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, 2005
[ ] 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 (IRS Employer Identification No.)
incorporation or organization)
49 Commons Loop, Kalispell, Montana 59901
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (406) 756-4200
- --------------------------------------------------------------------------------
Not Applicable
- --------------------------------------------------------------------------------
(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 April 29, 2005
was 31,223,730. 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 -
March 31, 2005, December 31, 2004 and March 31, 2004 (unaudited)...... 3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 2005 and 2004 (unaudited)................ 4
Condensed Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Year ended December 31, 2004 and three
months ended March 31, 2005 (unaudited)............................... 5
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 2005 and 2004 (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 INFORMATION....................................................... 25
Item 1 - Legal Proceedings..................................................... 25
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds........... 25
Item 3 - Defaults Upon Senior Securities....................................... 25
Item 4 - Submission of Matters to a Vote of Security Holders.................. 26
Item 5 - Other Information..................................................... 26
Item 6 - Exhibits.............................................................. 26
Signatures..................................................................... 26
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------- ------------ ------------ ------------
(UNAUDITED - dollars in thousands, except per share data) MARCH 31, December 31, March 31,
- -------------------------------------------------------------------------- 2005 2004 2004
------------ ------------ ------------
ASSETS:
Cash on hand and in banks ............................................ $ 82,600 79,300 53,213
Fed funds sold ....................................................... 14,751 -- --
Interest bearing cash deposits ....................................... 8,208 13,007 27,432
------------ ------------ ------------
Cash and cash equivalents ......................................... 105,559 92,307 80,645
Investment securities, available-for-sale ............................ 1,148,153 1,085,626 1,157,527
Loans receivable, net ................................................ 1,860,295 1,687,329 1,449,535
Loans held for sale .................................................. 19,637 14,476 16,609
Premises and equipment, net .......................................... 63,720 55,732 52,936
Real estate and other assets owned, net .............................. 2,003 2,016 516
Accrued interest receivable .......................................... 16,151 15,637 14,187
Core deposit intangible, net ......................................... 7,102 4,939 5,571
Goodwill ............................................................. 60,189 37,376 36,951
Other assets ......................................................... 23,631 15,299 14,564
------------ ------------ ------------
$ 3,306,440 3,010,737 2,829,041
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ........................................ $ 528,038 460,059 366,277
Interest bearing deposits ............................................ 1,448,643 1,269,649 1,225,169
Advances from Federal Home Loan Bank of Seattle ...................... 858,961 818,933 801,679
Securities sold under agreements to repurchase ....................... 79,148 76,158 63,453
Other borrowed funds ................................................. 5,834 5,057 5,122
Accrued interest payable ............................................. 6,048 4,864 5,080
Deferred tax liability ............................................... 4,782 8,392 10,983
Subordinated debentures .............................................. 80,000 80,000 80,000
Other liabilities .................................................... 21,537 17,441 18,377
------------ ------------ ------------
Total liabilities ................................................. 3,032,991 2,740,553 2,576,140
------------ ------------ ------------
Preferred shares, 1,000,000 shares authorized. None outstanding ...... -- -- --
Common stock, $.01 par value per share. 62,500,000 shares authorized 309 307 306
Paid-in capital ...................................................... 229,496 227,552 225,536
Retained earnings - substantially restricted ......................... 43,467 36,391 14,888
Accumulated other comprehensive income ............................... 177 5,934 12,171
------------ ------------ ------------
Total stockholders' equity ........................................ 273,449 270,184 252,901
------------ ------------ ------------
$ 3,306,440 3,010,737 2,829,041
============ ============ ============
Number of shares outstanding ......................................... 30,853,644 30,686,763 30,563,383
Book value per share ................................................. $ 8.86 8.80 8.27
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 MARCH 31,
- -------------------------------------------------------------- ----------------------------
2005 2004
------------ ------------
INTEREST INCOME:
Real estate loans ........................................ $ 6,615 5,281
Commercial loans ......................................... 16,524 13,223
Consumer and other loans ................................. 5,730 4,836
Investment securities and other .......................... 11,638 12,125
------------ ------------
Total interest income .............................. 40,507 35,465
------------ ------------
INTEREST EXPENSE:
Deposits ................................................. 4,069 3,483
Federal Home Loan Bank of Seattle advances ............... 5,243 4,445
Securities sold under agreements to repurchase ........... 398 157
Subordinated debentures .................................. 1,555 962
Other borrowed funds ..................................... 786 29
------------ ------------
Total interest expense ............................. 12,051 9,076
------------ ------------
NET INTEREST INCOME .......................................... 28,456 26,389
Provision for loan losses ................................ 1,490 830
------------ ------------
Net interest income after provision for loan losses.. 26,966 25,559
------------ ------------
NON-INTEREST INCOME:
Service charges and other fees ........................... 5,204 4,073
Miscellaneous loan fees and charges ...................... 1,278 1,019
Gains on sale of loans ................................... 2,092 1,771
Loss on sale of investments .............................. (30) --
Other income ............................................. 564 548
------------ ------------
Total non-interest income ........................... 9,108 7,411
------------ ------------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses .............................. 10,944 9,806
Occupancy and equipment expense .......................... 2,855 2,631
Outsourced data processing expense ....................... 232 413
Core deposit intangibles amortization .................... 283 294
Other expenses ........................................... 4,760 4,282
------------ ------------
Total non-interest expense .......................... 19,074 17,426
------------ ------------
EARNINGS BEFORE INCOME TAXES ................................. 17,000 15,544
Federal and state income tax expense ..................... 5,480 4,934
------------ ------------
NET EARNINGS ................................................. $ 11,520 10,610
============ ============
Basic earnings per share ..................................... $ 0.37 0.35
Diluted earnings per share ................................... $ 0.37 0.34
Dividends declared per share ................................. $ 0.14 0.13
Return on average assets (annualized) ........................ 1.50% 1.55%
Return on average equity (annualized) ........................ 17.06% 17.28%
Average outstanding shares - basic ........................... 30,764,368 30,433,091
Average outstanding shares - diluted ......................... 31,305,788 30,960,836
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, 2004 and Three months ended March 31, 2005
Retained Accumulated
Common Stock earnings other comp-
- --------------------------------------------------------- --------------------------- Paid-in substantially rehensive
(UNAUDITED - dollars in thousands, except per share data) Shares Amount capital restricted income
- --------------------------------------------------------- ------------ ------------ ------------ ------------- ------------
Balance at December 31, 2003 ........................... 30,254,173 $ 303 222,527 8,393 6,616
Comprehensive income:
Net earnings ....................................... -- -- -- 44,616 --
Unrealized loss on securities, net of
reclassification adjustment ...................... -- -- -- -- (682)
Total comprehensive income ..............................
