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, 1999
|_| 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 81-0519541
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
49 Commons Loop, Kalispell, Montana 59901
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (406) 756-4200
- --------------------------------------------------------------------------------
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 October 25,
1999 was 9,545,517. No preferred shares are issued or outstanding.
1
<PAGE>
GLACIER BANCORP, INC.
Quarterly Report on Form 10-Q
<TABLE>
<CAPTION>
Index
Page #
------
<S> <C>
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Condensed Statements of Financial Condition -
September 30, 1999, December 31, and September 30, 1998 (unaudited) ....... 3
Consolidated Condensed Statements of Operations -
Three months and nine months ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Condensed Statements of Cash Flows -
nine months ended September 30, 1999 and 1998 (unaudited) ................. 5
Notes to Consolidated Condensed Financial Statements ...................... 6
Item 2 - Management's Discussion and Analysis
Of Financial Condition and Results of Operations ......................... 11
Item 3 - Quantitative and Qualitative Disclosure about Market Risk .............. 16
Part II. Other Information ............................................................ 17
Signatures ............................................................................ 18
</TABLE>
2
<PAGE>
GLACIER BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- ---------------------------------------------------- ------------- ------------ -------------
(Unaudited - $ in thousands except per share data) September 30, December 31, September 30,
- ---------------------------------------------------- 1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Assets:
Cash on hand and in banks ......................... $ 29,944 33,806 29,618
Federal funds sold ................................ 278 5,883 8,925
Interest bearing cash deposits .................... 4,800 2,494 19,188
----------- ----------- -----------
Cash and cash equivalents ....................... 35,022 42,183 57,731
----------- ----------- -----------
Investments:
Investment securities, held-to-maturity ......... 0 8,272 8,309
Investment securities, available-for-sale ....... 54,159 50,618 53,272
Mortgage backed securities, held-to-maturity .... 0 0 0
Mortgage backed securities, available-for-sale .. 134,567 46,596 38,606
----------- ----------- -----------
Total Investments ............................. 188,726 105,486 100,187
----------- ----------- -----------
Net loans receivable:
Real estate loans ............................... 196,499 215,271 209,188
Commercial Loans ................................ 239,415 194,321 188,779
Installment and other loans ..................... 135,776 113,749 114,344
Allowance for losses ............................ (5,896) (5,133) (4,641)
----------- ----------- -----------
Total Loans, net .............................. 565,794 518,208 507,670
----------- ----------- -----------
Premises and equipment, net ....................... 19,090 17,382 16,721
Real estate and other assets owned ................ 183 151 271
Federal Home Loan Bank of Seattle stock, at cost .. 13,997 12,366 12,091
Federal Reserve stock, at cost .................... 1,431 1,219 1,067
Accrued interest receivable ....................... 4,871 4,348 4,329
Goodwill, net ..................................... 2,432 2,601 2,658
Other assets ...................................... 3,710 2,083 1,675
----------- ----------- -----------
$ 835,256 706,027 704,400
=========== =========== ===========
Liabilities and stockholders' equity:
Deposits - non-interest bearing ................... $ 118,876 100,177 98,520
Deposits - interest bearing ....................... 383,905 375,667 372,770
Advances from Federal Home Loan Bank of Seattle ... 193,942 124,886 130,478
Securities sold under agreements to repurchase .... 43,771 17,239 13,356
Other borrowed funds .............................. 7,769 1,468 3,606
Accrued interest payable .......................... 2,992 2,278 2,784
Current income taxes .............................. 178 0 43
Deferred income taxes ............................. 0 1,601 2,113
Other liabilities ................................. 4,781 4,588 4,043
Minority Interest ................................. 307 313 312
----------- ----------- -----------
Total liabilities ............................. 756,521 628,217 628,025
----------- ----------- -----------
Common stock, $.01 par value per share (1) ........ 95 95 95
Paid-in capital ................................... 80,859 60,104 40,609
Retained earnings - substantially restricted ...... 1,420 16,415 34,159
Accumulated other comprehensive earnings .......... (3,639) 1,196 1,512
----------- ----------- -----------
Total stockholders' equity .................... 78,735 77,810 76,375
----------- ----------- -----------
$ 835,256 706,027 704,400
=========== =========== ===========
Book value per share .......................... $ 8.25 8.22 8.13
Total shares outstanding at end of period (1) ..... 9,540,989 9,460,210 9,396,910
=========== =========== ===========
</TABLE>
(1) Number of shares outstanding adjusted for 10% stock dividend in 1998 and
1999.
See accompanying notes to consolidated financial statements.
