<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 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 incorporation or organization) (IRS Employer
Identification No.)
49 Commons Loop, Kalispell, Montana 59901
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (406) 756-4200
- --------------------------------------------------------------------------------
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 July 29, 1999
was 9,535,287. No preferred shares are issued or outstanding.
1
<PAGE> 2
GLACIER BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page #
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Condensed Statements of Financial Condition -
June 30, 1999, December 31, and June 30, 1998 (unaudited) ........... 3
Consolidated Condensed Statements of Operations -
Three months and six months ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Condensed Statements of Cash Flows -
Six months ended June 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 ......... 17
PART II. OTHER INFORMATION ......................................................... 18
Signatures ......................................................................... 19
</TABLE>
2
<PAGE> 3
GLACIER BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Unaudited - $ in thousands except per share data) JUNE 30, DECEMBER 31, JUNE 30,
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Cash on hand and in banks ............................ $ 30,910 33,806 35,014
Federal funds sold ................................... 3,042 5,883 1,845
Interest bearing cash deposits ....................... 218 2,494 8,348
----------- ----------- -----------
Cash and cash equivalents ..................... 34,170 42,183 45,207
----------- ----------- -----------
Investments:
Investment securities, held-to-maturity ....... 0 8,272 3,498
Investment securities, available-for-sale ..... 56,397 50,618 55,836
Mortgage backed securities, available-for-sale 132,134 46,596 46,655
----------- ----------- -----------
Total investments ........................ 188,531 105,486 105,989
----------- ----------- -----------
Net loans receivable:
Real estate loans ............................. 199,900 215,271 218,473
Commercial Loans .............................. 231,746 194,321 185,300
Installment and other loans ................... 126,680 113,749 117,025
Allowance for losses .......................... (5,652) (5,133) (4,782)
----------- ----------- -----------
Total loans, net ......................... 552,674 518,208 516,016
----------- ----------- -----------
Premises and equipment, net .......................... 17,674 17,382 16,065
Real estate and other assets owned ................... 264 151 348
Federal Home Loan Bank of Seattle stock, at cost ..... 13,650 12,366 11,867
Federal Reserve stock, at cost ....................... 1,430 1,219 1,067
Accrued interest receivable .......................... 4,576 4,348 4,204
Goodwill, net ........................................ 2,489 2,601 1,352
Other assets ......................................... 3,812 2,083 1,444
----------- ----------- -----------
$ 819,269 706,027 703,559
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits - non-interest bearing ...................... $ 103,665 100,177 95,006
Deposits - interest bearing .......................... 367,268 375,667 360,533
Advances from Federal Home Loan Bank of Seattle ...... 202,241 124,886 136,476
Securities sold under agreements to repurchase ....... 49,113 17,239 18,784
Other borrowed funds ................................. 9,939 1,468 11,032
Accrued interest payable ............................. 2,675 2,278 2,406
Current income taxes ................................. 121 0 417
Deferred income taxes ................................ 891 1,601 1,877
Other liabilities .................................... 4,317 4,588 3,832
Minority interest .................................... 310 313 1,140
----------- ----------- -----------
Total liabilities ............................. 740,540 628,217 631,503
----------- ----------- -----------
Common stock, $.01 par value per share (1) ........... 95 95 93
Paid-in capital ...................................... 80,686 60,104 37,871
Retained earnings (deficit) - substantially restricted (312) 16,415 32,998
Accumulated other comprehensive earnings (loss) ...... (1,740) 1,196 1,094
----------- ----------- -----------
Total stockholders' equity .................... 78,729 77,810 72,056
----------- ----------- -----------
$ 819,269 706,027 703,559
=========== =========== ===========
Book value per share .......................... $ 8.27 8.22 7.75
=========== =========== ===========
Total shares outstanding at
end of period (1) ............................... 9,525,360 9,460,210 9,295,399
</TABLE>
(1) Number of shares outstanding adjusted for 10% stock dividend in 1998 and
1999.
