 7,231
INTEREST EXPENSE
NOW Accounts 44 (43) 1
Savings Accounts 45 (101) (56)
Money Market Accounts 163 (601) (438)
Certificates of Deposit (511) (1,478) (1,989)
FHLB Advances 4,954 (4,317) 637
Other Borrowings and
Repurchase Agreements 704 - 704
-------- -------- --------
Total Interest Expense 5,399 (6,540) (1,141)
-------- -------- --------
NET INTEREST INCOME $ 6,966 1,406 8,372
======== ======== ========
17
16) Average Balance Sheet
The following schedule provides (i) the total dollar amount of interest
and dividend income of the Company for earning assets and the resultant
average yield; (ii) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average rate; (iii) net
interest and dividend income; (iv) interest rate spread; and (v) net
interest margin. Non-accrual loans are included in the average balance of
the loans.
AVERAGE BALANCE SHEET For the Six months ended 6-30-04 For the Six months ended 6-30-03
(Dollars in Thousands) ---------------------------------- ------------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
----------- --------- ------- ----------- --------- -------
ASSETS
Real Estate Loans $ 319,291 10,689 6.70% $ 331,572 12,101 7.30%
Commercial Loans 883,042 26,938 6.13% 714,976 23,979 6.76%
Consumer and Other Loans 303,411 9,748 6.46% 284,430 10,132 7.18%
----------- ------- ----------- ---------
Total Loans 1,505,744 47,375 6.33% 1,330,978 46,212 7.00%
Tax -Exempt Investment Securities (1) 281,789 6,959 4.94% 203,138 5,179 5.10%
Investment Securities 848,397 16,572 3.91% 620,453 12,284 3.96%
----------- ------- ----------- ---------
Total Earning Assets 2,635,930 70,906 5.38% 2,154,569 63,675 5.91%
------- ---------
Non-Earning Assets 177,931 171,235
----------- -----------
TOTAL ASSETS $ 2,813,861 $ 2,325,804
=========== ===========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW Accounts $ 251,517 227 0.18% $ 210,461 226 0.22%
Savings Accounts 154,249 217 0.28% 132,485 273 0.42%
Money Market Accounts 388,412 1,711 0.89% 361,092 2,149 1.20%
Certificates of Deposit 428,886 4,741 2.22% 464,141 6,730 2.92%
FHLB Advances 823,016 8,936 2.18% 515,349 8,299 3.25%
Repurchase Agreements
and Other Borrowed Funds 130,877 2,906 4.46% 99,202 2,202 4.48%
----------- ------- ----------- ---------
Total Interest Bearing Liabilities 2,176,957 18,738 1.73% 1,782,730 19,879 2.25%
------- ---------
Non-interest Bearing Deposits 362,968 292,322
Other Liabilities 28,886 27,347
----------- -----------
Total Liabilities 2,568,811 2,102,399
----------- -----------
Common Stock 207 179
Paid-In Capital 224,579 185,616
Retained Earnings 13,460 26,229
Accumulated Other
Comprehensive Earnings 6,804 11,381
----------- -----------
Total Stockholders' Equity 245,050 223,405
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,813,861 $ 2,325,804
=========== ===========
Net Interest Income $52,168 $ 43,796
======= =========
Net Interest Spread 3.65% 3.66%
Net Interest Margin
on average earning assets 3.98% 4.10%
Return on Average Assets 1.53% 1.63%
Return on Average Equity 17.54% 16.95%
(1) Excludes tax effect on non-taxable investment security income
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Recent acquisition
On June 4, 2004, Glacier Bancorp, Inc. completed its acquisition of the Ione
branch in Ione, Washington. The branch had approximately $15 million in
deposits, and became a branch of Mountain West Bank, the Company's Idaho based
subsidiary. The cash transaction resulted in the receipt of $14.5 million and
additional core deposit of $148,000 and goodwill of $424,000.
Financial Condition
This section discusses the changes in Statement of Financial Condition items
from June 30, 2003 and December 31, 2003, to June 30, 2004.
