<PAGE> 1
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, 1998
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _________________
COMMISSION FILE 0-18911
---------
GLACIER BANCORP, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 81-0468393
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P.O. Box 27; 202 Main Street, Kalispell, Montana 59903-0027
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (406) 756-4200
- --------------------------------------------------------------------------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Registrant's common stock outstanding on August 5, 1998,
was 6,943,534. No preferred shares are issued or outstanding.
1
<PAGE> 2
GLACIER BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page #
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Condensed Statements of Financial Condition -
June 30, 1998, December 31, and June 30, 1997 (unaudited) .................3
Consolidated Condensed Statements of Operations -
Three and six months ended June 30, 1998 and 1997 (unaudited) .............4
Consolidated Condensed Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 (unaudited) ......................5
Notes to Consolidated Condensed Financial Statements ......................6
Item 2 - Management's Discussion and Analysis
Of Financial Condition and Results of Operations ........................12
Item 3 - Quantitative and Qualitative Disclosure about Market Risk ................16
PART II. OTHER INFORMATION ........................................................17
Signatures .................................................................................18
</TABLE>
2
<PAGE> 3
GLACIER BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited - dollars in thousands except per share data) JUNE 30, December 31, June 30,
- -------------------------------------------------------------------------- 1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Cash on hand and in banks .............................................. $ 29,010 26,463 28,786
Federal funds sold ..................................................... 0 0 235
Interest bearing cash deposits ......................................... 2,963 0 365
----------- ----------- -----------
Cash and cash equivalents ......................................... 31,972 26,463 29,386
----------- ----------- -----------
Investments:
Investment securities, held-to-maturity ........................... 3,498 7,912 15,394
Investment securities, available-for-sale ......................... 38,217 40,229 37,875
Mortgage backed securities, held-to-maturity ...................... 0 3,100 3,317
Mortgage backed securities, available-for-sale .................... 46,655 53,025 48,159
----------- ----------- -----------
Total Investments .............................................. 88,370 104,266 104,745
----------- ----------- -----------
Net loans receivable:
Real estate loans ................................................. 197,904 204,219 201,893
Commercial Loans .................................................. 154,341 121,047 110,813
Installment and other loans ....................................... 99,754 99,326 96,128
Allowance for losses .............................................. (4,003) (3,544) (3,469)
----------- ----------- -----------
Total Loans, net ............................................... 447,996 421,048 405,365
----------- ----------- -----------
Premises and equipment, net ............................................ 12,967 11,743 11,614
Real estate and other assets owned ..................................... 348 121 142
Federal Home Loan Bank of Seattle stock, at cost ....................... 10,730 10,330 9,879
Federal Reserve stock, at cost ......................................... 1,067 340 340
Accrued interest receivable ............................................ 3,675 3,759 3,840
Goodwill, net .......................................................... 1,352 1,371 1,442
Other assets ........................................................... 978 957 857
----------- ----------- -----------
$ 599,455 580,398 567,610
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits - interest bearing ............................................ $ 293,666 273,145 264,717
Deposits - non-interest bearing ........................................ 78,137 74,946 66,400
Advances from Federal Home Loan Bank of Seattle ........................ 129,510 139,257 136,237
Securities sold under agreements to repurchase ......................... 16,397 19,255 20,667
Other borrowed funds ................................................... 10,467 7,721 12,001
Accrued interest payable ............................................... 2,115 1,388 1,506
Current income taxes ................................................... 132 306 132
Deferred income taxes .................................................. 1,865 1,912 1,658
Other liabilities ...................................................... 3,119 2,379 8,550
Minority Interest ...................................................... 307 480 458
----------- ----------- -----------
Total liabilities ................................................. 535,715 520,789 512,326
----------- ----------- -----------
Common stock, $.01 par value per share (1) ............................ 70 69 69
Paid-in capital ........................................................ 36,470 35,383 34,663
Retained earnings - substantially restricted ........................... 27,206 24,042 21,197
Treasury stock at cost (2) ............................................. (1,066) (1,066) (1,066)
Accumulated other comprehensive earnings ............................... 1,060 1,181 421
----------- ----------- -----------
Total stockholders' equity ........................................ 63,740 59,609 55,284
----------- ----------- -----------
$ 599,455 580,398 567,610
=========== =========== ===========
Book value per share .............................................. $ 9.18 8.71 8.12
=========== =========== ===========
(1) Number of shares outstanding adjusted for three for two stock split in 1997
(1) Total shares outstanding at end of period 10% stock dividend in 1996 6,943,534 6,847,485 6,811,517
(2) Treasury shares 85,890 85,890 85,890
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
GLACIER BANCORP, INC
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------ --------------------------- ---------------------------
(unaudited - $ in thousands except per share data) Three months ended June 30, Six months ended June 30,
- ------------------------------------------------------ --------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Real estate loans ............................. $ 4,110 4,057 8,187 8,056
Commercial loans .............................. 3,298 2,619 6,327 4,995