3
<PAGE>
GLACIER BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------- -------------------------------- ------------------------------
(unaudited - $ in thousands except per share data) Three months ended September 30, Nine months ended September 30
- ---------------------------------------------------- -------------------------------- ------------------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Real estate loans ............................... $ 3,898 4,445 11,943 13,598
Commercial loans ................................ 5,137 4,323 14,240 12,055
Consumer and other loans ........................ 2,966 2,783 8,330 8,385
Investment securities ........................... 3,347 2,046 7,986 6,263
---------- --------- --------- ---------
Total interest income ......................... 15,348 13,597 42,499 40,301
---------- --------- --------- ---------
Interest expense:
Deposits ........................................ 3,461 3,858 10,274 11,079
Advances ........................................ 2,672 1,866 6,754 6,044
Repurchase agreements ........................... 599 182 1,006 595
Other borrowed funds ............................ 30 31 214 163
---------- --------- --------- ---------
Total interest expense ........................ 6,762 5,937 18,248 17,881
---------- --------- --------- ---------
Net interest income ............................... 8,586 7,660 24,251 22,420
Provision for loan losses ....................... 418 308 1,090 1,094
---------- --------- --------- ---------
Net Interest Income after provision for loan losses 8,168 7,352 23,161 21,326
---------- --------- --------- ---------
Non-interest income:
Loan fees and service charges ................... 2,465 2,760 7,423 7,545
Gains on sale of investments .................... 1 1 4 14
Other income .................................... 331 187 874 1,475
---------- --------- --------- ---------
Total fees and other income ................... 2,797 2,948 8,301 9,034
---------- --------- --------- ---------
Non-interest expense:
Compensation, employee benefits
and related expenses .......................... 3,000 3,040 9,167 8,882
Occupancy and equipment expense ................. 785 717 2,348 2,039
Other expenses .................................. 2,236 2,097 5,941 6,284
Minority interest ............................... 13 33 36 132
---------- --------- --------- ---------
Total non-interest expense .................... 6,034 5,887 17,492 17,337
---------- --------- --------- ---------
Earnings before income taxes ...................... 4,931 4,413 13,970 13,023
Federal and state income tax expense .............. 1,768 1,678 4,910 4,879
---------- --------- --------- ---------
Net earnings ...................................... $ 3,163 2,735 9,060 8,144
========== ========= ========= =========
Basic earnings per share (1) ...................... 0.33 0.29 0.95 0.88
Diluted earnings per share (1) .................... 0.33 0.29 0.94 0.86
Dividends declared per share (1) .................. 0.15 0.12 0.44 0.33
Return on average assets (annualized) ............. 1.53% 1.56% 1.59% 1.56%
Return on beginning equity (annualized) ........... 16.07% 15.18% 15.52% 16.04%
Average outstanding shares - basic (1) ............ 9,535,927 9,328,529 9,512,180 9,260,444
Average outstanding shares - diluted (1) .......... 9,635,637 9,485,039 9,616,155 9,421,218
</TABLE>
(1) Adjusted for stock dividends
See accompanying notes to consolidated financial statements.
4
<PAGE>
GLACIER BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
- ---------------------------------------------------------------------- -------------------------------
(dollars in thousands) 1999 1998
- ---------------------------------------------------------------------- -------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings ....................................................... $ 9,060 8,140
Adjustments to reconcile net nearnings to net
cash provided by operating activities:
Mortgage loans held for sale originated or acquired .............. (87,003) (116,082)
Proceeds from sales of mortgage loans held for sale .............. 104,037 98,647
Provision for loan losses ........................................ 1,090 1,094
Depreciation of premises and equipment ........................... 1,109 1,104
Amortization of goodwill ......................................... 169 121
Amortization of investment securities premiums
and discounts, net ............................................. 480 (228)
Net decrease in deferred income taxes ............................ 356 54
Net (increase) decrease in accrued interest receivable ........... (523) 147
Net increase in accrued interest payable ......................... 714 1,098
Net increase (decrease) in current income taxes .................. 451 (410)
Net (increase) decrease in other assets .......................... (957) 181
Net increase in other liabilities and minority interest .......... 187 1,136
FHLB stock dividends ............................................. (740) (626)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ............... 28,430 (5,624)
--------- ---------
INVESTING ACTIVITIES:
Proceeds from maturities and prepayments of investment
securities available-for-sale .................................... 19,094 25,323
Purchases of investment securities available-for-sale .............. (110,549) (9,351)
Proceeds from maturities and prepayments of investment
securities held-to-maturity ...................................... 0 7,944
Purchases of investment securities held-to-maturity ................ 0 (1,204)
Principal collected on installment and commercial loans ............ 145,742 104,007
Installment and commercial loans originated or acquired ............ (215,058) (150,759)
Proceeds from sales of commercial loans ............................ 1,867 8,761
Principal collections on mortgage loans ............................ 75,018 74,952
Mortgage loans originated or acquired .............................. (73,279) (42,070)
Net proceeds from sales (acquisition) of real estate owned ......... (32) (150)
Net purchase of FHLB and FRB stock ................................. (1,103) (754)
Net addition of premises and equipment ............................. (2,817) (3,103)
Acquisition of minority interest ................................... 0 (283)
--------- ---------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES ............... (161,117) 13,313
--------- ---------
FINANCING ACTIVITIES:
Net increase in deposits ........................................... 26,937 41,492
Net increase (decrease) in FHLB advances and other borrowed funds .. 75,357 (19,863)
Net increase (decrease) in securities sold under repurchase
agreements ....................................................... 26,532 (8,317)
Cash dividends paid to stockholders ................................ (4,510) (3,157)
Proceeds from exercise of stock options ............................ 1,210 1,192
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...................... 125,526 11,347
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................... (7,161) 19,036
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 42,183 38,695
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 35,022 57,731
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest ................... $ 17,534 16,913
Income taxes ............... 4,732 5,320
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
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 adjustments) necessary for a fair presentation of Glacier
Bancorp Inc.'s (the "Company") financial condition as of September 30,
1999, and September 30, 1998 and the results of operations for the nine
months and three months ended September 30, 1999 and 1998 and cash flows
for the nine months ended September 30, 1999 and 1998.