ASSETS ($ IN THOUSANDS)
$ change from $ change from
June 30, December 31, June 30, December 31, June 30,
2004 2003 2003 2003 2003
----------- ----------- ---------- ------------- -------------
Cash on hand and in banks $ 69,848 77,093 71,738 (7,245) (1,890)
Investment securities and interest bearing deposits 1,099,521 1,106,001 895,838 (6,480) 203,683
Loans:
Real estate 339,945 317,774 339,057 22,171 888
Commercial 934,100 841,306 780,321 92,794 153,779
Consumer 322,345 295,275 285,411 27,070 36,934
----------- ---------- ---------- -------- --------
Total loans 1,596,390 1,454,355 1,404,789 142,035 191,601
Allowance for loan losses (25,146) (23,990) (22,354) (1,156) (2,792)
----------- ---------- ---------- -------- --------
Total loans net of allowance for loan losses 1,571,244 1,430,365 1,382,435 140,879 188,809
----------- ---------- ---------- -------- --------
Other assets 175,296 126,174 161,350 49,122 13,946
----------- ---------- ---------- -------- --------
Total Assets $ 2,915,909 2,739,633 2,511,361 176,276 404,548
=========== ========== ========== ======== ========
At June 30, 2004 total assets were $2.916 billion which is $405 million greater
than the June 30, 2003 assets of $2.511 billion, an increase of 16 percent, of
which $176 million of the increase occurred in the first six months of 2004. In
addition to internal growth, the third quarter 2003 Pend Oreille Bank (POB)
acquisition added $66 million to the asset base.
Total loans have increased $192 million from June 30, 2003 of which $50 million
was from the POB acquisition. Commercial loans have increased $154 million, or
20 percent, and continue to be the focus of our lending. Real estate loan volume
was at record levels through much of 2003, with $805 million originated for the
year, up from $588 million in 2002. The majority of the real estate loan
production was sold with loans held in the loan portfolio increasing by only $34
million. Loans held for sale declined $33 million from the June 30, 2003 total
resulting in a net increase in real estate loan balances of $1 million at June
30, 2004. Consumer loans have increased $37 million resulting from increases in
home equity loans. Home-equity loans continue to be the primary source of our
consumer loan originations. Loan production has been very strong since the
beginning of 2004 with real estate loans up $22 million, or 7 percent (14
percent annualized), commercial loans up $93 million, or 11 percent (22 percent
annualized), and consumer loans up $27 million, or 9 percent (18 percent
annualized).
Investment securities, including interest bearing deposits in other financial
institutions, have increased $204 million from June 30, 2003. Additional
investments were made to utilize excess funding liquidity, and to capture the
value of the spread between short term funding rates and the rates on
two-to-five year maturity assets. Investments have decreased $6 million since
December 31, 2003, the result of a change in net unrealized gains and losses of
$18.5 million.
The Company typically sells a majority of mortgage loans originated, retaining
servicing only on loans sold to certain lenders. The sale of loans in the
secondary mortgage market reduces the Company's risk of holding long-term, fixed
rate loans in the loan portfolio. Mortgage loans sold for the six months ended
June 30, 2004 and 2003
19
were $143 million and $293 million, respectively, and for the three months
ended June 30, 2004 and 2003 were $76 million and $148 million. The Company has
also been active in generating commercial SBA loans. A portion of some of those
loans is sold to other investors. The amount of loans sold and serviced for
others at June 30, 2004 was approximately $179 million.
