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, 2006
[ ] 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
incorporation or organization) Identification No.)
49 Commons Loop, Kalispell, Montana 59901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (406) 756-4200
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 a large accelerated filer, or an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large Accelerated Filer X Accelerated Filer Non-Accelerated Filer
--- --- ---
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
The number of shares of Registrant's common stock outstanding on April 27, 2006
was 32,336,503. 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
March 31, 2006, and March 31, 2005 and audited December 31, 2005 ... 3
Condensed Consolidated Statements of Operations -
Unaudited three months ended March 31, 2006 and 2005 ............... 4
Condensed Consolidated Statements of Stockholders' Equity and Other
Comprehensive Income - Audited year ended December 31, 2005
and unaudited three months ended March 31, 2006 .................... 5
Condensed Consolidated Statements of Cash Flows -
Unaudited three months ended March 31, 2006 and 2005 ............... 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 .... 25
Item 4 - Controls and Procedures ...................................... 25
PART II. OTHER INFORMATION ............................................... 25
Item 1 - Legal Proceedings ............................................ 25
Item 1A - Risk Factors ................................................ 25
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds .. 25
Item 3 - Defaults Upon Senior Securities .............................. 26
Item 4 - Submission of Matters to a Vote of Security Holders .......... 26
Item 5 - Other Information ............................................ 26
Item 6 - Exhibits ..................................................... 26
Signatures ............................................................ 27
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, December 31, March 31
2006 2005 2005
----------- ------------ -----------
(UNAUDITED) (unaudited)
(Dollars in thousands, except per share data)
ASSETS:
Cash on hand and in banks ................................................ $ 105,474 111,418 82,600
Federal funds sold ....................................................... 9,155 7,537 14,751
Interest bearing cash deposits ........................................... 21,343 15,739 8,208
----------- ---------- ----------
Cash and cash equivalents ............................................. 135,972 134,694 105,559
Investment securities, available-for-sale ................................ 923,382 967,970 1,148,153
Loans receivable, net .................................................... 2,502,279 2,374,647 1,860,295
Loans held for sale ...................................................... 25,153 22,540 19,637
Premises and equipment, net .............................................. 86,179 79,952 63,720
Real estate and other assets owned, net .................................. 778 332 2,003
Accrued interest receivable .............................................. 19,317 19,923 16,151
Core deposit intangible, net ............................................. 7,594 8,015 7,102
Goodwill ................................................................. 79,099 79,099 60,189
Other assets ............................................................. 20,405 19,172 23,631
----------- ---------- ----------
$ 3,800,158 3,706,344 3,306,440
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ............................................ $ 683,201 667,008 528,038
Interest bearing deposits ................................................ 2,010,198 1,867,704 1,448,643
Advances from Federal Home Loan Bank of Seattle .......................... 505,209 402,191 858,961
Securities sold under agreements to repurchase ........................... 132,207 129,530 79,148
Other borrowed funds ..................................................... 2,774 187,692 5,834
Accrued interest payable ................................................. 8,537 7,437 6,048
Deferred tax liability ................................................... 2,098 2,746 4,782
Subordinated debentures .................................................. 85,000 85,000 80,000
Other liabilities ........................................................ 26,543 23,797 21,537
----------- ---------- ----------
Total liabilities ..................................................... 3,455,767 3,373,105 3,032,991
=========== ========== ==========
Preferred shares, $.01 par value per share. 1,000,000 shares authorized
None issued or outstanding ............................................ -- -- --
Common stock, $.01 par value per share. 78,125,000 shares authorized ..... 323 322 309
Paid-in capital .......................................................... 265,765 262,383 229,496
Retained earnings - substantially restricted ............................. 78,171 69,713 43,467
Accumulated other comprehensive income ................................... 132 821 177
----------- ---------- ----------
Total stockholders' equity ............................................ 344,391 333,239 273,449
----------- ---------- ----------
$ 3,800,158 3,706,344 3,306,440
=========== ========== ==========
Number of shares outstanding .......................................... 32,314,112 32,172,547 30,853,644
Book value per share .................................................. $ 10.66 10.36 8.86
See accompanying notes to condensed consolidated financial statements.
3
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
----------------------------
2006 2005
----------- ----------
(UNAUDITED - dollars in thousands, except per share data)
INTEREST INCOME:
Real estate loans ...................................... $ 10,989 6,615
Commercial loans ....................................... 25,525 16,524
Consumer and other loans ............................... 8,865 5,730
Investment securities and other ........................ 10,573 11,638
----------- ----------
Total interest income ............................... 55,952 40,507
----------- ----------
INTEREST EXPENSE:
Deposits ............................................... 11,291 4,069
Federal Home Loan Bank of Seattle advances ............. 4,796 5,243
Securities sold under agreements to repurchase ......... 1,290 398
Subordinated debentures ................................ 1,429 1,555
Other borrowed funds ................................... 838 786
----------- ----------
Total interest expense .............................. 19,644 12,051
----------- ----------
NET INTEREST INCOME ....................................... 36,308 28,456
Provision for loan losses .............................. 1,165 1,490
----------- ----------
Net interest income after provision for loan
losses ........................................... 35,143 26,966
----------- ----------
NON-INTEREST INCOME:
Service charges and other fees ......................... 6,406 5,204
Miscellaneous loan fees and charges .................... 1,811 1,278
Gains on sale of loans ................................. 2,190 2,092
Loss on sale of investments ............................ -- (30)
Other income ........................................... 749 564
----------- ----------
Total non-interest income ........................... 11,156 9,108
----------- ----------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses ................................ 15,311 10,944
Occupancy and equipment expense ........................ 3,491 2,855
Outsourced data processing expense ..................... 724 232
Core deposit intangibles amortization .................. 420 283
Other expenses ......................................... 5,881 4,760
