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, 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 July 25, 2005
was 31,279,150. 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 - Unaudited
June 30, 2005, and June 30, 2004 and audited December 31, 2004 ......... 3
Condensed Consolidated Statements of Operations -
Unaudited three and six months ended June 30, 2005 and 2004 ............ 4
Condensed Consolidated Statements of Stockholders' Equity and Other
Comprehensive Income - Audited year ended December 31, 2004
and unaudited six months ended June 30, 2005 ........................... 5
Condensed Consolidated Statements of Cash Flows -
Unaudited six months ended June 30, 2005 and 2004 ...................... 6
Notes to Condensed Consolidated Financial Statements - Unaudited ....... 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations ..................... 20
Item 3 - Quantitative and Qualitative Disclosure about Market Risk ............ 27
Item 4 - Controls and Procedures .............................................. 27
PART II. OTHER INFORMATION ....................................................... 27
Item 1 - Legal Proceedings .................................................... 27
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds .......... 27
Item 3 - Defaults Upon Senior Securities ...................................... 27
Item 4 - Submission of Matters to a Vote of Security Holders ................. 28
Item 5 - Other Information .................................................... 28
Item 6 - Exhibits ............................................................. 28
Signatures .................................................................... 29
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, December 31, June 30,
(Dollars in thousands, except per share data) 2005 2004 2004
- -------------------------------------------------------------------------------- ----------- ------------ -----------
(UNAUDITED) (unaudited)
ASSETS:
Cash on hand and in banks ................................................ $ 109,402 79,300 69,848
Fed funds sold ........................................................... 10,576 - -
Interest bearing cash deposits ........................................... 19,657 13,007 13,302
----------- ---------- ----------
Cash and cash equivalents ........................................ 139,635 92,307 83,150
Investment securities, available-for-sale ................................ 1,084,101 1,085,626 1,135,598
Loans receivable, net .................................................... 2,093,521 1,687,329 1,555,159
Loans held for sale ...................................................... 28,677 14,476 16,085
Premises and equipment, net .............................................. 69,280 55,732 53,037
Real estate and other assets owned, net .................................. 2,319 2,016 448
Accrued interest receivable .............................................. 17,820 15,637 15,480
Core deposit intangible, net ............................................. 7,904 4,939 5,468
Goodwill ................................................................. 72,382 37,376 37,375
Other assets ............................................................. 16,296 15,299 14,109
----------- ---------- ----------
$ 3,531,935 3,010,737 2,915,909
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ............................................ $ 630,983 460,059 402,337
Interest bearing deposits ................................................ 1,576,872 1,269,649 1,233,418
Advances from Federal Home Loan Bank of Seattle .......................... 804,047 818,933 848,770
Securities sold under agreements to repurchase ........................... 95,235 76,158 72,268
Other borrowed funds ..................................................... 5,576 5,057 14,051
Accrued interest payable ................................................. 6,574 4,864 5,667
Deferred tax liability ................................................... 9,262 8,392 128
Subordinated debentures .................................................. 85,000 80,000 80,000
Other liabilities ........................................................ 20,627 17,441 17,206
----------- ---------- ----------
Total liabilities ................................................ 3,234,176 2,740,553 2,673,845
----------- ---------- ----------
Preferred shares, 1,000,000 shares authorized. None outstanding .......... - - -
Common stock, $.01 par value per share. 62,500,000 shares authorized .... 313 307 306
Paid-in capital .......................................................... 238,941 227,552 224,872
Retained earnings - substantially restricted ............................. 51,808 36,391 21,489
Accumulated other comprehensive income (loss) ............................ 6,697 5,934 (4,603)
----------- ---------- ----------
Total stockholders' equity ....................................... 297,759 270,184 242,064
----------- ---------- ----------
$ 3,531,935 3,010,737 2,915,909
=========== ========== ==========
Number of shares outstanding ............................................. 31,258,586 30,686,763 30,571,291
Book value per share ..................................................... $ 9.53 8.80 7.92
See accompanying notes to condensed consolidated financial statements.
3
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ----------------------------
(UNAUDITED - dollars in thousands, except per share data) 2005 2004 2005 2004
- -------------------------------------------------------------------- ------------- ------------- ------------- -------------
INTEREST INCOME:
Real estate loans ............................................ $ 8,097 5,408 14,712 10,689
Commercial loans ............................................. 19,588 13,715 36,112 26,938
Consumer and other loans ..................................... 7,011 4,912 12,741 9,748
Investment securities and other .............................. 11,849 11,406 23,487 23,531
------------ ------------ ------------ ------------
Total interest income .................................. 46,545 35,441 87,052 70,906
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits ..................................................... 5,582 3,413 9,651 6,896
Federal Home Loan Bank of Seattle advances ................... 5,770 4,491 11,013 8,936
Securities sold under agreements to repurchase ............... 601 177 999 334
Subordinated debentures ...................................... 1,629 1,555 3,184 2,517
Other borrowed funds ......................................... 876 26 1,662 55
------------ ------------ ------------ ------------
Total interest expense ................................. 14,458 9,662 26,509 18,738
------------ ------------ ------------ ------------
NET INTEREST INCOME ................................................ 32,087 25,779 60,543 52,168
Provision for loan losses .................................... 1,552 965 3,042 1,795
------------ ------------ ------------ ------------
Net interest income after provision for loan losses .... 30,535 24,814 57,501 50,373
------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Service charges and other fees ............................... 6,241 4,982 11,445 9,055
Miscellaneous loan fees and charges .......................... 1,609 1,340 2,887 2,359
Gains on sale of loans ....................................... 2,884 2,026 4,976 3,797
Loss on sale of investments .................................. (107) - (137) -
Other income ................................................. 886 500 1,450 1,048
------------ ------------ ------------ ------------
Total non-interest income .............................. 11,513 8,848 20,621 16,259
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses .................................. 12,474 9,851 23,418 19,657
Occupancy and equipment expense .............................. 3,152 2,733 6,007 5,364
Outsourced data processing expense ........................... 423 368 655 781
Core deposit intangibles amortization ........................ 384 251 667 545
Other expenses ............................................... 6,043 4,805 10,803 9,087
------------ ------------ ------------ ------------
Total non-interest expense ............................. 22,476 18,008 41,550 35,434
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES ....................................... 19,572 15,654 36,572 31,198
Federal and state income tax expense ......................... 6,482 4,891 11,962 9,825
------------ ------------ ------------ ------------
NET EARNINGS ....................................................... $ 13,090 10,763 24,610 21,373
============ ============ ============ ============
Basic earnings per share ........................................... $ 0.42 0.35 0.79 0.70
Diluted earnings per share ......................................... $ 0.41 0.35 0.78 0.69
Dividends declared per share ....................................... $ 0.15 0.14 0.29 0.27
Return on average assets (annualized) .............................. 1.52% 1.51% 1.51% 1.53%
Return on average equity (annualized) .............................. 18.03% 17.60% 17.56% 17.54%
Average outstanding shares - basic ................................. 31,228,123 30,568,564 30,997,527 30,500,828
Average outstanding shares - diluted ............................... 31,753,966 31,081,085 31,530,648 31,021,306
See accompanying notes to condensed consolidated financial statements.