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,
1998. Operating results for the nine months and three months ended
September 30, 1999 are not necessarily indicative of the results
anticipated for the year ending December 31, 1999.
2) Organizational Structure:
The Company is the parent company for seven subsidiaries: Glacier Bank
("Glacier"); Glacier Bank of Whitefish ("Whitefish"); Glacier Bank of
Eureka ("Eureka"); First Security Bank of Missoula ("Missoula"); Valley
Bank of Helena ("Helena"), Big Sky Western Bank ("Big Sky"), 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. On August 31, 1998, the acquisition of HUB Financial Corporation
and Valley Bank of Helena was completed. Effective January 20, 1999, Big
Sky Western Bank became a subsidiary of the Company. The pooling method of
interests accounting method was used for both acquisitions. Under this
method, financial information for each of the periods presented includes
the combined companies as though the mergers had occurred prior to the
earliest date presented. At September 30, 1999, the Company owned 100% of
Glacier, Missoula, Helena, Big Sky and CFI, 94% of Whitefish, and 98% of
Eureka. CFI provides full service brokerage services through Raymond James
Financial Services, Inc.
On January 20, 1999, the Company completed the acquisition of Big Sky
Western Bank. Under the terms of the acquisition agreement, Big Sky became
a wholly owned subsidiary of the Company, whereby shareholders of Big Sky
received shares of the Company in exchange for their shares of Big Sky.
Big Sky operates three offices in Gallatin County, Montana. The following
abbreviated organizational chart illustrates the various relationships:
- --------------------------------------------------------------------------------
Glacier Bancorp, Inc.
(Parent Holding Company)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Glacier Bank First Security Bank Glacier Bank Glacier Bank
(Commercial bank) of Missoula of Whitefish of Eureka
(Commercial bank) (Commercial bank) (Commercial bank)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Big Sky Valley Bank Community First, Inc.
Western Bank of Helena (Brokerage services)
(Commercial bank) (Commercial bank)
- --------------------------------------------------------------------------------
6
<PAGE>
3) Stock Dividend:
On August 27, 1998 and May 27, 1999, a 10% stock dividend was approved by
the Board of Directors. As a result, all per share amounts from time
periods preceding these dates have been restated to illustrate the effect
of the stock dividend. Any fractional shares were paid in cash.
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 September 30, 1999, the Board of Directors declared of $.15 per share
quarterly cash dividend to stockholders of record on October 12, payable
on October 21, 1999.
6) Computation of Earnings Per Share:
Basic earnings per common share is computed by dividing net earnings by
the weighted average number of shares of common stock outstanding during
the period presented. Diluted earnings per share is computed by including
the net increase in shares if dilutive outstanding stock options were
exercised, using the treasury stock method. Previous period amounts are
restated for the effect of the stock dividend. The following schedule
contains the data used in the calculation of basic and diluted earnings
per share.