----------- ----------
Total non-interest expense .......................... 25,827 19,074
----------- ----------
EARNINGS BEFORE INCOME TAXES .............................. 20,472 17,000
Federal and state income tax expense ................... 6,843 5,480
----------- ----------
NET EARNINGS .............................................. $ 13,629 11,520
=========== ==========
Basic earnings per share .................................. $ 0.42 0.37
Diluted earnings per share ................................ $ 0.42 0.37
Dividends declared per share .............................. $ 0.16 0.14
Return on average assets (annualized) ..................... 1.48% 1.50%
Return on average equity (annualized) ..................... 16.21% 17.06%
Average outstanding shares - basic ........................ 32,252,158 30,764,368
Average outstanding shares - diluted ...................... 32,826,467 31,305,788
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, 2005 AND
UNAUDITED THREE MONTHS ENDED MARCH 31, 2006
Retained Accumulated Total
Common Stock earnings other comp- stock-
------------------- Paid-in substantially rehensive holders'
Shares Amount capital restricted income equity
---------- ------ ------- ------------- ----------- --------
(Dollars in thousands, except per share data)
Balance at December 31, 2004 ................... 30,686,763 $307 227,552 36,391 5,934 270,184
Comprehensive income:
Net earnings ................................ -- -- -- 52,373 -- 52,373
Unrealized loss on securities, net of
reclassification adjustment and taxes .... -- -- -- -- (5,113) (5,113)
-------
Total comprehensive income ..................... 47,260
-------
Cash dividends declared ($.60 per share) ....... -- -- -- (19,051) -- (19,051)
Stock options exercised ........................ 397,770 4 5,154 -- -- 5,158
Stock issued in connection with
acquisitions ................................ 1,088,014 11 28,427 -- -- 28,438
Acquisition of fractional shares ............... -- -- (8) -- -- (8)
Tax benefit from stock related compensation .... -- -- 1,258 -- -- 1,258
---------- ---- ------- ------- ------ -------
Balance at December 31, 2005 ................... 32,172,547 $322 262,383 69,713 821 333,239
Other comprehensive income:
Net earnings ................................ -- -- -- 13,629 -- 13,629
Unrealized loss on securities, net of
reclassification adjustment and taxes ....... -- -- -- -- (689) (689)
-------
Total other comprehensive income ............... 12,940
-------
Cash dividends declared ($.16 per share) ....... -- -- -- (5,171) -- (5,171)
Stock options exercised ........................ 141,565 1 2,185 -- -- 2,186
Stock based compensation and tax benefit ....... -- -- 1,197 -- -- 1,197
---------- ---- ------- ------- ------ -------
Balance at March 31, 2006 (unaudited) .......... 32,314,112 $323 265,765 78,171 132 344,391
========== ==== ======= ======= ====== =======
See accompanying notes to condensed consolidated financial statements.
5
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
----------------------------
2006 2005
--------- --------
(UNAUDITED - dollars in thousands)
OPERATING ACTIVITIES:
NET CASH PROVIDED BY OPERATION ACTIVITIES .......................... $ 18,854 9,034
--------- --------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of
investments available-for-sale .................................. 43,209 153,703
Purchases of investments available-for-sale ........................ (792) (103,175)
Principal collected on installment and commercial loans ............ 249,640 142,784
Installment and commercial loans originated or
acquired ........................................................ (350,179) (212,076)
Principal collections on mortgage loans ............................ 89,622 80,378
Mortgage loans originated or acquired .............................. (117,881) (97,864)
Net purchase of FHLB and FRB stock ................................. (434) (14)
Acquisition of First National Bank - West .......................... -- (18,139)
Net addition of premises and equipment ............................. (7,715) (4,899)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES ........................... (94,530) (59,302)
--------- --------
FINANCING ACTIVITIES:
Net increase in deposits ........................................... 158,688 22,223
Net (decrease) increase in FHLB advances and other borrowed funds .. (81,900) 40,805
Net increase in securities sold under repurchase agreements ........ 2,677 2,990
Cash dividends paid ................................................ (5,171) (4,444)
Excess tax benefits from stock options ............................. 474 --
Proceeds from exercise of stock options and other stock issued ..... 2,186 1,946
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ....................... 76,954 63,520
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................... 1,278 13,252
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 134,694 92,307
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 135,972 105,559
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest........................ $ 18,544 11,098
Income taxes.................... $ 380 --
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 March 31, 2006,
and March 31, 2005, stockholders' equity for the three months ended March
31, 2006, the results of operations for the three months ended March 31,
2006 and 2005, and cash flows for the three months ended March 31, 2006 and
2005. The condensed consolidated statement of financial condition and
statement of stockholders' equity and other comprehensive income of the
Company as of December 31, 2005 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, 2005. Operating results for the three months ended March
31, 2006 are not necessarily indicative of the results anticipated for the
year ending December 31, 2006. Certain reclassifications have been made to
the 2005 financial statements to conform to the 2006 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 II ("Glacier Trust II"), Glacier
Capital Trust III ("Glacier Trust III"), 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.
On February 1, 2006, Glacier Capital Trust I, whose common equity was
wholly owned by the Company, had 1,400,000 shares of trust preferred
securities redeemed and the Subordinated Debentures of $35,000,000 paid.
The Subordinated Debentures were replaced by Glacier Trust III.
On January 31, 2006, 35,000 shares of trust preferred shares were issued by
Glacier Trust III whose common equity is wholly owned by the Company. The
Trust Preferred Securities bear a cumulative fixed interest rate of 6.078%
for the first five years and then converts to a three month LIBOR plus
1.29% rate adjustable quarterly for the remaining term until maturity on
April 7, 2036. Interest distributions are payable quarterly. The Trust
Preferred Securities are subject to mandatory redemption upon repayment of
the Subordinated Debentures of $35,000,000 at their stated maturity date or
their earlier redemption in an amount equal to their liquidation amount
plus accumulated and unpaid distributions to the date of redemption.
7
The following abbreviated organizational chart illustrates the various
relationships:
<Table>
------------------------
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 Glacier Capital Trust II Glacier Capital Trust III Citizens (ID) Statutory Trust I
(Commercial bank)
- -------------------------- ------------------------- ------------------------ -------------------------------
3) Ratios
Returns on average assets and average equity were calculated based on daily
averages.
4) Dividends Declared
On March 29, 2006, the Board of Directors declared a $.16 per share
quarterly cash dividend payable on April 20, 2006 to stockholders of record
on April 11, 2006.