4
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND OTHER COMPREHENSIVE INCOME
AUDITED YEAR ENDED DECEMBER 31, 2004 AND UNAUDITED SIX MONTHS ENDED
JUNE 30, 2005
Retained Accumulated Total
Common Stock earnings other comp- stock-
------------------------ Paid-in substantially rehensive holders'
(Dollars in thousands, except per share data) Shares Amount capital restricted income equity
- --------------------------------------------------------------- ----------- ------------ -------- ------------- ----------- --------
Balance at December 31, 2003 ................................. 30,254,173 $ 303 222,527 8,393 6,616 237,839
Comprehensive income:
Net earnings ............................................ -- -- -- 44,616 -- 44,616
Unrealized loss on securities, net of reclassification
adjustment and taxes ................................... -- -- -- -- (682) (682)
-------
Total comprehensive income 43,934
-------
Cash dividends declared ($.54 per share) ..................... -- -- -- (16,618) -- (16,618)
Stock options exercised ...................................... 522,094 5 5,434 -- -- 5,439
Repurchase and retirement of stock ........................... (89,063) (1) (1,804) -- -- (1,805)
Acquisition of fractional shares ............................. (441) -- (9) -- -- (9)
Tax benefit from stock related compensation .................. -- -- 1,404 -- -- 1,404
---------- ----------- ------- ------- ----- -------
Balance at December 31, 2004 ................................. 30,686,763 $ 307 227,552 36,391 5,934 270,184
Comprehensive income:
Net earnings ............................................ -- -- -- 24,610 -- 24,610
Unrealized gain on securities, net of reclassification ..
adjustment and taxes -- -- -- -- 763 763
-------
Total comprehensive income 25,373
-------
Cash dividends declared ($.29 per share) ..................... -- -- -- (9,193) -- (9,193)
Stock options exercised ...................................... 218,722 2 2,686 -- -- 2,688
Acquisition of fractional shares ............................. (337) -- (8) -- -- (8)
Stock issued in connection of acquisition of Citizens
Community Bank ............................................. 353,438 4 8,711 -- -- 8,715
---------- ----------- ------- ------- ----- -------
Balance at June 30, 2005 (unaudited .......................... 31,258,586 $ 313 238,941 51,808 6,697 297,759
========== =========== ======= ======= ===== =======
See accompanying notes to condensed consolidated financial statements.
5
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
-------------------------
(UNAUDITED - dollars in thousands) 2005 2004
- ------------------------------------------------------------------------ ---------- -----------
OPERATING ACTIVITIES :
Net cash provided by operating activities ............................ $ 27,964 35,876
--------- --------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of
investments available-for-sale ................................... 231,317 124,561
Purchases of investments available-for-sale .......................... (103,175) (185,351)
Principal collected on installment and commercial loans .............. 292,459 283,618
Installment and commercial loans originated or acquired .............. (501,339) (403,443)
Principal collections on mortgage loans .............................. 243,728 146,440
Mortgage loans originated or acquired ................................ (265,167) (170,138)
Net purchase of FHLB and FRB stock ................................... (14) (1,901)
Net funds received on acquisition of banks and branches .............. 3,651 14,524
Net addition of premises and equipment ............................... (7,044) (2,046)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES ........................... (105,584) (193,736)
--------- --------
FINANCING ACTIVITIES:
Net increase in deposits ............................................. 128,750 22,990
Net (decrease) increase in FHLB advances and other borrowed funds .... (16,367) 77,509
Net increase in securities sold under repurchase agreements .......... 19,078 15,300
Proceeds from issuance of subordinated debentures .................... - 45,000
Cash dividends paid .................................................. (9,193) (8,277)
Proceeds from exercise of stock options and other stock issued ....... 2,688 4,162
Repurchase and retirement of stock ................................... - (1,805)
Cash paid for stock split ............................................ (8) (9)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................ 124,948 154,870
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............. 47,328 (2,990)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 92,307 86,140
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 139,635 83,150
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest ............... $ 24,799 17,423
Income taxes ........... $ 10,430 8,907
The following schedule summarizes the acquisition of Bank Holding Co. and
subsidiaries in 2005
FIRST NATIONAL CITIZENS BANK
BANKS - WEST CO. HOLDING COMPANY
---------------- ---------------
Fair Value of assets acquired $267,126 126,394
Cash paid for the capital stock 41,000 8,602
Capital stock issued - 8,715
Liabilities assumed 226,126 109,077
See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 June 30, 2005,
and June 30, 2004, stockholders' equity for the six months ended June 30,
2005, the results of operations for the three and six months ended June
30, 2005 and 2004, and cash flows for the six months ended June 30, 2005
and 2004. The condensed consolidated statement of financial condition and
statement of stockholders' equity and other comprehensive income of the
Company as of December 31, 2004 have been derived from the audited
consolidated statements of the Company as of that date.
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 six months
ended June 30, 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
nine 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, Citizens Community Bank ("Citizens") located in
Idaho, and First National Bank - West ("First National") located in
Wyoming. In addition, the Company owns three subsidiaries, Glacier Capital
Trust I ("Glacier Trust I"), Glacier Capital Trust II ("Glacier Trust
II"), and Citizens (ID) Statutory Trust I ("Citizens Trust I") for the
purpose of issuing trust preferred securities and in accordance with
Financial Accounting Standards Board Interpretation 46(R) the subsidiaries
are not consolidated into the Company's financial statements. The Company
does not have any off-balance sheet entities.