Consumer and other loans ...................... 2,383 2,321 4,780 4,533
Mortgage backed securities .................... 732 935 1,523 1,764
Investment securities ......................... 925 1,053 1,891 2,148
---------- ---------- ---------- ----------
Total interest income ...................... 11,448 10,985 22,708 21,496
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits ...................................... 2,945 2,754 5,758 5,444
Advances ...................................... 1,924 1,896 3,930 3,846
Repurchase agreements ......................... 176 280 359 428
Other borrowed funds .......................... 61 56 109 106
---------- ---------- ---------- ----------
Total interest expense ..................... 5,106 4,986 10,156 9,824
---------- ---------- ---------- ----------
NET INTEREST INCOME ............................... 6,342 5,999 12,552 11,672
Provision for loan losses ..................... 513 209 715 372
---------- ---------- ---------- ----------
Net Interest Income after provision for loan losses 5,829 5,790 11,837 11,300
---------- ---------- ---------- ----------
NON-INTEREST INCOME:
Loan fees and service charges ................. 1,931 1,825 3,861 3,522
Gains (Losses) on sale of investments ......... 1 0 1 0
Other income .................................. 937 184 1,147 365
---------- ---------- ---------- ----------
Total fees and other income ................ 2,869 2,009 5,009 3,886
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses ....................... 2,520 2,262 4,774 4,541
Occupancy expense ............................. 521 460 981 937
Data processing expense ....................... 254 200 453 385
Other expenses ................................ 1,477 1,241 2,876 2,536
Minority interest ............................. 12 18 26 30
---------- ---------- ---------- ----------
Total non-interest expense ................. 4,784 4,181 9,110 8,429
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES ...................... 3,914 3,618 7,736 6,757
Federal and state income tax expense .............. 1,453 1,326 2,845 2,478
---------- ---------- ---------- ----------
NET EARNINGS ...................................... $ 2,461 2,292 4,891 4,279
========== ========== ========== ==========
Basic earnings per share (1) ...................... $ 0.36 0.34 0.71 0.63
Diluted earnings per share (1) .................... 0.35 0.33 0.69 0.62
Dividends declared per share (1) .................. 0.13 0.12 0.25 0.23
Return on average assets (annualized) ............. 1.65% 1.64% 1.67% 1.54%
Return on beginning equity (annualized) ........... 16.02% 17.36% 16.41% 16.47%
Basic weighted average shares outstanding (1) ..... 6,910,830 6,802,626 6,886,645 6,799,459
</TABLE>
(1) Adjusted for three for two stock split in 1997.
See accompanying notes to consolidated financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------
(dollars in thousands) 1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings ......................................................... $ 4,891 4,279
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Mortgage loans held for sale originated or acquired ................ (52,453) (29,824)
Proceeds from sales of mortgage loans held for sale ................ 49,103 28,839
Provision for loan losses .......................................... 715 372
Depreciation of premises and equipment ............................. 611 422
Amortization of goodwill ........................................... 66 84
Amortization of investment securities premiums and discounts, net .. (73) 72
Net increase (decrease) in deferred income taxes ................... 31 (62)
Net (increase) decrease in accrued interest receivable ............. 84 (367)
Net increase in accrued interest payable ........................... 727 707
Net increase (decrease) in current income taxes .................... (174) 132
Net (increase) decrease in other assets ............................ (21) 213
Net increase (decrease) in other liabilities and minority interest . 803 (1,830)
FHLB stock dividends ............................................... (400) (322)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................... 3,910 2,715
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities and prepayments of investment
securities available-for-sale ..................................... 8,840 12,458
Purchases of investment securities available-for-sale ................ (546) (12,825)
Proceeds from maturities and prepayments of investment
securities held-to-maturity ....................................... 7,476 1,744
Principal collected on installment and commercial loans .............. 55,948 42,753
Installment and commercial loans originated or acquired .............. (94,091) (61,679)
Proceeds from sales of commercial loans .............................. 4,165 3,116
Principal collections on mortgage loans .............................. 38,218 14,924
Mortgage loans originated or acquired ................................ (28,553) (17,225)
Net proceeds from sales (acquisition) of real estate owned ........... (227) 268
Net purchase of FHLB and FRB stock ................................... (727) (971)
Net addition of premises and equipment ............................... (1,835) (744)
Acquisition of minority interest ..................................... (283) 0
-------- --------
NET CASH USED BY INVESTING ACTIVITIES ........................... (11,615) (18,181)
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits ............................................. 23,712 8,438
Net decrease in FHLB advances and other borrowed funds ............... (7,001) (253)
Net increase (decrease) in securities sold under repurchase agreements (2,858) 10,876
Cash dividends paid to stockholders .................................. (1,727) (1,543)
Proceeds from exercise of stock options .............................. 1,088 185
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................... 13,214 17,703
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................... 5,509 2,237
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 26,463 27,149
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 31,972 29,386
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest ............................ $ 9,429 9,117
Income taxes ........................ 3,019 2,347
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) Basis of Presentation:
In the opinion of Management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of Glacier
Bancorp Inc.'s (the "Company") financial condition as of June 30, 1998,
December 31, and June 30, 1997 and the results of operations for the
three and six months ended June 30, 1998 and 1997 and cash flows for
the six months ended June 30, 1998 and 1997.
