10-Q 1 v08749e10vq.txt FORM 10-Q UNITED STATES 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, 2005 [ ] 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) MONTANA 81-0519541 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 49 Commons Loop, Kalispell, Montana 59901 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (406) 756-4200 -------------------------------------------------------------------------------- Not Applicable -------------------------------------------------------------------------------- (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 [ ] Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] The number of shares of Registrant's common stock outstanding on April 29, 2005 was 31,223,730. No preferred shares are issued or outstanding. GLACIER BANCORP, INC. QUARTERLY REPORT ON FORM 10-Q INDEX
Page # ------ PART I. FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Statements of Financial Condition - March 31, 2005, December 31, 2004 and March 31, 2004 (unaudited)...... 3 Condensed Consolidated Statements of Operations - Three months ended March 31, 2005 and 2004 (unaudited)................ 4 Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income - Year ended December 31, 2004 and three months ended March 31, 2005 (unaudited)............................... 5 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2005 and 2004 (unaudited)................ 6 Notes to Condensed Consolidated Financial Statements (unaudited)...... 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 19 Item 3 - Quantitative and Qualitative Disclosure about Market Risk............. 25 Item 4 - Controls and Procedures............................................... 25 PART II. OTHER INFORMATION....................................................... 25 Item 1 - Legal Proceedings..................................................... 25 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds........... 25 Item 3 - Defaults Upon Senior Securities....................................... 25 Item 4 - Submission of Matters to a Vote of Security Holders.................. 26 Item 5 - Other Information..................................................... 26 Item 6 - Exhibits.............................................................. 26 Signatures..................................................................... 26
GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
-------------------------------------------------------------------------- ------------ ------------ ------------ (UNAUDITED - dollars in thousands, except per share data) MARCH 31, December 31, March 31, -------------------------------------------------------------------------- 2005 2004 2004 ------------ ------------ ------------ ASSETS: Cash on hand and in banks ............................................ $ 82,600 79,300 53,213 Fed funds sold ....................................................... 14,751 -- -- Interest bearing cash deposits ....................................... 8,208 13,007 27,432 ------------ ------------ ------------ Cash and cash equivalents ......................................... 105,559 92,307 80,645 Investment securities, available-for-sale ............................ 1,148,153 1,085,626 1,157,527 Loans receivable, net ................................................ 1,860,295 1,687,329 1,449,535 Loans held for sale .................................................. 19,637 14,476 16,609 Premises and equipment, net .......................................... 63,720 55,732 52,936 Real estate and other assets owned, net .............................. 2,003 2,016 516 Accrued interest receivable .......................................... 16,151 15,637 14,187 Core deposit intangible, net ......................................... 7,102 4,939 5,571 Goodwill ............................................................. 60,189 37,376 36,951 Other assets ......................................................... 23,631 15,299 14,564 ------------ ------------ ------------ $ 3,306,440 3,010,737 2,829,041 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Non-interest bearing deposits ........................................ $ 528,038 460,059 366,277 Interest bearing deposits ............................................ 1,448,643 1,269,649 1,225,169 Advances from Federal Home Loan Bank of Seattle ...................... 858,961 818,933 801,679 Securities sold under agreements to repurchase ....................... 79,148 76,158 63,453 Other borrowed funds ................................................. 5,834 5,057 5,122 Accrued interest payable ............................................. 6,048 4,864 5,080 Deferred tax liability ............................................... 4,782 8,392 10,983 Subordinated debentures .............................................. 80,000 80,000 80,000 Other liabilities .................................................... 21,537 17,441 18,377 ------------ ------------ ------------ Total liabilities ................................................. 3,032,991 2,740,553 2,576,140 ------------ ------------ ------------ Preferred shares, 1,000,000 shares authorized. None outstanding ...... -- -- -- Common stock, $.01 par value per share. 62,500,000 shares authorized 309 307 306 Paid-in capital ...................................................... 229,496 227,552 225,536 Retained earnings - substantially restricted ......................... 43,467 36,391 14,888 Accumulated other comprehensive income ............................... 177 5,934 12,171 ------------ ------------ ------------ Total stockholders' equity ........................................ 273,449 270,184 252,901 ------------ ------------ ------------ $ 3,306,440 3,010,737 2,829,041 ============ ============ ============ Number of shares outstanding ......................................... 30,853,644 30,686,763 30,563,383 Book value per share ................................................. $ 8.86 8.80 8.27