The following abbreviated organizational chart illustrates the various
relationships:
------------------------
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)
- -------------------------- ------------------------ ------------------------ -------------------------------
- -------------------------- ------------------------ ------------------------ -------------------------------
Citizens Community Bank
(Commercial bank) Glacier Capital Trust I Glacier Capital Trust II Citizens (ID) Statutory Trust I
- -------------------------- ------------------------ ------------------------ -------------------------------
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 June 29, 2005, the Board of Directors declared a
$.15 per share quarterly cash dividend payable on July 21, 2005 to
stockholders of record on July 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 as 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, 2005 June 30, 2004 June 30, 2005 June 30, 2004
------------- ------------- ------------- -------------
Net earnings available to common
stockholders ........................ $13,090,000 10,763,000 24,610,000 21,373,000
Average outstanding shares - basic ..... 31,228,123 30,568,564 30,997,527 30,500,828
Add: Dilutive stock options ............ 525,843 512,521 533,121 520,478
----------- ---------- ---------- ----------
Average outstanding shares - diluted ... 31,753,966 31,081,085 31,530,648 31,021,306
=========== ========== ========== ==========
Basic earnings per share ............... $ 0.42 0.35 0.79 0.70
=========== ========== ========== ==========
Diluted earnings per share ............. $ 0.41 0.35 0.78 0.69
=========== ========== ========== ==========
There were approximately 297,448 and 0 shares excluded from the six months
ended diluted share calculation as of June 30, 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 earnings would have been reduced to the pro forma amounts
indicated below:
Three months ended June 30, Six months ended June 30,
---------------------------- -------------------------
2005 2004 2005 2004
------------ ------ ------ ------
Net earnings (in thousands): As reported $ 13,090 10,763 24,610 21,373
Compensation cost (207) (123) (415) (245)
------------ ------ ------ ------
Proforma 12,883 10,640 24,195 21,128
------------ ------ ------ ------
Basic earnings per share: As reported 0.42 0.35 0.79 0.70
Compensation cost (0.01) - (0.01) (0.01)
------------ ------ ------ ------
Proforma 0.41 0.35 0.78 0.69
============ ====== ====== ======
Diluted earnings per share: As reported 0.41 0.35 0.78 0.69
Compensation cost - (0.01) (0.01) (0.01)
------------ ------ ------ ------
Proforma 0.41 0.34 0.77 0.68
============ ====== ====== ======
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 JUNE 30, 2005
Estimated
Weighted Amortized Gross Unrealized Fair
(Dollars in thousands) Yield Cost Gains Losses Value
- -------------------------------------------------- -------- ---------- ---------- ---------- ----------
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within five years...................... 4.20% $ 3,951 10 - 3,961
maturing five years through ten years........... 5.52% 354 8 - 362
maturing after ten years........................ 3.22% 380 2 - 382
---------- ---------- ---------- ----------
4.22% 4,685 20 - 4,705
---------- ---------- ---------- ----------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year........................ 4.20% 1,160 2 - 1,162
maturing one year through five years............ 4.56% 3,274 54 (5) 3,323
maturing five years through ten years........... 4.70% 7,697 411 (7) 8,101
maturing after ten years........................ 5.09% 290,432 14,880 (197) 305,115
---------- ---------- ---------- ----------
5.07% 302,563 15,347 (209) 317,701
---------- ---------- ---------- ----------
MORTGAGE-BACKED SECURITIES........................ 4.68% 76,645 575 (680) 76,540
REAL ESTATE MORTGAGE INVESTMENT CONDUITS.......... 3.95% 631,187 962 (4,872) 627,277
FHLMC AND FNMA STOCK.............................. 5.74% 7,593 - (107) 7,486
FHLB AND FRB STOCK, AT COST....................... 0.70% 50,392 - - 50,392
---------- ---------- ---------- ----------
TOTAL INVESTMENTS............................ 4.18% $1,073,065 16,904 (5,868) 1,084,101
========== ========== ========== ==========
INVESTMENTS AS OF DECEMBER 31, 2004
Estimated
Weighted Amortized Gross Unrealized Fair
(Dollars in thousands) Yield Cost Gains Losses Value
- -------------------------------------------------- -------- ---------- ---------- ---------- ----------
U.S. GOVERNMENT AND FEDERAL AGENCIES:
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 six months ended June
30, 2005 and 2004 of $6,932,000 and $6,959,000, respectively, and for the
three months ended June 30, 2005 and 2004 of $3,465,000 and $3,494,000,
respectively.
Gross proceeds from sales of investment securities for the six months
ended June 30, 2005 and 2004 were $116,014,000 and $0 respectively,
resulting in gross gains of approximately $471,000 and $0 and gross losses
of approximately $608,000 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) 6/30/2005 12/31/2004 6/30/2004
------------------------- ------------------------- -------------------------
Amount Percent Amount Percent Amount Percent
------------ ------- ------------ ------- ------------ -------
Real Estate Loans:
Residential first mortgage loans $ 480,626 22.6% $ 382,750 22.5% $ 328,180 20.9%
Loans held for sale 28,677 1.4% 14,476 0.9% 16,085 1.0%
------------ ------- ------------ ------- ------------ -------
Total 509,303 24.0% 397,226 23.4% 344,265 21.9%
Commercial Loans:
Real estate 623,411 29.3% 526,455 30.9% 459,909 29.3%
Other commercial loans 595,970 28.1% 466,582 27.4% 475,744 30.3%
------------ ------- ------------ ------- ------------ -------
Total 1,219,381 57.4% 993,037 58.3% 935,653 59.6%
Consumer and Other Loans:
Consumer loans 148,144 7.0% 95,663 5.6% 94,346 6.0%