The accompanying consolidated condensed financial statements do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
consolidated condensed 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, 1997.
2) Organizational Structure:
The Company is the parent company for five subsidiaries: Glacier Bank
("Glacier"); Glacier Bank of Whitefish ("Whitefish"); Glacier Bank of
Eureka ("Eureka"); First Security Bank of Missoula ("Missoula") and
Community First, Inc. ("CFI"). On February 1, 1998, Glacier was
converted from a Federal Savings Bank charter to a State of Montana
commercial bank charter. At June 30, 1998, the Company owned 100%, 94%,
98% 100% and 100% of Glacier, Whitefish, Eureka, Missoula and CFI,
respectively. CFI provides full service brokerage services through
Robert Thomas Securities. The following abbreviated organizational
chart illustrates the various relationships:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Glacier Bancorp, Inc.
(Parent Holding Company)
First Security Bank Glacier Bank Glacier Bank
Glacier Bank OF Missoula of Whitefish of Eureka
(Commercial Bank) (Commercial bank) (Commercial bank) (Commercial bank)
Community First
Inc,
(Brokerage services)
</TABLE>
3) Stock Split:
The company completed a 3 for 2 stock split in May 1997. As a result,
all per share amounts from time periods preceding this date have been
restated to illustrate the effect of the stock split. Any fractional
shares were paid in cash.
6
<PAGE> 7
4) Ratios:
Return on Average Assets was calculated based on the average of the
total assets for the period. Return on Beginning Equity was calculated
based on the stockholders' equity at the beginning of each period
presented.
5) Cash Dividend Declared:
On June 24, 1998, the Board of Directors declared a $.13 per share
quarterly cash dividend to stockholders of record on July 13, 1998,
payable on July 23, 1998.
6) Computation of Earnings Per Share:
Basic earnings per common share is computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the period presented. Diluted earnings per share is computed by
including the net increase in shares if all outstanding stock options
were exercised, using the treasury stock method. Previous period
amounts are restated for the effect of the stock split. The following
schedule contains the data used in the calculation of basic and diluted
earnings per share.