See accompanying notes to condensed consolidated financial statements. 3 GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------- ---------------------------- (UNAUDITED - dollars in thousands, except per share data) THREE MONTHS ENDED MARCH 31, -------------------------------------------------------------- ---------------------------- 2005 2004 ------------ ------------ INTEREST INCOME: Real estate loans ........................................ $ 6,615 5,281 Commercial loans ......................................... 16,524 13,223 Consumer and other loans ................................. 5,730 4,836 Investment securities and other .......................... 11,638 12,125 ------------ ------------ Total interest income .............................. 40,507 35,465 ------------ ------------ INTEREST EXPENSE: Deposits ................................................. 4,069 3,483 Federal Home Loan Bank of Seattle advances ............... 5,243 4,445 Securities sold under agreements to repurchase ........... 398 157 Subordinated debentures .................................. 1,555 962 Other borrowed funds ..................................... 786 29 ------------ ------------ Total interest expense ............................. 12,051 9,076 ------------ ------------ NET INTEREST INCOME .......................................... 28,456 26,389 Provision for loan losses ................................ 1,490 830 ------------ ------------ Net interest income after provision for loan losses.. 26,966 25,559 ------------ ------------ NON-INTEREST INCOME: Service charges and other fees ........................... 5,204 4,073 Miscellaneous loan fees and charges ...................... 1,278 1,019 Gains on sale of loans ................................... 2,092 1,771 Loss on sale of investments .............................. (30) -- Other income ............................................. 564 548 ------------ ------------ Total non-interest income ........................... 9,108 7,411 ------------ ------------ NON-INTEREST EXPENSE: Compensation, employee benefits and related expenses .............................. 10,944 9,806 Occupancy and equipment expense .......................... 2,855 2,631 Outsourced data processing expense ....................... 232 413 Core deposit intangibles amortization .................... 283 294 Other expenses ........................................... 4,760 4,282 ------------ ------------ Total non-interest expense .......................... 19,074 17,426 ------------ ------------ EARNINGS BEFORE INCOME TAXES ................................. 17,000 15,544 Federal and state income tax expense ..................... 5,480 4,934 ------------ ------------ NET EARNINGS ................................................. $ 11,520 10,610 ============ ============ Basic earnings per share ..................................... $ 0.37 0.35 Diluted earnings per share ................................... $ 0.37 0.34 Dividends declared per share ................................. $ 0.14 0.13 Return on average assets (annualized) ........................ 1.50% 1.55% Return on average equity (annualized) ........................ 17.06% 17.28% Average outstanding shares - basic ........................... 30,764,368 30,433,091 Average outstanding shares - diluted ......................... 31,305,788 30,960,836
See accompanying notes to condensed consolidated financial statements. 4 GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Year ended December 31, 2004 and Three months ended March 31, 2005
Retained Accumulated Common Stock earnings other comp- --------------------------------------------------------- --------------------------- Paid-in substantially rehensive (UNAUDITED - dollars in thousands, except per share data) Shares Amount capital restricted income --------------------------------------------------------- ------------ ------------ ------------ ------------- ------------ Balance at December 31, 2003 ........................... 30,254,173 $ 303 222,527 8,393 6,616 Comprehensive income: Net earnings ....................................... -- -- -- 44,616 -- Unrealized loss on securities, net of reclassification adjustment ...................... -- -- -- -- (682) Total comprehensive income .............................. Cash dividends declared ($.54 per share) ................ -- -- -- (16,618) -- Stock options exercised ................................. 521,653 5 5,434 -- -- Repurchase and retirement of stock ...................... (89,063) (1) (1,804) -- -- Acquisition of fractional shares ........................ -- -- (9) -- -- Tax benefit from stock related compensation ............. -- -- 1,404 -- -- ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2004 ............................ 30,686,763 $ 307 227,552 36,391 5,934 Comprehensive income: Net earnings ....................................... -- -- -- 11,520 -- Unrealized loss on securities, net of reclassification adjustment and taxes............. -- -- -- -- (5,757) Total comprehensive income............................... Cash dividends declared ($.14 per share) ................ -- -- -- (4,444) -- Stock options exercised ................................. 166,881 2 1,944 -- -- ------------ ------------ ------------ ------------ ------------ Balance at March 31, 2005 ............................... 30,853,644 $ 309 229,496 43,467 177 ============ ============ ============ ============ ============