<TABLE>
<CAPTION>
Three Three Nine Nine
months ended months ended months ended months ended
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net income available to common
stockholders, basic and diluted $ 3,162,636 2,734,627 9,059,402 8,143,368
========= ========= ========= =========
Average outstanding shares - basic 9,535,927 9,328,529 9,512,180 9,260,444
Add: dilutive stock options 99,710 156,510 103,975 160,774
------ ------- ------- -------
Average outstanding shares - diluted 9,635,637 9,485,039 9,616,155 9,421,218
========= ========= ========= =========
Basic earnings per share $ .33 .29 .95 .88
=== === === ===
Diluted earnings per share $ .33 .29 .94 .86
=== === === ===
</TABLE>
7
<PAGE>
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, 1999
<TABLE>
<CAPTION>
Gross Unrealized Estimated
- --------------------------------------------- Weighted Amortized ---------------- Fair
Dollars in thousands Yield Cost Gains Losses Value
- --------------------------------------------- ----- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C>
U.S. Government and Federal Agencies
maturing within one year .................. 6.72% 4,802 15 (2) 4,815
maturing one year through five years ...... 6.56% 2,701 33 0 2,734
maturing after ten years .................. 5.14% 1,080 1 (6) 1,075
----- ----- - --- -----
6.47% 8,583 49 (8) 8,624
----- ----- -- --- -----
State and Local Governments and other issues:
maturing within one year .................. 6.13% 471 2 (24) 449
maturing one year through five years ...... 5.05% 1,359 21 (2) 1,378
maturing five years through ten years ..... 5.01% 2,335 41 (24) 2,352
maturing after ten years .................. 5.19% 43,421 169 (2,234) 41,356
----- ------ --- ------- ------
5.19% 47,586 233 (2,284) 45,535
----- ------ --- ------- ------
Mortgage-Backed Securities .................. 7.19% 30,562 233 (702) 30,093
Real Estate Mortgage Investment Conduits .... 6.88% 107,993 235 (3,754) 104,474
----- ------- --- ------- -------
Total Securities ..................... 6.50% 194,724 750 (6,748) 188,726
===== ======= === ======= =======
</TABLE>
Effective January 1, 1999, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
establishes accounting and reporting standards that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in
the derivatives' fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. The adoption of SFAS 133 had
no impact on the financial statements of the Company except that it
allowed for a one-time reclassification of the investment portfolio from
held-to-maturity to either trading or available-for-sale. The net effect
on the consolidated statement of financial condition of this
reclassification was an increase in total assets of $288,000, deferred tax
liabilities of $98,000 and unrealized gains on securities
available-for-sale of $190,000.
8
<PAGE>
<TABLE>
<CAPTION>
Investment Securities as of December 31, 1998
Gross Unrealized Estimated
- --------------------------------------------- Weighted Amortized ---------------- Fair
(dollars in thousands) yield Cost Gains Losses Value
- --------------------------------------------- ----- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------
Held-to-Maturity
- ---------------------------------------------
U.S. Government and Federal Agencies:
maturing within one year .............. 7.90% $ 3,010 63 0 3,073
maturing one year through five years .. 7.10% 1,237 66 0 1,303
-------- ------- ------- ------- -------
7.67% 4,247 129 0 4,376
-------- ------- ------- ------- -------
State and Local Governments and other issues:
maturing within one year .............. 5.50% 552 5 0 557
maturing one year through five years .. 5.56% 811 24 0 835
maturing five years through ten years . 5.01% 1,222 44 0 1,266
maturing after ten years .............. 5.67% 1,440 86 0 1,526
-------- ------- ------- ------- -------
5.42% 4,025 159 0 4,184
-------- ------- ------- ------- -------
Total Held-to-Maturity Securities 6.58% $ 8,272 288 0 8,560
======== ======= ======= ======= =======
- ---------------------------------------------
Available-for-Sale
- ---------------------------------------------
U.S. Government and Federal Agencies:
maturing within one year .............. 5.88% $ 2,676 9 (1) 2,684
maturing one year through five years .. 5.91% 5,993 79 6,072
maturing after ten years .............. 6.51% 1,816 10 (1) 1,825
-------- ------- ------- ------- -------
6.01% 10,485 98 (2) 10,581
-------- ------- ------- ------- -------
State and Local Governments and other issues:
maturing within one year .............. 6.88% $ 250 0 0 250
maturing one year through five years .. 6.00% 100 7 107
maturing five years through ten years . 5.06% 1,167 69 0 1,236
maturing after ten years .............. 5.30% 37,173 1,590 (319) 38,444
-------- ------- ------- ------- -------
5.30% 38,690 1,666 (319) 40,037
-------- ------- ------- ------- -------
Mortgage-Backed Securities .................. 7.56% 18,299 546 (63) 18,782
Real Estate Mortgage Investment Conduits .... 6.33% 27,715 184 (85) 27,814
-------- ------- ------- ------- -------
Total Available-for-Sale Securities 6.03% $95,189 2,494 (469) 97,214
======== ======= ======= ======= =======
</TABLE>
9
<PAGE>
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 September 30, 1999:
<TABLE>
<CAPTION>
------------------------------------------ Tier 1 (Core) Tier 2 (Total) Leverage
(dollars in thousands) Capital Capital Capital
------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
GAAP Capital ............................. $ 78,735 $ 78,735 $ 78,735
Less: Goodwill .......................... (2,432) (2,432) (2,432)
Plus: Net unrealized losses on securities
available-for-sale ............... 3,639 3,639 3,639
Minority Interest ................ 307 307 307
Allowance for loan losses ........ -- 5,896 --
Other regulatory adjustments ............. (157) (157) (157)
========= ========= =========
Regulatory capital computed .............. $ 80,092 $ 85,988 $ 80,092
========= ========= =========
Risk weighted assets $ 542,167 $ 542,167
========= =========
Total average assets $ 828,998
=========
Capital as % of defined assets ........... 14.77% 15.86% 9.66%
Regulatory "well capitalized" requirement 6.00% 10.00% 5.00%
--------- --------- ---------
Excess over "well capitalized" requirement 8.77% 5.86% 4.66%
========= ========= =========
</TABLE>
9) Comprehensive Income:
The Company's only component of comprehensive income is the unrealized
gains and losses on available-for-sale securities.
