<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 September 30, 1996
[ ] 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
G L A C I E R B A N C O R P , I N C.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 81-0468393
<S> <C>
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
P.O. Box 27; 202 Main Street, Kalispell, Montana 59903-0027
(Address of principal executive offices) (Zip Code)
</TABLE>
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 November 4,
1996, was 3,376,347. 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> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1996, December 31, and September 30, 1995.............3
Consolidated Statement of Operations -
Three and nine months ended September 30, 1996 and 1995.............4
Consolidated Statement of Cash Flows -
Nine months ended September 30, 1996 and 1995.......................5
Notes to Consolidated Financial Statements..........................6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations ..................10
PART II. OTHER INFORMATION .........................................................15
SIGNATURES ................................................................15
</TABLE>
2
<PAGE> 3
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
September 3 December 31 September 30,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
ASSETS:
Cash on hand and in banks........................................ $ 14,437 15,367 13,402
Interest bearing cash deposits................................... 2,545 710 4,530
-------- ------- -------
Cash and cash equivalents...................................... 16,982 16,077 17,932
-------- ------- -------
Investments:
Investment securities, held-to-maturity........................ 10,236 9,366 12,385
Investment securities, available-for-sale...................... 36,576 28,524 23,929
Mortgaged backed securities, held-to-maturity.................. 3,623 3,943 21,493
Mortgaged backed securities, available-for-sale................ 29,313 31,084 7,490
-------- ------- -------
Total Investments......................................... 79,748 72,917 65,297
-------- ------- -------
Net loans receivable:
Real estate loans.............................................. 181,932 174,675 172,078
Commercial Loans............................................... 48,465 49,262 50,358
Installment and other loans.................................... 65,261 57,104 54,065
Total Loans............................................... 295,658 281,040 276,501
Office properties, equipment and leasehold
improvements, at cost less accumulated depreciation
of $4,586, $4,212 and $4,199, at September 30, 1996,
December 31, 1995 and September 30, 1995, respectively......... 8,062 7,476 7,233
Real estate and other assets owned............................... 168 52 27
Federal Home Loan Bank of Seattle stock, at cost................. 7,901 7,123 6,586
Federal Reserve stock, at cost................................... 90 90 90
Accrued interest receivable...................................... 2,544 2,622 2,490
Other assets..................................................... 889 660 603
-------- ------- -------
$412,042 388,058 376,759
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits (Interest Bearing)...................................... $180,310 171,565 168,293
Demand deposits (Non-Interest Bearing)........................... 31,691 26,268 27,702
Advances from Federal Home Loan Bank of Seattle.................. 125,331 120,714 109,551
Securities sold under agreements to repurchase................... 22,982 20,805 25,597
Accrued interest payable......................................... 1,645 479 1,467
Advance payments by borrowers for taxes and insurance............ 2,320 1,007 2,165
Current federal and state income taxes........................... 0 87 197
Deferred federal and state income taxes.......................... 1,185 2,232 1,734
Accrued expenses and other liabilities........................... 7,248 6,632 3,317
Minority Interest................................................ 404 501 551
-------- ------- -------
Total liabilities.............................................. 373,116 350,290 340,574
-------- ------- -------
Preferred stock, $.01 par value per share,
7,500,000 shares authorized, none issued....................... 0 0 0
Common stock, $.01 par value per share, 12,500,000 shares
authorized; 3,374,282, 3,356,191, and 3,361,271 shares
issued and outstanding at September 30, 1996, December
31, 1995, and September 30, 1995, respectively (1)............. 34 31 31
Paid-in capital.................................................. 29,572 22,465 22,435
Retained earnings................................................ 11,045 15,411 14,390
Treasury stock at cost........................................... (1,066) (874) (740)
Net unrealized gain (loss) on securities available for sale...... (659) 735 69
-------- ------- -------
Total stockholders' equity..................................... 38,926 37,768 36,185
-------- ------- -------
$412,042 388,058 376,759
======== ======= =======
Book value per share........................................... $ 11.54 11.25 10.77
======== ======= =======
</TABLE>
(1) Number of shares outstanding adjusted for 10% stock dividend in 1996.