Home equity loans 285,956 13.5% 248,684 14.6% 228,216 14.5%
------------ ------- ------------ ------- ------------ -------
Total 434,100 20.5% 344,347 20.2% 322,562 20.5%
Net deferred loan fees, premiums
and discounts (7,669) -0.4% (6,313) -0.3% (6,090) -0.4%
Allowance for Losses (32,917) -1.5% (26,492) -1.6% (25,146) -1.6%
------------ ------- ------------ ------- ------------ -------
Net Loans $ 2,122,198 100.0% $ 1,701,805 100.0% $ 1,571,244 100.0%
============ ======= ============ ======= ============ =======
11
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated:
NONPERFORMING ASSETS
At At At
(Dollars in Thousands) 6/30/2005 12/31/2004 6/30/2004
---------- ---------- ----------
Non-accrual loans:
Real estate loans $ 8 847 756
Commercial loans 4,603 4,792 8,008
Consumer and other loans 305 311 380
---------- ---------- ----------
Total $ 4,916 5,950 9,144
Accruing Loans 90 days or more overdue:
Real estate loans 261 179 160
Commercial loans 431 1,067 796
Consumer and other loans 166 396 106
---------- ---------- ----------
Total $ 858 1,642 1,062
Real estate and other assets owned, net 2,319 2,016 448
---------- ---------- ----------
Total non-performing assets $ 8,093 9,608 10,654
========== ========== ==========
As a percentage of total assets 0.23% 0.32% 0.37%
Interest Income (1) $ 161 372 281
(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, 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
Six months ended Year ended Six months ended
June 30, December 31, June 30,
(Dollars in Thousands) 2005 2004 2004
---------------- ------------ -----------------
Balance at beginning of period $ 26,492 23,990 23,990
Charge offs:
Real estate loans (57) (419) (128)
Commercial loans (562) (1,150) (439)
Consumer and other loans (269) (776) (377)
------------ ------ ------
Total charge offs $ (888) (2,345) (944)
------------ ------ ------
Recoveries:
Real estate loans 70 171 50
Commercial loans 203 120 84
Consumer and other loans 164 361 171
------------ ------ ------
Total recoveries $ 437 652 305
------------ ------ ------
Chargeoffs, net of recoveries (451) (1,693) (639)
Acquisition (1) 3,834 - -
Provision 3,042 4,195 1,795
------------ ------ ------
Balance at end of period $ 32,917 26,492 25,146
============ ====== ======
Ratio of net charge offs to average
loans outstanding during the period 0.02% 0.10% 0.04%
(1) Acquisition of First National Bank-West, Citizens Community Bank, and
Bonner's Ferry branch
12
The following table summarizes the allocation of the allowance for loan
losses:
June 30, 2005 December 31, 2004 June 30, 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 $ 3,415 23.6% 2,693 22.9% 2,303 21.3%
Commercial real estate 10,646 28.8% 9,222 30.3% 8,051 28.8%
Other commercial 12,708 27.6% 9,836 26.9% 10,343 29.7%
Consumer and other loans 6,148 20.0% 4,741 19.9% 4,449 20.2%
------------ ----- --------- ---- ------------ -----
Totals $ 32,917 100.0% 26,492 100.0% 25,146 100.0%
============ ===== ========= ===== ============ =====
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.
June 30,
(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 June 30, 2005:
Core Deposit Mortgage
(Dollars in thousands) Intangible Servicing Rights (1) Total
- -------------------------------------------- ------------ -------------------- -----
Gross carrying value $ 13,902
Accumulated Amortization (5,998)
------------
Net carrying value $ 7,904 1,202 9,106
============
WEIGHTED-AVERAGE AMORTIZATION PERIOD
(Period in years) 10.0 9.5 9.9
AGGREGATE AMORTIZATION EXPENSE
For the three months ended June 30, 2005 $ 384 72 456
For the six months ended June 30, 2005 $ 667 139 806
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2005 $ 1,443 181 1,624
For the year ended December 31, 2006 1,448 82 1,530
For the year ended December 31, 2007 1,361 80 1,441
For the year ended December 31, 2008 1,283 77 1,360
For the year ended December 31, 2009 1,165 75 1,240
(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 and additional goodwill of $23,299,000. On April 1, 2005, the
Company acquired Citizens Community Bank in Pocatello, Idaho which
resulted in additional core deposit intangible of $975,000 and additional
goodwill of $9,553,000. On May 20, 2005, the Company acquired the Zions
branch in Bonners Ferry, Idaho which resulted in additional core deposit
intangible of $211,000 and additional goodwill of $2,154,000.
10) Deposits
The following table illustrates the amounts outstanding for deposits
greater than $100,000 at June 30, 2005, according to the time remaining to
maturity. Included in the three month CD maturities are brokered CD's in
the amount of $24,989,000.
Certificates Non-Maturity
(Dollars in thousands) of Deposit Deposits Totals
- ----------------------------- ------------ ------------ ---------
Within three months.......... $ 105,910 832,884 938,794
Three to six months.......... 28,941 - 28,941
Seven to twelve months....... 29,406 - 29,406
Over twelve months........... 36,243 - 36,243
------------ --------- ---------
Totals $ 200,500 832,884 1,033,384
============ ========= =========
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 six for the for the six
months ended year ended months ended
(Dollars in thousands) June 30, 2005 December 31, 2004 June 30, 2004
------------- ----------------- -------------
FHLB Advances:
Amount outstanding at end of period............ $ 804,047 818,933 848,770
Average balance................................ $ 741,002 791,245 823,016
Maximum outstanding at any month-end........... $ 858,961 862,136 862,136
Weighted average interest rate................. 3.00% 2.34% 2.18%
Repurchase Agreements:
Amount outstanding at end of period............ $ 95,235 76,158 72,268
Average balance................................ $ 86,975 69,480 66,790
Maximum outstanding at any month-end........... $ 95,235 80,265 72,268
Weighted average interest rate................. 2.32% 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 June 30, 2005.