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
---------------------------------------------------------------------- --------------------- ---------------------
Dollars in thousands 1999 1998 1999 1998
---------------------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings ......................................................... $ 3,163 2,735 9,060 8,144
------- ----- ----- -----
Unrealized holding gains(losses) arising during the period ........... (3,135) 730 (8,023) 485
Transfer from held-to-maturity ....................................... 0 0 288 0
Tax expense .......................................................... 1,236 (270) 2,900 (187)
----- ----- ----- -----
Net after tax .................................................. (1,899) 460 (4,835) 298
Less: reclassification adjustment for amounts
included in net income ............................................ 1 1 4 14
Tax expense .......................................................... 0 0 (2) (5)
----- ----- ----- -----
Net after tax .................................................. 1 1 2 9
Net unrealized loss on securities............................... (1,898) 461 (4,833) 307
----- ----- ----- -----
Total comprehensive earnings.............................. $ 1,265 3,196 4,227 8,451
======= ======= ======= =======
</TABLE>
<PAGE>
10) Recent and Pending Acquisitions
On September 10, 1999 the Company announced that it had signed a
definitive agreement to acquire Mountain West Bank as a separate
subsidiary of the Company. Mountain West is a commercial bank that has
grown to approximately $87 million in assets in its five years of
operation. Mountain West is based in Coeur d' Alene, with offices in
Hayden Lake, Post Falls and Boise, Idaho. Coeur d' Alene and Boise are two
of the fastest growing market areas in the state of Idaho. This is Glacier
Bancorp's first acquisition outside of the state of Montana. Consistent
with the other banking subsidiaries, Mountain West will retain its name,
autonomy, local decision making authority, current employees and
directors. The transaction is subject to regulatory and shareholder
approval and is expected to close in early 2000.
The acquisition of the two Butte Montana offices of Washington Mutual
branch real estate and approximately $73 million in deposits was completed
as of October 8, 1999. The addition of the Butte market further expands
the Company's Western Montana operations. The acquired deposits were used
to reduce borrowed funds.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition - September 30, 1999 compared to December 31, 1998
From December 31, 1998 total assets have grown $129.2 million, or 18.3 percent,
to $835.3 million. Total investments have increased $83 million since December
31, 1998. Higher investment yields, a steeper yield curve, and the anticipated
deposit acquisition from Washington Mutual, which was completed October 8, 1999,
provided an opportunity to increase the investment portfolio.
Total loans, net of the reserve for loan losses, have also increased $47.6
million, or 9.2 percent since December 31, 1998. Real estate loans decreased
$18.8 million during the period, while commercial loans increased $45.1 million,
consistent with management's decision to restructure the loan portfolio and to
not retain long-term, low-interest rate mortgage loans.
Loans sold to the secondary market amounted to $104.0 million and $98.7 million
during the first nine months of 1999 and 1998, respectively.
The amount of loans serviced for others on September 30, 1999 was $130.3
million.
Total deposits increased 26.9 million, which was the result of a $18.7 million
increase in non-interest bearing deposits and an $8.2 million increase in
interest bearing deposits.
All six 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 September 30, 1999 (in thousands):
Available line Amount Used Available
-------------- ----------- ---------
Glacier Bank $173,564 128,415 45,149
Glacier Bank of Whitefish 12,130 9,460 2,670
Glacier Bank of Eureka 8,246 4,494 3,752
First Security Bank Missoula 36,184 25,000 11,184
Valley Bank of Helena 15,767 6,924 8,843
Big Sky Western Bank 17,507 11,600 5,907
-------- -------- --------
Totals $263,398 185,893 77,505
======== ======== ========
11
<PAGE>
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 $2.4 million or .28% of total assets at September 30,
1999, compared to $2.8 million, or .40% of total assets, as of December 31,
1998.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Total Allowance for Loan and Real Estate Owned Losses: $5.9 million $5.1 million
Allowance as a percentage of Total Loans: 1.03% .98%
Allowance as a percentage of Non-performing Assets: 250% 184%
</TABLE>
Impaired Loans - As of September 30, 1999, 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 based on the
terms of the loan.
Minority Interest - The minority interest on the consolidated statements 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 September 30, 1999, 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.
Results of Operations - The three months ended 9/30/99 compared to the three
months ended 9/30/98.