<PAGE> 4
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(unaudited - dollars in thousands except per share data) Three months ended Nine months ended
09/30/96 09/30/9 09/30/96 09/30/95
-------- ------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
interest on real estate loans........................... $ 3,778 3,709 11,148 10,877
Interest on mortgage backed securities.................. 663 556 1,988 1,716
Interest on commercial, consumer and other loans........ 2,611 2,438 7,533 6,754
Interest and dividends on investments................... 963 759 2,822 1,806
---------- --------- --------- ---------
Total interest income............................. 8,015 7,462 23,491 21,153
---------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits, net of penalties on
early withdrawals................................... 1,712 1,586 5,053 4,364
Interest on advances and repurchase agreements.......... 2,076 1,905 6,045 5,286
---------- --------- --------- ---------
Total interest expense............................ 3,788 3,491 11,098 9,650
---------- --------- --------- ---------
NET INTEREST INCOME....................................... 4,227 3,971 12,393 11,503
Provision for loan losses............................... 159 43 254 243
---------- --------- --------- ---------
Net Interest Income after provision for loan losses....... 4,068 3,928 12,139 11,260
---------- --------- --------- ---------
NON-INTEREST INCOME:
Loan fees and service charges........................... 1,231 1,067 3,446 2,848
Gains (Losses) on sale of investments................... 37 (5) 37 (5)
Other income............................................ 160 241 645 746
---------- --------- --------- ---------
Total fees and other income.......................... 1,428 1,303 4,128 3,589
---------- --------- --------- ---------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses............................... 1,526 1,321 4,368 3,787
Occupancy expense.................................... 303 280 861 850
Data processing expense.............................. 154 127 432 379
Other expenses....................................... 2,141 977 4,189 2,929
Minority interest.................................... 13 22 49 64
---------- --------- --------- ---------
Total non-interest expense...................... 4,137 2,727 9,899 8,009
---------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES.............................. 1,359 2,504 6,368 6,840
Federal and state income tax expense...................... 521 971 2,457 2,661
---------- --------- --------- ---------
NET EARNINGS.............................................. $ 838 1,533 3,911 4,179
========== ========= ========= =========
Earnings per common share (1)............................. $ 0.25 0.45 1.16 1.24
Dividends declared per common share (1)................... 0.16 0.14 0.47 0.40
Return on average assets (annualized)..................... 0.82% 1.67% 1.30% 1.56%
Return on beginning equity (annualized)................... 8.74% 17.44% 13.81% 16.78%
Weighted average shares outstanding (1)................... 3,365,289 3,358,529 3,360,629 3,369,617
</TABLE>
<PAGE> 5
GLACIER BANCORP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended September 30,
(dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES :
Net Earnings................................................................... $ 3,911 4,179
Adjustments to reconcile Net Earnings to Net
Cash Provided by Operating Activities:
Provision for loan and real estate owned losses.............................. 254 243
Depreciation of premises and equipment and
amortization of purchase premium ...................................... 404 584
Loss (gain) on sale of investments and other real estate owned............... (37) 5
Amortization of investment securities premiums, net.......................... 20 89
Net increase (decrease) in deferred income taxes ............................ (136) 306
Net decrease (increase) in interest receivable............................... 78 (449)
Net increase in interest payable............................................. 1,166 1,155
Net increase (decrease) in current income taxes ............................. (87) 197
Net (increase) decrease in other assets...................................... (229) 1,011
Net increase (decrease) in other liabilities and minority interest........... 628 (1,700)
FHLB stock dividends......................................................... (435) (289)
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................. 5,537 5,331
-------- -------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of investment
securities available-for-sale.............................................. $ 15,313 8,010
Purchases of investment securities available-for-sale.......................... (23,880) (18,942)