7
<PAGE> 8
<TABLE>
<CAPTION>
AVERAGE PER-SHARE
THREE MONTHS ENDED JUNE 30, 1998 INCOME SHARES AMOUNT
- ------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to common shareholders ..................... $2,462,000 6,910,830 0.36
EFFECT OF DILUTIVE SECURITIES:
Net increase in shares from assumed exercise of stock options 186,318
DILUTED EARNINGS PER SHARE:
---------- ---------- ----------
Income available to common shareholders plus assumed options 2,462,000 7,097,148 0.35
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AVERAGE PER-SHARE
THREE MONTHS ENDED JUNE 30, 1997 INCOME SHARES AMOUNT
- ------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to common shareholders ..................... $2,292,000 6,802,417 0.34
EFFECT OF DILUTIVE SECURITIES:
Net increase in shares from assumed exercise of stock options 100,806
DILUTED EARNINGS PER SHARE:
---------- ---------- ----------
Income available to common shareholders plus assumed options 2,292,000 6,903,223 0.33
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AVERAGE PER-SHARE
SIX MONTHS ENDED JUNE 30, 1998 INCOME SHARES AMOUNT
- ------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to common shareholders ..................... $4,892,000 6,886,511 0.71
EFFECT OF DILUTIVE SECURITIES:
Net increase in shares from assumed exercise of stock options 197,976
DILUTED EARNINGS PER SHARE:
---------- ---------- ----------
Income available to common shareholders plus assumed options 4,892,000 7,084,487 0.69
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AVERAGE PER-SHARE
SIX MONTHS ENDED JUNE 30, 1997 INCOME SHARES AMOUNT
- ------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to common shareholders ..................... $4,279,000 6,799,337 0.63
EFFECT OF DILUTIVE SECURITIES:
Net increase in shares from assumed exercise of stock options 100,946
DILUTED EARNINGS PER SHARE:
---------- ---------- ----------
Income available to common shareholders plus assumed options 4,279,000 6,900,283 0.62
========== ========== ==========
</TABLE>
8
<PAGE> 9
7) Investments:
A comparison of the amortized cost and estimated fair value of the
Company's investment securities is as follows:
INVESTMENT SECURITIES AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Gross Unrealized
- ------------------------------------------------ Amortized ------------------------ Estimated
(dollars in thousands) Cost Gains Losses Fair Value
- ------------------------------------------------ --------- -------- -------- ----------
<S> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Government and Federal Agencies $ 999 0 0 999
State and Local Government and other issues 2,499 98 0 2,597
-------- -------- -------- --------
TOTAL HELD TO MATURITY SECURITIES $ 3,498 98 0 3,596
======== ======== ======== ========
AVAILABLE FOR SALE:
U.S. Government and Federal Agencies $ 12,421 75 (3) 12,493
State and Local Government and other issues 24,613 1,117 (6) 25,724
Mortgage-backed securities 18,573 609 (23) 19,159
Real Estate Mortgage Investment Conduit 27,510 168 (182) 27,496
-------- -------- -------- --------
TOTAL AVAILABLE FOR SALE SECURITIES $ 83,117 1,969 (214) 84,872
======== ======== ======== ========
</TABLE>
INVESTMENT SECURITIES AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Gross Unrealized
- ------------------------------------------------ Amortized ------------------------ Estimated
(dollars in thousands) Cost Gains Losses Fair Value
- ------------------------------------------------ --------- -------- -------- ----------
<S> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Government and Federal Agencies $ 4,996 0 (6) 4,990
State and Local Government and other issues 2,916 112 0 3,028
Mortgage-backed securities 3,100 27 0 3,127
-------- -------- -------- --------
TOTAL HELD TO MATURITY SECURITIES $ 11,012 139 (6) 11,145
======== ======== ======== ========
AVAILABLE FOR SALE:
U.S. Government and Federal Agencies $ 15,024 70 (29) 15,065
State and Local Government and other issues 24,056 1,110 (2) 25,164
Mortgage-backed securities 20,567 667 (18) 21,216
Real Estate Mortgage Investment Conduit 31,653 256 (100) 31,809
-------- -------- -------- --------
TOTAL AVAILABLE FOR SALE SECURITIES $ 91,300 2,103 (149) 93,254
======== ======== ======== ========
</TABLE>
9
<PAGE> 10
8) Stockholders Equity:
The Federal Reserve Board has adopted capital adequacy guidelines pursuant to
which it assesses 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,
1998.
<TABLE>
<CAPTION>
Tier I (Core) Capital Tier II (Total) Capital Leverage Capital
- ------------------------------------------- --------------------- ----------------------- ---------------------
(dollars in thousands) $ % $ % $ %
- ------------------------------------------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital ............................. $ 63,740 $ 63,740 $ 63,740
Goodwill ................................. (1,352) (1,352) (1,352)
Net unrealized gains on securities
available-for-sale .................. (1,066) (1,066) (1,066)
Allowance for loan losses ................ -- 4,003 --
-------- -------- --------
Regulatory capital computed .............. $ 61,322 $ 65,325 $ 61,322
======== ======== ========
Risk weighted assets ..................... $412,183 $412,183
======== ========
Total average assets ..................... $594,877
--------
Capital as % of defined assets ........... 14.88% 15.85% 10.62%
Regulatory "well capitalized" requirement 6.00% 10.00% 5.00%
-------- -------- --------
Excess over "well capitalized" requirement 8.88% 5.85% 5.62%
======== ======== ========
</TABLE>
9) Comprehensive Income:
In June, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. This
statement requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. The Company adopted the provisions of SFAS
No. 130 as of January 1, 1998.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
OTHER COMPREHENSIVE INCOME: -------------------- ---------------------
(dollars in thousands) 1998 1997 1998 1997
------------------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Unrealized holding gains (losses) arising during the period $ 23 853 (121) 416
Less reclassification adjustment for losses included
in net income ............................................ 0 0 0 0
------ ------ ------ ------
Other comprehensive income (loss), net of tax ............. 23 853 (121) 416
====== ====== ====== ======
</TABLE>
10
<PAGE> 11
10) Contingencies and Commitments
The Company converted its data processing operation from an outside
data processing service for three of its subsidiaries to an upgraded
in-house system used by First Security. This conversion standardizes
information processing within the Company and will provide enhanced
customer service capabilities. The estimated investment for this
conversion, including hardware, software licensing fees, and conversion
costs is approximately $800,000. Annual expenses for data processing
are expected to decline with this change.