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
months ended months ended
Mar. 31, 2006 Mar. 31, 2005
------------- -------------
Net earnings available to common
stockholders ........................ $13,629,000 11,520,000
Average outstanding shares - basic ..... 32,252,158 30,764,368
Add: Dilutive stock options ............ 574,309 541,420
----------- ----------
Average outstanding shares - diluted ... 32,826,467 31,305,788
=========== ==========
Basic earnings per share ............... $ 0.42 0.37
=========== ==========
Diluted earnings per share ............. $ 0.42 0.37
=========== ==========
There were approximately 323,195 and 591,250 average shares excluded from
the three months ended diluted share calculation as of March 31, 2006, and
2005, respectively, due to the option exercise price exceeding the market
price.
8
6) Stock Based Compensation
The Company has three stock based compensation plans outstanding. The
Directors 1994 Stock Option Plan was approved to provide for the grant of
options to outside Directors of the Company. The Employees 1995 Stock
Option Plan was approved to provide the grant of options to certain
full-time employees of the Company. The Employees 1995 Stock Option Plan
expired in April 2005 and has granted but unexpired options outstanding.
The 2005 Stock Incentive Plan was approved by shareholders on April 27,
2005 which provides awards to certain full-time employees of the Company.
The 2005 Stock Incentive Plan permits the granting of options, share
appreciation rights, restricted share, restricted share units, and
unrestricted shares, deferred share units, and performance awards. Upon
exercise of the stock options the shares are obtained from the authorized
and unissued stock.
The Company adopted SFAS No. 123 (Revised) Share-Based Payment, as of
January 1, 2006 and, accordingly, has determined compensation cost based on
the fair value of the option at the grant date. The Company adopted the
modified prospective transition method in reporting financial statement
results in the current and for future reporting periods. Under the modified
prospective method, SFAS No. 123 (Revised) applies to new awards and to
awards modified, repurchased, or cancelled after the effective date;
accordingly the prior interim and annual periods do not reflect restated
amounts. Additionally, the compensation cost for the portion of awards
outstanding for which the requisite service has not been rendered that are
outstanding as of the required effective date are recognized as the
requisite service is rendered on or after the required effective date. For
the three months ended March 31, 2006, the compensation cost for the stock
option plans was $723,000, with a corresponding income tax benefit of
$200,000, resulting in a net earnings and cash flow from operations
reduction of $523,000, or a decrease of $.016 per share for both basic and
diluted earnings per share. Additionally, in the cash flow statement, the
excess tax benefit from stock options decreased the net cash provided from
operating activities and increased the net cash provided by financing
activities by $474,000 for the three months ended March 31, 2006. Total
unrecognized compensation cost, net of income tax benefit, related to
non-vested awards which are expected to be recognized over the next 1.4
years was $2,750,000 as of March 31, 2006. The total fair value of shares
vested during the three months ended March 31, 2006 and 2005 was $535,000
and $537,000, respectively.
Prior to the adoption of SFAS No. 123 (Revised), the Company utilized the
intrinsic value method and compensation cost was the excess of the market
price of the stock at the grant date over the amount an employee must pay
to acquire the stock. The exercise price of all stock options granted has
been equal to the fair market value of the underlying stock at the date of
grant and, accordingly, the intrinsic value has been $0 and no compensation
cost was recognized prior to the adoption of SFAS No. 123 (Revised). The
Company did not modify any outstanding options prior to the adoption of the
standard. If the Company had determined compensation cost based on fair
value of the options at the grant date under SFAS 123 (Revised) prior to
the date of adoption, the Company's net income would have been reduced to
the pro forma amounts indicated below:
Three months
Ended March 31,
2005
---------------
Net earnings (in thousands): As reported $11,520
Compensation cost (207)
-------
Pro forma 11,313
=======
Basic earnings per share: As reported 0.37
Compensation cost --
-------
Pro forma 0.37
=======
Diluted earnings per share: As reported 0.37
Compensation cost (0.01)
-------
Pro forma 0.36
======
9
The per share weighted-average fair value of stock options granted during
2006 and 2005 was $6.47 and $3.46, respectively, on the date of grant using
the Black Scholes option-pricing model with the following assumptions: 2006
- expected dividend yield 2.23%, risk-free interest rate of 4.35%,
volatility ratio of 27%, and expected life of 3.3 years: 2005 - expected
dividend yield 2.23%, risk-free interest rate of 3.44%, volatility ratio of
18%, and expected life of 3.4 years. Expected volatilities are based on
historical volatility and other factors. The Company uses historical data
to estimate option exercise and termination with the valuation model.
Employee and director awards, which have dissimilar historical exercise
behavior, are considered separately for valuation purposes. The risk-free
rate for periods within the contractual life of the option is based on the
U.S. Treasury yield in effect at the time of the grant. The option awards
generally vest upon six month or two years of service for directors and
employees, respectively, and generally expire in five years.