Proceeds from sales, maturities and prepayments of investment
securities held-to-maturity................................................ 443 4,054
Purchases of investment securities held-to-maturity............................ (995) (4,000)
Principal collected on installment and commercial loans........................ 47,667 38,914
Installment and commercial loans originated or acquired........................ (55,318) (58,860)
Principal collections on mortgage loans........................................ 27,682 23,484
Mortgage loans originated or acquired.......................................... (54,778) (40,826)
Proceeds from sales of loans................................................... 19,876 18,153
Net proceeds from sales (acquisition) of real estate owned..................... (116) 84
Net purchase of FHLB stock..................................................... (343) (608)
Net addition of premises and equipment......................................... (990) (788)
Acquisition of minority interest............................................... (109) (14)
-------- -------
NET CASH USED BY INVESTING ACTIVITIES..................................... (25,548) (31,339)
-------- -------
FINANCING ACTIVITIES:
Net increase in deposits....................................................... $ 14,168 12,954
Net increase in FHLB advances & other borrowing................................ 4,617 27,010
Net increase in advance payments from borrowers for taxes
and insurance................................................................ 1,313 1,479
Net increase (decrease) in securities sold under repurchase agreements......... 2,177 (7,455)
Cash dividends paid to stockholders............................................ (1,567) (1,342)
Treasury stock purchased....................................................... (192) (580)
Proceeds from exercise of stock options........................................ 400 191
-------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. 20,916 32,257
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 905 6,249
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................... 16,077 11,683
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................................... $ 16,982 17,932
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periInterest.............................................. $ 9,932 8,495
Income taxes.......................................... $ 2,544 2,464
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
1) Basis of Presentation:
In the opinion of Management, the accompanying unaudited consolidated
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 September 30, 1996, December
31, and September 30, 1995 and the Results of Operations for the nine
and three months ended September 30, 1996 and 1995 and the Statements
of Cash Flows for the nine months ended September 30, 1996 and 1995.
2) Organizational Structure:
The Company is the parent company for four subsidiaries: Glacier Bank
(the "Savings Bank"); First National Bank of Whitefish ("Whitefish");
First National Bank of Eureka ("Eureka") and Community First, Inc.
(CFI). At September 30, 1996, the Company owned 100%, 94%, 93% and 100%
of the Savings Bank, Whitefish, Eureka and CFI, respectively. CFI
provides full service brokerage services through INVEST Financial
Services. The following abbreviated organizational chart illustrates
the various relationships:
Glacier
Bancorp, Inc.
<TABLE>
<S> <C> <C> <C> <C>
Glacier First National Bank First National Bank Community First
Bank Whitefish Eureka Inc.
</TABLE>
3) Stock Dividend:
The company paid a 10% stock dividend May 23, 1996. As a result, all
per share amounts from time periods preceding this date have been
restated to illustrate the effect of the stock dividend. Any fractional
shares were paid in cash.
4) Computation of Earnings Per Share:
Earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during
the period presented. Stock options are considered common stock
equivalents, but are excluded from earnings per share computations due
to immateriality.
The weighted average number of shares for the three months ended
September 30, 1996 and 1995 (after adjustment for 10% stock dividend)
were 3,365,289 shares and 3,358,529 shares, respectively.
6
<PAGE> 7
5) Ratios:
Return on Average Assets (ROAA) was calculated based on the average of
the total assets for each month-end in the period. Return on Beginning
Equity (ROBE) was calculated based on the Shareholders' Equity
(Capital) at the beginning of each period presented.
6) Cash Dividend Declared:
On September 25, 1996, the Board of Directors declared a $.16 per share
quarterly cash dividend to stockholders of record on October 15, 1996,
payable on October 24, 1996.