Cash dividends declared ($.54 per share) ................ -- -- -- (16,618) --
Stock options exercised ................................. 521,653 5 5,434 -- --
Repurchase and retirement of stock ...................... (89,063) (1) (1,804) -- --
Acquisition of fractional shares ........................ -- -- (9) -- --
Tax benefit from stock related compensation ............. -- -- 1,404 -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2004 ............................ 30,686,763 $ 307 227,552 36,391 5,934
Comprehensive income:
Net earnings ....................................... -- -- -- 11,520 --
Unrealized loss on securities, net of
reclassification adjustment and taxes............. -- -- -- -- (5,757)
Total comprehensive income...............................
Cash dividends declared ($.14 per share) ................ -- -- -- (4,444) --
Stock options exercised ................................. 166,881 2 1,944 -- --
------------ ------------ ------------ ------------ ------------
Balance at March 31, 2005 ............................... 30,853,644 $ 309 229,496 43,467 177
============ ============ ============ ============ ============
Total
stock-
- --------------------------------------------------------- holders'
(UNAUDITED - dollars in thousands, except per share data) equity
- --------------------------------------------------------- ------------
Balance at December 31, 2003 ........................... 237,839
Comprehensive income:
Net earnings ....................................... 44,616
Unrealized loss on securities, net of
reclassification adjustment ...................... (682)
------------
Total comprehensive income .............................. 43,934
------------
Cash dividends declared ($.54 per share) ................ (16,618)
Stock options exercised ................................. 5,439
Repurchase and retirement of stock ...................... (1,805)
Acquisition of fractional shares ........................ (9)
Tax benefit from stock related compensation ............. 1,404
------------
Balance at December 31, 2004 ............................ 270,184
Comprehensive income:
Net earnings ....................................... 11,520
Unrealized loss on securities, net of
reclassification adjustment and taxes............. (5,757)
------------
Total comprehensive income............................... 5,763
------------
Cash dividends declared ($.14 per share) ................ (4,444)
Stock options exercised ................................. 1,946
------------
Balance at March 31, 2005 ............................... 273,449
============
See accompanying notes to condensed consolidated financial statements.
5
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------- ----------------------------
(UNAUDITED - dollars in thousands) THREE MONTHS ENDED MARCH 31,
- ----------------------------------------------------------------------- ----------------------------
2005 2004
------------- -------------
OPERATING ACTIVITIES :
Net cash provided by operating activities ....................... $ 9,034 20,178
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of
investments available-for-sale .............................. 153,703 57,513
Purchases of investments available-for-sale ..................... (103,175) (110,191)
Principal collected on installment and commercial loans ......... 142,784 138,037
Installment and commercial loans originated or acquired ......... (212,076) (175,943)
Principal collections on mortgage loans ......................... 80,378 57,666
Mortgage loans originated or acquired ........................... (97,864) (56,735)
Net purchase of FHLB and FRB stock .............................. (14) (886)
Acquisition of First National Bank - West ....................... (18,139) --
Net addition of premises and equipment .......................... (4,899) (826)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ...................... (59,302) (91,365)
------------ ------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits ............................. 22,223 (6,179)
Net increase in FHLB advances and other borrowed funds .......... 40,805 21,489
Net increase in securities sold under repurchase agreements ..... 2,990 6,485
Proceeds from issuance of subordinated debentures ............... -- 45,000
Cash dividends paid ............................................. (4,444) (4,115)
Proceeds from exercise of stock options and other stock issued .. 1,946 3,012
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 63,520 65,692
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........ 13,252 (5,495)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................ 92,307 86,140
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 105,559 80,645
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest .............. $ 11,098 8,349
Income taxes .......... $ -- 100
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 condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of Glacier
Bancorp Inc.'s (the "Company") financial condition as of March 31, 2005,
December 31, 2004, and March 31, 2004, stockholders' equity for the three
months ended March 31, 2005 and the year ended December 31, 2004, the
results of operations for the three months ended March 31, 2005 and 2004,
and cash flows for the three months ended March 31, 2005 and 2004.
The accompanying condensed consolidated financial statements do not
include all of the information and footnotes required by the accounting
principals generally accepted in the United States of America for complete
financial statements. These condensed 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, 2004. Operating results for the three
months ended March 31, 2005 are not necessarily indicative of the results
anticipated for the year ending December 31, 2005. Certain
reclassifications have been made to the 2004 financial statements to
conform to the 2005 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. The Company is the parent company for
eight 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, Mountain West Bank ("Mountain West") which is located in Idaho,
Utah, and Washington, and First National Bank - West ("First National")
located in Wyoming. 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.
The following abbreviated organizational chart illustrates the various
relationships:
<Table>
<Caption>
------------------------------
Glacier Bancorp, Inc.
(Parent Holding Company)
------------------------------
|
- -----------------------------------------------------------------------------------------------------------------------
Glacier Bank Mountain West Bank | First Security Bank Western Security Bank
(Commercial bank) (Commercial bank) | of Missoula (Commercial bank)
| (Commercial bank)
- -------------------------- ----------------- | --------------------- ---------------------
|
- -----------------------------------------------------------------------------------------------------------------------
First National Bank - West Big Sky | Valley Bank Glacier Bank
(Commercial bank) Western Bank | of Helena of Whitefish
(Commercial bank) | (Commercial bank) (Commercial bank)
- --------------------------- ----------------- | --------------------- ---------------------
|
-----------------------------------------------------------
Glacier Capital Glacier Capital
Trust I Trust II
------------------------ ------------------------
</Table>
7
3) Ratios
Returns on average assets and average equity were calculated based on
daily averages.
4) Dividends Declared
On April 26, 2005, the Board of Directors declared a five-for-four stock
split payable May 26, 2005 to shareholders of record on May 10, 2005, and
all share and per share amounts have been restated to reflect the effects
of the stock split. On March 11, 2005, the Board of Directors declared a
$.14 per share quarterly cash dividend payable on April 21, 2005 to
stockholders of record on April 12, 2005.
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, 2005 March 31, 2004
-------------- --------------
Net earnings available to common
stockholders ...................... $ 11,520,000 10,610,000
Average outstanding shares - basic ... 30,764,368 30,433,091
Add: Dilutive stock options .......... 541,420 527,745
------------ ------------
Average outstanding shares - diluted.. 31,305,788 30,960,836
============ ============
Basic earnings per share ............. $ 0.37 0.35
============ ============
Diluted earnings per share ........... $ 0.37 0.34
============ ============
There were approximately 591,250 and 0 shares excluded from the diluted
share calculation as of March 31, 2005, and 2004, respectively, due to the
option exercise price exceeding the market price.