CONSOLIDATED Tier 1 (Core) Tier 2 (Total) Leverage
(Dollars in thousands) Capital Capital Capital
- ----------------------------------------------- ------------- -------------- ------------
GAAP Capital................................... $ 297,759 297,759 297,759
Less: Goodwill and intangibles................ (80,286) (80,286) (80,286)
Accumulated other comprehensive
Unrealized gain on AFS securities...... (6,697) (6,697) (6,697)
Other adjustments.......................... (107) (107) (107)
Plus: Allowance for loan losses............... - 30,654 -
Subordinated debentures.................... 85,000 85,000 85,000
------------- -------------- ------------
Regulatory capital computed.................... $ 295,669 326,323 295,669
============= ============== ============
Risk weighted assets........................... $ 2,452,326 2,452,326
============= ==============
Total average assets........................... $ 3,420,214
============
Capital as % of defined assets................. 12.06% 13.31% 8.64%
Regulatory "well capitalized" requirement...... 6.00% 10.00% 5.00%
------------- -------------- ------------
Excess over "well capitalized" requirement..... 6.06% 3.31% 3.64%
============= ============== ============
15
13) Other Comprehensive Income
The Company's only component of other comprehensive income 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 2005 2004 2005 2004
---------- ---------- ---------- ----------
Net earnings................................................. $ 13,090 10,763 24,610 21,373
Unrealized holding gain (loss) arising during the period 10,653 (27,680) 1,123 (18,511)
Tax (expense) benefit........................................ (4,198) 10,906 (443) 7,292
---------- ---------- ---------- ----------
Net after tax.................................... 6,455 (16,774) 680 (11,219)
Reclassification adjustment for losses
included in net income.................................... 107 - 137 -
Tax benefit.................................................. (42) - (54) -
---------- ---------- ---------- ----------
Net after tax.................................... 65 - 83 -
Net unrealized gain (loss) on securities......... 6,520 (16,774) 763 (11,219)
---------- ---------- ---------- ----------
Total other comprehensive income............. $ 19,610 (6,011) 25,373 10,154
========== ========== ========== ==========
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, 2005
------------------------------------------------------------------------------------
Mountain First First
(Dollars in thousands) Glacier West Security Western National Big Sky
- ------------------------------------------ --------- --------- --------- --------- --------- ---------
Revenues from external customers $ 21,204 25,570 18,572 12,973 4,779 8,617
Intersegment revenues 430 - 13 - 81 -
Expenses (16,042) (20,110) (13,167) (9,956) (3,811) (6,366)
Intercompany eliminations - - - - - -
--------- --------- --------- --------- --------- ---------
Net earnings $ 5,592 5,460 5,418 3,017 1,049 2,251
========= ========= ========= ========= ========= =========
Total Assets $ 683,773 731,133 616,175 443,278 266,220 268,972
========= ========= ========= ========= ========= =========
Total
Valley Whitefish Citizens Other Consolidated
---------- ---------- ---------- ---------- ------------
Revenues from external customers 7,899 5,593 2,687 (221) 107,673
Intersegment revenues 68 - - 31,181 31,773
Expenses (5,973) (3,948) (2,106) (1,584) (83,063)
Intercompany eliminations - - - (31,773) (31,773)
---------- ---------- ---------- ---------- ------------
Net earnings 1,994 1,645 581 (2,397) 24,610
========== ========== ========== ========== ============
Total Assets 247,736 161,994 132,461 (19,807) 3,531,935
========== ========== ========== ========== ============
16
Six months ended and as of June 30, 2004
--------------------------------------------------------------------------
Mountain First
(Dollars in thousands) Glacier West Security Western Big Sky
- ------------------------------------ ---------- ---------- ---------- ---------- ----------
Revenues from external customers $ 18,962 19,224 17,612 12,607 6,874
Intersegment revenues 130 - 10 2 -
Expenses (13,628) (15,612) (11,949) (9,207) (5,185)
Intercompany eliminations - - - - -
---------- ---------- ---------- ---------- ----------
Net earnings $ 5,464 3,612 5,673 3,402 1,689
========== ========== ========== ========== ==========
Total Assets $ 638,338 582,529 605,066 454,773 223,596
========== ========== ========== ========== ==========
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 earnings 1,830 1,301 (1,598) 21,373
========== ========== ========== ============
Total Assets 230,095 161,775 19,737 2,915,909
========== ========== ========== ============
Three months ended and as of June 30, 2005
--------------------------------------------------------------------------------------
Mountain First First
(Dollars in thousands) Glacier West Security Western National Big Sky
- ------------------------------------ ----------- --------- --------- --------- --------- ---------
Revenues from external customers $ 10,869 13,402 9,497 6,602 3,635 4,528
Intersegment revenues 285 - 8 - 81 -
Expenses (8,301) (10,538) (6,754) (5,085) (2,928) (3,362)
Intercompany eliminations - - - - - -
----------- --------- --------- --------- --------- ---------
Net earnings $ 2,853 2,864 2,751 1,517 788 1,166
=========== ========= ========= ========= ========= =========
Total Assets $ 683,773 731,133 616,175 443,278 266,220 268,972
=========== ========= ========= ========= ========= =========
Total
Valley Whitefish Citizens Other Consolidated
---------- ---------- ---------- ---------- ------------
Revenues from external customers 4,120 2,640 2,687 78 58,058
Intersegment revenues 34 - - 16,339 16,747
Expenses (3,129) (1,949) (2,106) (816) (44,968)
Intercompany eliminations - - - (16,747) (16,747)
---------- ---------- ---------- ---------- ------------
Net earnings 1,025 691 581 (1,146) 13,090
========== ========== ========== ========== ============
Total Assets 247,736 161,994 132,461 (19,807) 3,531,935
========== ========== ========== ========== ============
17
Three months ended and as of June 30, 2004
---------------------------------------------------------------------
Mountain First
(Dollars in thousands) Glacier West Security Western Big Sky
- ---------------------------------- --------- --------- --------- --------- ---------
Revenues from external customers $ 9,627 10,000 8,792 6,263 3,462
Intersegment revenues 62 - 6 - -
Expenses (6,909) (8,007) (5,952) (4,589) (2,667)
Intercompany eliminations - - - - -
--------- --------- --------- --------- ---------
Net earnings $ 2,780 1,993 2,846 1,674 795
========= ========= ========= ========= =========
Total Assets $ 638,338 582,529 605,066 454,773 223,596
========= ========= ========= ========= =========
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 earnings 932 642 (899) 10,763
========== ========== ========== ============
Total Assets 230,095 161,775 19,737 2,915,909
========== ========== ========== ============
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,
2005 vs. 2004
(Dollars in Thousands) Increase (Decrease) due to:
--------------------------------------
Volume Rate Net
---------- -------- --------
INTEREST INCOME
Real Estate Loans $ 4,261 (238) 4,023
Commercial Loans 6,667 2,507 9,174
Consumer and Other Loans 2,770 223 2,993
