SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 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
incorporation or organization) Identification No.)
49 Commons Loop, Kalispell, Montana 59901
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (406) 756-4200
- --------------------------------------------------------------------------------
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 May 7, 1999,
was 8,654,106. No preferred shares are issued or outstanding.
<PAGE>
GLACIER BANCORP, INC.
Quarterly Report on Form 10-Q
Index
Page #
------
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Condensed Statements of Financial Condition -
March 31, 1999, December 31, and March 31, 1998 (unaudited) 3
Consolidated Condensed Statements of Operations -
Three months ended March 31, 1999 and 1998 (unaudited) 4
Consolidated Condensed Statements of Cash Flows -
Three months ended March 31, 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 10
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 16
Part II. Other Information 17
Signatures 17
2
<PAGE>
<TABLE>
<CAPTION>
GLACIER BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited - dollars in thousands except per share data) March 31, December 31, March 31,
- -------------------------------------------------------- 1999 1998 1998
--------- ------------ ---------
<S> <C> <C> <C>
Assets:
Cash on hand and in banks ....................................................... $ 29,315 33,806 31,796
Federal funds sold .............................................................. 0 5,883 11,232
Interest bearing cash deposits .................................................. 8,586 2,494 400
---------- ---------- ----------
Cash and cash equivalents .............................................. 37,901 42,183 43,428
---------- ---------- ----------
Investments:
Investment securities, held-to-maturity ................................ 0 8,272 9,980
Investment securities, available-for-sale .............................. 56,304 50,618 50,320
Mortgage backed securities, held-to-maturity ........................... 0 0 40
Mortgage backed securities, available-for-sale ......................... 83,752 46,596 51,139
---------- ---------- ----------
Total Investments ................................................. 140,056 105,486 111,479
---------- ---------- ----------
Net loans receivable:
Real estate loans ...................................................... 201,063 215,271 221,460
Commercial Loans ....................................................... 204,770 194,321 169,488
Installment and other loans ............................................ 114,149 113,749 115,927
Allowance for losses ................................................... (5,421) (5,133) (4,406)
---------- ---------- ----------
Total Loans, net .................................................. 514,561 518,208 502,469
---------- ---------- ----------
Premises and equipment, net ..................................................... 17,382 17,382 15,499
Real estate and other assets owned .............................................. 106 151 152
Federal Home Loan Bank of Seattle stock, at cost ................................ 13,031 12,366 11,655
Federal Reserve stock, at cost .................................................. 1,430 1,219 1,067
Accrued interest receivable ..................................................... 4,394 4,348 4,321
Goodwill, net ................................................................... 2,545 2,601 1,386
Other assets .................................................................... 2,160 2,083 1,866
---------- ---------- ----------
$ 733,566 706,027 693,322
========== ========== ==========
Liabilities and stockholders' equity:
Deposits - non-interest bearing ................................................. $ 98,128 100,177 91,683
Deposits - interest bearing ..................................................... 373,874 375,667 348,999
Advances from Federal Home Loan Bank of Seattle ................................. 153,675 124,886 155,063
Securities sold under agreements to repurchase .................................. 16,839 17,239 14,720
Other borrowed funds ............................................................ 1,741 1,468 2,715
Accrued interest payable ........................................................ 2,354 2,278 2,383
Current income taxes ............................................................ 1,380 0 1,914
Deferred income taxes ........................................................... 1,355 1,601 1,787
Other liabilities ............................................................... 3,980 4,588 3,281
Minority Interest ............................................................... 319 313 1,117
---------- ---------- ----------
Total liabilities ...................................................... 653,645 628,217 623,662
---------- ---------- ----------
Common stock, $.01 par value per share (1) ...................................... 87 86 84
Paid-in capital ................................................................. 60,709 60,104 38,750
Retained earnings - substantially restricted .................................... 18,021 16,424 29,753
Accumulated other comprehensive earnings ........................................ 1,104 1,196 1,073
---------- ---------- ----------
Total stockholders' equity ............................................. 79,921 77,810 69,660
---------- ---------- ----------
$ 733,566 706,027 693,322
========== ========== ==========
Book value per share ................................................... $ 9.24 9.05 8.31
========== ========== ==========
(1) Number of shares outstanding adjusted for 10% stock dividend in 1998.
Total shares outstanding at end of period 8,651,318 8,595,622 8,381,379
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Glacier Bancorp, Inc.