8
6) Stock Based Compensation
The exercise price of all options granted has been equal to the fair
market value of the underlying stock at the date of grant and,
accordingly, no compensation cost has been recognized for stock options in
the financial statements. Had the company determined compensation cost
based on the fair value of the option itself at the grant date for its
stock options and earnings per share under FASB Statement 123, Accounting
for Stock-Based Compensation, the Company's net income would have been
reduced to the pro forma amounts indicated below:
Three months ended March 31,
----------------------------
2005 2004
---------- ----------
Net earnings (in thousands): As reported $ 11,520 10,610
Compensation cost (207) (123)
-------- --------
Pro forma 11,313 10,487
======== ========
Basic earnings per share: As reported 0.37 0.35
Compensation cost -- (0.01)
-------- --------
Pro forma 0.37 0.34
======== ========
Diluted earnings per share: As reported 0.37 0.34
Compensation cost (0.01) --
-------- --------
Pro forma 0.36 0.34
======== ========
In December, 2004, FASB Statement 123R was issued, which supersedes and
replaces FASB Statement 123. FASB 123R requires recognition of
compensation cost related to share-based payment plans to be recognized in
the financial statements based on the fair value of the equity or
liability instruments issued. The Company will adopt the statement at the
earliest required adoption date.
9
7) Investments
A comparison of the amortized cost and estimated fair value of the
Company's investment securities, available for sale, is as follows:
INVESTMENTS AS OF MARCH 31, 2005
- ---------------------------------------------
(Dollars in thousands) Estimated
- --------------------------------------------- Weighted Amortized Gross Unrealized Fair
U.S. GOVERNMENT AND FEDERAL AGENCIES: Yield Cost Gains Losses Value
---------- ---------- ---------- ---------- ----------
maturing within one year .................. 2.51% 7,028 -- (2) 7,026
maturing five years through ten years ..... 5.03% 362 5 -- 367
maturing after ten years .................. 3.33% 449 2 (1) 450
---------- ---------- ---------- ----------
2.67% 7,839 7 (3) 7,843
---------- ---------- ---------- ----------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .................. 4.22% 1,163 5 -- 1,168
maturing one year through five years ...... 4.61% 2,890 50 (6) 2,934
maturing five years through ten years ..... 4.66% 8,047 328 (11) 8,364
maturing after ten years .................. 5.09% 290,963 10,245 (1,261) 299,947
---------- ---------- ---------- ----------
5.07% 303,063 10,628 (1,278) 312,413
---------- ---------- ---------- ----------
MORTGAGE-BACKED SECURITIES .................. 4.69% 85,645 679 (1,165) 85,159
REAL ESTATE MORTGAGE INVESTMENT CONDUITS .... 4.14% 693,624 598 (9,023) 685,199
FHLMC AND FNMA STOCK ........................ 5.74% 7,593 -- (152) 7,441
FHLB AND FRB STOCK, AT COST ................. 2.15% 50,098 -- -- 50,098
---------- ---------- ---------- ----------
TOTAL INVESTMENTS ...................... 4.34% $1,147,862 11,912 (11,621) 1,148,153
========== ========== ========== ==========
INVESTMENTS AS OF DECEMBER 31, 2004
- --------------------------------------------- Estimated
(Dollars in thousands) Weighted Amortized Gross Unrealized Fair
- --------------------------------------------- Yield Cost Gains Losses Value
---------- ---------- ---------- ---------- ----------
maturing within one year .................. 1.29% $ 251 -- -- 251
maturing five years through ten years ..... 4.62% 350 6 -- 356
maturing after ten years .................. 3.08% 481 2 (1) 482
---------- ---------- ---------- ----------
3.16% 1,082 8 (1) 1,089
---------- ---------- ---------- ----------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .................. 5.30% 518 8 -- 526
maturing one year through five years ...... 5.37% 1,205 64 -- 1,269
maturing five years through ten years ..... 4.69% 6,514 324 -- 6,838
maturing after ten years .................. 5.13% 292,102 12,971 (1,098) 303,975
---------- ---------- ---------- ----------
5.12% 300,339 13,367 (1,098) 312,608
---------- ---------- ---------- ----------
MORTGAGE-BACKED SECURITIES .................. 4.99% 56,629 919 (503) 57,045
REAL ESTATE MORTGAGE INVESTMENT CONDUITS .... 3.77% 660,389 1,624 (4,469) 657,544
FHLMC AND FNMA STOCK ........................ 5.74% 7,593 -- (56) 7,537
FHLB AND FRB STOCK, AT COST ................. 3.22% 49,803 -- -- 49,803
---------- ---------- ---------- ----------
TOTAL INVESTMENTS ...................... 4.20% $1,075,835 15,918 (6,127) 1,085,626
========== ========== ========== ==========
10
Interest income includes tax-exempt interest for the three months ended
March 31, 2005 and 2004 of $3,467,000 and $3,465,000, respectively.
Gross proceeds from sales of investment securities for the three months
ended March 31, 2005 and 2004 were $98,929,000 and $0 respectively,
resulting in gross gains of approximately $421,000 and $0 and gross losses
of approximately $451,000 and $0, respectively. The cost of any investment
sold is determined by specific identification.