LIABILITIES ($ IN THOUSANDS)
$ change from $ change from
June 30, December 31, June 30, December 31, June 30,
2004 2003 2003 2003 2003
---------- --------- --------- ------------ -------------
Non-interest bearing deposits $ 402,337 369,052 337,193 33,285 65,144
Interest bearing deposits 1,233,418 1,228,573 1,165,386 4,845 68,032
Advances from Federal Home Loan Bank 848,770 777,294 625,670 71,476 223,100
Securities sold under agreements to
repurchase and other borrowed funds 86,319 64,986 87,191 21,333 (872)
Other liabilities 23,001 26,889 30,656 (3,888) (7,655)
Subordinated debentures 80,000 35,000 35,000 45,000 45,000
---------- --------- --------- ------- -------
Total liabilities $2,673,845 2,501,794 2,281,096 172,051 392,749
========== ========= ========= ======== ========
Total deposits have increased $133 million and $38 million, respectively, from
the June 30, 2003 and December 31, 2003 balances of which $59 million came with
the POB acquisition, and $15 million from the Ione, Washington branch
acquisition. There was an increase of $65 million, or 19 percent, in
non-interest bearing deposits. This growth in low cost stable funding gives us
increased flexibility in managing our asset mix. Interest-bearing deposits are
up $68 million, or 6 percent, of which $61 million was added by the
acquisitions. Federal Home Loan Bank advances have also increased $223 million
from June 30, 2003, and $71 million from December 31, 2003 as we continue to
take advantage of the flexibility of that funding source in this current period
of low interest rates. On March 24, 2004 subordinated debentures in the form of
trust preferred securities of $45 million, with an interest rate of 5.79
percent, were issued. The proceeds were used for general corporate purposes.
Liquidity and Capital Resources
The objective of liquidity management is to maintain cash flows adequate to meet
current and future needs for credit demand, deposit withdrawals, maturing
liabilities and corporate operating expenses. The principal source of the
Company's cash revenues is the dividends received from the Company's banking
subsidiaries. The payment of dividends is subject to government regulation, in
that regulatory authorities may prohibit banks and bank holding companies from
paying dividends which would constitute an unsafe or unsound banking practice.
The subsidiaries source of funds is generated by deposits, principal and
interest payments on loans, sale of loans and securities, short and long-term
borrowings, and net income. In addition, all seven banking subsidiaries are
members of the FHLB. As of June 30, 2004, the Company had $1.1 billion of
available FHLB line of which $849 million was utilized. Accordingly, management
of the Company has a wide range of versatility in managing the liquidity and
asset/liability mix for each individual institution as well as the Company as a
whole. During 2004, all seven financial institutions maintained liquidity and
regulatory capital levels in excess of regulatory requirements and operational
needs.
Commitments
In the normal course of business, there are various outstanding commitments to
extend credit, such as letters of credit and un-advanced loan commitments, which
are not reflected in the accompanying consolidated financial statements.
Management does not anticipate any material losses as a result of these
transactions.
20
$ change from $ change from
STOCKHOLDERS' EQUITY June 30, December 31, June 30, December 31, June 30,
($ IN THOUSANDS EXCEPT PER SHARE DATA) 2004 2003 2003 2003 2003
----------- ------------ -------- ------------- -------------
Common equity $ 246,667 231,223 17,728 15,444 28,939
Net unrealized (loss) gain on securities (4,603) 6,616 12,537 (11,219) (17,140)
----------- ------- ------- ------- -------
Total stockholders' equity $ 242,064 237,839 230,265 4,225 11,799
=========== ======= ======= ======= =======
Stockholders' equity to total assets 8.30% 8.68% 9.17%
Tangible equity to total assets 6.93% 7.23% 7.72%
Book value per common share $ 9.90 9.83 9.55 0.07 0.35
Tangible book value per common share $ 8.15 8.06 7.92 0.09 0.23
Market price per share at end of quarter $ 28.17 25.98 19.70 2.19 8.47
Total equity and book value per share amounts have increased substantially from
the prior year, primarily the result of earnings retention, and stock options
exercised. Net unrealized gains on securities of $13 million at June 30, 2003
have changed to unrealized losses of $4.6 million as of June 30, 2004 primarily
the result of increasing intermediate term interest rates. During the second
quarter of 2004, 71,250 shares of stock at an average weighted price of $25.33
were repurchased and retired by the Company.