Total stock- --------------------------------------------------------- holders' (UNAUDITED - dollars in thousands, except per share data) equity --------------------------------------------------------- ------------ Balance at December 31, 2003 ........................... 237,839 Comprehensive income: Net earnings ....................................... 44,616 Unrealized loss on securities, net of reclassification adjustment ...................... (682) ------------ Total comprehensive income .............................. 43,934 ------------ Cash dividends declared ($.54 per share) ................ (16,618) Stock options exercised ................................. 5,439 Repurchase and retirement of stock ...................... (1,805) Acquisition of fractional shares ........................ (9) Tax benefit from stock related compensation ............. 1,404 ------------ Balance at December 31, 2004 ............................ 270,184 Comprehensive income: Net earnings ....................................... 11,520 Unrealized loss on securities, net of reclassification adjustment and taxes............. (5,757) ------------ Total comprehensive income............................... 5,763 ------------ Cash dividends declared ($.14 per share) ................ (4,444) Stock options exercised ................................. 1,946 ------------ Balance at March 31, 2005 ............................... 273,449 ============
See accompanying notes to condensed consolidated financial statements. 5 GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------- ---------------------------- (UNAUDITED - dollars in thousands) THREE MONTHS ENDED MARCH 31, ----------------------------------------------------------------------- ---------------------------- 2005 2004 ------------- ------------- OPERATING ACTIVITIES : Net cash provided by operating activities ....................... $ 9,034 20,178 ------------ ------------ INVESTING ACTIVITIES: Proceeds from sales, maturities and prepayments of investments available-for-sale .............................. 153,703 57,513 Purchases of investments available-for-sale ..................... (103,175) (110,191) Principal collected on installment and commercial loans ......... 142,784 138,037 Installment and commercial loans originated or acquired ......... (212,076) (175,943) Principal collections on mortgage loans ......................... 80,378 57,666 Mortgage loans originated or acquired ........................... (97,864) (56,735) Net purchase of FHLB and FRB stock .............................. (14) (886) Acquisition of First National Bank - West ....................... (18,139) -- Net addition of premises and equipment .......................... (4,899) (826) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES ...................... (59,302) (91,365) ------------ ------------ FINANCING ACTIVITIES: Net increase (decrease) in deposits ............................. 22,223 (6,179) Net increase in FHLB advances and other borrowed funds .......... 40,805 21,489 Net increase in securities sold under repurchase agreements ..... 2,990 6,485 Proceeds from issuance of subordinated debentures ............... -- 45,000 Cash dividends paid ............................................. (4,444) (4,115) Proceeds from exercise of stock options and other stock issued .. 1,946 3,012 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 63,520 65,692 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........ 13,252 (5,495) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................ 92,307 86,140 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 105,559 80,645 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest .............. $ 11,098 8,349 Income taxes .......... $ -- 100
See accompanying notes to condensed consolidated financial statements. 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1) Basis of Presentation In the opinion of management, the accompanying unaudited condensed consolidated 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, 2005, December 31, 2004, and March 31, 2004, stockholders' equity for the three months ended March 31, 2005 and the year ended December 31, 2004, the results of operations for the three months ended March 31, 2005 and 2004, and cash flows for the three months ended March 31, 2005 and 2004. The accompanying condensed consolidated financial statements do not include all of the information and footnotes required by the accounting principals generally accepted in the United States of America for complete financial statements. These condensed consolidated 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, 2004. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results anticipated for the year ending December 31, 2005. Certain reclassifications have been made to the 2004 financial statements to conform to the 2005 presentation. 