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
GLACIER BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(unaudited - $ in thousands except per share data) Three months ended June 30, Six months ended June 30
- -------------------------------------------------- --------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Real estate loans .......................... $ 3,889 4,593 8,045 9,153
Commercial loans ........................... 4,718 4,017 9,103 7,732
Consumer and other loans ................... 2,744 2,794 5,364 5,602
Investment securities ...................... 2,739 2,060 4,639 4,217
---------- ---------- ---------- ----------
Total interest income ................ 14,090 13,464 27,151 26,704
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits ................................... 3,365 3,668 6,813 7,221
Advances ................................... 2,250 2,065 4,082 4,178
Repurchase agreements ...................... 222 203 407 413
Other borrowed funds ....................... 162 72 184 132
---------- ---------- ---------- ----------
Total interest expense ............... 5,999 6,008 11,486 11,944
---------- ---------- ---------- ----------
NET INTEREST INCOME ............................... 8,091 7,456 15,665 14,760
Provision for loan losses .................. 350 551 672 786
---------- ---------- ---------- ----------
Net Interest Income after provision for loan losses 7,741 6,905 14,993 13,974
---------- ---------- ---------- ----------
NON-INTEREST INCOME:
Fees and service charges ................... 2,478 2,380 4,958 4,785
Gains on sale of investments ............... 1 1 3 13
Other income ............................... 220 1,032 543 1,288
---------- ---------- ---------- ----------
Total fees and other income ........... 2,699 3,413 5,504 6,086
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses ................ 3,119 3,036 6,167 5,842
Occupancy and equipment expense ............ 783 690 1,563 1,322
Other expenses ............................. 1,922 2,192 3,705 4,187
Minority interest .......................... 12 50 23 99
---------- ---------- ---------- ----------
Total non-interest expense ............ 5,836 5,968 11,458 11,450
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES ...................... 4,604 4,350 9,039 8,610
Federal and state income tax expense .............. 1,601 1,635 3,142 3,201
---------- ---------- ---------- ----------
NET EARNINGS ...................................... $ 3,003 2,715 5,897 5,409
========== ========== ========== ==========
Basic earnings per share (1) ...................... 0.32 0.29 0.61 0.58
Diluted earnings per share (1) .................... 0.31 0.29 0.60 0.57
Dividends declared per share (1) .................. 0.15 0.11 0.29 0.21
Return on average assets (annualized) ............. 1.63% 1.58% 1.60% 1.57%
Return on beginning equity (annualized) ........... 15.03% 16.04% 15.16% 15.98%
Average outstanding shares - basic (1) ............ 9,520,719 9,255,828 9,500,307 9,226,401
Average outstanding shares - diluted (1) .......... 9,629,251 9,447,043 9,606,321 9,429,455
</TABLE>
(1) Adjusted for stock dividends
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(unaudited - $ in thousands) Six months ended June 30,
- ---------------------------- -------------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings ......................................................... $ 5,897 5,409
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Mortgage loans held for sale originated or acquired ................ (63,048) (71,198)
Proceeds from sales of mortgage loans held for sale ................ 70,340 67,223
Provision for loan losses .......................................... 672 786
Depreciation of premises and equipment ............................. 723 763
Amortization of goodwill ........................................... 112 66
Amortization of investment securities premiums and discounts, net .. 405 (73)
Net decrease in deferred income taxes .............................. 249 31
Net (increase) decrease in accrued interest receivable ............. (228) 271
Net increase in accrued interest payable ........................... 397 590
Net increase in current income taxes ............................... 121 111
Net (increase) decrease in other assets ............................ (787) 453
Net (decrease) increase in other liabilities and minority interest (274) 896
FHLB stock dividends ............................................... (476) (412)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................... 14,103 4,916
--------- ---------
INVESTING ACTIVITIES:
Proceeds from maturities and prepayments of investments
available-for-sale ............................................... 14,590 14,460
Purchases of investments available-for-sale .......................... (102,878) (5,826)
Proceeds from maturities and prepayments of investments
held-to-maturity ................................................. 0 7,406
Principal collected on installment and commercial loans .............. 103,875 73,226
Installment and commercial loans originated or acquired .............. (156,633) (114,162)