The Company has purchased a commercial building site in Kalispell and
has started construction on a building to be used to relocate one of
its drive-up offices and the corporate headquarters. The estimated cost
for land and building is approximately $2,100,000. As of June 30, 1998,
$904,000 has been paid for the land purchase and construction costs.
11) Forward Looking Statements
This document contains certain forward-looking statements, all of which
are based on current expectations. Actual results may differ
materially, and therefore readers are cautioned not to place undue
reliance on these forward-looking statements.
12) Pending Merger and Other Events
The pending merger with HUB Financial Corporation and its subsidiary
Valley Bank of Helena is scheduled to be completed on August 28, 1998
pending approval by shareholders of each company at their respective
August 21, 1998 shareholder meetings.
As of July 1, 1998, John MacMillan retired as Chief Executive Officer,
retaining his position as Chairman of the Board. Michael J. Blodnick
assumed the role of President and CEO. On July 8, 1998, shareholders
approved the "Curative Merger" and resulting increase of authorized
common shares to 15 million.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -
Financial Condition - This section discusses the changes in Statement of
Financial Condition items from December 31, 1997 to June 30,1998.
At June 30, 1998, total consolidated assets increased by $19,057,000 or 3.28%,
over the December 31, 1997 level. This increase was primarily in loan growth of
$26,949,000, and interest bearing cash deposits with other financial
institutions. Total investments have declined $15,896,000.
Real estate loans decreased $6.3 million during the period, while commercial
loans increased $33.3 million, offsetting the decline in real estate loans.
Approximately $8.5 million of the commercial loan increase resulted from
repurchasing loan participations from non-affiliated banks.
Loans sold to the secondary market amounted to $53.3 million and $32.0 million
during the first six months of 1998 and 1997, respectively.
The amount of loans serviced for others on June 30, 1998 was $117.9 million.
Total deposits increased $23.7 million, with $20.5 million of the increase
occurring in interest bearing deposits and $3.2 million from non-interest
bearing deposits. Advances from the Federal Home Loan Bank ("FHLB") decreased
$9.7 million while securities sold under repurchase agreements and other
borrowed funds decreased $112,000.
All four institutions are members of the FHLB. Accordingly, management of the
Company has a wide range of versatility in managing the liquidity and
asset/liability mix for each individual institution as well as the Company as a
whole. The following table demonstrates the available FHLB lines of credit and
the extent of utilization as of June 30, 1998:
<TABLE>
<CAPTION>
Available line Amount Used Available
-------------- ----------- ----------
<S> <C> <C> <C>
Glacier Bank 151,100,000 97,940,000 53,139,000
Whitefish 8,078,000 5,000,000 5,078,000
Eureka 7,396,000 2,505,000 4,891,000
Missoula 24,636,000 10,000,000 14,636,000
</TABLE>
Classified Assets and Reserves
Non-performing assets, consisting of non-accrual loans, accruing loans 90 days
or more overdue, and real estate and other assets acquired by foreclosure or
deed-in-lieu thereof, net of related reserves, amounted to $2.0 million or .34%
of total assets at June 30, 1998, as compared to $1.3 million, or .23% of total
assets, as December 31, 1997.