Consolidated Condensed Statements of Operations
- ---------------------------------------------------------------------------------------------------------
(unaudited - dollars in thousands except per share data) Three months ended March 31,
- -------------------------------------------------------- -----------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest income:
Real estate loans .................................. $ 4,156 4,560
Commercial loans ................................... 4,385 3,715
Consumer and other loans ........................... 2,620 2,808
Investment securities .............................. 1,900 2,157
---------- ----------
Total interest income ........................ 13,061 13,240
---------- ----------
Interest expense:
Deposits ........................................... 3,448 3,553
Advances ........................................... 1,832 2,113
Repurchase agreements .............................. 185 210
Other borrowed funds ............................... 22 60
---------- ----------
Total interest expense ....................... 5,487 5,936
---------- ----------
Net interest income ............................................ 7,574 7,304
Provision for loan losses .......................... 322 235
---------- ----------
Net Interest Income after provision for loan losses ............ 7,252 7,069
---------- ----------
Non-interest income:
Loan fees and service charges ...................... 2,480 2,405
Gains on sale of investments ....................... 2 12
Other income ....................................... 323 256
---------- ----------
Total fees and other income ................... 2,805 2,673
---------- ----------
Non-interest expense:
Compensation, employee benefits
and related expenses ........................ 3,048 2,806
Occupancy expense .................................. 780 632
Data processing expense ............................ 179 274
Other expenses ..................................... 1,604 1,721
Minority interest .................................. 11 49
---------- ----------
Total non-interest expense .................... 5,622 5,482
---------- ----------
Earnings before income taxes ................................... 4,435 4,260
Federal and state income tax expense ........................... 1,541 1,566
---------- ----------
Net earnings ................................................... $ 2,894 2,694
========== ==========
Basic earnings per share (1) ................................... $ 0.34 0.32
Diluted earnings per share (1) ................................. 0.33 0.31
Dividends declared per share (1) ............................... 0.15 0.11
Return on average assets (annualized) .......................... 1.62% 1.57%
Return on beginning equity (annualized) ........................ 14.88% 15.92%
Average outstanding shares - basic (1) ......................... 8,618,086 8,360,887
Average outstanding shares - diluted (1) ....................... 8,707,541 8,556,242
</TABLE>
(1) Adjusted for 10% stock dividend in 1998.
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
(dollars in thousands) 1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings .................................................................... $ 2,894 2,694
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Mortgage loans held for sale originated or acquired ........................... (34,050) (38,887)
Proceeds from sales of mortgage loans held for sale ........................... 39,398 32,182
Provision for loan losses ..................................................... 322 232
Depreciation of premises and equipment ........................................ 360 269
Amortization of goodwill ...................................................... 56 32
Amortization of investment securities premiums and discounts, net ............. 228 72
Net decrease in deferred income taxes ......................................... (199) (28)
Net (increase) decrease in accrued interest receivable ........................ (46) 155
Net increase in accrued interest payable ...................................... 76 462
Net increase in current income taxes .......................................... 1,653 1,608
Net (increase) decrease in other assets ....................................... (350) 32
Net (decrease) increase in other liabilities and minority interest ............ (602) 1,888
FHLB stock dividends .......................................................... (237) (197)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................. 9,503 514
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities and prepayments of investment
securities available-for-sale ............................................... 6,610 9,443
Purchases of investment securities available-for-sale ........................... (41,547) (5,113)
Proceeds from maturities and prepayments of investment
securities held-to-maturity ................................................. 0 6,105
Purchases of investment securities held-to-maturity ............................. 0 (70)
Principal collected on installment and commercial loans ......................... 47,027 39,596
Installment and commercial loans originated or acquired ......................... (60,160) (59,882)
Proceeds from sales of commercial loans ......................................... 2,249 623
Principal collections on mortgage loans ......................................... 27,280 18,632
Mortgage loans originated or acquired ........................................... (18,419) (8,746)
Net proceeds from sales (acquisition) of real estate owned ...................... 45 (31)
Net purchase of FHLB and FRB stock .............................................. (639) (748)
Net addition of premises and equipment .......................................... (360) (1,046)
Acquisition of minority interest ................................................ 0 (283)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ...................................... (37,914) (1,520)
-------- --------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits ............................................. (3,842) 9,456
Net increase in FHLB advances and other borrowed funds .......................... 29,062 3,831
Net decrease in securities sold under repurchase agreements ..................... (400) (6,953)
Cash dividends paid to stockholders ............................................. (1,297) (1,067)
Proceeds from exercise of stock options ......................................... 606 472
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................... 24,129 5,739
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ..................................... (4,282) 4,733
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................ 42,183 38,695
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................................... $ 37,901 43,428
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest..................................... $ 5,411 5,369
Income taxes................................. 161 136
</TABLE>
See accompanying notes to consolidated condensed 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 March 31, 1999,
December 31, and March 31, 1998 and the results of operations for the three
months ended March 31, 1999 and 1998 and cash flows for the three months
ended March 31, 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 three months ended March 31, 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 March 31, 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 two 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,
Western Bank of Helena Inc.