Change in shares granted for stock options for the three months ended March
31, 2006 and the year ended December 31, 2005, are summarized as follows:
Options outstanding Options exercisable
-------------------- --------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
--------- -------- --------- --------
Balance, December 31, 2004 ... 1,510,631 14.65 703,015 11.61
Canceled ..................... (29,882) 21.05 (4,974) 9.77
Granted ...................... 587,761 25.03
Became exercisable ........... 525,759 16.31
Exercised .................... (398,110) 12.95 (398,110) 12.95
--------- ---------
Balance, December 31, 2005 ... 1,670,400 18.58 825,690 14.25
Canceled ..................... (14,964) 23.20 (4,510) 12.93
Granted ...................... 650,650 31.44
Became exercisable ........... 375,346 20.06
Exercised .................... (141,565) 15.44 (141,565) 15.44
--------- ---------
Balance, March 31, 2006 ...... 2,164,521 22.62 1,054,961 16.16
========= =========
The range of exercise prices on options outstanding and exercisable at
March 31, 2006 is as follows:
Weighted Options exercisable
average ----------------------
Weighted remaining Weighted
average contractual average
Options exercise life of Options exercise
Price range Outstanding price options Exercisable price
- --------------- ----------- -------- ----------- ----------- --------
$5.19 - $6.99 103,430 $ 6.32 1.6 years 103,430 $ 6.32
$8.96 - $11.40 70,849 9.99 2.0 years 70,849 9.99
$12.17 - $13.20 123,589 12.68 .9 years 123,589 12.68
$14.09 - $17.45 268,445 14.28 1.9 years 268,445 14.28
$19.50 - $21.24 394,483 20.07 2.8 years 390,108 20.06
$24.99 - $28.34 557,335 25.05 3.9 years 98,540 25.01
$31.44 646,390 31.44 4.8 years -- --
--------- ---------
2,164,521 22.62 3.6 years 1,054,961 16.16
========= =========
10
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, 2006
Gross Unrealized Estimated
Weighted Amortized ---------------- Fair
Yield Cost Gains Losses Value
-------- --------- ------ ------- ---------
(Dollars in thousands)
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year ..................... 4.28% $ 2,234 -- (13) 2,221
maturing within five years ................... 4.53% 2,977 -- (26) 2,951
maturing five years through ten years ........ 6.83% 364 4 (1) 367
maturing after ten years ..................... 5.51% 204 1 -- 205
-------- ------ ------- -------
4.61% 5,779 5 (40) 5,744
-------- ------ ------- -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ..................... 3.90% 2,391 3 (6) 2,388
maturing one year through five years ......... 4.54% 4,091 40 (92) 4,039
maturing five years through ten years ........ 4.94% 11,881 658 (17) 12,522
maturing after ten years ..................... 5.10% 283,126 11,904 (204) 294,826
-------- ------ ------- -------
5.07% 301,489 12,605 (319) 313,775
-------- ------ ------- -------
MORTGAGE-BACKED SECURITIES ...................... 4.72% 61,915 225 (1,857) 60,283
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ........ 4.21% 492,427 52 (10,512) 481,967
FHLMC AND FNMA STOCK ............................ 5.74% 7,593 58 -- 7,651
FHLB AND FRB STOCK, AT COST ..................... 0.93% 53,962 -- -- 53,962
-------- ------ ------- -------
TOTAL INVESTMENTS ............................ 4.35% $923,165 12,945 (12,728) 923,382
======== ====== ======= =======
11
INVESTMENTS AS OF DECEMBER 31, 2005
Gross Unrealized Estimated
Weighted Amortized ---------------- Fair
Yield Cost Gains Losses Value
-------- --------- ------ ------- ---------
(Dollars in thousands)
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year ..................... 4.54% $ 1,236 -- (2) 1,234
maturing one year through five years ......... 4.32% 3,962 -- (39) 3,923
maturing five years through ten years ........ 6.55% 324 6 -- 330
maturing after ten years ..................... 5.04% 337 2 -- 339
-------- ------ ------- -------
4.53% 5,859 8 (41) 5,826
-------- ------ ------- -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ..................... 4.16% 365 3 -- 368
maturing one year through five years ......... 4.75% 6,858 48 (143) 6,763
maturing five years through ten years ........ 5.08% 8,728 365 (16) 9,077
maturing after ten years ..................... 5.10% 287,175 12,476 (225) 299,426
-------- ------ ------- -------
5.09% 303,126 12,892 (384) 315,634
-------- ------ ------- -------
MORTGAGE-BACKED SECURITIES ...................... 4.67% 65,926 308 (1,599) 64,635
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ........ 4.22% 530,582 154 (9,653) 521,083
FHLMC AND FNMA STOCK ............................ 5.74% 7,593 -- (330) 7,263
FHLB AND FRB STOCK, AT COST ..................... 0.66% 53,529 -- -- 53,529
-------- ------ ------- -------
TOTAL INVESTMENTS ......................... 4.34% $966,615 13,362 (12,007) 967,970
======== ====== ======= =======
Interest income includes tax-exempt interest for the three months ended
March 31, 2006 and 2005 of $3,489,000 and $3,467,000, respectively.
Gross proceeds from sales of investment securities for the three months
ended March 31, 2006 and 2005 were $0 and $98,929,000 respectively,
resulting in gross gains of approximately $0 and $421,000 and gross losses
of approximately $0 and $451,000, respectively. The cost of any investment
sold is determined by specific identification.
12
8) Loans
The following table summarizes the Company's loan portfolio:
At At At
3/31/2006 12/31/2005 3/31/2005
-------------------- -------------------- --------------------
TYPE OF LOAN Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
(Dollars in Thousands)
Real Estate Loans:
Real estate $ 617,486 24.4% $ 589,260 24.6% $ 417,906 22.2%
Loans held for sale 25,153 1.0% 22,540 0.9% 19,637 1.1%
---------- ----- ---------- ----- ---------- -----
Total 642,639 25.4% 611,800 25.5% 437,543 23.3%
Commercial Loans:
Real estate 812,727 32.2% 781,181 32.6% 560,645 29.8%
Other commercial 626,615 24.8% 579,515 24.2% 530,588 28.2%
---------- ----- ---------- ----- ---------- -----
Total 1,439,342 57.0% 1,360,696 56.8% 1,091,233 58.0%
Consumer and other Loans:
Consumer 194,806 7.7% 175,503 7.3% 129,200 6.9%
Home equity 298,564 11.8% 295,992 12.3% 258,797 13.8%
---------- ----- ---------- ----- ---------- -----
Total 493,370 19.5% 471,495 19.6% 387,997 20.7%
Net deferred loan fees, premiums
and discounts (8,068) -0.3% (8,149) -0.3% (7,040) -0.4%
Allowance for loan losses (39,851) -1.6% (38,655) -1.6% (29,801) -1.6%
---------- ----- ---------- ----- ---------- -----
Loan receivable, net $2,527,432 100.0% $2,397,187 100.0% $1,879,932 100.0%
========== ===== ========== ===== ========== =====
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated:
At At At
NONPERFORMING ASSETS 3/31/2006 12/31/2005 3/31/2005
--------- ---------- ---------
(Dollars in Thousands)
Non-accrual loans:
Real estate loans $ 595 726 25
Commercial loans 3,474 4,045 5,679
Consumer and other loans 247 481 342
------- ------ -----
Total $ 4,316 5,252 6,046
Accruing Loans 90 days or more overdue:
Real estate loans 1,516 1,659 110
Commercial loans 3,195 2,199 792
Consumer and other loans 520 647 215
------- ------ -----
Total $ 5,231 4,505 1,117
Real estate and other assets owned, net 778 332 2,003
------- ------ -----
Total non-performing loans and real estate
and other assets owned, net $10,325 10,089 9,166
======= ====== =====
As a percentage of total assets 0.27% 0.26% 0.27%
Interest Income (1) $ 78 359 97
(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,
2006 and 2005 and the year ended December 31, 2005, if such loans had been
current for the entire period.