CREDIT QUALITY INFORMATION ($ IN THOUSANDS)
June 30, December 31, June 30,
2004 2003 2003
---------- ------------ --------
Allowance for loan losses $ 25,146 23,990 22,354
Non-performing assets $ 10,654 13,068 10,675
Allowance as a percentage of non performing assets 236% 184% 209%
Non-performing assets as a percentage of total assets 0.37% 0.48% 0.42%
Allowance as a percentage of total loans 1.58% 1.65% 1.59%
Net charge-offs as a percentage of loans 0.04% 0.12% 0.03%
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at June 30, 2004 were at
..37 percent, a decrease from .48 percent at December 31, 2003 and from .42
percent at June 30, 2003. This compares to the Peer Group average of .60 percent
at March 31, 2004, the most recent information available. The allowance for loan
losses was 236 percent of non-performing assets at June 30, 2004, compared to
209 percent a year ago. The allowance has increased $2.792 million, or 12
percent, from a year ago to $25.146 million, which is 1.58 percent of June 30,
2004 total loans outstanding, about the same level as the 1.59 percent a year
ago. The second quarter provision expense for loan losses was $965 thousand, a
decrease of $86 thousand from the same quarter in 2003. The provision expense
for year to date loan losses was $1.795 million which is a decrease of $97
thousand from the prior year's provision. Net charge offs as a percentage of
loans outstanding were .040 percent year-to-date, or .080 percent annualized,
for 2004 which is down from .118 percent for the full year in 2003.
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 2003.
Operating results include amounts related to the operation of the three branches
acquired with the Pend Oreille Bank as of July 15, 2003 and the Ione, Washington
branch as of June 4, 2004.
21
REVENUE SUMMARY
($ IN THOUSANDS)
Three months ended June 30,
---------------------------------------------
2004 2003 $ change % change
------- ------- -------- --------
Net interest income $25,779 21,964 3,815 17.4%
Fees and other revenue:
Service charges, loan fees, and other fees 6,322 4,978 1,344 27.0%
Gain on sale of loans 2,026 3,211 (1,185) -36.9%
Gain on sale of investments, net of impairment charge - 1,685 (1,685) -100.0%
Other income 500 439 61 13.9%
------- ------- ------
Total non-interest income 8,848 10,313 (1,465) -14.2%
------- ------- ------
Total revenue $34,627 32,277 2,350 7.3%
======= ======= ======
Tax equivalent net interest margin 4.04% 4.17%
======= =======
Net Interest Income
Net interest income for the quarter increased $3.815 million, or 17 percent,
over the same period in 2003. Total interest income increased $3.828 million, or
12 percent, from the same quarter in 2003, while total interest expense was $13
thousand higher. Approximately 80 percent of the increase in interest income
resulted from a larger investment portfolio. Additional interest income from the
large increase in loans outstanding was offset by lower rates on the loan
portfolio due to refinancing, and re-pricing of existing loans. The flat
interest expense is primarily attributed to the increase in non-interest bearing
deposits and a reduction in rates on maturing fixed term interest bearing
deposits and Federal Home Loan Bank borrowings. The net interest margin as a
percentage of earning assets, on a tax equivalent basis, was 4.04 percent which
was a decrease from 4.17 percent for the second quarter of 2003 and the 4.29
percent for the first quarter of 2004. Premium amortization on mortgage related
investments for the second quarter was $3.467 million, an increase of $914
thousand from the first quarter but a decrease of $322 thousand from the second
quarter of last year. The increase in premium amortization in the second quarter
reduced our margin by 14 basis points. Low mortgage interest rates in March
resulted in a surge in refinancing activity which resulted in higher premium
amortization expense. Higher mortgage loan rates slow prepayments which results
in lower amortization expense which increases our net interest margin. We
continue to deploy a strategy of investing in short term securities that carry
lower current yields. We believe it is inappropriate in this rate environment to
extend maturities in order to achieve higher yields.