(Commercial Bank) (Commercial Bank) (Brokerage services)
----------------- ----------------- --------------------
6
<PAGE>
3) Stock Dividend:
On August 27, 1998, a 10% stock dividend was approved by the Board of
Directors. As a result, all per share amounts from time periods proceeding
this date 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 March 24, 1999, the Board of Directors declared of $.15 per share
quarterly cash dividend to stockholders of record on April 8, 1999, payable
on April 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 months ended Three Months ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Net income available to common stockholders,
basic and diluted ................................ $2,894,212 2,693,718
========== ==========
Average outstanding shares - basic ............... 8,618,086 8,360,887
Add: dilutive stock options ...................... 89,455 195,356
---------- ----------
Average outstanding shares - diluted ............. 8,707,541 8,556,242
========== ==========
Basic earnings per share ......................... $ .34 .32
========== ==========
Diluted earnings per share ....................... $ .33 .31
========== ==========
</TABLE>
7
<PAGE>
7) Investments:
A comparison of the amortized cost and estimated fair value of the
Company's investment securities is as follows:
<TABLE>
<CAPTION>
Investment Securities as of March 31, 1999
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 .............................. 7.89% $ 4,158 50 0 4,208
maturing one year through five years .................. 6.22% 6,602 124 0 6,726
maturing after ten years .............................. 6.49% 1,359 9 (1) 1,367
---- -------- -------- -------- --------
6.82% 12,119 183 (1) 12,301
---- -------- -------- -------- --------
State and Local Governments and other issues:
maturing within one year .............................. 6.84% $ 802 4 0 806
maturing one year through five years .................. 5.34% 974 35 0 1,009
maturing five years through ten years ................. 5.17% 2,463 113 0 2,576
maturing after ten years .............................. 5.23% 38,428 1,561 (378) 39,611
---- -------- -------- -------- --------
5.26% 42,667 1,713 (378) 44,002
---- -------- -------- -------- --------
Mortgage-Backed Securities ............................... 7.54% 15,029 460 (82) 15,407
Real Estate Mortgage Investment Conduits ................. 7.24% 68,360 257 (271) 68,346
---- -------- -------- -------- --------
Total Securities ................................... 6.45% $138,175 2,613 (732) 140,056
==== ======== ======== ======== ========
</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
- --------------------------------------------------------- ----------------------- ------- ------- ---------
- ---------------------------------------------------------
Held-to-Maturity
- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 ......................................... 7.56% 18,299 546 (63) 18,782
Securities
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 March 31, 1999:
<TABLE>
<CAPTION>
Tier 1 Tier 2
(Core) (Total) Leverage
(dollars in thousands) Capital Capital Capital
- --------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
GAAP Capital ............................................ $ 79,921 $ 79,921 $ 79,921
Goodwill ................................................ (2,545) (2,545) (2,545)
Net unrealized gains on securities
available-for-sale ................................. (1,104) (1,104) (1,104)
Minority Interest........................................ 319 319 319
Allowance for loan losses ............................... -- 5,421 --
--------- --------- ---------
Regulatory capital computed ............................. $ 76,591 $ 82,012 $ 76,591
========= ========= =========
Risk weighted assets .................................... $ 466,358 $ 466,358
========= =========
Total average assets .................................... $ 713,839
=========
Capital as % of defined assets........................... 16.42% 17.59% 10.73%
Regulatory "well capitalized" requirement ............... 6.00% 10.00% 5.00%
--------- --------- ---------
Excess over "well capitalized" requirement............... 10.42% 7.59% 5.73%
========= ========= =========
</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 quarter ended March 31,
-------------------------------
1999 1998
------- -------
<S> <C> <C>
Net earnings ........................................... $ 2,894 2,694
------- -------
Unrealized holding losses arising during the period .... (430) (213)
Transfer from held-to-maturity ......................... 288 --
Tax expense ............................................ 49 72
------- -------
Net after tax ..................................... (93) (141)
Less: reclassification adjustment for amounts
included in net income ............................... 2 12
Tax expense ............................................ (1) (4)
------- -------
Net after tax ..................................... 1 8
Net unrealized loss on securities ................. (92) (133)
------- -------
Total comprehensive earnings .................. $ 2,802 2,561
======= =======
</TABLE>
10
<PAGE>
10) Subsequent Events
The Board of Directors, at their meeting held on April 28, 1999, declared a
10 percent stock dividend payable May 27, 1999 in common stock of the
Company, to shareholders of record on May 18, 1999. Fractional shares will
be paid in cash.