Non-performing assets remain at a relatively low level compared to the average
of the Company's peer group which was .61% of total assets at March 31, 1998,
the most recent information available.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
-------------------------------------------
<S> <C> <C>
Total Reserves for Loan and Real Estate Owned Losses: $4.0 million $3.5 million
Reserves as a percentage of Total Loans: .89% .83%
Reserves as a percentage of Non-performing Assets: 197% 265%
</TABLE>
12
<PAGE> 13
Impaired Loans
As of June 30, 1998, there were no loans considered impaired. Interest income on
impaired loans and interest recoveries on loans that have been charged off, is
recognized on a cash basis after principal has been fully paid, or at the time a
loan becomes fully performing per the terms of the loan.
Minority Interest
The minority interest on the consolidated statement of financial condition
represents the minority stockholders' share in the retained earnings of the
Company. These are shares of Eureka and Whitefish that are still outstanding. As
of June 30, 1998, the Company owns 47,280 shares of Whitefish and 49,084 shares
of Eureka. The Company's ownership of Whitefish and Eureka is 94% and 98%,
respectively. In February 1998, the Company offered to purchase minority shares
of Eureka and Whitefish at 1.25 times book value. 2,859 shares were acquired
with this offer.
Results of Operations - The three months ended 6/30/98 compared to the three
months ended 6/30/97.
Glacier Bancorp, Inc. reported net income of $2.461 million, or basic earnings
per share of $.36, for the second quarter of 1998, compared with $2.292 million,
or basic earnings per share of $.34, for the same quarter of 1997. Return on
average assets and return on beginning equity in the first quarter of 1998 were
1.65 percent and 16.02 percent, respectively, compared to returns of 1.64
percent and 17.36 percent for the same quarter of 1997.
From June 30, 1997 total assets have grown $31.845 million, or 5.6 percent, to
$599.455 million, and stockholders' equity has increased $8.456 million, or 15.3
percent, to $63.740 million. The capital level remains very strong at 10.63
percent of assets.
Net Interest Income
Net interest income for the quarter was $6.342 million, an increase of $343,000
or 5.7%, over the same period in 1997. Growth in net earning assets, and an
increase in the net interest margin as a percentage of earning assets were the
reasons for this increase. Loan balances have increased $42.6 million from June
30, 1997, an increase of 10.5 percent. Commercial loans increased $43.5 million,
or 39.3 percent, consumer loans are up $3.6 million, or 3.8 percent, after
selling the credit card portfolio of approximately $3.8 million. Real estate
loans have decreased $4.0 million reflecting the strategy of selling the
long-term fixed rate loan production. Total investments including mortgage
backed securities, decreased $16.4 million, or 15.6 percent. The flat yield
curve has provided little opportunity to achieve reasonable spreads, therefore
prepayments and maturities have not been reinvested in securities. Total
deposits increased $40.7 million, or 12.3 percent, with $11.7 million of the
increase in non-interest bearing deposits. Borrowed funds, which include Federal
Home Loan Bank advances, repurchase agreements, and other borrowed funds,
decreased $12.5 million, reducing the reliance on borrowed funds for asset
growth.
The Company's net interest income is determined by its interest rate spread
(i.e. the difference between the yields earned on its earning assets, and the
rates paid on its interest-bearing liabilities) and the relative amounts of
earning assets and interest-bearing liabilities. The following table sets forth
information concerning the Company's interest rate spread at June 30, 1998 and
1997:
13
<PAGE> 14
INTEREST RATE SPREAD
One way to protect against interest rate volatility is to maintain a comfortable
interest spread between yields on assets and the rates paid on interest bearing
liabilities. As shown below the net interest spread increased in 1998 from 3.77%
to 3.87%, from a combination of higher rates on interest earning assets, and
lower rates on liabilities. The net interest margin increased in 1998 from 4.56%
to 4.71% which is also the result of the above described reasons. The increased
asset levels, and increased non-interest bearing deposits also contributed to
the significantly higher net interest income.
<TABLE>
<CAPTION>
June 30, [1]
----------------------
FOR THE SIX MONTHS ENDED: 1998 1997
---- ----
<S> <C> <C>
Combined weighted average yield on loans and investments [2] .............. 8.48% 8.45%
Combined weighted average rate paid on savings deposits and borrowings .... 4.61% 4.68%
Net interest spread ....................................................... 3.87% 3.77%
Net interest margin [3] ................................................... 4.71% 4.56%
</TABLE>
[1] Weighted averages are computed without the effect of compounding daily
interest.
[2] Includes dividends received on capital stock of the Federal Home Loan Bank.
[3] The net interest margin (net yield on average interest earning assets) is
interest income from loans and investments less interest expense from
deposits, FHLB advances, and other borrowings, divided by the total amount
of earning assets. Interest income from tax exempt investments is on a tax
equivalent basis.