Proceeds from sales of commercial loans .............................. 2,249 4,185
Principal collections on mortgage loans .............................. 62,433 47,566
Mortgage loans originated or acquired ................................ (54,354) (37,423)
Net proceeds from sales (acquisition) of real estate owned ........... (113) (227)
Net purchase of FHLB and FRB stock ................................... (1,019) (745)
Net addition of premises and equipment ............................... (1,015) (2,107)
Acquisition of minority interest ..................................... 0 (283)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ........................... (132,865) (13,930)
--------- ---------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits .................................. (4,911) 25,786
Net increase (decrease) in FHLB advances and other borrowed funds .... 85,826 (6,439)
Net increase (decrease) in securities sold under repurchase agreements 31,874 (2,889)
Cash dividends paid to stockholders .................................. (2,746) (2,120)
Proceeds from exercise of stock options .............................. 706 1,188
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................ 110,749 15,526
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............. (8,013) 6,512
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 42,183 38,695
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 34,170 45,207
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest................ $ 11,089 11,354
Income taxes............ 3,021 3,268
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) Basis of Presentation:
In the opinion of Management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of
Glacier Bancorp Inc.'s (the "Company") financial condition as of June
30, 1999, and June 30, 1998 and the results of operations for the six
months and three months ended June 30, 1999 and 1998 and cash flows for
the six months ended June 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 six months and three months
ended June 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 June 30,
1999, the Company owned 100%, 94%, 98%, 100%, 100%, 100% and 100% of
Glacier, Whitefish, Eureka, Missoula, Helena, Big Sky and CFI,
respectively. 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 :
[FLOW CHART]
6
<PAGE> 7
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 proceeding 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 June 30, 1999, the Board of Directors declared of $.15 per share
quarterly cash dividend to stockholders of record on July 13, 1999,
payable on July 22, 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 Six Six
months ended months ended months ended months ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income available to common
stockholders, basic and diluted .... $3,002,554 2,715,023 5,896,766 5,408,741
========== ========= ========= =========
Average outstanding shares - basic . 9,520,719 9,255,828 9,500,307 9,226,401
Add: dilutive stock options ........ 108,532 191,215 106,014 203,054
--------- --------- --------- ---------
Average outstanding shares - diluted 9,629,251 9,447,043 9,606,321 9,429,455
========= ========= ========= =========
Basic earnings per share ........... $ .32 .29 .61 .58
========== === === ===
Diluted earnings per share ......... $ .31 .29 .60 .57
========== === === ===
</TABLE>
7) Investments:
A comparison of the amortized cost and estimated fair value of the
Company's investment securities is as follows:
7
<PAGE> 8
INVESTMENT SECURITIES AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
Estimated
Weighted Amortized Gross Unrealized 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 .................. 6.81% 4,256 28 0 4,284
maturing one year through five years ...... 6.43% 3,400 43 0 3,443
maturing after ten years .................. 4.87% 1,247 3 (3) 1,247
---- ------- ----- ------ -------
6.39% 8,903 74 (3) 8,974
---- ------- ----- ------ -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .................. 6.14% 421 2 (12) 411
maturing one year through five years ...... 5.16% 2,304 58 (1) 2,361
maturing five years through ten years ..... 5.07% 1,026 20 0 1,046
maturing after ten years .................. 5.19% 43,892 734 (1,021) 43,605
---- ------- ----- ------ -------
5.19% 47,643 814 (1,034) 47,423
---- ------- ----- ------ -------
MORTGAGE-BACKED SECURITIES .................. 7.20% 30,588 303 (493) 30,398
REAL ESTATE MORTGAGE INVESTMENT CONDUITS .... 6.83% 104,260 233 (2,757) 101,736
---- ------- ----- ------ -------
Total Securities ..................... 6.46% 191,394 1,424 (4,287) 188,531
==== ======= ===== ====== =======
</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> 9
INVESTMENT SECURITIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
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> 10
8) Stockholders' Equity:
The May, 1999 stock dividend decreased retained earnings and increased
common stock and paid in capital by $19,885 and resulted in a $312 deficit
in retained earnings as of June 30, 1999. The transaction had no effect on
total capital or capital adequacy.