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 March 31, 1999.
From March 31, 1998 total assets have grown $40.244 million, or 5.8 percent, to
$733.566 million, and have increased $27.539 million, or 3.9 percent since
December 31, 1998. This 1999 increase was primarily in investment growth of
$34.6 million, or 32.7%. Investments were acquired at attractive yields to
increase earnings using the strong equity of the Company. Total net loans have
declined $3.6 million.
Real estate loans decreased $14.2 million during the period, while commercial
loans increased $10.4 million, partially offsetting the decline in real estate
loans. The decrease in real estate loans is the result of borrowers continuing
to prepay loans in this low interest rate environment and the Company's decision
to not retain long-term low-rate loans.
Loans sold to the secondary market amounted to $41.6 million and $32.8 million
during the first three months of 1999 and 1998, respectively.
The amount of loans serviced for others on March 31, 1999 was $126.2 million.
Total deposits decreased $3.8 million, with $1.8 million of the decrease
occurring in interest bearing deposits and $2.0 million from non-interest
bearing deposits. Advances from the Federal Home Loan Bank ("FHLB") increased
$28.8 million while securities sold under repurchase agreements and other
borrowed funds decreased $.1 million.
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 March 31, 1999 (in thousands):
Available line Amount Used Available
-------------- ----------- ---------
Glacier Bank ..................... $148,135 99,184 48,951
Whitefish ........................ 8,378 4,775 3,603
Eureka ........................... 7,676 3,532 4,144
Missoula ......................... 33,955 18,400 15,555
Helena ........................... 14,951 4,961 9,990
Big Sky .......................... 12,153 7,300 4,853
-------- -------- --------
Totals ............ 225,248 138,152 87,096
======== ======== ========
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 $2.0 million or .27%
of total assets at March 31, 1999, as compared to $2.8 million, or .42% of total
assets, as of December 31, 1998.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----------------------------------
<S> <C> <C>
Total Allowance for Loan and Real Estate Owned Losses: $5.4 million $5.1 million
Allowance as a percentage of Total Loans: 1.04% .98%
Allowance as a percentage of Non-performing Assets: 276% 173%
</TABLE>
Impaired Loans
As of March 31, 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 statement of financial condition
represents the minority stockholders' share in the retained earnings of the
Company. These are shares of Eureka and Whitefish that are still outstanding. As
of March 31, 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 3/31/99 compared to the three
months ended 3/31/98.
Glacier Bancorp, Inc. reported record net income of $2.894 million, or basic
earnings per share of $.34, for the first quarter of 1999, compared with $2.694
million, or basic earnings per share of $.32, for the same quarter of 1998.
Return on average assets and return on beginning equity in the first quarter of
1999 were 1.62 percent and 14.88 percent, respectively, which compares to
returns of 1.57 percent and 15.92 percent for the same quarter of 1998. The
return on equity is lower in 1999 because stockholders' equity has increased
$10.261 million, or 14.7 percent over the March 31, 1998 level and is a very
strong 10.9 percent of assets.
Net Interest Income
Net interest income for the quarter was $7.574 million, an increase of $270,000,
or 3.7 percent, over the same period in 1998. The reason for the increase was
growth in net earning assets together with maintenance of net interest margin as
a percentage of earning assets of 4.7 percent. Loan balances have increased
$13.1 million from March 31, 1998, an increase of 2.6 percent. Consistent with
management's strategy, there has been a significant shift in the mix of loans,
with higher yielding commercial loans up $35.3 million, or 20.8 percent.
Consumer loans are down $1.8 million, the result of the sale of $3.8 million in
credit card loans which generally carried a higher credit risk, and real estate
loans are down $20.4 million, or 9.2 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 $28.6 million, or
25.6 percent, with most of the increase occurring towards the end of the current
quarter. With a steeper yield curve investments have become more attractive.