8) Loans
The following table summarizes the Company's loan portfolio:
TYPE OF LOAN At At At
(Dollars in Thousands) 3/31/2005 12/31/2004 3/31/2004
---------------------------- ---------------------------- ----------------------------
Amount Percent Amount Percent Amount Percent
------------- ------------- ------------- ------------- ------------- -------------
Real Estate Loans:
Residential first mortgage loans $ 417,906 22.2% $ 382,750 22.5% $ 303,918 20.7%
Loans held for sale ............ 19,637 1.1% 14,476 0.9% 16,609 1.1%
------------ ------------ ------------ ------------ ------------ ------------
Total ...................... 437,543 23.3% 397,226 23.4% 320,527 21.8%
Commercial Loans:
Real estate .................... 560,645 29.8% 526,455 30.9% 497,059 33.9%
Other commercial loans ......... 530,588 28.2% 466,582 27.4% 378,133 25.8%
------------ ------------ ------------ ------------ ------------ ------------
Total ...................... 1,091,233 58.0% 993,037 58.3% 875,192 59.7%
Consumer and Other Loans:
Consumer loans ................. 129,200 6.9% 95,663 5.6% 94,310 6.4%
Home equity loans .............. 258,797 13.8% 248,684 14.6% 206,608 14.1%
------------ ------------ ------------ ------------ ------------ ------------
Total ...................... 387,997 20.7% 344,347 20.2% 300,918 20.5%
Net deferred loan fees, premiums
and discounts ............. (7,040) -0.4% (6,313) -0.3% (5,924) -0.3%
Allowance for Losses ........... (29,801) -1.6% (26,492) -1.6% (24,569) -1.7%
------------ ------------ ------------ ------------ ------------ ------------
Net Loans ........................... $ 1,879,932 100.0% $ 1,701,805 100.0% $ 1,466,144 100.0%
============ ============ ============ ============ ============ ============
11
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
3/31/2005 12/31/2004 3/31/2004
------------ ------------ ------------
Non-accrual loans:
Real estate loans .................... $ 25 847 1,191
Commercial loans ..................... 5,679 4,792 8,287
Consumer and other loans ............. 342 311 409
------------ ------------ ------------
Total .............................. $ 6,046 5,950 9,887
Accruing Loans 90 days or more overdue:
Real estate loans .................... 110 179 249
Commercial loans ..................... 792 1,067 701
Consumer and other loans ............. 215 396 288
------------ ------------ ------------
Total .............................. $ 1,117 1,642 1,238
Real estate and other assets owned, net 2,003 2,016 516
------------ ------------ ------------
Total non-performing assets .............. $ 9,166 9,608 11,641
============ ============ ============
As a percentage of total assets ........ 0.27% 0.32% 0.42%
Interest Income (1) ...................... $ 97 372 154
- ----------
(1) This is the amount of interest that would have been recorded on loans
accounted for on a non-accrual basis for the three months ended March 31,
2005 and 2004 and the year ended December 31, 2004, if such loans had been
current for the entire period.
The following table illustrates the loan loss experience:
ALLOWANCE FOR LOAN LOSS Three months ended Year ended Three months ended
March 31, December 31, March 31,
(Dollars in Thousands) .............. 2005 2004 2004
------------ ------------ ------------
Balance at beginning of period ......... $ 26,492 23,990 23,990
Charge offs:
Real estate loans .................... (31) (419) (137)
Commercial loans ..................... (255) (1,150) (140)
Consumer and other loans ............. (115) (776) (166)
------------ ------------ ------------
Total charge offs ................... $ (401) (2,345) (443)
------------ ------------ ------------
Recoveries:
Real estate loans .................... 56 171 42
Commercial loans ..................... 60 120 24
Consumer and other loans ............. 72 361 126
------------ ------------ ------------
Total recoveries .................... $ 188 652 192
------------ ------------ ------------
Chargeoffs, net of recoveries ......... (213) (1,693) (251)
Acquisition (1) ....................... 2,032 -- --
Provision ............................. 1,490 4,195 830
------------ ------------ ------------
Balance at end of period ............... $ 29,801 26,492 24,569
============ ============ ============
Ratio of net charge offs to average
loans outstanding during the period.. 0.01% 0.10% 0.02%
- ----------
(1) Acquisition of First National Bank-West
12
The following table summarizes the allocation of the allowance for loan
losses:
March 31, 2005 December 31, 2004 March 31, 2004
-------------------------- -------------------------- --------------------------
Percent Percent Percent
of loans in of loans in of loans in
(Dollars in thousands) Allowance category Allowance category Allowance category
- -------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Real estate loans ........ $ 2,987 22.8% 2,693 22.9% 2,154 21.2%
Commercial real estate ... 9,699 29.3% 9,222 30.3% 7,650 33.3%
Other commercial ......... 11,513 27.7% 9,836 26.9% 10,339 25.3%
Consumer and other loans.. 5,602 20.2% 4,741 19.9% 4,426 20.2%
------------ ------------ ------------ ------------ ------------ ------------
Totals ................ $ 29,801 100.0% 26,492 100.0% 24,569 100.0%
============ ============ ============ ============ ============ ============
The Company acquired the following loans during 2005 for which there was, at
acquisition, evidence of deterioration of credit quality since origination and
for which it was probable, at acquisition, that all contractually required
payments would not be collected.
------------------------------- March 31,
(Dollars in thousands) 2005
------------------------------- ------------
Contractually required payments
receivable at acquisition:
Commercial Loans ........ $ 1,842
Cash flows expected to be
collected at acquisition ... 1,668
Basis in acquired loans at
acquisition ................ 1,200
13
9) Intangible Assets
The following table sets forth information regarding the Company's core
deposit intangibles and mortgage servicing rights as of March 31, 2005:
- ----------------------------------------------- Core Deposit Mortgage
(Dollars in thousands) Intangible Servicing Rights (1) Total
- ----------------------------------------------- ------------- -------------------- ------------
Gross carrying value ...................... $ 12,716
Accumulated Amortization .................. (5,614)
------------
Net carrying value ........................ $ 7,102 1,210 8,312
============
WEIGHTED-AVERAGE AMORTIZATION PERIOD
(Period in years) ......................... 10.0 9.6 9.9
AGGREGATE AMORTIZATION EXPENSE
For the three months ended March 31, 2005.. $ 283 67 350
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2005 ...... $ 1,287 129 1,416
For the year ended December 31, 2006 ...... 1,248 82 1,330
For the year ended December 31, 2007 ...... 1,183 79 1,262
For the year ended December 31, 2008 ...... 1,126 77 1,203
For the year ended December 31, 2009 ...... 1,030 74 1,104
- ----------
(1) The mortgage servicing rights are included in other assets and the gross
carrying value and accumulated amortization are not readily available.
On February 28, 2005, the Company acquired First National Bank-West in
Evanston, Wyoming, which resulted in additional core deposit intangible of
$2,446,000. The acquisition also resulted in additional goodwill of
$22,813,000.
10) Deposits
The following table illustrates the amounts outstanding for deposits
greater than $100,000 at March 31, 2005, according to the time remaining
to maturity:
--------------------------- Certificates Non-Maturity
(Dollars in thousands) of Deposit Deposits Totals
--------------------------- ------------ ------------ ------------
Within three months ....... $ 57,295 726,690 783,985
Three to six months ....... 33,967 -- 33,967
Seven to twelve months .... 21,729 -- 21,729
Over twelve months ........ 31,352 -- 31,352
------------ ------------ ------------
Totals ................. $ 144,343 726,690 871,033
============ ============ ============
14
11) Advances and Other Borrowings
The following chart illustrates the average balances and the maximum
outstanding month-end balances for Federal Home Loan Bank of Seattle
(FHLB) advances and repurchase agreements:
As of and As of and As of and
for the three for the for the three
(Dollars in thousands) months ended year ended months ended
March 31, 2005 December 31, 2004 March 31, 2004
-------------- ----------------- --------------
FHLB Advances:
Amount outstanding at end of period.... $858,961 818,933 801,679
Average balance ....................... $739,928 791,245 815,825
Maximum outstanding at any month-end... $858,961 862,136 830,855
Weighted average interest rate ........ 2.87% 2.34% 2.19%
Repurchase Agreements:
Amount outstanding at end of period.... $ 79,148 76,158 63,453
Average balance ....................... $ 80,970 69,480 63,271
Maximum outstanding at any month-end... $ 79,148 80,265 67,558
Weighted average interest rate ........ 2.06% 1.25% 1.00%
12) 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, 2005.