Investment Securities and other (252) 208 (44)
---------- -------- --------
Total Interest Income 13,446 2,700 16,146
INTEREST EXPENSE
NOW Accounts 42 72 114
Savings Accounts 57 135 192
Money Market Accounts 324 986 1,310
Certificates of Deposit 550 589 1,139
FHLB Advances (891) 2,968 2,077
Other Borrowings and
Repurchase Agreements 3,371 (432) 2,939
---------- -------- --------
Total Interest Expense 3,453 4,318 7,771
---------- -------- --------
NET INTEREST INCOME $ 9,993 (1,618) 8,375
========== ======== ========
18
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 6-30-05 For the Six months ended 6-30-05
---------------------------------- --------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
(Dollars in Thousands) Balance Dividends Rate Balance Dividends Rate
------------ --------- ------- ---------- --------- -------
ASSETS
Real Estate Loans $ 482,264 8,097 6.72% $ 446,569 14,712 6.59%
Commercial Loans 1,170,187 19,588 6.71% 1,101,574 36,112 6.61%
Consumer and Other Loans 419,518 7,011 6.70% 389,651 12,741 6.59%
------------ --------- ---------- ---------
Total Loans 2,071,969 34,696 6.72% 1,937,794 63,565 6.61%
Tax -Exempt Investment Securities (1) 283,400 3,465 4.89% 282,785 6,932 4.90%
Investment Securities 843,028 8,384 3.98% 835,308 16,555 3.96%
------------ --------- ---------- ---------
Total Earning Assets 3,198,397 46,545 5.82% 3,055,887 87,052 5.70%
--------- ---------
Non-Earning Assets 258,482 230,327
------------ ----------
TOTAL ASSETS $ 3,456,879 $3,286,214
============ ==========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW Accounts $ 313,293 192 0.25% $ 298,309 341 0.23%
Savings Accounts 210,694 254 0.48% 194,721 409 0.42%
Money Market Accounts 491,380 1,710 1.40% 461,850 3,021 1.32%
Certificates of Deposit 521,823 3,426 2.63% 478,668 5,880 2.48%
FHLB Advances 742,064 5,770 3.12% 741,002 11,013 3.00%
Repurchase Agreements
and Other Borrowed Funds 282,468 3,106 4.41% 282,738 5,845 4.17%
------------ --------- ---------- ---------
Total Interest Bearing Liabilities 2,561,722 14,458 2.26% 2,457,288 26,509 2.18%
--------- ---------
Non-interest Bearing Deposits 569,317 514,618
Other Liabilities 34,597 31,680
------------ ----------
Total Liabilities 3,165,636 3,003,586
------------ ----------
Common Stock 312 310
Paid-In Capital 238,577 233,283
Retained Earnings 49,431 44,716
Accumulated Other
Comprehensive Income 2,923 4,319
------------ ----------
Total Stockholders' Equity 291,243 282,628
------------ ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,456,879 $3,286,214
============ ==========
Net Interest Income $ 32,087 $ 60,543
========= =========
Net Interest Spread 3.56% 3.52%
Net Interest Margin
on average earning assets 4.02% 4.00%
Return on Average Assets (annualized) 1.52% 1.51%
Return on Average Equity (annualized) 18.03% 17.56%
(1) Excludes tax effect on non-taxable investment security income
19
17) Acquisitions
On February, 28, 2005 the Company completed the acquisition of First
National Bank - West, Evanston, Wyoming, with total assets of $267
million, loans of $88 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 $23,299,000.
On April 1, 2005, the Company completed the acquisition of Citizens Bank
Holding Company and its subsidiary bank Citizens Community Bank,
Pocatello, Idaho, with total assets of $126 million, loans of $89 million,
and deposits of $101 million. This bank operates from three banking
offices in Pocatello and Idaho Falls, and a loan production office in
Rexburg, Idaho, and became the ninth subsidiary bank of the Company. A
portion of the purchase price was allocated to core deposit intangible of
$975,000 and goodwill of $9,553,000.
On May 20, 2005, Mountain West Bank of Coeur d'Alene completed the
acquisition of the Zions First National Bank branch in Bonners Ferry,
Idaho, with total assets of $24 million, loans of $5 million, and deposits
of $24 million. A portion of the purchase price was allocated to core
deposit intangible of $211,000 and goodwill of $2,154,000.
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
First National Bank-West and Citizen's Community Bank were acquired on February
28, 2005 and April 1, 2005, respectively, and became the Company's eighth and
ninth banking subsidiaries. The Bonner's Ferry branch was acquired by Mountain
West on May 20, 2005. Accordingly, results of operations and financial condition
for the acquisitions are included from the acquisition dates forward.
Financial Condition
This section discusses the changes in Statement of Financial Condition items
from June 30, 2004 and December 31, 2004, to June 30, 2005.
The results of operations and financial condition include the acquisitions from
the completion dates forward. The following table provides information on
selected classifications of assets and liabilities acquired:
First National Citizens Bonners Ferry
(UNAUDITED - $ IN THOUSANDS) Bank Community Bank Branch Total
-------------- -------------- ------------- -------
Total assets $ 267,126 126,394 23,868 417,388
Investments 124,733 7,916 - 132,649
Net loans 87,678 89,240 5,047 181,965
Non-interest bearing deposits 95,053 25,789 6,073 126,915
Interest bearing deposits 129,697 75,008 17,777 222,482
20
$ change from $ change from
June 30, December 31, June 30, December 31, June 30,
ASSETS ($ IN THOUSANDS) 2005 2004 2004 2004 2004
----------- ------------ ----------- ------------- -------------
Cash on hand and in banks $ 109,402 79,300 69,848 30,102 39,554
Investment securities, interest bearing
deposits, FHLB stock, FRB stock, and
fed funds 1,114,334 1,098,633 1,148,900 15,701 (34,566)
Loans:
Real estate 505,296 393,141 339,945 112,155 165,351
Commercial 1,215,919 991,081 934,100 224,838 281,819
Consumer 433,900 344,075 322,345 89,825 111,555
----------- --------- --------- ------- -------
Total loans 2,155,115 1,728,297 1,596,390 426,818 558,725
Allowance for loan losses (32,917) (26,492) (25,146) (6,425) (7,771)
----------- --------- --------- ------- -------
Total loans net of allowance for
loan losses 2,122,198 1,701,805 1,571,244 420,393 550,954
----------- --------- --------- ------- -------
Other assets 186,001 130,999 125,917 55,002 60,084
----------- --------- --------- ------- -------
Total Assets $ 3,531,935 3,010,737 2,915,909 521,198 616,026
=========== ========= ========= ======= =======
At June 30, 2005 total assets were $3.532 billion, which is $616 million greater
than the June 30, 2004 assets of $2.916 billion, an increase of 21 percent, and
$521 million greater than at December 31, 2004, an increase of 17 percent.
Without the $417 million in assets acquired in acquisitions, total assets are up
$199 million from a year ago, or 7 percent, and $104 million, or 3 percent from
year end 2004.
Total loans have increased $559 million from June 30, 2004, or 35 percent, with
the growth occurring in all loan categories. Commercial loans have increased
$282 million, or 30 percent, real estate loans gained $165 million, or 49
percent, and consumer loans grew by $112 million, or 35 percent. Acquisitions
added $182 million of the total with internal growth contributing $377 million,
a 24 percent increase.
Loan volume continues to be very strong with internal loan growth of $245
million since December 31, 2004, or 14 percent. Including loans acquired,
commercial loans are up by $225 million, or 23 percent, real estate loans
increased by $112 million, or 29 percent, and consumer loans gained $90 million,
or 26 percent.