Total deposits increased $31.3 million, or 7.1 percent, with $6.4 million of the
increase in non-interest bearing deposits.
12
<PAGE>
Loan Loss Provision and Non-Performing Assets
The first quarter provision for loan losses was $322 thousand, up from $235
thousand during the same quarter in 1998 reflecting the changing mix of loans to
more commercial which historically carry a greater degree of credit risk than
residential real estate loans. Non-performing assets as a percentage of loans at
March 31, 1999 were .27 percent, well below the average of the Company's peer
group which was .78 percent at December 31, 1998, the most recent information
available. The reserve for loan losses was 276 percent of non-performing assets
as of March 31, 1999.
Non-interest Income
Non-interest income increased $131 thousand, or 4.9 percent from the first
quarter of 1998. Service fees on deposit accounts was the largest portion of the
increase.
Non-interest Expense
Non-interest expense increased by $140 thousand, or 2.5 percent, over the first
quarter of 1998. Compensation and employee benefits increased $242 thousand, or
8.6 percent, resulting from staffing additions, commissions on loan
originations, and other increases. Occupancy and equipment expense was up $148
thousand, or 23.4 percent, the result of bringing more data processing functions
in-house, and additional expenses from the new branch/corporate office. Data
processing expenses decreased $95 thousand, or 34.7 percent. Other expenses were
down $117 thousand, or 6.8 percent. The rest of the expense reduction was the
minority interest in subsidiaries which decreased by $38 thousand, resulting
from the acquisition of the minority shares of the Valley Bank of Helena.
Acquisition of Big Sky Western Bank
On January 20, 1999 the pending acquisition of Big Sky Western Bank ("Big Sky"),
with $42 million in assets, was completed. Big Sky brings a talented staff and a
presence in the rapidly growing Big Sky and Bozeman markets to Glacier Bancorp,
Inc.
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
13
<PAGE>
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.
Testing. Updating and testing of the Company's and its subsidiary banks'
automated systems is substantially completed as of March 31, 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.
14
<PAGE>
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 is in the process of developing specific contingency plans related
to year 2000 issues, other than those described above. As the Company and its
subsidiary banks continue the testing phase, and based on future ongoing
assessment of 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.
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.
15
<PAGE>
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.
Estimated
Rate Change NII Sensitivity
----------- ---------------
+200 bp 1.44%
-200 bp -1.99%
The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including: the
nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of assets and liability cashflows,
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to: prepayment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals and
product preference changes, and other internal/external variables. Furthermore,
the sensitivity analysis does not reflect actions that ALCO might take in
responding to or anticipating changes in interest rates.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending material legal proceedings to which the registrant or
its subsidiaries are a party.
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit 27 - Financial data schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLACIER BANCORP, INC.
May 7, 1999 By ___________________________
Michael J. Blodnick
President/CEO
May 7, 1999 By ___________________________
James H. Strosahl
Executive Vice President/CFO
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Extracted from (A)
Consolidated Statements of Financial Condition March 31, 1999
Consolidated Statements of Operations March 31, 1999
Reference to (B)
Quarterly report form 10-Q March 31, 1999
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 29,315
<INT-BEARING-DEPOSITS> 8,586
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 140,056
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 519,983
<ALLOWANCE> 5,421
<TOTAL-ASSETS> 733,566
<DEPOSITS> 472,002
<SHORT-TERM> 71,554
<LIABILITIES-OTHER> 9,388
<LONG-TERM> 100,701
0
0
<COMMON> 87
<OTHER-SE> 79,834
<TOTAL-LIABILITIES-AND-EQUITY> 733,566
<INTEREST-LOAN> 11,161
<INTEREST-INVEST> 1,900
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 13,061
<INTEREST-DEPOSIT> 3,448
<INTEREST-EXPENSE> 5,487
<INTEREST-INCOME-NET> 7,574
<LOAN-LOSSES> 322
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 5,622
<INCOME-PRETAX> 4,435
<INCOME-PRE-EXTRAORDINARY> 2,894
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,894
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.33
<YIELD-ACTUAL> 4.70
<LOANS-NON> 1,381
<LOANS-PAST> 776
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,133
<CHARGE-OFFS> 57
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 5,421
<ALLOWANCE-DOMESTIC> 5,421
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