Net income was $3.163 million, or basic earnings per share of $.33, for the
third quarter of 1999, compared with $2.735 million, or basic earnings per share
of $.29, for the same quarter of 1998. Return on average assets and return on
beginning equity in the third quarter of 1999 were 1.53 percent and 16.07
percent, respectively, which compares to returns of 1.56 percent and 15.18
percent for the same quarter of 1998. Included in 1998 were after tax merger and
reorganization expenses of $305 thousand.
Net interest income - Net interest income for the quarter was $8.586 million, an
increase of $926,000 thousand, or 12.1 percent, over the same period in 1998.
Growth in earning assets while maintaining a net interest margin as a percentage
of earning assets, on a tax equivalent basis, of 4.6 percent, were the reasons
for this increase. Consistent with management's decision to restructure the loan
portfolio there has been a significant shift in the mix of loans, with higher
yielding commercial loans up $50.6 million, or 26.8 percent, and consumer loans
up $21.4 million, or 18.7 percent. Real estate loans are down $12.7 million, or
6.1 percent, the result of prepayments and management's decision not to retain
long-term low-rate mortgage loans. Total investments, including mortgage-backed
securities, increased $88.5 million, or 88.4 percent, with most of the increase
occurring during the second quarter. Total deposits increased $31.5 million, or
6.7 percent, with $20.4 million of the increase occurring in non-interest
bearing deposits, which increased 20.7 percent. Borrowed funds in the form of
Federal Home Loan Bank advances, and repurchase agreements were used to fund the
asset growth in excess of deposit growth. Upon the October 8, 1999 completion of
the Washington Mutual branch purchase, additional deposits of approximately $73
million were acquired and borrowed funds were reduced by $67 million.
12
<PAGE>
Loan loss provision and non-performing assets - The third quarter provision for
loan losses was $418 thousand, up from $308 thousand during the same quarter in
1998. Non-performing assets as a percentage of loans at September 30, 1999 were
.42 percent, well below the average of the Company's peer group of similar sized
companies as reported in the Federal Reserve Bank's "Bank Performance Report",
which was .80 percent at June 30, 1999, the most recent information available.
The reserve for loan losses was 250 percent of non-performing assets as of
September 30, 1999.
Non-interest income - Non-interest income declined $151 thousand, from the third
quarter of 1998. Income from mortgage origination was lower in 1999 with less
refinance activity due to higher mortgage rates.
Non-interest expense - Non-interest expense increased by $147 thousand, or 2.5
percent, over the third quarter of 1998 which included merger and reorganization
expense of $307 thousand. Compensation and employee benefits decreased $40
thousand, or 1.3 percent. Occupancy and equipment expense was up $68 thousand,
or 9.5 percent, the result of bringing more data processing functions in-house,
and additional expenses from the new branch/corporate office. Other expenses
were up $139 thousand, or 6.6 percent. Adjusting for the 1998 merger and
reorganization expenses other expense was up $446 thousand, much of which was
from increased activity volumes. The rest of the change in expenses was the
minority interest in subsidiaries which decreased by $20 thousand, resulting
from the acquisition of minority shares.
Results of Operations - The nine months ended 9/30/99 compared to the nine
months ended 9/30/98
Net income of $9.060 million was an increase of $916 thousand, or 11.2 percent,
over the first nine months of 1998. Basic earnings per share were $.95 for 1999
and $.88 for 1998, with diluted earnings per share of $.94 and $.86,
respectively. Included in 1998 were after tax gains of $348 thousand from the
sale of the credit card portfolio, and the trust department of Glacier Bank, and
after tax merger and reorganization expenses of $561 thousand. Return on average
assets was 1.59 and 1.56 percent, and return on beginning equity was 15.52 and
16.04 percent for the first nine months of 1999 and 1998, respectively. The high
capital level of 11.02 percent at the beginning of the year results in a lower
return on equity. The capital ratio has been reduced, with the significant asset
growth and a change in the net unrealized gain/loss on investments, to 9.43
percent.
Net interest income - Net interest income for the nine months was $24.251
million, an increase of $1.831 million, or 8.2 percent over the same 1998
period. More earning assets, the increase in higher yield commercial and
consumer loans, and the sale of lower yield real estate loans on the secondary
market, are the reasons for the net interest income increase. The net interest
margin as a percentage of average earning assets on a tax equivalent basis, was
4.63 percent, about the same as the 4.64 percent in 1998.
Loan loss provision -The provision for loan losses was $1.090 million, down $4
thousand from 1998, while the balance in the allowance for loan losses has
increased by 1.255 million, or 27 percent since September 30, 1998. The balance
in the allowance for loan losses was 250 percent of total non-performing assets
at September 30, 1999, and has increased to 1.04 percent of total loans.
Non-interest income - Total non-interest income is down $733 thousand of which
$559 thousand was the one-time gain in 1998 from the sale of Glacier Bank's
trust department, and the sale of the credit card portfolio. Most of the
remaining income reduction was from a slow down in mortgage lending activity
resulting from higher mortgage rates in 1999.