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 September 30, 1996
<TABLE>
<CAPTION>
Amortized Gross Unrealized Estimated
(dollars in thousands) Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Government and Federal Agencies $ 7,978 8 (231) 7,755
State, Local Government and other issues 2,258 44 (4) 2,298
Mortgage-backed securities 3,623 0 (51) 3,572
------- ----- ------ ------
Total Held to Maturity Securities $13,859 52 (286) 13,625
======= ===== ====== ======
Available for Sale:
U.S. Government and Federal Agencies $14,388 13 (500) 13,901
State, Local Government and other issues 8,397 38 (79) 8,356
Mortgage-backed securities 29,339 402 (428) 29,313
Real Estate Mortgage Investment Conduit 14,869 0 (550) 14,319
------- ----- ------ ------
Total Available for Sale securities $66,993 453 (1,557) 65,889
======= ===== ====== ======
</TABLE>
Investment Securities as of December 31, 1995
<TABLE>
<CAPTION>
Amortized Gross Unrealized Estimated
(dollars in thousands) Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Government and Federal Agencies $ 7,973 156 0 8,129
State, Local Government and other issues 1,393 65 (1) 1,457
Mortgage-backed securities 3,943 11 0 3,954
------- ----- ------ ------
Total Held to Maturity Securities $13,309 232 (1) 13,540
======= ===== ====== ======
Available for Sale:
U.S. Government and Federal Agencies $20,541 211 (7) 20,745
State, Local Government and other issues 5,535 186 (116) 5,605
Mortgage-backed securities 30,157 990 (63) 31,084
Real Estate Mortgage Investment Conduit 2,174 7 (7) 2,174
------- ----- ------ ------
Total Available for Sale securities $58,407 1,394 (193) 59,608
======= ===== ====== ======
</TABLE>
<PAGE> 8
8) Consolidated Statements of Cash Flows:
Cash equivalents include demand deposits at other financial
institutions and short term certificates of deposit.
9) Regulatory Capital Requirements -
The following chart illustrates the compliance by the Savings Bank with
currently applicable regulatory capital requirements at September 30,
1996 (in thousands except percentages):
<TABLE>
<CAPTION>
ACTUAL REQUIREMENT EXCESS
------ ----------- ------
<S> <C> <C> <C> <C>
TANGIBLE CAPITAL:
$ AMOUNT $30,941 $5,264 $25,677
% OF TANGIBLE ASSETS 8.8% 1.5% 7.3%
CORE CAPITAL:
$ AMOUNT $30,941 $10,529 $20,412
% OF TANGIBLE ASSETS 8.8% 3.0% 5.8%
RISK-BASED CAPITAL:
$ AMOUNT $32,370 $14,631 $17,739
% OF RISK-WEIGHTED ASSETS 17.7% 8.0% 9.7%
</TABLE>
Each of the two Banks (Whitefish and Eureka) also have similar specific
capital standards which they must meet. At both December 31, 1995 and
September 30, 1996, both Banks met, without exception, all regulatory
capital standards.
The Office of Thrift Supervision (OTS) has adopted, but postponed
implementation until further notice, an additional capital component
requirement based upon an institution's exposure to losses from changes
in market interest rates (interest rate risk). This additional capital
requirement is equal to 50% of the estimated decline in market value of
an institution's portfolio equity after an instantaneous 200 basis
points increase or decrease (whichever results in the larger decrease)
in market interest rates. The market value of portfolio equity
represents the net present value of an institution's assets,
liabilities and any off balance sheet items. This net present value is
calculated by OTS based upon information submitted in quarterly reports
and using discount rates derived from rates paid and received on
various financial instruments. The requirement provides for a two
quarter lag between calculating interest rate risk and recognizing any
deduction from capital. The amount to be deducted from capital is the
lowest interest rate risk component reported in an institution's
exposure reports to the OTS for the three most recent quarters. Based
on interest rate risk exposure calculations as provided by the OTS for
the period ended June 30, 1996, the most recent date such information
is available from the OTS, the Savings Bank would be subject to a
$1,980,000 deduction under this requirement. As illustrated in the
above chart, the Savings Bank's capital levels are high enough to
absorb this risk.