13
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,
2006 2005 2005
------------------ ------------ ------------------
(Dollars in Thousands)
Balance at beginning of period $38,655 26,492 26,492
Charge offs:
Real estate loans (6) (115) (31)
Commercial loans (45) (744) (255)
Consumer and other loans (102) (539) (115)
------- ------- -------
Total charge-offs $ (153) (1,398) (401)
------- ------- -------
Recoveries:
Real estate loans 55 82 56
Commercial loans 20 414 60
Consumer and other loans 109 415 72
------- ------- -------
Total recoveries $ 184 911 188
------- ------- -------
Net recoveries (charge-offs) 31 (487) (213)
Acquisition (1) -- 6,627 2,032
Provision 1,165 6,023 1,490
------- ------- -------
Balance at end of period $39,851 38,655 29,801
======= ======= =======
Ratio of net recoveries (charge-offs) to
average loans outstanding during the period 0.001% -0.020% -0.011%
(1) Acquisition of First State Bank, First National Bank-West, Citizens
Community Bank, and Bonner's Ferry branch
The following table summarizes the allocation of the allowance for loan losses:
March 31, 2006 December 31, 2005 March 31, 2005
-------------------- -------------------- --------------------
Percent Percent Percent
of loans of loans of loans
in in in
Allowance category Allowance category Allowance category
--------- -------- --------- -------- --------- --------
(Dollars in thousands)
Real estate loans $ 4,518 24.9% 4,318 25.0% 2,987 22.8%
Commercial real estate loans 14,374 31.6% 14,370 32.0% 9,699 29.3%
Other commercial loans 13,254 24.3% 12,566 23.7% 11,513 27.7%
Consumer and other loans 7,705 19.2% 7,401 19.3% 5,602 20.2%
------- ----- ------ ----- ------ -----
Totals $39,851 100.0% 38,655 100.0% 29,801 100.0%
======= ===== ====== ===== ====== =====
14
9) Intangible Assets
The following table sets forth information regarding the Company's core deposit
intangibles and mortgage servicing rights as of March 31, 2006:
Core Deposit Mortgage
Intangible Servicing Rights (1) Total
------------ -------------------- -----
(Dollars in thousands)
Gross carrying value $14,816
Accumulated Amortization (7,222)
-------
Net carrying value $ 7,594 1,125 8,719
=======
WEIGHTED-AVERAGE AMORTIZATION PERIOD
(Period in years) 10.0 9.5 9.9
AGGREGATE AMORTIZATION EXPENSE
For the three months ended March 31, 2006 $ 420 46 466
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2006 $ 1,612 105 1,717
For the year ended December 31, 2007 1,508 77 1,585
For the year ended December 31, 2008 1,413 74 1,487
For the year ended December 31, 2009 1,279 72 1,351
For the year ended December 31, 2010 1,069 70 1,139
(1) The mortgage servicing rights are included in other assets and the gross
carrying value and accumulated amortization are not readily available.
10) Deposits
The following table illustrates the amounts outstanding for deposits greater
than $100,000 at March 31, 2006, according to the time remaining to maturity.
Included in the three month CD maturities are brokered CD's in the amount of
$235,825,000.
Certificates Non-Maturity
of Deposit Deposits Totals
------------ ------------ ---------
(Dollars in thousands)
Within three months ..... $331,637 908,349 1,239,986
Three to six months ..... 63,217 -- 63,217
Seven to twelve months .. 53,403 -- 53,403
Over twelve months ...... 36,034 -- 36,034
-------- ------- ---------
Totals ............... $484,291 908,349 1,392,640
======== ======= =========
15
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
months ended year ended months ended
March 31, 2006 December 31, 2005 March 31, 2005
-------------- ----------------- --------------
(Dollars in thousands)
FHLB Advances:
Amount outstanding at end of period ... $505,209 402,191 858,961
Average balance ....................... $522,376 673,904 739,928
Maximum outstanding at any month-end .. $572,954 804,047 858,961
Weighted average interest rate ........ 3.72% 3.19% 2.87%
Repurchase Agreements:
Amount outstanding at end of period ... $132,207 129,530 79,148
Average balance ....................... $133,020 103,522 80,970
Maximum outstanding at any month-end .. $135,661 132,534 79,148
Weighted average interest rate ........ 3.93% 2.85% 2.06%
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, 2006.