Non-Interest Income
Non-interest income increased $860,000, or 42.8 percent from the second quarter
of 1997. Loan fees and service charges on deposit accounts were up $106,000
while other income increased by $753,000. Included in other income was $102,000
and $457,000 from the sale of the Trust Department, and Credit Card portfolio,
respectively, leaving an increase of $194,000 from operations.
Loan Loss Provision and Non-Performing Assets
The second quarter provision for loan losses was $513,000, up from $209,000
during the same quarter in 1997 reflecting the growth in loans and the changing
mix from residential real estate to more commercial and consumer loans which
have a higher risk of loss. Non-performing assets as a percentage of loans at
June 30, 1998 were .45 percent, well below the average of the Company's peer
group which was .83 percent at March 31, 1998, the most recent information
available. The reserve for loan losses was 197 percent of non-performing assets
as of June 30, 1998.
Non-Interest Expense
Non-interest expense increased by $603,000, or 14.4 percent, over the second
quarter of 1997. Compensation and employee benefits decreased $258,000, or 11.4
percent, resulting from additional staffing and overtime for the data processing
conversion, commissions on loan production, and other increases. Occupancy
expense was up $61,000, or 13.2 percent, the result of adding two new branches
in 1997. Data processing expenses increased $54,000, or 27.2 percent, reflecting
pricing increases from the former servicer and increased activity. Other
expenses, which include merger expenses of $16,000 and costs related to the
curative reorganization of $181,000, were up $236,000, or 19.0 percent.
Results of Operations - Six months ended June 30, 1998
Net income of $4.891 million was an increase of $612,000, or 14.3 percent, over
the first six months of 1997. Basic earnings per share was $.71 for 1998 and
$.63 in 1997, with diluted earnings per share of $.69 and $.62, respectively.
Return on average assets was 1.67 and 1.54, and return on beginning equity was
16.41 and 16.47
14
<PAGE> 15
percent, for the first six months in 1998 and 1997, respectively. The high
capital level of 10.6 percent, results in a lower return on equity even with
increased earnings.
Net-Interest Income
Net interest income for the first six months was $12.552 million, an increase of
$880 thousand, or 7.5 percent over the same period in 1997. More net earning
assets, and the changing mix of loans to more commercial and consumer, are the
reasons for the increased net interest income.
Loan Loss Provision
The provision for loan losses was $715,000, up from $372,000 in 1997. As
discussed above the increase in loans and the change in the mix of loans was the
primary reason for the increase. Commercial and consumer loans typically have a
greater risk of loss than real estate loans. The level of non-performing loans
remains at a relatively low level compared to the peer group as reported in the
Federal Reserve Bank's "Bank Performance Report".
Non-Interest Income
Total non-interest income increased by $1.123 million over the same period last
year. Of this increase $102,000 came from the sale of the trust department, and
$457,000 from the sale of the credit card portfolio. Fees and service charges
increased $339,000, or 9.6 percent, and other income increased $223,000,
primarily from increased activity in real estate loan origination and sales.
Non-Interest Expense
Non-interest expense increased $681,000, or 8.1 percent, over 1997. Compensation
and employee benefits were up $223,000, primarily from the two new branches in
1997, the data processing conversion, and commissions from real estate loan
originations. Occupancy expense also increased $44,000, primarily from the new
branches. Data processing expense increased $68,000, the result of higher fees
from the former data processing provider, and increased account activity. Other
expenses increased $340,000 of which $63,000 relates to the pending HUB merger,
and $198,000 to the curative reorganization and the additional authorized
shares, which are non-recurring.
The Company is aware of the issues associated with computer systems as the year
2000 approaches. The basic issue is whether computer systems will properly
recognize date-sensitive information when the year changes to 2000. The Company
has a task force to identify all equipment, software, vendor dependencies, and
customers that may be affected by the year 2000 problem. The Company has
provided its business customers, suppliers and vendors with information
regarding the Company's progress on year 2000 issues and has requested similar
information in return. All software currently used within the Company is
supplied by vendors. Vendor readiness for year 2000 has been assessed, and
testing to assure proper functioning is scheduled to be completed by December
31, 1998. The Company continues to bear some risk related to the year 2000 issue
and could be adversely affected if other entities not affiliated with the
Company do not appropriately address their own year 2000 compliance issues.