2) Organizational Structure The Company, headquartered in Kalispell, Montana, is a Montana corporation incorporated in 2004 as a successor corporation to the Delaware corporation incorporated in 1990. The Company is the parent company for eight wholly owned banking subsidiaries: Glacier Bank ("Glacier"), First Security Bank of Missoula ("First Security"), Western Security Bank ("Western"), Big Sky Western Bank ("Big Sky"), Valley Bank of Helena ("Valley"), and Glacier Bank of Whitefish ("Whitefish"), all located in Montana, Mountain West Bank ("Mountain West") which is located in Idaho, Utah, and Washington, and First National Bank - West ("First National") located in Wyoming. In addition, the Company formed two subsidiaries, Glacier Capital Trust I ("Glacier Trust I"), and Glacier Capital Trust II ("Glacier Trust II"), for the purpose of issuing trust preferred securities. The Company does not have any off-balance sheet entities. The following abbreviated organizational chart illustrates the various relationships:
------------------------------ Glacier Bancorp, Inc. (Parent Holding Company) ------------------------------ | ----------------------------------------------------------------------------------------------------------------------- Glacier Bank Mountain West Bank | First Security Bank Western Security Bank (Commercial bank) (Commercial bank) | of Missoula (Commercial bank) | (Commercial bank) -------------------------- ----------------- | --------------------- --------------------- | ----------------------------------------------------------------------------------------------------------------------- First National Bank - West Big Sky | Valley Bank Glacier Bank (Commercial bank) Western Bank | of Helena of Whitefish (Commercial bank) | (Commercial bank) (Commercial bank) --------------------------- ----------------- | --------------------- --------------------- | ----------------------------------------------------------- Glacier Capital Glacier Capital Trust I Trust II ------------------------ ------------------------
7 3) Ratios Returns on average assets and average equity were calculated based on daily averages. 4) Dividends Declared On April 26, 2005, the Board of Directors declared a five-for-four stock split payable May 26, 2005 to shareholders of record on May 10, 2005, and all share and per share amounts have been restated to reflect the effects of the stock split. On March 11, 2005, the Board of Directors declared a $.14 per share quarterly cash dividend payable on April 21, 2005 to stockholders of record on April 12, 2005. 5) 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. The following schedule contains the data used in the calculation of basic and diluted earnings per share:
Three Three months ended months ended March 31, 2005 March 31, 2004 -------------- -------------- Net earnings available to common stockholders ...................... $ 11,520,000 10,610,000 Average outstanding shares - basic ... 30,764,368 30,433,091 Add: Dilutive stock options .......... 541,420 527,745 ------------ ------------ Average outstanding shares - diluted.. 31,305,788 30,960,836 ============ ============ Basic earnings per share ............. $ 0.37 0.35 ============ ============ Diluted earnings per share ........... $ 0.37 0.34 ============ ============
There were approximately 591,250 and 0 shares excluded from the diluted share calculation as of March 31, 2005, and 2004, respectively, due to the option exercise price exceeding the market price. 8 6) Stock Based Compensation The exercise price of all options granted has been equal to the fair market value of the underlying stock at the date of grant and, accordingly, no compensation cost has been recognized for stock options in the financial statements. Had the company determined compensation cost based on the fair value of the option itself at the grant date for its stock options and earnings per share under FASB Statement 123, Accounting for Stock-Based Compensation, the Company's net income would have been reduced to the pro forma amounts indicated below:
Three months ended March 31, ---------------------------- 2005 2004 ---------- ---------- Net earnings (in thousands): As reported $ 11,520 10,610 Compensation cost (207) (123) -------- -------- Pro forma 11,313 10,487 ======== ======== Basic earnings per share: As reported 0.37 0.35 Compensation cost -- (0.01) -------- -------- Pro forma 0.37 0.34 ======== ======== Diluted earnings per share: As reported 0.37 0.34 Compensation cost (0.01) -- -------- -------- Pro forma 0.36 0.34 ======== ========
In December, 2004, FASB Statement 123R was issued, which supersedes and replaces FASB Statement 123. FASB 123R requires recognition of compensation cost related to share-based payment plans to be recognized in the financial statements based on the fair value of the equity or liability instruments issued. The Company will adopt the statement at the earliest required adoption date. 9 7) Investments A comparison of the amortized cost and estimated fair value of the Company's investment securities, available for sale, is as follows: INVESTMENTS AS OF MARCH 31, 2005