Tier 1 (Core) Tier 2 (Total) Leverage
CONSOLIDATED Capital Capital Capital
- ------------ ------------- -------------- ----------
(Dollars in thousands)
GAAP Capital ................................ $ 344,391 344,391 344,391
Less: Goodwill and intangibles .............. (86,693) (86,693) (86,693)
Accumulated other comprehensive
Unrealized gain on AFS securities ..... (132) (132) (132)
Other adjustments ........................ -- (18) --
Plus: Allowance for loan losses ............. -- 35,413 --
Subordinated debentures .................. 85,000 85,000 85,000
---------- --------- ----------
Regulatory capital computed ................. $ 342,566 377,961 342,566
========== ========= ==========
Risk weighted assets ........................ $2,833,006 2,833,006
========== =========
Total average assets ........................ $3,683,638
==========
Capital as % of defined assets .............. 12.09% 13.34% 9.30%
Regulatory "well capitalized" requirement ... 6.00% 10.00% 5.00%
---------- --------- ----------
Excess over "well capitalized" requirement .. 6.09% 3.34% 4.30%
========== ========= ==========
16
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
ended March 31,
--------------------
2006 2005
------- ------
Dollars in thousands
Net earnings ....................................... $13,629 11,520
Unrealized holding loss arising during the period .. (1,137) (9,530)
Tax benefit ........................................ 448 3,755
------- ------
Net after tax ................................ (689) (5,775)
Reclassification adjustment for losses
included in net earnings ........................ -- 30
Tax benefit ........................................ -- (12)
------- ------
Net after tax ................................ -- 18
Net unrealized loss on securities ............ (689) (5,757)
------- ------
Total other comprehensive income .......... $12,940 5,763
======= ======
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, 2006
-------------------------------------------------------------
Mountain First First
Glacier West Security Western National Big Sky
-------- -------- -------- ------- -------- -------
(Dollars in thousands)
Revenues from external customers $ 12,452 15,924 12,258 6,880 4,102 4,918
Intersegment revenues 52 6 78 17 236 --
Expenses (9,284) (13,063) (9,167) (5,404) (3,526) (3,719)
Intercompany eliminations -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Net Earnings $ 3,220 2,867 3,169 1,493 812 1,199
======== ======= ======= ======= ======= =======
Total Assets $697,266 809,759 734,092 428,263 284,398 275,158
======== ======= ======= ======= ======= =======
Total
Valley Whitefish Citizens Other Consolidated
------- --------- -------- ------- ------------
Revenues from external customers 4,344 2,996 3,159 75 67,108
Intersegment revenues 33 -- -- 17,374 17,796
Expenses (3,371) (2,306) (2,611) (1,028) (53,479)
Intercompany eliminations -- -- -- (17,796) (17,796)
------- ------- ------- ------- ---------
Net Earnings 1,006 690 548 (1,375) 13,629
======= ======= ======= ======= =========
Total Assets 258,165 175,912 153,204 (16,059) 3,800,158
======= ======= ======= ======= =========
17
Three months ended and as of March 31, 2005
--------------------------------------------------
Mountain First First
Glacier West Security Western National
-------- -------- -------- ------- --------
(Dollars in thousands)
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 Earnings $ 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 Earnings 1,085 969 954 (1,251) 11,520
======= ======= ======= ======= =========
Total Assets 257,217 241,496 162,727 (32,520) 3,306,440
======= ======= ======= ======= =========
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.
Three Months Ended March 31,
2006 vs. 2005
Increase (Decrease) due to:
----------------------------
Volume Rate Net
------- ----- ------
(Dollars in Thousands)
INTEREST INCOME
Real estate loans $ 3,358 1,016 4,374
Commercial loans 5,842 3,159 9,001
Consumer and other loans 1,942 1,193 3,135
Investment securities and other (1,457) 392 (1,065)
------- ----- ------
Total Interest Income 9,685 5,760 15,445
INTEREST EXPENSE
NOW accounts 34 287 321
Savings accounts 58 365 423
Money market accounts 191 1,341 1,532
Certificates of deposit 2,224 2,722 4,946
FHLB advances (1,541) 1,094 (447)
Other borrowings and
repurchase agreements 111 707 818
------- ----- ------
Total Interest Expense 1,077 6,516 7,593
------- ----- ------
NET INTEREST INCOME $ 8,608 (756) 7,852
======= ===== ======
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.
For the Three months ended 3-31-06
----------------------------------
Interest Average
Average and Yield/
Balance Dividends Rate
---------- --------- -------
AVERAGE BALANCE SHEET
(Dollars in Thousands)
ASSETS
Residential Real Estate Loans $ 618,852 10,989 7.10%
Commercial Loans 1,397,090 25,525 7.41%
Consumer and Other Loans 481,298 8,865 7.47%
---------- -------
Total Loans 2,497,240 45,379 7.37%
Tax -Exempt Investment Securities (1) 283,715 3,489 4.92%
Other Investment Securities 686,956 7,084 4.12%
---------- -------
Total Earning Assets 3,467,911 55,952 6.45%
-------
Goodwill and Core Deposit Intangible 87,616
Other Non-Earning Assets 185,313
----------
TOTAL ASSETS $3,740,840
==========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW Accounts $ 346,930 470 0.55%
Savings Accounts 245,928 578 0.95%
Money Market Accounts 495,032 2,843 2.33%
Certificates of Deposit 829,390 7,400 3.62%
FHLB Advances 522,376 4,796 3.72%
Repurchase Agreements
and Other Borrowed Funds 294,376 3,557 4.90%
---------- -------
Total Interest Bearing Liabilities 2,734,032 19,644 2.91%
-------
Non-interest Bearing Deposits 630,490
Other Liabilities 35,235
----------
Total Liabilities 3,399,757
----------
Common Stock 323
Paid-In Capital 263,541
Retained Earnings 75,539
Accumulated Other
Comprehensive Income 1,680
----------
Total Stockholders' Equity 341,083
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,740,840
==========
Net Interest Income $36,308
=======
Net Interest Spread 3.54%
Net Interest Margin
on Average Earning assets 4.25%
Return on Average Assets (annualized) 1.48%
Return on Average Equity (annualized) 16.21%
(1) Excludes tax effect on non-taxable investment security income
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Impact of Recently Issued Accounting Standards
The Company adopted SFAS No. 123 (Revised) Share-Based Payment, as of January 1,
2006 and, accordingly, has determined compensation cost based on the fair value
of the option at the grant date. As a result of the adoption of the standard,
net earnings were reduced by $523,488, or $.016 per share, for the quarter ended
March 31, 2006. For additional information regarding the standard see Note 6 to
the Consolidated Financial Statements.
Acquisition announced
On April 20, 2006, the signing of a definitive agreement whereby Citizens
Development Company a Billings, Montana based five bank holding company with
total assets of $430 million will merge into Glacier Bancorp, Inc. was
announced. The closing of the transaction is expected to occur in July or August
of 2006. The five banks being acquired will remain as independently chartered
banks pending their anticipated consolidation with existing Glacier Bancorp,
Inc. Montana subsidiaries.
Financial Condition
This section discusses the changes in the Statement of Financial Condition items
from March 31, 2005 and December 31, 2005, to March 31, 2006.