The Federal Reserve Board has adopted capital adequacy guidelines pursuant
to which it assesses the adequacy of capital in supervising a bank holding
company. The following table illustrates the Federal Reserve Board's capital
adequacy guidelines and the company's compliance with those guidelines as of
June 30, 1999:
<TABLE>
<CAPTION>
Tier 1 (Core) Tier 2 (Total) Leverage
(dollars in thousands) Capital Capital Capital
---------------------- --------- --------- ---------
<S> <C> <C> <C>
GAAP Capital ....................................................... $ 78,729 $ 78,729 $ 78,729
Goodwill ........................................................... (2,489) (2,489) (2,489)
Net unrealized gains on securities
available-for-sale ............................................ 0 0 0
Minority Interest .................................................. 310 310 310
Allowance for loan losses .......................................... -- 5,652 --
--------- --------- ---------
Regulatory capital computed ........................................ $ 76,550 $ 82,202 $ 76,550
========= ========= =========
Risk weighted assets ............................................... $ 519,897 $ 519,897
========= =========
Total average assets ............................................... $ 737,328
=========
Capital as % of defined assets ..................................... 14.72% 15.81% 10.38%
Regulatory "well capitalized" requirement .......................... 6.00% 10.00% 5.00%
--------- --------- ---------
Excess over "well capitalized" requirement ......................... 8.72% 5.81% 5.38%
========= ========= =========
</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 six months
ended June 30, ended June 30,
----------------------- ---------------------
Dollars in thousands 1999 1998 1999 1998
-------------------- ------- ----- ----- -----
<S> <C> <C> <C> <C>
Net earnings ...................................... $ 3,003 2,715 5,897 5,409
------- ----- ----- -----
Unrealized holding losses arising during the period (4,749) (32) (5,179) (245)
Transfer from held-to-maturity .................... 0 0 288 0
Tax expense ....................................... 1,904 11 1,953 83
------- ----- ----- -----
Net after tax ......................... (2,845) (21) (2,938) (162)
Less: reclassification adjustment for amounts
included in net income ......................... 1 1 3 13
Tax expense ....................................... 0 0 (1) (4)
------- ----- ----- -----
Net after tax ......................... 1 1 2 9
Net unrealized loss on securities ..... (2,844) (20) (2,936) (153)
------- ----- ----- -----
Total comprehensive earnings ...... $ 159 2,695 2,961 5,256
======= ===== ===== =====
</TABLE>
10
<PAGE> 11
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, 1998 to June 30, 1999.
From December 31, 1998 total assets have grown $113.242 million, or 16.04%, to
$819.269 million, and have increased $115.710 million, or 16.45% since June 30,
1998. The 1999 increase was primarily in investment growth of $83.0 million, or
78.7%. Higher investment yields, a steeper yield curve, and the pending branch
and deposit acquisition from Washington Mutual have provided an opportunity to
increase the investment portfolio. Net loans have also increased $34.5 million
from December 31, 1998.
Real estate loans decreased $15.4 million during the period, while commercial
loans increased $37.4, 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 $70.3 million and $67.2 million
during the first six months of 1999 and 1998, respectively.
The amount of loans serviced for others on June 30, 1999 was $120.232 million.