Non-interest expense - Non-interest expense increased by $155 thousand, or .89
percent, over 1998 which included merger and reorganization expense of $635
thousand. Compensation and employee benefits increased $285 thousand, or 3.2
percent. Occupancy and equipment expense was up $309 thousand, or 15.2 percent,
the result of bringing more data processing functions in-house, and additional
expenses from the new branch/corporate office. Other expenses were down $343
thousand, or 5.5 percent. After adjusting other
13
<PAGE>
expenses for the 1998 merger and reorganization expense there was an increase of
$292 thousand in 1999 primarily the result of increased activity volumes. The
other area of expense reduction was the minority interest in subsidiaries which
decreased by $96 thousand, resulting from the acquisition of minority shares in
1998.
The discussion above may include certain "forward looking statements" concerning
the future operations of the Company. The Company is taking advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
as they apply to forward looking statements. This statement is for the express
purpose of availing the Company of the protections of such safe harbor with
respect to all "forward looking statements." Management's ability to predict
results of the effect of future plans in inherently uncertain, and is subject to
factors that may cause actual results to differ materially from those projected.
Year 2000 Issues
The century date change for the Year 2000 is a serious issue that may impact
virtually every organization including the Company. Many software programs are
not able to recognize the Year 2000, since most programs and systems were
designed to store calendar years in the 1900s by assuming "19" and storing only
the last two digits of the year. The problem is especially important to
financial institutions since many transactions, such as interest accruals and
payments, are date sensitive, and because the Company and its subsidiary banks
interact with numerous customers, vendors and third party service providers who
must also address the Year 2000 issue. The problem is not limited to computer
systems. Year 2000 issues will also potentially affect every system that has an
embedded microchip, such as automated teller machines, elevators and vaults.
State of Readiness
The Company and its subsidiary banks are committed to addressing these Year 2000
issues in a prompt and responsible manner, and they have dedicated the resources
to do so. Management has completed an assessment of its automated systems and
has implemented a program consistent with applicable regulatory guidelines, to
complete all steps necessary to resolve identified issues. The Company's
compliance program has several phases, including (1) project management; (2)
assessment; (3) testing; and (4) remediation and implementation.
Project Management. The Company has formed a Year 2000 compliance committee
consisting of senior management and departmental representatives. The committee
has met regularly since October 1997. A Year 2000 compliance plan was developed
and regular meetings have been held to discuss the process, assign tasks,
determine priorities and monitor progress. The committee regularly reports to
the Company's Board.
Assessment. All of the Company's and its subsidiary banks' computer equipment
and mission-critical software programs have been identified. This phase is
complete. Primary software vendors were also assessed during this phase, and
vendors who provide mission-critical software have been contacted. The Year 2000
committee has obtained written certification from providers of material services
that such providers are, or will be, Year 2000 compliant. Based upon its ongoing
assessment of the readiness of its vendors, suppliers and service providers, the
committee developed contingency plans addressing the most reasonably likely
worst case scenarios. The committee will continue to monitor and work with these
vendors. The committee and other bank officers have also identified and are
working with, the subsidiary banks' significant borrowers and funds providers to
assess the extent to which they may be affected by Year 2000 issues.
Testing. Updating and testing of the Company's and its subsidiary banks'
automated systems has been completed as of September 30, 1999.
14
<PAGE>
Estimated Costs to Address Year 2000 Issues
The total financial effect that Year 2000 issues will have on the Company cannot
be predicted with any certainty at this time. In fact, in spite of all efforts
being made to rectify these problems, the success of the Company's efforts will
not be known until the Year 2000 actually arrives. However, based on its
assessment to date, the Company does not believe that expenses related to
meeting Year 2000 challenges will have a material effect on its operations or
consolidated financial condition. Year 2000 challenges facing vendors of
mission-critical software and systems, and facing the Company's customers, could
have a material effect on the operations or consolidated financial condition of
the Company, to the extent such parties are materially affected by such
challenges.
Risks Related to Year 2000 Issues
The year 2000 poses certain risks to the Company and its subsidiary banks and
their operations. Some of these risks are present because the Company purchases
technology and information systems applications from other parties who face Year
2000 challenges. Other risks are inherent in the business of banking or are
risks faced by many companies. Although it is impossible to identify all
possible risks that the Company may face moving into the millennium, management
has identified the following significant potential risks.
Commercial banks may experience a contraction in their deposit base, if a
significant amount of deposited funds are withdrawn by customers prior to the
Year 2000, and interest rates may increase as the millennium approaches. This
potential deposit contraction could make it necessary for the Company to change
its sources of funding and could impact future earnings. The Company established
a contingency plan for addressing this situation, should it arise, into its
asset and liability management policies. The plan includes maintaining the
ability to borrow funds from the Federal Home Loan Bank of Seattle. Significant
demand for funds from other banks could reduce the amount of funds available to
borrow. If insufficient funds are available from these sources, the Company may
also sell investment securities or other liquid assets to meet liquidity needs.