March 31, December 31, March 31, $ change from $ change from
2006 2005 2005 December 31, March 31,
(unaudited) (audited) (unaudited) 2005 2005
----------- ------------ ----------- -------------- -------------
ASSETS ($ IN THOUSANDS)
Cash on hand and in banks $ 105,474 111,418 82,600 (5,944) 22,874
Investment securities, interest bearing deposits,
FHLB stock, FRB stock, and fed funds 953,880 991,246 1,171,112 (37,366) (217,232)
Loans:
Real estate 638,529 607,627 433,901 30,902 204,628
Commercial 1,435,731 1,357,051 1,087,989 78,680 347,742
Consumer and other 493,023 471,164 387,843 21,859 105,180
---------- --------- --------- ------- --------
Total loans 2,567,283 2,435,842 1,909,733 131,441 657,550
Allowance for loan losses (39,851) (38,655) (29,801) (1,196) (10,050)
---------- --------- --------- ------- --------
Total loans net of allowance for loan losses 2,527,432 2,397,187 1,879,932 130,245 647,500
---------- --------- --------- ------- --------
Other assets 213,372 206,493 172,796 6,879 40,576
---------- --------- --------- ------- --------
Total Assets $3,800,158 3,706,344 3,306,440 93,814 493,718
========== ========= ========= ======= ========
At March 31, 2006 total assets were $3.800 billion, which is $94 million, or 3
percent, greater than the December 31, 2005 assets of $3.706 billion, and $494
million, or 15 percent, greater than the March 31, 2005 assets of $3.306
billion.
Total loans have increased $131 million from December 31, 2005, or 5 percent,
with the growth occurring in all loan categories. Commercial loans have
increased $79 million, or 6 percent, real estate loans gained $31 million, or 5
percent, and consumer loans grew by $22 million, or 5 percent. Total loans have
increased $658 million, or 34 percent, from March 31, 2005, with all loan
categories showing increases. Commercial loans grew the most with an increase of
$348 million, or 32 percent, followed by real estate loans which increased $205
million, or 47 percent, which was the largest percentage gain, and consumer
loans, which are primarily comprised of home equity loans, increasing by $105
million, or 27 percent.
Investment securities, including interest bearing deposits in other financial
institutions, and federal funds sold have decreased $37 million from December
31, 2005, or 4 percent, and have declined $217 million, or 19 percent, from
March 31, 2005. Investment securities at March 31, 2006 represented 25% of total
assets versus 35% the prior year.
20
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, 2006 and 2005 were $90 million and $59 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, 2006 was approximately $166 million.
March 31, December 31, March 31, $ change from $ change from
2006 2005 2005 December 31, March 31,
(unaudited) (audited) (unaudited) 2005 2005
----------- ------------ ----------- -------------- -------------
LIABILITIES ($ IN THOUSANDS)
Non-interest bearing deposits $ 683,201 667,008 528,038 16,193 155,163
Interest bearing deposits 2,010,198 1,867,704 1,448,643 142,494 561,555
Advances from Federal Home Loan Bank 505,209 402,191 858,961 103,018 (353,752)
Securities sold under agreements to
repurchase and other borrowed funds 134,981 317,222 84,982 (182,241) 49,999
Other liabilities 37,178 33,980 32,367 3,198 4,811
Subordinated debentures 85,000 85,000 80,000 -- 5,000
---------- --------- --------- -------- --------
Total liabilities $3,455,767 3,373,105 3,032,991 82,662 422,776
========== ========= ========= ======== ========
Non-interest bearing deposits have increased $16 million, or 10 percent
annualized, since December 31, 2005, and by $155 million, or 29 percent, since
March 31, 2005. This continues to be a primary focus of each of our banks.
Interest bearing deposits have increased $142 million from December 31, 2005, of
which $71 million was in broker originated certificates of deposit, and $53
million in Internet generated National Market CD's. Since March 31, 2005
interest bearing deposits increased $562 million, or 39 percent, with $289
million of that amount from broker and Internet sources. Federal Home Loan Bank
(FHLB) advances increased $103 million, and repurchase agreements and other
borrowed funds decreased $182 million from December 31, 2005, primarily from the
redemption of $179 million in U. S. Treasury Tax and Loan Term Auction funds.
FHLB advances are $354 million less than the March 31, 2005 balances due
primarily to the above described increases in deposits.
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 March 31, 2006, the Company had $883
million of available FHLB line of which $505 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.
Lending 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.
21
March 31, December 31, March 31, $ change from $ change from
2006 2005 2005 December 31, March 31,
STOCKHOLDERS' EQUITY (UNAUDITED) (unaudited) (audited) (unaudited) 2005 2005
----------- ------------ ----------- ------------- -------------
($ IN THOUSANDS EXCEPT PER SHARE DATA)
Common equity $344,259 332,418 273,272 11,841 70,987
Accumulated other comprehensive income 132 821 177 (689) (45)
-------- ------- ------- ------ -------
Total stockholders' equity 344,391 333,239 273,449 11,152 70,942
Core deposit intangible, net, and goodwill (86,693) (87,114) (67,291) 421 (19,402)
-------- ------- ------- ------ -------
$257,698 246,125 206,158 11,573 51,540
======== ======= ======= ====== =======
Stockholders' equity to total assets 9.06% 8.99% 8.27%
Tangible stockholders' equity to total tangible assets 6.94% 6.80% 6.36%
Book value per common share $ 10.66 10.36 8.86 0.30 1.80
Market price per share at end of quarter $ 31.05 30.05 24.40 1.00 6.65
Total equity and book value per share amounts have increased $11.152 million and
$.30 per share, respectively, from December 31, 2005, the result of earnings
retention, and stock options exercised. Accumulated other comprehensive income,
representing net unrealized gains on securities available for sale, decreased
$689 thousand during the quarter, primarily a function of interest rate changes
and the decreased balance of securities.