Non-interest Income
Fee income increased $1.344 million, or 27 percent, over the same period last
year, driven primarily by an increased number of loan and deposit accounts and
additional customer services offered. Fee income was also $1.230 million higher
than the first quarter of 2004, an increase of 24 percent. Gain on sale of loans
decreased $1.185 million from the second quarter of last year, because of
greatly reduced refinance activity, but increased $255 thousand from the first
quarter of 2004 as loan origination activity for housing purchases remains quite
strong in our markets. In the 2003 second quarter, gains on sale of investments,
net of impairment charge, of $1.685 million were recorded and zero gains were
realized in 2004. Other income, which includes a variety of activities, was $61
thousand greater than the prior year's quarter.
22
NON-INTEREST EXPENSE SUMMARY
($ IN THOUSANDS)
Three months ended June 30,
-------------------------------------------
2004 2003 $ change % change
------- ------ -------- --------
Compensation and employee benefits $ 9,851 9,050 801 8.9%
Occupancy and equipment expense 2,733 2,295 438 19.1%
Outsourced data processing expense 368 266 102 38.3%
Core deposit intangible amortization 251 291 (40) -13.7%
Other expenses 4,805 4,418 387 8.8%
------- ------ ------
Total non-interest expense $18,008 16,320 1,688 10.3%
------- ------ -------
Non-interest Expense
Non-interest expense increased by $1.688 million, or 10 percent, from the same
quarter of 2003 including expenses from the acquisitions, two additional
branches in Boise, Idaho, and a new branch in downtown Bozeman, one of the
fastest growing cities in Montana. Compensation and benefit expense increased
$801 thousand, or 9 percent from the second quarter of 2003, with the additional
bank branches, normal compensation increases for job performance and increased
cost for benefits tied to Company performance, accounting for the majority of
the increase. Occupancy and equipment expense increased $438 thousand, or 19
percent, reflecting the cost of the additional locations. Outsourced data
processing expense increased by $102 thousand due to increased item capture
expenses for Mountain West Bank resulting from increased volumes. Other expenses
increased $387 thousand, or 9 percent, primarily from start up expenses on
implementing the High Performance Checking program at the four banks not
previously on the program, additional advertising expense, and costs associated
with new branch offices and the acquisitions. The efficiency ratio (non-interest
expense/net interest income + non-interest income) was 52 percent for the 2004
quarter which is down from 53 percent for the 2003 quarter, excluding the gain
on sale of securities.
RESULTS OF OPERATIONS - THE SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 2003.
Operating results include amounts related to the operation of the three branches
acquired with the Pend Oreille Bank as of July 15, 2003 and the Ione, Washington
branch as of June 4, 2004.
REVENUE SUMMARY
($ IN THOUSANDS)
Six months ended June 30,
----------------------------------------------
2004 2003 $ change % change
------- ------ -------- --------
Net interest income $52,168 43,796 8,372 19.1%
Fees and other revenue:
Service charges, loan fees, and other fees 11,414 9,597 1,817 18.9%
Gain on sale of loans 3,797 5,482 (1,685) -30.7%
Gain on sale of investments, net of impairment
charge - 1,248 (1,248) -100.0%
Other income 1,048 999 49 4.9%
------- ------ ------
Total non-interest income 16,259 17,326 (1,067) -6.2%
------- ------ ------
Total revenue $68,427 61,122 7,305 12.0%
======= ====== ======
Tax equivalent net interest margin 4.17% 4.26%
======= ======
Net Interest Income
Net interest income for the first six months increased $8.372 million, or 19
percent, over the same period in 2003. Total interest income was $7.231 million,
or 11 percent higher than the same period in 2003, while total interest expense
was $1.141 million lower. Approximately 84 percent of the increase in interest
income resulted from the larger investment portfolio. Additional interest income
from the large increase in loans
23
outstanding was offset by lower rates on the loan portfolio due to refinancing,
and re-pricing of existing loans. The decrease in interest expense is primarily
attributed to the increase in non-interest bearing deposits and a reduction in
rates on maturing fixed term interest bearing deposits and Federal Home Loan
Bank borrowings. The net interest margin as a percentage of earning assets, on a
tax equivalent basis, was 4.17 percent which was a decrease from 4.26 percent
for the same period in 2003.