8
<PAGE> 9
Qualified Thrift Lender - In order to avoid certain restrictions on
their operations, all savings associations are required to meet a
Qualified Thrift Lender ("QTL") test. The regulations require that
institutions maintain a percentage of qualifying lending activity of at
least 65% as measured monthly. The Savings Bank reported on its
September 30, 1996 Thrift Financial Report QTL ratios of 81%, 81%, and
81% for July, August and September 1996.
Whitefish and Eureka do not have a similar requirement.
10) Changes in Accounting Methods
Loan Impairment
In 1995, the Company adopted the provisions of SFAS Statement No. 114,
"Accounting by Creditors for Impairment of a Loan," and SFAS Statement
No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," (collectively the Statements). The
Statements provide guidance for establishing a reserve for losses on
specific loans which are deemed to be impaired and apply only to
specific impaired loans. Groups of small balance homogenous basis loans
(generally consumer loans) are evaluated for impairment collectively. A
loan is considered impaired when, based upon current information and
events, it is probable that the Company will be unable to collect, on a
timely basis, all principal and interest according to the contractual
terms of the loan's original agreement. When a specific loan is
determined to be impaired, the reserve for possible loan losses is
increased through a charge to expense for the amount of the impairment.
The amount of the impairment is measured using cash flows discounted at
the loan's effective interest rate, except when it is determined that
the sole source of repayment for the loan is the operations, or
liquidation of the underlying collateral. In such cases the current
value of the collateral, reduced by anticipated selling costs, will be
used in place of discounted cash flows. The Company uses the cash basis
of income recognition on impaired loans.
The Company's adoption of the statements did not have a material impact
on the Company's financial position or results of operations. During
1995 and the first nine months of 1996, the amount of impaired loans
was not material.
Mortgage Servicing Rights
On May 6, 1995 SFAS No. 122, "Accounting for Mortgage Servicing
Rights", an amendment of SFAS No. 65 was issued. Under SFAS No. 122
mortgage servicing rights are recognized as an asset regardless of
whether the servicing rights are acquired or originated and retained.
Additionally, SFAS No. 122 requires mortgage servicing rights assets be
assessed for impairment based on the fair value of the mortgage
servicing rights. The Statement provides for adoption as of the
beginning of the reporting period on a prospective basis, and was
adopted by the Company effective January 1, 1995. As of September 30,
1996, the carrying value of originated servicing rights was $342,090.
There was no material impairment of value at September 30, 1996.
9
<PAGE> 10
Impairment of Assets
As of January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of-Long- Lived Assets and for Long-Lived Assets to
be disposed of." SFAS No. 121 provides that long-lived assets and
identifiable intangibles should be reviewed for impairment whenever
events or circumstances provide evidence that suggests the carrying
amount of the asset may not be recoverable. The determination of
whether an asset is impaired is based on undiscounted cash flows. An
impairment, if any, is measured based on the fair value of the asset,
if readily determinable. Otherwise, impairment would be measured based
on the present value of the expected future net cash flows calculated
using either a market interest rate or the entity's incremental
borrowing rate. As of September 30, 1996, there are no assets that are
considered impaired.
Stock Based Compensation
On October 23, 1995, the FASB issued SFAS No. 123, "Accounting for
Stock Based Compensation." SFAS No. 123 defines a "fair value based
method" of accounting for an employee stock option plan. However, it
also allows an entity to continue to measure compensation cost for
those plans using the "intrinsic value based method" of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and
earnings per share, as if the fair value based method of accounting
defined in SFAS No. 123 had been applied. The Company will adopt SFAS
No. 123, retaining the accounting treatment of APB No. 25, in 1996,
with appropriate disclosures presented in the December 31, 1996
financial statements.