CONSOLIDATED Tier 1 (Core) Tier 2 (Total) Leverage
(Dollars in thousands) Capital Capital Capital
----------- ----------- -----------
GAAP Capital ............................. $ 273,449 273,449 273,449
Less: Goodwill and intangibles .......... (67,291) (67,291) (67,291)
Accumulated other comprehensive
Unrealized gain on AFS securities (177) (177) (177)
Other adjustments .................... (151) (151) (151)
Plus: Allowance for loan losses ......... -- 27,762 --
Subordinated debentures .............. 80,000 80,000 80,000
----------- ----------- -----------
Regulatory capital computed .............. $ 285,830 313,592 285,830
=========== =========== ===========
Risk weighted assets ..................... $ 2,220,982 2,220,982
=========== ===========
Total average assets ..................... $ 3,227,116
===========
Capital as % of defined assets ........... 12.87% 14.12% 8.86%
Regulatory "well capitalized" requirement 6.00% 10.00% 5.00%
----------- ----------- -----------
Excess over "well capitalized" requirement 6.87% 4.12% 3.86%
=========== =========== ===========
15
13) 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 2005 2004
-------- --------
Net earnings ........................................... $ 11,520 10,610
Unrealized holding (loss) gain arising during the period (9,530) 9,169
Tax benefit (expense) ................................. 3,755 (3,614)
-------- --------
Net after tax .............................. (5,775) 5,555
Reclassification adjustment for losses
included in net income .............................. 30 --
Tax benefit ............................................ (12) --
-------- --------
Net after tax .............................. 18 --
Net unrealized (loss) gain on securities ... (5,757) 5,555
-------- --------
Total comprehensive earnings ........... $ 5,763 16,165
======== ========
14) Segment Information
The Company evaluates segment performance internally based on individual
bank charters, and thus the operating segments are so defined. The
following schedule provides selected financial data for the Company's
operating segments. Centrally provided services to the Banks are allocated
based on estimated usage of those services. The operating segment
identified as "Other" includes the Parent, non-bank units, and
eliminations of transactions between segments.
Three months ended and as of March 31, 2005
---------------------------------------------------------
Mountain First First
(Dollars in thousands) Glacier West Security Western National
--------- --------- --------- --------- ---------
Revenues from external customers $ 10,335 12,168 9,075 6,371 1,144
Intersegment revenues 145 -- 5 -- --
Expenses (7,741) (9,572) (6,413) (4,871) (883)
Intercompany eliminations -- -- -- -- --
--------- --------- --------- --------- ---------
Net income $ 2,739 2,596 2,667 1,500 261
========= ========= ========= ========= =========
Total Assets $ 685,498 659,006 617,048 443,633 272,335
========= ========= ========= ========= =========
Total
Big Sky Valley Whitefish Other Consolidated
--------- --------- --------- --------- ------------
Revenues from external customers 4,089 3,779 2,953 (299) 49,615
Intersegment revenues -- 34 -- 14,842 15,026
Expenses (3,004) (2,844) (1,999) (768) (38,095)
Intercompany eliminations -- -- -- (15,026) (15,026)
--------- --------- --------- --------- ----------
Net income 1,085 969 954 (1,251) 11,520
========= ========= ========= ========= ==========
Total Assets 257,217 241,496 162,727 (32,520) 3,306,440
========= ========= ========= ========= ==========
16
Three months ended and as of March 31, 2004
---------------------------------------------------------
Mountain First Big
(Dollars in thousands) Glacier West Security Western Sky
--------- --------- --------- --------- ---------
Revenues from external customers $ 9,335 9,224 8,820 6,344 3,412
Intersegment revenues 68 -- 4 2 --
Expenses (6,719) (7,605) (5,997) (4,618) (2,518)
Intercompany eliminations -- -- -- -- --
--------- --------- --------- --------- ---------
Net income $ 2,684 1,619 2,827 1,728 894
========= ========= ========= ========= =========
Total Assets $ 603,740 558,012 598,702 449,044 214,116
========= ========= ========= ========= =========
Total
Valley Whitefish Other Consolidated
--------- --------- --------- ------------
Revenues from external customers 3,387 2,261 93 42,876
Intersegment revenues 36 -- 13,137 13,247
Expenses (2,525) (1,602) (682) (32,266)
Intercompany eliminations -- -- (13,247) (13,247)
--------- --------- --------- ------------
Net income 898 659 (699) 10,610
========= ========= ========= ============
Total Assets 220,461 155,173 29,793 2,829,041
========= ========= ========= ============
15) Rate/Volume Analysis
Net interest income can be evaluated from the perspective of relative
dollars of change in each period.
Three Months Ended March 31,
(Dollars in Thousands) 2005 vs. 2004
Increase (Decrease) due to:
---------------------------------
INTEREST INCOME Volume Rate Net
------- ------- -------
Real Estate Loans .......... $ 1,665 (331) 1,334
Commercial Loans ........... 2,661 640 3,301
Consumer and Other Loans ... 1,027 (133) 894
Investment Securities ...... (62) (425) (487)
------- ------- -------
Total Interest Income 5,291 (249) 5,042
INTEREST EXPENSE
NOW Accounts ............... 17 20 37
Savings Accounts ........... 18 29 47
Money Market Accounts ...... 93 361 454
Certificates of Deposit .... 15 33 48
FHLB Advances .............. (413) 1,211 798
Other Borrowings and
Repurchase Agreements .... 1,887 (296) 1,591
------- ------- -------
Total Interest Expense 1,617 1,358 2,975
------- ------- -------
NET INTEREST INCOME ........ $ 3,674 (1,607) 2,067
======= ======= =======
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.