Investment securities, including interest bearing deposits in other financial
institutions, and federal funds sold, have decreased $35 million from June 30,
2004. Without the acquisitions, investments would have declined $167 million, or
15 percent, from June 30, 2004. Cash flow from investment pay downs is now being
used to fund the significant growth in loans.
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 six months
ended June 30, 2005 and 2004 were $175 million and $143 million, respectively,
and for the three months ended June 30, 2005 and 2004 were $116 million and $76
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 June 30, 2005 was approximately
$197 million.
21
$ change from $ change from
June 30, December 31, June 30, December 31, June 30,
LIABILITIES ($ IN THOUSANDS) 2005 2004 2004 2004 2004
----------- ------------ --------- ------------- -------------
Non-interest bearing deposits $ 630,983 460,059 402,337 170,924 228,646
Interest bearing deposits 1,576,872 1,269,649 1,233,418 307,223 343,454
Advances from Federal Home Loan Bank 804,047 818,933 848,770 (14,886) (44,723)
Securities sold under agreements to
repurchase and other borrowed funds 100,811 81,215 86,319 19,596 14,492
Other liabilities 36,463 30,697 23,001 5,766 13,462
Subordinated debentures 85,000 80,000 80,000 5,000 5,000
----------- --------- --------- ------- -------
Total liabilities $ 3,234,176 2,740,553 2,673,845 493,623 560,331
=========== ========= ========= ======= =======
Non-interest bearing deposits have increased $229 million, or 57 percent, since
June 30, 2004. Without acquisitions the increase was $102 million, or 25
percent. Since December 31, 2004 the increase was $171 million, and without
acquisitions $44 million, or 10 percent. This continues to be a primary focus of
our banks and the programs we have initiated this past year continue to gain
momentum. Interest bearing deposits have increased $343 million from June 30,
2004 with $222 million from the acquisitions. Since December 31, 2004, without
acquisitions, interest bearing deposits increased $85 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 decreased $45 million,
and repurchase agreements and other borrowed funds increased $14 million from
June 30, 2004. Since December 31, 2004 Federal Home Loan Bank advances declined
$15 million, and repurchase agreements and other borrowed funds increased $20
million.
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 earnings. In addition, eight of the nine banking
subsidiaries are members of the FHLB. As of June 30, 2005, the Company had
$1.241 billion of available FHLB line of which $804 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 six months of 2005, all nine
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 condensed consolidated financial
statements. Management does not anticipate any material losses as a result of
these transactions.
22
$ change from $ change from
STOCKHOLDERS' EQUITY June 30, December 31, June 30, December 31, June 30,
($ IN THOUSANDS EXCEPT PER SHARE DATA) 2005 2004 2004 2004 2004
---------- ------------ ---------- -------------- -------------
Common equity $ 291,062 264,250 246,667 26,812 44,395
Accumulated other comprehensive income (loss) 6,697 5,934 (4,603) 763 11,300
---------- ------- ------- ------ ------
Total stockholders' equity $ 297,759 270,184 242,064 27,575 55,695
========== ======= ======= ====== ======
Stockholders' equity to total assets 8.43% 8.97% 8.30%
Book value per common share $ 9.53 8.80 7.92 0.73 1.61
Market price per share at end of quarter $ 26.13 27.23 22.54 (1.10) 3.59
Total equity and book value per share amounts have increased substantially
from June 30, 2004 and from year end 2004, primarily the result of
earnings retention, and stock options exercised. Accumulated other
comprehensive income, representing net unrealized gains on securities
available for sale, increased $11 million from June 30, 2004 and $763
thousand from year end 2004, primarily a function of interest rate
changes.
June 30, December 31, June 30,
------------- ------------- -----------
CREDIT QUALITY INFORMATION ($ IN THOUSANDS) 2005 2004 2004
------------- ------------- -----------
Allowance for loan losses $ 32,917 26,492 25,146
Non-performing assets $ 8,093 9,608 10,654
Allowance as a percentage of non performing assets 407% 276% 236%
Non-performing assets as a percentage of total assets 0.23% 0.32% 0.37%
Allowance as a percentage of total loans 1.53% 1.53% 1.58%
Net charge-offs as a percentage of loans 0.021% 0.098% 0.040%
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at June 30, 2005 were at
..23 percent, a decrease from .37 percent at June 30, 2004 and .32 percent at
December 31, 2004. This compares favorably to the Federal Reserve Bank Peer
Group average of .45 percent at March 31, 2004, the most recent information
available. The allowance for loan losses was 407 percent of non-performing
assets at June 31, 2005, compared to 236 percent a year ago. The allowance,
including $3.834 million from acquisitions, has increased $7.771 million, or 31
percent, from a year ago. The allowance of $32.917 million, is 1.53 percent of
June 30, 2005 total loans outstanding, down slightly from the 1.58 percent a
year ago. The second quarter provision for loan losses expense was $1.552
million, an increase of $587 thousand from the same quarter in 2004. The
additional expense relates to the continuing growth in the number and average
size of loans.
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 2004.
Operating results include amounts resulting from the acquisitions from the
acquisition date forward.
23
REVENUE SUMMARY
($ IN THOUSANDS) Three months ended June 30,
---------------------------------------------------------
2005 2004 $ change % change
------------ ------------ ------------- ---------
Net interest income $ 32,087 $ 25,779 $ 6,308 24%
Non-interest income
Service charges, loan fees, and other fees 7,850 6,322 1,528 24%
Gain on sale of loans 2,884 2,026 858 42%
Loss on sale of investments (107) - (107) n/m
Other income 886 500 386 77%
------------ ------------ ------------- --
Total non-interest income 11,513 8,848 2,665 30%
------------ ------------ ------------- --
$ 43,600 $ 34,627 $ 8,973 26%
============ ============ ============= ==
Tax equivalent net interest margin 4.12% 4.04%
============ ============
Net Interest Income
Net interest income for the quarter increased $6.308 million, or 24 percent,
over the same period in 2004, and $3.631 million from the first quarter of 2005.
Total interest income increased $11.104 million, or 31 percent, while total
interest expense was $4.796 million, or 50 percent higher. The increase in
interest expense is primarily attributable to the volume increase in interest
bearing liabilities, and increases in short term interest rates during 2004 and
2005. The Federal Reserve Bank has increased targeted fed funds rates nine
times, 225 basis points, in the last twelve months. The net interest margin as a
percentage of earning assets, on a tax equivalent basis, was 4.12 percent which
was higher than the 4.04 percent result for the second quarter of 2004. The
margin for the second quarter also increased from the 4.08 percent experienced
for the first quarter of 2005. The second quarter interest margin was reduced by
not receiving FHLB dividends for the 2005 quarter. FHLB dividends received were
$444 thousand less than the same quarter last year.