Total deposits decreased $4.9 million, which was the result of a $3.5 million
increase in non-interest bearing deposits and an $8.4 million decrease in
interest bearing deposits. 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 completion of the Washington Mutual branch purchase,
which is expected to occur in early October, additional deposits of
approximately $80 million will be available for asset funding, replacing the
borrowed funds.
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 June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
Available line Amount Used Available
-------------- ----------- ---------
<S> <C> <C> <C>
Glacier Bank $148,136 127,619 20,517
Whitefish 11,501 7.575 3,926
Eureka 8,220 5,723 2,497
Missoula 33,955 29,000 4,955
Helena 11,213 8,042 3,171
Big Sky 14,314 11,786 2,528
-------- -------- --------
Totals 227,339 189,745 37,594
======== ======== ========
</TABLE>
11
<PAGE> 12
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 $2.7 million or .34%
of total assets at June 30, 1999, compared to $2.8 million, or .40% of total
assets, as of December 31, 1998.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Total Allowance for Loan and Real Estate Owned Losses: $5.6 million $5.1 million
Allowance as a percentage of Total Loans: 1.02% .98%
Allowance as a percentage of Non-performing Assets: 206% 184%
</TABLE>
Impaired Loans
As of June 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 June 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 6/30/99 compared to the three
months ended 6/30/98.
Glacier Bancorp, Inc. reported record net income of $3.003 million, or basic
earnings per share of $.32, for the second quarter of 1999, compared with $2.715
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 first quarter of
1999 were 1.63 percent and 15.03 percent, respectively, which compares to
returns of 1.58 percent and 16.04 percent for the same quarter of 1998. The
return on equity is lower in 1999 because stockholders' equity has increased
$6.7 million, or 9.2 percent over the June 30, 1998 level and is a very strong
9.6 percent of assets.
Net Interest Income
Net interest income for the quarter was $8.091 million, an increase of $635,000,
or 8.5 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 4.7 percent, were the reasons for this increase. Loan
balances have increased $37.5 million from June 30, 1998, an increase of 7.2
percent. 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 $46.4 million, or 25.1 percent, and consumer loans up $9.6
million, or 8.2 percent. Real estate loans are down $18.6 million, or 8.5
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 $82.5 million, or 77.9 percent, with most of the increase
occurring during the current quarter. Total deposits increased $15.4 million, or
3.4 percent, with $8.7 million of the increase occurring in non-interest bearing
deposits, which increased 9.1 percent.
12
<PAGE> 13
Loan Loss Provision and Non-Performing Assets
The second quarter provision for loan losses was $350 thousand, down from $551
thousand during the same quarter in 1998. Non-performing assets as a percentage
of loans at June 30, 1999 were .50 percent, well below the average of the
Company's peer group which was .78 percent at March 31, 1999, the most recent
information available. The reserve for loan losses was 206 percent of
non-performing assets as of June 30, 1999.
Non-interest Income
Non-interest income declined $714 thousand, from the second quarter of 1998
which included gains of $559 thousand from the sale of the trust department of
Glacier Bank, and the credit card portfolio. Income from insurance sales was
lower in 1999 due to a change in the types of consumer loans made which are not
as applicable to credit insurance. Service fees on deposit accounts were $98
thousand higher in 1999.
Non-interest Expense
Non-interest expense decreased by $132 thousand, or 2.2 percent, over the second
quarter of 1998 which included merger and reorganization expense of $232
thousand. Compensation and employee benefits increased $83 thousand, or 2.7
percent. Occupancy and equipment expense was up $93 thousand, or 13.5 percent,
the result of bringing more data processing functions in-house and additional
expenses from the new branch/corporate office. Other expenses were down $270
thousand, or 12.3 percent. The rest of the expense reduction was the minority
interest in subsidiaries which decreased by $38 thousand, resulting from the
acquisition of minority shares.