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 Three months ended 3-31-05 For the Three months ended 3-31-04
---------------------------------- ----------------------------------
(Dollars in Thousands) Interest Average Interest Average
Average and Yield/ Average and Yield/
ASSETS Balance Dividends Rate Balance Dividends Rate
----------- --------- ------- ----------- --------- -------
Real Estate Loans $ 410,478 6,615 6.45% $ 312,096 5,281 6.77%
Commercial Loans 1,032,198 16,524 6.49% 859,587 13,223 6.19%
Consumer and Other Loans 359,451 5,730 6.46% 296,506 4,836 6.56%
----------- --------- ----------- ---------
Total Loans 1,802,127 28,869 6.50% 1,468,189 23,340 6.39%
Tax -Exempt Investment Securities (1) 282,164 3,467 4.92% 281,218 3,465 4.93%
Investment Securities 827,503 8,171 3.95% 834,147 8,660 4.15%
----------- --------- ----------- ---------
Total Earning Assets 2,911,794 40,507 5.56% 2,583,554 35,465 5.49%
--------- ---------
Non-Earning Assets 201,859 178,411
----------- -----------
TOTAL ASSETS $ 3,113,653 $ 2,761,965
=========== ===========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW Accounts $ 283,159 150 0.21% $ 246,298 113 0.18%
Savings Accounts 178,570 155 0.35% 152,943 108 0.28%
Money Market Accounts 431,992 1,310 1.23% 389,865 857 0.88%
Certificates of Deposit 435,033 2,454 2.29% 432,271 2,405 2.24%
FHLB Advances 739,928 5,243 2.87% 815,825 4,445 2.19%
Repurchase Agreements
and Other Borrowed Funds 283,010 2,739 3.92% 106,994 1,148 4.31%
----------- --------- ----------- ---------
Total Interest Bearing Liabilities 2,351,692 12,051 2.08% 2,144,196 9,076 1.70%
--------- ---------
Non-interest Bearing Deposits 459,311 343,350
Other Liabilities 28,732 27,464
----------- -----------
Total Liabilities 2,839,735 2,515,010
----------- -----------
Common Stock 308 305
Paid-In Capital 227,932 223,680
Retained Earnings 39,948 13,567
Accumulated Other
Comprehensive Earnings 5,730 9,403
----------- -----------
Total Stockholders' Equity 273,918 246,955
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,113,653 $ 2,761,965
=========== ===========
Net Interest Income $ 28,456 $ 26,389
========= =========
Net Interest Spread 3.48% 3.79%
Net Interest Margin
on average earning assets 3.96% 4.11%
Return on Average Assets 1.50% 1.55%
Return on Average Equity 17.06% 17.28%
(1) Excludes tax effect on non-taxable investment security income
18
17) Acquisitions
On February, 28, 2005 the Company completed the acquisition of First
National Bank - West, Evanston, Wyoming, ("FNB") with total assets of $241
million, loans of $90 million, and deposits of $225 million. This bank has
seven locations in western Wyoming and became the eighth subsidiary bank
of the Company and the first to be located in the state of Wyoming. A
portion of the purchase price was allocated to core deposit intangible of
$2,446,000 and goodwill of $22,813,000.
The acquisition of Citizens Bank Holding Company and its subsidiary bank
Citizens Community Bank, Pocatello, Idaho, with assets of approximately
$115 million, was completed after the close of business on March 31, 2005.
This bank operates from three banking offices in Pocatello and Idaho
Falls, and a loan production office in Rexburg, Idaho. As of April 1, 2005
this bank became the ninth subsidiary bank of the Company.
Mountain West Bank of Coeur d'Alene entered into a purchase and sale
agreement with Zions First National Bank to acquire the Zions branch in
Bonners Ferry, Idaho with total deposits of approximately $23 million.
Subject to regulatory approval the transaction is expected to close on May
20, 2005.
Acquisitions are accounted for under the purchase method of accounting.
Accordingly, the assets and liabilities of acquired branches and banks are
recorded by the Company at their respective fair values at the date of the
acquisition and the results of operations are included with those of the
Company from the date of acquisition forward. The excess of the Company's
purchase price over the net fair value of the assets acquired and
liabilities assumed, including identifiable intangible assets, is recorded
as goodwill.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Recent acquisition
On February, 28, 2005 the Company completed the acquisition of First National
Bank - West, Evanston, Wyoming, ("FNB"), accordingly, results of operations and
financial condition include FNB from that date forward.
Financial Condition
This section discusses the changes in Statement of Financial Condition items
from March 31, 2004 and December 31, 2004, to March 31, 2005.
$ Change $ Change
from from
March 31, December 31, March 31, December 31, March 31,
ASSETS ($ IN THOUSANDS) 2005 2004 2004 2004 2004
- -------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Cash on hand and in banks ........................ $ 82,600 79,300 53,213 3,300 29,387
Investment securities, interest bearing deposits,
FHLB stock, and FRB stock, and fed funds ...... 1,171,112 1,098,633 1,184,959 72,479 (13,847)
Loans:
Real estate ................................... 433,901 393,141 316,227 40,760 117,674
Commercial .................................... 1,087,989 991,081 873,743 96,908 214,246
Consumer ...................................... 387,843 344,075 300,743 43,768 87,100
----------- ----------- ----------- ----------- -----------
Total loans ................................ 1,909,733 1,728,297 1,490,713 181,436 419,020
Allowance for loan losses ..................... (29,801) (26,492) (24,569) (3,309) (5,232)
----------- ----------- ----------- ----------- -----------
Total loans net of allowance for loan losses 1,879,932 1,701,805 1,466,144 178,127 413,788
----------- ----------- ----------- ----------- -----------
Other assets ..................................... 172,796 130,999 124,725 41,797 48,071
----------- ----------- ----------- ----------- -----------
Total Assets .................................. $ 3,306,440 3,010,737 2,829,041 295,703 477,399
=========== =========== =========== =========== ===========
19
$ Change
excluding FNB
acquisition from
December 31,
ASSETS (UNAUDITED - $ IN THOUSANDS) 2004
----------------
Cash on hand and in banks ........................ $ (12,997)
Investments, interest bearing deposits,
FHLB stock, and FRB stock, and Fed Funds ...... (23,596)
Loans:
Real estate ................................... 24,659
Commercial .................................... 48,353
Consumer ...................................... 18,231
----------------
Total loans ................................ 91,243
Allowance for loan losses ..................... (1,261)
----------------
Total loans net of allowance for losses .... 89,982
----------------
Other assets ..................................... 10,853
----------------
Total Assets .................................. $ 64,242
================
At March 31, 2005 total assets were $3.306 billion, which is $477 million
greater than the March 31, 2004 assets of $2.829 billion, an increase of 17
percent, and $296 million greater than the December 31, 2004 balance, an
increase of 10 percent. Asset growth without FNB was $246 million, or 9 percent
over the prior year.