11) Stock Repurchase - In 1995, the Board of Directors authorized the
repurchase of up to 5% of the Company's shares outstanding. As of April
4, 1996, the last date shares were acquired, 57,260 shares, or
approximately 1.7% of outstanding shares had been acquired. The Board
of Directors terminated the repurchase authorization on August 9, 1996.
12) Pending Acquisition - On August 9, 1996, the Board of Directors of
Glacier Bancorp, Inc. and Missoula Bancshares, the parent company of
the First Security Bank of Missoula, Montana, approved a definitive
agreement for Glacier Bancorp, Inc. to acquire Missoula Bancorp, Inc.
in a stock transaction to be accounted for as a pooling of interests.
Following the merger, First Security Bank will be operated as a
subsidiary of Glacier Bancorp, Inc.
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, 1995 to September 30, 1996.
At September 30, 1996, total consolidated assets increased by $23,985,000, or
6.18%, over the December 31, 1995 level. This increase was primarily in loan
growth of $14,618,000, or 5.20%, and investments of $6,831,000, or 9.37%.
Real Estate loans increased $7.3 million during the period, commercial loans
declined $.8 million, and Consumer loans increased $8.2 million.
10
<PAGE> 11
Loans sold to the secondary market amounted to $19.9 million and $18.2 million
during the first nine months of 1996 and 1995, respectively.
The amount of loans serviced for others on September 30, 1996 was $65.6 million.
Total deposits increased nearly $14.2 million, with $8.7 million of the increase
occurring in interest bearing deposits. Non-interest bearing deposits were $5.4
million over the December 31, 1995 level, an increase of $20.6%. Advances from
the Federal Home Loan Bank ("FHLB") were up $4.6 million from year end, and
securities sold under repurchase agreements increased $2.2 million.
The OTS' minimum average liquidity requirement for the Savings Bank is 5.0%. For
the three months ended September 30, 1996, the Savings Bank's liquidity
percentage averaged 5.6%. The Savings Bank's principal source of funds are
generated by deposits, payments on loans and securities, short and long term
borrowings and net income. If there should ever be insufficient funds derived
from these areas, the Savings Bank may borrow additional amounts from the FHLB,
subject to regulatory limits.
All three institutions are members of the FHLB at September 30, 1996.
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 September 30,
1996:
<TABLE>
<CAPTION>
Available line Amount used Available
-------------- ----------- ---------
<S> <C> <C> <C>
The Savings Bank 140,188,000 96,537,000 43,651,000
Whitefish 6,465,000 4,300,000 2,165,000
Eureka 6,695,000 1,881,000 4,814,000
</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 $1,203,000 or .41% of
total loans at September 30, 1996, as compared to $314,000, or .11% of total
loans, at December 31, 1995.
Although non-performing assets have increased, the ratio remains well below the
average of the Company's peer group which was .93% at June 30, 1996, the latest
available data.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
-------------------- -----------------
<S> <C> <C>
Total Reserves for Loan
and Real Estate Owned losses: $2.1 million $2.1 million
Reserves as a percentage
of Total Loans: 0.70% .73%
Reserves as a percentage
of Non-performing Assets: 173% 656%
</TABLE>
11
<PAGE> 12
Impaired Loans
The company adopted SFAS No. 114 "Accounting by Creditor for Impairment of a
Loan" and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" as of January 1, 1995. As of September 30,
1996, there were no loans considered impaired as measured under SFAS No. 114
criterion. 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.
The Company has extended an offer to each minority stockholder notifying them
that the Company would buy their shares at the current book value. As of
September 30, 1996, the Company owns 46,900 shares of Whitefish and 46,389
shares of Eureka. The Company's ownership of Whitefish and Eureka is 94% and
93%, respectively.
Branch Approvals
Approvals have been received from the Office of Thrift Supervision for a
supermarket office in Hamilton, and for a stand alone office in Thompson Falls,
both of which are located in western Montana. The Hamilton office is expected to
open in late November.