Non-interest Income
Fee income increased $1.817 million, or 19 percent, over the same period last
year, driven primarily by an increased number of loan and deposit accounts and
the fee income associated with this growth in accounts. Gain on sale of loans
decreased $1.685 million from the same period last year, because of greatly
reduced refinance activity. Loan origination activity for housing purchases
remains quite strong in our markets. In 2003 gains on sale of investments, net
of impairment charge, of $1.248 million were recorded and zero gains were
realized in 2004. Other income, which includes a variety of activities, was $49
thousand greater than the prior year.
NON-INTEREST EXPENSE SUMMARY
($ IN THOUSANDS)
Six months ended June 30,
----------------------------------------------
2004 2003 $ change % change
------- -------- -------- --------
Compensation and employee benefits $19,657 17,029 2,628 15.4%
Occupancy and equipment expense 5,364 4,730 634 13.4%
Outsourced data processing expense 781 828 (47) -5.7%
Core deposit intangible amortization 545 629 (84) -13.4%
Other expenses 9,087 7,987 1,100 13.8%
------- ------ -----
Total non-interest expense $35,434 31,203 4,231 13.6%
------- ------ -----
Non-interest Expense
Non-interest expense increased by $4.231 million, or 14 percent, from 2003
including expenses from the acquisitions, the opening of two additional branches
in Boise, Idaho, and a new branch in downtown Bozeman, one of the fastest
growing cities in Montana. Compensation and benefit expense increased $2.628
million, or 15 percent, with the additional bank branches, normal compensation
increases for job performance and increased cost for benefits tied to Company
performance, accounting for the majority of the increase. Occupancy and
equipment expense increased $634 thousand, or 13 percent, reflecting the cost of
the additional locations. Outsourced data processing expense decreased by $47
thousand the result of bringing all core processing onto our in-house data
systems, offset somewhat by increased item capture expenses for Mountain West
Bank resulting from increased volumes. Other expenses increased $1.100 million,
or 14 percent, primarily from start up expenses on implementing the High
Performance Checking program at the four banks not previously on the program,
additional advertising expense, and costs associated with new branch offices and
the acquisitions. The efficiency ratio (non-interest expense/net interest income
+ non-interest income) remained at 52 percent the same as 2003, excluding the
gain on sale of securities.
Critical Accounting Policies
Companies may apply certain critical accounting policies requiring management to
make subjective or complex judgments, often as a result of the need to estimate
the effect of matters that are inherently uncertain. The Company considers its
only critical accounting policy to be the allowance for loan losses. The
allowance for loan losses is established through a provision for loan losses
charged against earnings. The balance of allowance for loan loss is maintained
at the amount management believes will be adequate to absorb known and inherent
losses in the loan portfolio. The appropriate balance of allowance for loan
losses is determined by applying estimated loss factors to the credit exposure
from outstanding loans. Estimated loss factors are based on subjective
measurements including management's assessment of the internal risk
classifications, changes in the nature of the loan portfolio, industry
concentrations and the impact of current local, regional and national economic
factors on the quality of the loan portfolio. Changes in these estimates and
assumptions are
24
reasonably possible and may have a material impact on the Company's consolidated
financial statements, results of operations and liquidity.
Effect of inflation and changing prices
Generally accepted accounting principles require the measurement of financial
position and operating results in terms of historical dollars, without
consideration for change in relative purchasing power over time due to
inflation. Virtually all assets of a financial institution are monetary in
nature; therefore, interest rates generally have a more significant impact on a
company's performance than does the effect of inflation.