March 31, December 31, March 31,
2006 2005 2005
CREDIT QUALITY INFORMATION ($ IN THOUSANDS) (unaudited) (audited) (unaudited)
- ------------------------------------------- ----------- ------------ -----------
Allowance for loan losses $39,851 $38,655 $29,801
Non-performing assets $10,325 10,089 9,166
Allowance as a percentage of non performing assets 386% 383% 325%
Non-performing assets as a percentage of total assets 0.27% 0.26% 0.27%
Allowance as a percentage of total loans 1.55% 1.59% 1.56%
Net recoveries (charge-offs) as a percentage of loans 0.001% (0.020%) (0.011%)
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at March 31, 2006 were at
..27 percent, the same percentage as at March 31, 2005, but increasing slightly
from .26 percent at December 31, 2005. The Company ratios compare favorably to
the Federal Reserve Bank Peer Group average of .43 percent at December 31, 2005,
the most recent information available. The allowance for loan losses was 386
percent of non-performing assets at March 31, 2006, up from 325 percent a year
ago. The allowance, including $4.579 million from acquisitions, has increased
$10.050 million, or 34 percent, from a year ago. The allowance of $39.851
million, is 1.55 percent of March 31, 2006 total loans outstanding, down
slightly from the 1.56 percent a year ago. The first quarter provision for loan
losses expense was $1.165 million, a decrease of $325 thousand from the same
quarter in 2005, and was also a decrease of $209 thousand from the fourth
quarter of 2005. Recovery of previously charged-off loans exceeded amounts
charged-off during the quarter by $31,000. Loan growth, average loan size, and
credit quality considerations will determine the level of additional provision
expense.
22
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2005.
The Company reported net quarterly earnings of $13.629 million, an increase of
$2.1 million, or 18 percent, over the $11.520 million for the first quarter of
2005. Diluted earnings per share for the quarter of $.42 is an increase of 14
percent over the per share earnings of $.37 for the same quarter of 2005. Net
earnings were reduced by $523,488, or $.016 per share, due to the January 1,
2006 adoption of SFAS 123(R) Share-based Payment which requires recording the
estimated fair value of stock options as compensation expense. Annualized return
on average assets and return on average equity for the quarter were 1.48 percent
and 16.21 percent, respectively, which compares with prior year returns for the
first quarter of 1.50 percent and 17.06 percent. Annualized return on average
tangible equity, a non-GAAP performance measure, for the first quarter of 2006
was 22.48 percent compared to 20.99 percent in the first quarter of last year.
Three months ended March 31,
----------------------------------------
REVENUE SUMMARY 2006 2005 $ change % change
------- ------- --------- --------
(UNAUDITED - $ IN THOUSANDS)
Net interest income $36,308 $28,456 $7,852 28%
Non-interest income
Service charges, loan fees, and other fees 8,217 6,482 1,735 27%
Gain on sale of loans 2,190 2,092 98 5%
Other income 749 534 215 40%
------- ------- ------ ---
Total non-interest income 11,156 9,108 2,048 22%
------- ------- ------ ---
$47,464 $37,564 $9,900 26%
======= ======= ====== ===
Tax equivalent net interest margin 4.32% 4.08%
======= =======
Net Interest Income
Net interest income for the quarter increased $7.852 million, or 28 percent,
over the same period in 2005, and $604 thousand from the fourth quarter of 2005.
Total interest income increased $15.445 million from the prior year's quarter,
or 38 percent, while total interest expense was $7.593 million, or 63 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 2005 continuing into 2006. The Federal Reserve Bank has increased
the targeted fed funds rate 10 times, 250 basis points, since January 1, 2005.
The net interest margin as a percentage of earning assets, on a tax equivalent
basis, was 4.32 percent which was higher than the 4.08 percent result for the
first quarter of 2005. The margin for the first quarter of 2006 continued the
trend of increases experienced in each quarter of 2005.
Non-interest Income
Fee income increased $1.735 million, or 27 percent, over the same period last
year, driven primarily by an increased number of loan and deposit accounts from
internal growth and acquisitions. Gain on sale of loans increased $98 thousand,
or 5 percent, from the first quarter of last year. Loan origination activity for
housing construction and purchases remains strong in our markets.
23
Three months ended March 31,
---------------------------------------
NON-INTEREST EXPENSE SUMMARY 2006 2005 $ change % change
------- ------- -------- --------
(UNAUDITED - $ IN THOUSANDS)
Compensation and employee benefits $15,311 $10,944 $4,367 40%
Occupancy and equipment expense 3,491 2,855 636 22%
Outsourced data processing 724 232 492 212%
Core deposit intangibles amortization 420 283 137 48%
Other expenses 5,881 4,760 1,121 24%
------- ------- ------ ---
Total non-interest expense $25,827 $19,074 $6,753 35%
======= ======= ====== ===
Non-interest Expense
Non-interest expense increased by $6.753 million, or 35 percent, from the same
quarter of 2005. Compensation and benefit expense increased $4.367 million, or
40 percent, of which $723 thousand was from expensing stock options with the
adoption of SFAS 123(R) in 2006, four acquisitions during 2005, the addition of
four new bank branches occurring within the last four months, normal
compensation increases for job performance and increased cost for benefits are
the reasons for the majority of the increase. The number of full-time-equivalent
employees has increased from 952 to 1,147, a 20 percent increase, since March
31, 2005. Occupancy and equipment expense increased $636 thousand, or 22
percent, reflecting the bank acquisitions, cost of additional branch locations
and facility upgrades. Other expenses increased $1.121 million, or 24 percent,
primarily from acquisitions, additional marketing expenses, and costs associated
with new branch offices. The number of new branches coming on-line within a
short period of time has resulted in significantly higher expenses in the
current quarter. The number of new locations is greater than normal for our
company, rapid expansion in the high growth markets of Boise and Coeur d'Alene
are expected to have long-term benefits. The efficiency ratio (non-interest
expense/net interest income + non-interest income) was 54 percent for the 2006
quarter, up from 51 percent for the 2005 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
24
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 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 than was provided in the Form 10-K
report for the year ended December 31, 2005.
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 2006, 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 1A. RISK FACTORS
There have not been any material changes to the Company's risk factors
during the first quarter 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) None
(b) Not Applicable
(c) None
(d) None
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
26
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 8, 2006 /s/ Michael J. Blodnick
----------------------------------------
Michael J. Blodnick
President/CEO
May 8, 2006 /s/ James H. Strosahl
----------------------------------------
James H. Strosahl
Executive Vice President/CFO
27