Results of Operations - The three months ended 9/30/96 compared to the three
months ended 9/30/95. The following discussion relates to the consolidated
income for the Company.
Net income decreased to $838 thousand, or $.25 per share, compared with $1,533
million, or $.45 per share, for the third quarter of 1995. 1996 earnings were
impacted by a one-time assessment to recapitalize the Federal Deposit Insurance
Corporation (FDIC) Savings Association Insurance Fund (SAIF), and merger related
expenses, resulted in net earnings reduction of $658 thousand, or $.19 per
share. Earnings, exclusive of the SAIF assessment and merger expenses, decreased
$37 thousand or 2.4 percent of net income, and 2.6 percent of per share earnings
from the very strong third quarter of 1995. The cash dividend, adjusted for the
10 percent stock dividend paid in May 1996, was increased from $.14 to $.16 per
share, a 14.3 percent increase over the third quarter of 1995. Return on average
assets and return on beginning equity were .82 percent and 8.74 percent,
respectively, compared with returns of 1.67 percent and 17.44 percent for the
third quarter of 1995. Return on average assets and return on beginning equity,
exclusive of the SAIF and merger expenses, were 1.46 percent and 15.61 percent,
respectively. Total assets have increased $38.284 million, or 9.4 percent, and
stockholders' equity increased $2.741 million, or 7.6 percent, over the third
quarter of 1995.
Net Interest Income
Net interest income was $4.227 million, an increase of $256 thousand, or 6.4
percent, over the same quarter in 1995, primarily the result of higher net
earning assets. Loan balances grew $19.157 million from a year earlier, or 6.9
percent, with consumer loans leading the way with $11.196 million, or 20.7
percent, followed by real estate loans at $9.854 million, or 5.7 percent. Total
investments, including mortgage backed securities, increased $14.451 million, or
22.1% from September 30, 1995, the result of a strategy to better utilize
capital in excess of loan growth requirements. The capital level was 9.4% of
assets at September 30, 1996.
12
<PAGE> 13
Loan Loss Provision and Non-Performing Assets
The third quarter provision for loan losses was $159 thousand, up from $43
thousand during the same quarter in 1995. Although non-performing assets have
increased from the very low September 30, 1995 level of .17 percent of loans, to
.41 percent of loans at September 30, 1996, the ratio remains well below the
average of the Company's Peer group which was .93 percent at June 30, 1996, the
last available data. The reserve for loan losses was 173 percent of
non-performing assets as of September 30, 1996.
Non-Interest Income
Non-interest income increased $125 thousand, or 9.6 percent over the third
quarter of 1995. Loan fees and service charges on deposit accounts were up $164
thousand, while other income was down $81 thousand, attributed to a reduction in
insurance income.
Non-Interest Expense
Non-interest expense increased by $1.410 million or 51.7 percent, over the third
quarter of 1995. The SAIF assessment of $947 thousand was the largest portion of
the increase, while merger related expenses added $114 thousand to the increase.
Without the SAIF assessment and the merger expenses, non-interest expenses
increased $349 thousand, or 12.8 percent. The largest portion of the increase
from operations was in compensation and employee benefits which increased $205
thousand, or 15.5 percent. Expansion of the Billings loan production office into
a full service branch, staffing of the first supermarket branch which opened in
Billings in July, expansion of banking services to include Saturdays and
holidays, other growth related staffing additions, plus normal cost increases
resulted in these increased costs.
Results of Operations - The nine months ended 9/30/96 compared to the nine
months ended 9/30/95. The following discussion pertains to the consolidated
income for the Company.
Year to date net income decreased $268 thousand, or 6.4 percent, to $3.911
million, or $1.16 per share, from $4.179 million, or $1.24 per share, a 6.4
percent per share decrease from the same period in 1995. Return on average
assets and return on beginning equity was 1.30 percent and 13.81 percent,
respectively, down from 1.56 percent and 16.78 percent for 1995. Total assets
have increased $23.985 million, or 6.2 percent from December 31, 1995, while
stockholders' equity increased $1.158, or 3.1 percent. Equity growth was
curtailed by net unrealized losses on available for sale securities. Exclusive
of the SAIF and merger expenses, net income increased $390 thousand, or 9.3
percent, to $4.569 million, or $1.36 per share. Return on average assets, and
return on beginning equity were 1.52 percent, and 16.13 percent, respectively.