Forward Looking Statements
This Form 10-Q may be deemed to include forward looking statements, which
management believes are a benefit to shareholders. These forward looking
statements describe management's expectations regarding future events and
developments such as future operating results, growth in loans and deposits,
continued success of the Company's style of banking and the strength of the
local economy. The words "will," "believe," "expect," "should," and "anticipate"
and words of similar construction are intended in part to help identify forward
looking statements. Future events are difficult to predict, and the expectations
described above are subject to risk and uncertainty that may cause actual
results to differ materially and adversely. In addition to discussions about
risks and uncertainties set forth from time to time in the Company's filings
with the SEC, factors that may cause actual results to differ materially from
those contemplated by such forward looking statements include, among others, the
following possibilities: (1) local, national, and international economic
conditions are less favorable than expected or have a more direct and pronounced
effect on the Company than expected and adversely affect the Company's ability
to continue its internal growth at historical rates and maintain the quality of
its earning assets; (2) changes in interest rates reduce interest margins more
than expected and negatively affect funding sources; (3) projected business
increases following strategic expansion or opening or acquiring new branches are
lower than expected; (4) costs or difficulties related to the integration of
acquisitions are greater than expected; (5) competitive pressure among financial
institutions increases significantly; (6) legislation or regulatory requirements
or changes adversely affect the businesses in which the Company is engaged; and
(7) the Company's ability to realize the efficiencies it expects to receive from
its investments in personnel and infrastructure.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company believes that there have not been any material changes in
information about the Company's market risk that was provided in the Form 10-K
report for the year ended December 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have reviewed
and evaluated the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of the date of
this quarterly report. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's current disclosure
controls and procedures are effective and timely, providing them with material
information relating to the Company required to be disclosed in the reports we
file or submit under the Exchange Act.
Changes in Internal Controls
There have not been any significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation. We are not aware of any significant deficiencies or material
weaknesses, therefore no corrective actions were taken.
25
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
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
(e) The following sets out the repurchase made by the Company of its
common stock during the quarter ended June 30, 2004:
Total Number Maximum Number
of Shares (or units) of Shares (or units)
Total Number Average Price Purchased as Part that may yet be
of Shares (or Paid per of Publicly Announced Purchased Under the
units) Purchased Share (or unit) Plans or Programs (1) Plans or Programs (1)
---------------- --------------- --------------------- ---------------------
Apr 1 - Apr 30, 2004 - $ - - 1,222,852
May 1 - May 31, 2004 71,250 25.33 71,250 1,151,602
June 1 - June 30, 2004 - - - 1,151,602
------ ------
71,250 $ 25.33 71,250 1,151,602
====== ======
(1) The Company announced on April 28, 2004 the Board approved repurchase
of up to 5% of the Company's common shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) The Company's Annual Shareholders' Meeting was held April 28, 2004.
(b) Not Applicable.
(c) A brief description of each matter voted upon at the Annual Meeting
and number of votes cast for, against or withheld, including a
separate tabulation with respect to each nominee to serve on the
Board is presented below:
(1) Election of three Directors for three year terms expiring in
2007 and until their successors have been elected and
qualified.
Directors:
26
James M. English -
Votes Cast For: 17,361,229
Votes Cast Withheld: 137,980
Jon W. Hippler -
Votes Cast For: 14,526,939
Votes Cast Withheld: 2,972,270
John S. MacMillan -
Votes Cast For: 14,254,410
Votes Cast Withheld: 3,244,799
(2) Reincorporation of the Company from Delaware to Montana
through the merger of the Company with and into a wholly-owned
Montana subsidiary of the Company.
Votes Cast For: 12,916,519
Votes Cast Against: 482,746
Abstain: 24,991
(d) None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 3.i.1 - Articles of Incorporation
Exhibit 3.i.2 - Articles of Amendment to Articles of Incorporation
Exhibit 3.ii - By-laws
Exhibit 31.1 - Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes - Oxley Act of 2002
Exhibit 31.2 - Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes - Oxley Act of 2002
Exhibit 32 - Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002
(b) Current Report on Form 8-K
On April 29, 2004, a Form 8-K was furnished announcing first quarter
financial results for 2004.
27
On May 6, 2004, a Form 8-K was filed announcing the intention to
repurchase up to approximately 5% of the Company's common stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLACIER BANCORP, INC.
August 5, 2004 /s/ Michael J. Blodnick
-----------------------
Michael J. Blodnick
President/CEO
August 5, 2004 /s/ James H. Strosahl
---------------------
James H. Strosahl
Executive Vice President/CFO
28