Non-interest Income
Fee income increased $1.528 million, or 24 percent, over the same period last
year, driven primarily by an increased number of loan and deposit accounts,
acquisitions, and additional customer services offered. Gain on sale of loans
increased $858 thousand from the second 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. Other income was $386 thousand higher than the second quarter of 2004 of
which $220 thousand was from the sale of property held for future expansion that
was no longer needed.
NON-INTEREST EXPENSE SUMMARY
($ IN THOUSANDS) Three months ended June 30,
---------------------------------------------------------
2005 2004 $ change % change
------------ ------------ ------------- ---------
Compensation and employee benefits $ 12,474 $ 9,851 $ 2,623 27%
Occupancy and equipment expense 3,152 2,733 419 15%
Outsourced data processing expense 423 368 55 15%
Core deposit intangible amortization 384 251 133 53%
Other expenses 6,043 4,805 1,238 26%
------------ ------------ ------------- --
Total non-interest expense $ 22,476 $ 18,008 $ 4,468 25%
============ ============ ============= ==
Non-interest Expense
Non-interest expense increased by $4.468 million, or 25 percent, from the same
quarter of 2004. Compensation and benefit expense increased $2.623 million, or
27 percent from the second quarter of 2004, with acquisitions, 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 842
24
to 1057, a 26 percent increase, since June 30, 2004. Occupancy and equipment
expense increased $419 thousand, or 15 percent, reflecting the acquisitions,
cost of additional locations and facility upgrades. Other expenses increased
$1.238 million, or 26 percent, primarily from acquisitions, audit costs from
compliance with Sarbanes-Oxley rules, additional marketing expenses, and costs
associated with new branch offices. The efficiency ratio (non-interest
expense/net interest income + non-interest income) remained at 52 percent for
the 2005 quarter, the same as 2004.
OPERATING RESULTS FOR SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO JUNE 30, 2004
REVENUE SUMMARY
($ IN THOUSANDS) Six months ended June 30,
-----------------------------------------------
2005 2004 $ change % change
-------- -------- --------- --------
Net interest income $ 60,543 $ 52,168 $ 8,375 16%
Non-interest income
Service charges, loan fees, and other fees 14,332 11,414 2,918 26%
Gain on sale of loans 4,976 3,797 1,179 31%
Loss on sale of investments (137) - (137) n/m
Other income 1,450 1,048 402 38%
-------- -------- --------- ---
Total non-interest income 20,621 16,259 4,362 27%
-------- -------- --------- ---
$ 81,164 $ 68,427 $ 12,737 19%
======== ======== ========= ===
Tax equivalent net interest margin 4.10% 4.17%
======== ========
Net Interest Income
Net interest income for the six months increased $8.375 million, or 16 percent,
over the same period in 2004. Total interest income increased $16.146 million,
or 23 percent, while total interest expense was $7.771 million, or 41 percent
higher. The increase in interest expense is primarily attributable to the volume
increase in interest bearing liabilities, and increases in short term interest
rates during 2004 and 2005. The net interest margin as a percentage of earning
assets, on a tax equivalent basis, was 4.10 percent which was lower than the
4.17 percent result for the same six months of 2004. The interest margin was
reduced by lower FHLB dividends in 2005. FHLB dividends received were $699
thousand less than the same period last year.
Non-interest Income
Total non-interest income increased $4.362 million, or 27 percent in 2005. Fee
income increased $2.918 million, or 26 percent, over the same period last year,
driven primarily by an increased number of loan and deposit accounts,
acquisitions, and additional customer product and services offered. Gain on sale
of loans increased $1.179 million, or 31 percent, from the first six months 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. Other income was $402 higher than 2004 of which
$220 was from the sale of property held for future expansion that was no longer
needed, and the remainder from various volume increases.
25
NON-INTEREST EXPENSE SUMMARY
($ IN THOUSANDS) Six months ended June 30,
-----------------------------------------------
2005 2004 $ change % change
-------- -------- -------- --------
Compensation and employee benefits $ 23,418 $ 19,657 $ 3,761 19%
Occupancy and equipment expense 6,007 5,364 643 12%
Outsourced data processing expense 655 781 (126) -16%
Core deposit intangible amortization 667 545 122 22%
Other expenses 10,803 9,087 1,716 19%
-------- -------- -------- ---
Total non-interest expense $ 41,550 $ 35,434 $ 6,116 17%
======== ======== ======== ===
Non-interest Expense
Non-interest expense increased by $6.116 million, or 17 percent, from the same
six months of 2004. Compensation and benefit expense increased $3.761 million,
or 19 percent from the prior year, with acquisitions, additional bank branches,
normal compensation increases for job performance and increased cost for
benefits accounting for the majority of the increase. Occupancy and equipment
expense increased $643 thousand, or 12 percent, reflecting the acquisitions,
cost of additional locations and facility upgrades. Other expenses increased
$1.716 million, or 19 percent, primarily from acquisitions, 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) improved to 51 percent from
52 percent for the first six months of 2005.
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 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
26
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 second 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
27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) The Company's Annual Shareholders' Meeting was held April 27, 2005
(b) Not Applicable
(c) A brief description of each matter voted upon at the Annual Meeting
and the 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 Directors for three-year terms expiring in 2008
and until their successors have been elected to qualified.
Michael J. Blodnick -
Votes Cast For: 21,725,560
Votes Cast Witheld: 692,075
Allen J. Fetscher -
Votes Cast For: 21,726,841
Votes Cast Witheld: 690,793
Fred J. Flanders -
Votes Cast For: 21,510,576
Votes Cast Witheld: 907,059
(2) Approval of 2005 Stock Incentive Plan
Votes Cast For: 15,500,668
Votes Cast Against: 2,357,525
Abstain: 189,891
(d) Not Applicable
ITEM 5. OTHER INFORMATION
(a) Not Applicable
(b) Not Applicable
ITEM 6. EXHIBITS
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
28
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 4, 2005 /s/ Michael J. Blodnick
-----------------------
Michael J. Blodnick
President/CEO
August 4, 2005 /s/ James H. Strosahl
---------------------
James H. Strosahl
Executive Vice President/CFO
29