Net Interest Income
Net interest income increased $890 thousand, or 7.7 percent, over the first nine
months of 1995, reflecting the growth in loans and investments. Total interest
income increased $2.338 million, or 11.0 percent, while total interest expense
increased $1.448 million, or 15.0 percent. The increased interest expense has
narrowed the net interest margin ratio, however, the earnings power from the
increased earning asset levels has resulted in the significant net interest
income increase.
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 September 30, 1996
and 1995:
13
<PAGE> 14
<TABLE>
<CAPTION>
September 30, [1]
FOR THE NINE MONTHS ENDED: 1996 1995
---- ----
<S> <C> <C>
Combined weighted average yield on loans and investments [2]......................... 8.30% 8.49%
Combined weighted average rate paid on interest-bearing deposits and borrowings...... 4.56% 4.53%
Net interest spread.................................................................. 3.74% 3.96%
Net interest margin [3].............................................................. 4.36% 4.60%
</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.
Non-Interest Income
Non-interest income is also up from the prior year, $539,000, or 15.0 percent.
Loan fees and service charges on deposit accounts increased by $598,000. Loan
origination fees are deferred and recognized over the life of the loan, as
prescribed by FASB #91. However, origination fees on loans sold are recognized
at the time of sale.
Non-Interest Expense
Non-interest expense has also increased during 1996, with the total $1.890
million, or 23.6 percent greater that the same nine months in 1995. Without the
SAIF assessment and merger expenses, the increase was $829 thousand, or 10.3
percent. Compensation, employee benefits and related expenses increased $581
thousand, or 15.3 percent from the first nine months of 1995 the result of
establishing the full-service branch in Billings, expansion of banking services
to include Saturdays and some holidays, opening of the supermarket branch in
Billings in July, other growth related expenses, and normal cost increases. The
number of full time equivalent employees has increased from 155.5 at September
30, 1995, to 178.5 at September 30, 1996, an increase of 23, or 14.8 percent.
The opening of new branches results in higher costs which are not offset with
increased revenues until a certain level of growth in loans and deposits is
achieved. Thus, initially new branches have an adverse effect on results of
operations until earnings grow to cover the increased overhead. The remainder of
the increased expense is comprised of small increases in several classifications
of expense.
Tax Expense
Income tax expense decreased by $204,000 during the nine months ended September
30, 1996, as compared to the same period in the prior year, reflecting the
$472,000 decrease in pre-tax income during the same period. Effective federal
and state tax rates were approximately 39% for each of the nine month periods
ended September 30, 1996 and 1995.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the registrant
or it's 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.
Form 8-K dated August 9, 1996 announcing the signing of a definitive
agreement to acquire Missoula Bancshares, Inc.
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.
November 14, 1996 By /s/ Michael J. Blodnick
- ------------------- -------------------------------------------
Date Michael J. Blodnick
Executive Vice President/COO
November 14, 1996 By /s/ James H. Strosahl
- ------------------- -------------------------------------------
Date James H. Strosahl
Senior Vice President/Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 14437
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<ALLOWANCE> 2086
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<DEPOSITS> 212001
<SHORT-TERM> 101671
<LIABILITIES-OTHER> 12802
<LONG-TERM> 46642
0
0
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<INTEREST-DEPOSIT> 5053
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<INCOME-PRETAX> 6368
<INCOME-PRE-EXTRAORDINARY> 3911
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<EPS-PRIMARY> 1.16
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<LOANS-NON> 223
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<ALLOWANCE-OPEN> 2061
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</TABLE>