The Company lends significant amounts to businesses in its marketing area. If
these businesses are adversely affected by Year 2000 problems, their ability to
repay loans could be impaired. This increased credit risk could adversely affect
the Company's financial performance. During the assessment phase of the
Company's Year 2000 program, each of the Company's subsidiary banks' substantial
borrowers were identified, and the Company is working with such borrowers to
ascertain their levels of exposure to Year 2000 problems. To the extent that the
Company is unable to assure itself of the Year 2000 readiness of such borrowers,
it intends to apply additional risk assessment criteria to the indebtedness of
such borrowers and make any necessary related adjustments to the Company's
provision for loan losses.
The Company and its subsidiary banks, like those of many other companies, can be
adversely affected by the Year 2000 triggered failures of other companies upon
who the Company depends for the functioning of their automated systems.
Accordingly, the Company's operations could be materially affected, if the
operations of mission-critical third party service providers are adversely
affected. As described above, the Company has identified its mission-critical
vendors and is monitoring their Year 2000 compliance programs.
Contingency Plans
The Company has developed specific contingency plans related to year 2000
issues, other than those described above. As the Company and its subsidiary
banks continue to monitor the readiness of vendors, service providers and
substantial borrowers, appropriate contingency plans will be developed that
address the most reasonably likely "worst case" scenarios. Certain
circumstances, as described above in "Risk," may occur for which there are no
completely satisfactory contingency plans.
15
<PAGE>
FORWARD LOOKING STATEMENTS
The discussion above regarding to the century date change for the Year 2000
includes certain "forward looking statements" concerning the future operations
of the Company. The Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 as they apply
to forward looking statements. This statement is for the express purpose of
availing the Company of the protections of such safe harbor with respect to all
"forward looking statements." Management's ability to predict results of the
effect of future plans is inherently uncertain, and is subject to factors that
may cause actual results to differ materially from those projected. Factors that
could affect the actual results include the Company's success is identifying
systems and programs that are not Year 2000 compliant; the possibility that
systems modifications will not operate as intended; unexpected costs associated
with remediation, including labor and consulting costs; the nature and amount of
programming required to upgrade or replace the affected systems; the uncertainty
associated with the impact of the century change on the Company's customers,
vendors and third-party service providers; and the economy generally.
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 June 30, 1999, the most recent
information available, as compared to the 10% Board approved policy limit.
Estimated
Rate Change NII Sensitivity
----------- ---------------
+200 bp -3.09%
-200 bp .50%
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
16
<PAGE>
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.
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. On September 14, 1999, a Form 8-K was filed disclosing that Glacier
Bank had entered into a definitive agreement with Mountain West
Bank, an Idaho commercial bank. Under the terms of the Merger
Agreement, Mountain West Bank will become a separate, wholly-owned
subsidiary of Glacier. The transaction is subject to regulatory and
shareholder approval and is expected to close in early 2000.
b. Exhibit 27 - Financial data schedule
17
<PAGE>
SIGNATURES
PURSUANT to the requirments of Section 13 or 15(d) 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, on October 25, 1999.
GLACIER BANCORP, INC.
PURSUANT to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on October 25, 1999, by the following persons in the
capacities indicated.
/s/ Michael J. Blodnick President, CEO
- -----------------------
Michael J. Blodnick
/s/ James H. Strosahl Executive Vice President/CFO
- ----------------------- (Principal Financial/Accounting Officer)
James H. Strosahl
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 29,944
<INT-BEARING-DEPOSITS> 4,800
<FED-FUNDS-SOLD> 278
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 188,726
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 571,689
<ALLOWANCE> 5,896
<TOTAL-ASSETS> 835,256
<DEPOSITS> 502,781
<SHORT-TERM> 101,516
<LIABILITIES-OTHER> 8,258
<LONG-TERM> 103,001
0
0
<COMMON> 95
<OTHER-SE> 78,640
<TOTAL-LIABILITIES-AND-EQUITY> 835,256
<INTEREST-LOAN> 34,513
<INTEREST-INVEST> 7,986
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 42,499
<INTEREST-DEPOSIT> 10,274
<INTEREST-EXPENSE> 18,248
<INTEREST-INCOME-NET> 24,251
<LOAN-LOSSES> 1,090
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 17,492
<INCOME-PRETAX> 13,970
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,060
<EPS-BASIC> 0.95
<EPS-DILUTED> 0.94
<YIELD-ACTUAL> 4.49
<LOANS-NON> 2
<LOANS-PAST> 550
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,133
<CHARGE-OFFS> 491
<RECOVERIES> 164
<ALLOWANCE-CLOSE> 5,896
<ALLOWANCE-DOMESTIC> 5,896
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