Results of Operations - The six months ended 6/30/99 compared to the six months
ended 6/30/98
Net income of $5.897 million was an increase of $488 thousand, or 9.0 percent,
over the first six months of 1998. Basic earnings per share were $.61 for 1999
and $.58 for 1998, with diluted earnings per share of $.60 and $.57,
respectively. Included in 1998 were merger and reorganization expenses of $256
thousand after tax, or basic earning per share of $.03. Return on average assets
was 1.60 and 1.57 percent, and return on beginning equity was 15.16 and 15.98
percent for the first six 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 on investments, to 9.61 percent.
Net Interest Income
Net interest income for the six months was $15.665 million, an increase of $905
thousand, or 6.13 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 4.68 percent, about the same as
the 4.69 percent in 1998. So far we have not experienced a decrease in net
interest margin. The recent 25 basis point increase to the Wall Street Prime
lending rate should also benefit the margin.
Loan Loss Provision
The provision for loan losses was $672 thousand, down slightly from $786
thousand in 1998. The level of non-performing loans remains at a relatively low
level compared to the peer group of similar sized companies as reported in the
Federal Reserve Bank's "Bank Performance Report".
Non-interest Income
Total non-interest income is down $582 thousand from last year due to a
non-recurring $559 thousand gain in 1998 from the sale of Glacier Bank's trust
department, and the sale of the credit card portfolio.
13
<PAGE> 14
Non-interest Expense
Non-interest expense increased by $8 thousand over 1998 which included merger
and reorganization expense of $328 thousand. Compensation and employee benefits
increased $325 thousand, or 5.6 percent. Occupancy and equipment expense was up
$241 thousand, or 18.2 percent, the result of bringing more data processing
functions in-house, and additional expenses from the new branch/corporate
office. Other expenses were down $482 thousand, or 11.5 percent. The rest of the
expense reduction was the minority interest in subsidiaries which decreased by
$76 thousand, resulting from the acquisition of minority shares.
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
essentially complete. Primary software vendors were also assessed during this
phase, and vendors who provide mission-critical software have been contacted.
The Year 2000 committee is in the process of obtaining 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 intends to develop
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 began working with,
the subsidiary banks' significant borrowers and funds providers to assess the
extent to which they may be affected by Year 2000 issues.
14
<PAGE> 15
Testing. Updating and testing of the Company's and its subsidiary banks'
automated systems has been completed as of June 30, 1999.
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
15
<PAGE> 16
reasonably likely "worst case" scenarios. Certain circumstances, as described
above in "Risk," may occur for which there are no completely satisfactory
contingency plans.
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.
16
<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates/prices such as interest rates, foreign currency exchange
rates, commodity prices, and equity prices. The Company's primary market risk
exposure is interest rate risk. The ongoing monitoring and management of this
risk is an important component of the Company's asset/liability management
process which is governed by policies established by its Board of Directors that
are reviewed and approved annually. The Board of Directors delegates
responsibility for carrying out the asset/liability management policies to the
Asset/Liability committee (ALCO). In this capacity ALCO develops guidelines and
strategies impacting the Company's asset/liability management related activities
based upon estimated market risk sensitivity, policy limits and overall market
interest rate levels/trends.
Interest Rate Risk:
Interest rate risk represents the sensitivity of earnings to changes in market
interest rates. As interest rates change the interest income and expense streams
associated with the Company's financial instruments also change thereby
impacting net interest income (NII), the primary component of the Company's
earnings. ALCO utilizes the results of a detailed and dynamic simulation model
to quantify the estimated exposure of NII to sustained interest rate changes.
While ALCO routinely monitors simulated NII sensitivity over a rolling two-year
horizon, it also utilizes additional tools to monitor potential longer-term
interest rate risk.
The simulation model captures the impact of changing interest rates on the
interest income received and interest expense paid on all assets and liabilities
reflected on the Company's balance sheet. This sensitivity analysis is compared
to ALCO policy limits which specify a maximum tolerance level for NII exposure
over a one year horizon, assuming no balance sheet growth, given a 200 basis
point (bp) upward and downward shift in interest rates. A parallel and pro rata
shift in rates over a 12 month period is assumed. The following reflects the
Company's NII sensitivity analysis as of December 31, 1998, the most recent
information available, as compared to the 10% Board approved policy limit.