Total loans have increased $419 million from March 31, 2004, an increase of 28
percent, with the growth occurring in all loan categories. Commercial loans
increased $214 million, or 25 percent, real estate loans gained $118 million, or
37 percent, and consumer loans grew by $87 million, or 29 percent. Without the
FNB additions, loans increased $329 million from a year ago, a 22 percent
increase. Loan volume continues to be very strong with loans increasing $91
million, without the FNB acquisition, during the first quarter, which has
historically been a slow quarter for loan growth. During the same quarter last
year loans increased by $36 million.
Investment securities, including interest bearing deposits in other financial
institutions, and federal funds sold, have decreased $14 million from March 31,
2004. Without the addition of FNB, investments would have declined $110 million
from March 31, 2004. Cash flow from investment maturities, principal reductions,
and proceeds from sale of securities is now being used to fund the significant
growth in loans. Without the FNB additions, investments have decreased $24
million since December 31, 2004.
The Company typically sells a majority of long-term mortgage loans originated,
retaining servicing only on loans sold to certain lenders. The sale of loans in
the secondary mortgage market reduces the Company's risk of holding long-term,
fixed rate loans in the loan portfolio. Mortgage loans sold for the three months
ended March 31, 2005 and 2004 were $59 million and $67 million, respectively.
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 March 31, 2005 was approximately $196 million.
20
$ Change $ Change
from from
March 31, December 31, March 31, December 31, March 31,
LIABILITIES ($ IN THOUSANDS) 2005 2004 2004 2004 2004
---------- ---------- ---------- ---------- ----------
Non-interest bearing deposits ........ $ 528,038 460,059 366,277 67,979 161,761
Interest bearing deposits ............ 1,448,643 1,269,649 1,225,169 178,994 223,474
Advances from Federal Home Loan Bank . 858,961 818,933 801,679 40,028 57,282
Securities sold under agreements to
repurchase and other borrowed funds 84,982 81,215 68,575 3,767 16,407
Other liabilities .................... 32,367 30,697 34,440 1,670 (2,073)
Subordinated debentures .............. 80,000 80,000 80,000 -- --
---------- ---------- ---------- ---------- ----------
Total liabilities ............... $3,032,991 2,740,553 2,576,140 292,438 456,851
========== ========== ========== ========== ==========
$ Change
excluding FNB
acquisition from
December 31,
LIABILITIES (UNAUDITED - $ IN THOUSANDS) 2004
----------------
Non-interest bearing deposits ................. $ 15,584
Interest bearing deposits ..................... 8,741
Advances from Federal Home Loan Bank .......... 40,028
Securities sold under agreements to
repurchase and other borrowed funds ........ (4,380)
Other liabilities ............................. 1,004
--------
Total liabilities ........................ $ 60,977
========
Non-interest bearing deposits have increased $162 million, or 44 percent, since
March 31, 2004 and $292 million, or 11 percent, since December 31, 2004. Without
the FNB additions, the increase was $109 million, or 30 percent, since March 31,
2004. This continues to be a primary focus of our banks and the programs we have
initiated this past year continue to gain momentum. Total deposits have
increased $385 million from March 31, 2004, or 24 percent. Without the FNB
deposits, the increase was $163 million. This growth in deposits, a low cost
stable funding source, gives us increased flexibility in managing our asset mix.
Federal Home Loan Bank advances increased $57 million and repurchase agreements
and other borrowed funds increased $16 million from March 31, 2004 as we
continue to take advantage of these cost effective and flexible funding sources.
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, seven of the eight banking subsidiaries
are members of the FHLB. As of March 31, 2005, the Company had $1.136 billion of
available FHLB line of which $859 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 the first quarter of 2005, all eight financial institutions
maintained liquidity and regulatory capital levels in excess of regulatory
requirements and operational needs.
21
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 condensed consolidated financial
statements. Management does not anticipate any material losses as a result of
these transactions.
$ Change
$ Change from from
STOCKHOLDERS' EQUITY March 31, December 31, March 31, December 31, March 31,
($ IN THOUSANDS EXCEPT PER SHARE DATA) 2005 2004 2004 2004 2004
----------- ----------- ----------- ----------- -----------
Common equity .......................... $ 273,272 264,250 240,730 9,022 32,542
Net unrealized gain on securities ...... 177 5,934 12,171 (5,757) (11,994)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity .......... $ 273,449 270,184 252,901 3,265 20,548
=========== =========== =========== =========== ===========
Stockholders' equity to total assets ... 8.27% 8.97% 8.94%
Book value per common share ............ $ 8.86 8.80 8.27 0.06 0.59
Market price per share at end of quarter $ 24.40 27.23 20.64 (2.83) 3.76
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. Accumulated other comprehensive income, representing net unrealized
gains on securities available for sale, decreased $12 million from March 31,
2004 and $6 million from year end 2004. The decline is primarily a function of
interest rate changes.
March 31, December 31, March 31,
CREDIT QUALITY INFORMATION ($ IN THOUSANDS) 2005 2004 2004
---------- ---------- ----------
Allowance for loan losses ........................... $ 29,801 26,492 24,569
Non-performing assets ............................... $ 9,166 9,608 11,641
Allowance as a percentage of non performing assets .. 325% 276% 211%
Non-performing assets as a percentage of total assets 0.27% 0.32% 0.42%
Allowance as a percentage of total loans ............ 1.56% 1.53% 1.65%
Net charge-offs as a percentage of loans ............ 0.01% 0.10% 0.02%
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at March 31, 2005 were at
..27 percent, a decrease from .42 percent at March 31, 2004 and .32 percent at
December 31, 2004. This compares favorably to the Federal Reserve Bank Peer
Group average of .45 percent at December 31, 2004, the most recent information
available. The allowance for loan losses was 325 percent of non-performing
assets at March 31, 2005, compared to 211 percent a year ago. The allowance,
without the addition of FNB, has increased $3.184 million, or 13 percent, from a
year ago. Including FNB the increase is $5.232 million, or 21 percent. The
allowance of $29.801 million, is 1.56 percent of March 31, 2005 total loans
outstanding, down slightly from the 1.65 percent a year ago. The first quarter
provision for loan losses expense was $1.490 million, an increase of $660
thousand from the same quarter in 2004. The additional expense relates to the
growth in loans and the inherent risk associated with the size and risk
characteristics of loans originated over the past twelve months.
22
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2004.
First National Bank-West was acquired on February 28, 2005 and became the
Company's eight subsidiary. The Ione, Washington branch was acquired by Mountain
West on June 4, 2004. Accordingly, results of operations and financial condition
for the acquisitions are included from the acquisition dates forward.