Based on the study and analysis conducted, the dollar amount required to
remediate the known year 2000 issues is not expected to be material to the
Company's business. Unanticipated problems or difficulties, however, could
significantly increase the Company's estimated expenditures for the year 2000
project.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates/prices such as interest rates, foreign
currency exchange rates, commodity prices, and equity prices. The
Company's primary market risk exposure is interest rate risk. The
ongoing monitoring and management of this risk is an important
component of the Company's asset/liability management process which is
governed by policies established by its Board of Directors that are
reviewed and approved annually. The Board of Directors delegates
responsibility for carrying out the asset/liability management policies
to the Asset/Liability committee (ALCO). In this capacity ALCO develops
guidelines and strategies impacting the Company's asset/liability
management related activities based upon estimated market risk
sensitivity, policy limits and overall market interest rate
levels/trends.
Interest Rate Risk:
Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change the interest income and
expense streams associated with the Company's financial instruments
also change thereby impacting net interest income (NII), the primary
component of the Company's earnings. ALCO utilizes the results of a
detailed and dynamic simulation model to quantify the estimated
exposure of NII to sustained interest rate changes. While ALCO
routinely monitors simulated NII sensitivity over a rolling two-year
horizon, it also utilizes additional tools to monitor potential
longer-term interest rate risk.
The simulation model captures the impact of changing interest rates on
the interest income received and interest expense paid on all assets
and liabilities reflected on the Company's balance sheet. This
sensitivity analysis is compared to ALCO policy limits which specify a
maximum tolerance level for NII exposure over a one year horizon,
assuming no balance sheet growth, given a 200 basis point (bp) upward
and downward shift in interest rates. A parallel and pro rata shift in
rates over a 12 month period is assumed. The following reflects the
Company's NII sensitivity analysis as of December 31, 1997, the most
recent information available, as compared to the 10% Board approved
policy limit.
<TABLE>
<CAPTION>
Estimated
Rate Change NII Sensitivity
----------- ---------------
<S> <C> <C>
+200 bp -0.85%
-200 bp 0.48%
</TABLE>
The preceding sensitivity analysis does not represent a Company
forecast and should not be relied upon as being indicative of expected
operating results. These hypothetical estimates are based upon numerous
assumptions including: the nature and timing of interest rate levels
including yield curve shape, prepayments on loans and securities,
deposit decay rates, pricing decisions on loans and deposits,
reinvestment/replacement of assets and liability cashflows, and others.
While assumptions are developed based upon current economic and local
market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer
preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity
analysis, actual results will also differ due to:
prepayment/refinancing levels likely deviating from those assumed, the
varying impact of interest rate change caps or floors on adjustable
rate assets, the potential effect of changing debt service levels on
customers with adjustable rate loans, depositor early withdrawals and
product preference changes, and other internal/external variables.
Furthermore, the sensitivity analysis does not reflect actions that
ALCO might take in responding to or anticipating changes in interest
rates.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the registrant
or its subsidiaries are a party.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibit 27 - Financial data schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLACIER BANCORP, INC.
August 13, 1998 By s/ Michael J. Blodnick
----------------------------
Michael J. Blodnick
President/CEO
August 13, 1998 By s/s James H. Strosahl
----------------------------
James H. Strosahl
Executive Vice President/CFO
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 29,010
<INT-BEARING-DEPOSITS> 2,963
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 84,872
<INVESTMENTS-CARRYING> 3,498
<INVESTMENTS-MARKET> 3,596
<LOANS> 451,999
<ALLOWANCE> 4,003
<TOTAL-ASSETS> 599,455
<DEPOSITS> 371,803
<SHORT-TERM> 84,352
<LIABILITIES-OTHER> 7,538
<LONG-TERM> 72,022
0
0
<COMMON> 70
<OTHER-SE> 63,670
<TOTAL-LIABILITIES-AND-EQUITY> 599,455
<INTEREST-LOAN> 19,294
<INTEREST-INVEST> 3,414
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 22,708
<INTEREST-DEPOSIT> 5,758
<INTEREST-EXPENSE> 10,156
<INTEREST-INCOME-NET> 12,552
<LOAN-LOSSES> 715
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 9,110
<INCOME-PRETAX> 7,736
<INCOME-PRE-EXTRAORDINARY> 4,891
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,891
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.69
<YIELD-ACTUAL> 4.71
<LOANS-NON> 846
<LOANS-PAST> 843
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,544
<CHARGE-OFFS> 316
<RECOVERIES> 60
<ALLOWANCE-CLOSE> 4,003
<ALLOWANCE-DOMESTIC> 4,003
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