<TABLE>
<CAPTION>
Estimated
Rate Change NII Sensitivity
----------- ---------------
<S> <C>
+200 bp 1.44%
-200 bp -1.99%
</TABLE>
The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including: the
nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of assets and liability cashflows,
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to: prepayment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals and
product preference changes, and other internal/external variables. Furthermore,
the sensitivity analysis does not reflect actions that ALCO might take in
responding to or anticipating changes in interest rates.
17
<PAGE> 18
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
At the annual shareholders' meeting held April 28, 1999, directors
Michael J. Blodnick, Fred J. Flanders, and Harold A. Tutvedt were
elected to a three-year term.
At the same meeting, amendments to the "1995 Employee Stock Option Plan"
and the "1994 Directors' Stock Option Plan" increasing the number of
shares available for issuance by 600,000 and 100,000, respectively, were
approved.
Votes were tabulated as follows:
Proposal #1 - Election of Directors:
<TABLE>
<CAPTION>
Michael J. Blodnick Fred J. Flanders Harold A. Tutvedt
------------------- ---------------- -----------------
<S> <C> <C> <C>
For 7,468,683 7,468,867 7,466,488
Against 240 56 2,925
Abstain 13,519 13,519 13,029
</TABLE>
Proposal #2 - Amendment to the 1995 Employee Stock Option Plan
<TABLE>
<S> <C>
For 5,543,123
Against 283,353
Abstain 69,199
</TABLE>
Proposal #3 - Amendment to the 1994 Directors' Stock Option Plan
<TABLE>
<S> <C>
For 5,475,277
Against 325,179
Abstain 95,220
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
18
<PAGE> 19
a. Exhibit 27 - Financial data schedule
b. On May 19, 1999, a Form 8-K was filed disclosing that Glacier
Bank had entered into a definitive agreement with Washington
Mutual Bank fsb to purchase two branches of Washington Mutual
located in Butte, Montana. Under the terms of the purchase and
assumption agreement, Glacier would acquire approximately $80
million in deposits and the real estate of the two branches. The
transaction is expected to close early in October, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLACIER BANCORP, INC.
August 10, 1999 By _____________________________
Michael J. Blodnick
President/CEO
August 10, 1999 By _____________________________
James H. Strosahl
Executive Vice President/CFO
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF FINANCIAL JUNE 30, 1999, CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 30, 1999, REFERENCE TO QUARTERLY REPORT FROM 10-Q JUNE 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 30,910
<INT-BEARING-DEPOSITS> 218
<FED-FUNDS-SOLD> 3,042
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 188,531
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 558,326
<ALLOWANCE> 5,652
<TOTAL-ASSETS> 819,269
<DEPOSITS> 470,933
<SHORT-TERM> 101,516
<LIABILITIES-OTHER> 8,314
<LONG-TERM> 159,777
0
0
<COMMON> 95
<OTHER-SE> 78,634
<TOTAL-LIABILITIES-AND-EQUITY> 819,269
<INTEREST-LOAN> 22,512
<INTEREST-INVEST> 4,639
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 27,151
<INTEREST-DEPOSIT> 6,813
<INTEREST-EXPENSE> 11,486
<INTEREST-INCOME-NET> 15,665
<LOAN-LOSSES> 672
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 11,458
<INCOME-PRETAX> 9,039
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,897
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.60
<YIELD-ACTUAL> 4.68
<LOANS-NON> 1,715
<LOANS-PAST> 746
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,133
<CHARGE-OFFS> 291
<RECOVERIES> 138
<ALLOWANCE-CLOSE> 5,652
<ALLOWANCE-DOMESTIC> 5,652
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