The Company reported net quarterly earnings of $11.520 million, an increase of
$.9 million, or 9 percent, over the $10.610 million for the first quarter of
2004. Diluted earnings per share for the quarter of $.37, is an increase of 9
percent over the per share earnings of $.34 for the same quarter of 2004. Return
on average assets and return on average equity for the quarter were 1.50 percent
and 17.06 percent, respectively, which compares with prior year returns for the
first quarter of 1.55 percent and 17.28 percent.
REVENUE SUMMARY
($ IN THOUSANDS)
Three months ended March 31,
------------------------------------------------
2005 2004 $ change % change
------- ------- -------- --------
Net interest income ......................... $28,456 26,389 2,067 7.8%
Non-interest income
Service charges, loan fees, and other fees 6,482 5,092 1,390 27.3%
Gain on sale of loans .................... 2,092 1,771 321 18.1%
Other income ............................. 534 548 (14) -2.6%
------- ------- -------
Total non-interest income ............. 9,108 7,411 1,697 22.9%
------- ------- -------
$37,564 33,800 3,764 11.1%
======= ======= =======
Tax equivalent net interest margin .......... 4.08% 4.29%
======= =======
Net Interest Income
Net interest income for the quarter increased $2.067 million, or 8 percent, over
the same period in 2004, and $616 thousand from the fourth quarter of 2004.
Total interest income increased $5.042 million, or 14 percent, while total
interest expense was $2.975 million, or 33 percent higher. The increase in
interest expense is primarily attributable to the increase in the subordinated
debentures issued in March 2004 for the trust preferred securities, the
increased level of FHLB advances and other borrowings, and increases in short
term interest rates during 2004 and 2005. The Federal Reserve Bank has increased
targeted fed funds rates seven times, 175 basis points, in the last twelve
months. The net interest margin as a percentage of earning assets, on a tax
equivalent basis, was 4.08 percent which was below the 4.29 percent result for
the first quarter of 2004. The margin for the first quarter decreased from the
4.16 percent experienced for the fourth quarter of 2004. The interest margin for
FNB is approximately 20 basis points lower than the average of the other seven
banks which lowered the ratio. Also having a negative impact on the first
quarter interest margin was the reduction of FHLB dividends for the 2005
quarter. Dividends received were $255 thousand less than the same quarter last
year.
Non-interest Income
Fee income increased $1.390 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. Gain on sale of loans increased $321
thousand from the first quarter of last year. Loan origination activity for
housing construction and purchases remains strong in our markets and has offset
much of the reduction in refinance activity experienced last year.
23
NON-INTEREST EXPENSE SUMMARY
($ IN THOUSANDS)
Three months ended March 31,
--------------------------------------------
2005 2004 $ change % change
------- ------- ------- -------
Compensation and employee benefits . $10,944 9,806 1,138 11.6%
Occupancy and equipment expense .... 2,855 2,631 224 8.5%
Outsourced data processing expense . 232 413 (181) -43.8%
Core deposit intangible amortization 283 294 (11) -3.7%
Other expenses ..................... 4,760 4,282 478 11.2%
------- ------- ------- -------
Total non-interest expense ... $19,074 17,426 1,648 9.5%
======= ======= ======= =======
Non-interest Expense
Non-interest expense increased by $1.648 million, or 9 percent, from the same
quarter of 2004. Compensation and benefit expense increased $1.138 million, or
12 percent from the first quarter of 2004, with additional bank branches, normal
compensation increases for job performance and increased cost for benefits
accounting for the majority of the increase. The number of full-time-equivalent
employees has increased from 832 to 952, a 14 percent increase, since March 31,
2004. Occupancy and equipment expense increased $224 thousand, or 9 percent,
reflecting the cost of the additional locations and facility upgrades. Other
expenses increased $478 thousand, or 11 percent, primarily from audit costs from
compliance with Sarbanes-Oxley rules, additional marketing expenses, and costs
associated with new branch offices. The efficiency ratio (non-interest
expense/net interest income + non-interest income) was 51 percent for the 2005
quarter, which is an improvement from the 52 percent for the 2004 quarter.
Critical Accounting Policies
Companies apply certain critical accounting policies requiring management to
make subjective or complex judgments, often as a result of the need to estimate
the effect of matters that are inherently uncertain. The Company considers its
only critical accounting policy to be the allowance for loan losses. The
allowance for loan losses is established through a provision for loan losses
charged against earnings. The balance of allowance for loan loss is maintained
at the amount management believes will be adequate to absorb known and inherent
losses in the loan portfolio. The appropriate balance of allowance for loan
losses is determined by applying estimated loss factors to the credit exposure
from outstanding loans. Estimated loss factors are based on subjective
measurements including management's assessment of the internal risk
classifications, changes in the nature of the loan portfolio, industry
concentrations and the impact of current local, regional and national economic
factors on the quality of the loan portfolio. Changes in these estimates and
assumptions are reasonably possible and may have a material impact on the
Company's consolidated financial statements, results of operations and
liquidity.
Effect of inflation and changing prices
Generally accepted accounting principles require the measurement of financial
position and operating results in terms of historical dollars, without
consideration for change in relative purchasing power over time due to
inflation. Virtually all assets of a financial institution are monetary in
nature; therefore, interest rates generally have a more significant impact on a
company's performance than does the effect of inflation.
Forward Looking Statements
This Form 10-Q includes forward looking statements, which 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 economies in which it operates. Future
events are difficult to predict, and the expectations described above are
necessarily 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 public filings,
factors that may cause actual
24
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 banks and/or 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.
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, 2004.
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
required by Exchange Act Rules 240.13a-15(b) 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 changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the first quarter 2005, to which this report relates that
have materially affected, or are reasonably likely to materially affect the
Company's internal controls over financial reporting.
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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) Not Applicable
25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 5. OTHER INFORMATION
(a) Not Applicable
(b) Not Applicable
ITEM 6. EXHIBITS
Exhibit 3.1 - Articles of Incorporation for Glacier Bancorp, Inc., as
amended
Exhibit 10.1 - Glacier Bancorp, Inc. 2005 Stock Incentive Plan
Exhibit 10.2 - Form of Stock Option Agreement
Exhibit 10.3 - Form of Restricted Stock Purchase Agreement
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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLACIER BANCORP, INC.
May 5, 2005 /s/ Michael J. Blodnick
-----------------------
Michael J. Blodnick
President/CEO
May 5, 2005 /s/ James H. Strosahl
---------------------
James H. Strosahl
Executive Vice President/CFO
26