--------------------------------------------- (Dollars in thousands) Estimated --------------------------------------------- Weighted Amortized Gross Unrealized Fair U.S. GOVERNMENT AND FEDERAL AGENCIES: Yield Cost Gains Losses Value ---------- ---------- ---------- ---------- ---------- maturing within one year .................. 2.51% 7,028 -- (2) 7,026 maturing five years through ten years ..... 5.03% 362 5 -- 367 maturing after ten years .................. 3.33% 449 2 (1) 450 ---------- ---------- ---------- ---------- 2.67% 7,839 7 (3) 7,843 ---------- ---------- ---------- ---------- STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES: maturing within one year .................. 4.22% 1,163 5 -- 1,168 maturing one year through five years ...... 4.61% 2,890 50 (6) 2,934 maturing five years through ten years ..... 4.66% 8,047 328 (11) 8,364 maturing after ten years .................. 5.09% 290,963 10,245 (1,261) 299,947 ---------- ---------- ---------- ---------- 5.07% 303,063 10,628 (1,278) 312,413 ---------- ---------- ---------- ---------- MORTGAGE-BACKED SECURITIES .................. 4.69% 85,645 679 (1,165) 85,159 REAL ESTATE MORTGAGE INVESTMENT CONDUITS .... 4.14% 693,624 598 (9,023) 685,199 FHLMC AND FNMA STOCK ........................ 5.74% 7,593 -- (152) 7,441 FHLB AND FRB STOCK, AT COST ................. 2.15% 50,098 -- -- 50,098 ---------- ---------- ---------- ---------- TOTAL INVESTMENTS ...................... 4.34% $1,147,862 11,912 (11,621) 1,148,153 ========== ========== ========== ==========
INVESTMENTS AS OF DECEMBER 31, 2004
--------------------------------------------- Estimated (Dollars in thousands) Weighted Amortized Gross Unrealized Fair --------------------------------------------- Yield Cost Gains Losses Value ---------- ---------- ---------- ---------- ---------- maturing within one year .................. 1.29% $ 251 -- -- 251 maturing five years through ten years ..... 4.62% 350 6 -- 356 maturing after ten years .................. 3.08% 481 2 (1) 482 ---------- ---------- ---------- ---------- 3.16% 1,082 8 (1) 1,089 ---------- ---------- ---------- ---------- STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES: maturing within one year .................. 5.30% 518 8 -- 526 maturing one year through five years ...... 5.37% 1,205 64 -- 1,269 maturing five years through ten years ..... 4.69% 6,514 324 -- 6,838 maturing after ten years .................. 5.13% 292,102 12,971 (1,098) 303,975 ---------- ---------- ---------- ---------- 5.12% 300,339 13,367 (1,098) 312,608 ---------- ---------- ---------- ---------- MORTGAGE-BACKED SECURITIES .................. 4.99% 56,629 919 (503) 57,045 REAL ESTATE MORTGAGE INVESTMENT CONDUITS .... 3.77% 660,389 1,624 (4,469) 657,544 FHLMC AND FNMA STOCK ........................ 5.74% 7,593 -- (56) 7,537 FHLB AND FRB STOCK, AT COST ................. 3.22% 49,803 -- -- 49,803 ---------- ---------- ---------- ---------- TOTAL INVESTMENTS ...................... 4.20% $1,075,835 15,918 (6,127) 1,085,626 ========== ========== ========== ==========
10 Interest income includes tax-exempt interest for the three months ended March 31, 2005 and 2004 of $3,467,000 and $3,465,000, respectively. Gross proceeds from sales of investment securities for the three months ended March 31, 2005 and 2004 were $98,929,000 and $0 respectively, resulting in gross gains of approximately $421,000 and $0 and gross losses of approximately $451,000 and $0, respectively. The cost of any investment sold is determined by specific identification. 8) Loans The following table summarizes the Company's loan portfolio:
TYPE OF LOAN At At At (Dollars in Thousands) 3/31/2005 12/31/2004 3/31/2004 ---------------------------- ---------------------------- ---------------------------- Amount Percent Amount Percent Amount Percent ------------- ------------- ------------- ------------- ------------- ------------- Real Estate Loans: Residential first mortgage loans $ 417,906 22.2% $ 382,750 22.5% $ 303,918 20.7% Loans held for sale ............ 19,637 1.1% 14,476 0.9% 16,609 1.1% ------------ ------------ ------------ ------------ ------------ ------------ Total ...................... 437,543 23.3% 397,226 23.4% 320,527 21.8% Commercial Loans: Real estate .................... 560,645 29.8% 526,455 30.9% 497,059 33.9% Other commercial loans ......... 530,588 28.2% 466,582 27.4% 378,133 25.8% ------------ ------------ ------------ ------------ ------------ ------------ Total ...................... 1,091,233 58.0% 993,037 58.3% 875,192 59.7% Consumer and Other Loans: Consumer loans ................. 129,200 6.9% 95,663 5.6% 94,310 6.4% Home equity loans .............. 258,797 13.8% 248,684 14.6% 206,608 14.1% ------------ ------------ ------------ ------------ ------------ ------------ Total ...................... 387,997 20.7% 344,347 20.2% 300,918 20.5% Net deferred loan fees, premiums and discounts ............. (7,040) -0.4% (6,313) -0.3% (5,924) -0.3% Allowance for Losses ........... (29,801) -1.6% (26,492) -1.6% (24,569) -1.7% ------------ ------------ ------------ ------------ ------------ ------------ Net Loans ........................... $ 1,879,932 100.0% $ 1,701,805 100.0% $ 1,466,144 100.0% ============ ============ ============ ============ ============ ============
11 The following table sets forth information regarding the Company's non-performing assets at the dates indicated:
NONPERFORMING ASSETS (Dollars in Thousands) At At At 3/31/2005 12/31/2004 3/31/2004 ------------ ------------ ------------ Non-accrual loans: Real estate loans .................... $ 25 847 1,191 Commercial loans ..................... 5,679 4,792 8,287 Consumer and other loans ............. 342 311 409 ------------ ------------ ------------ Total .............................. $ 6,046 5,950 9,887 Accruing Loans 90 days or more overdue: Real estate loans .................... 110 179 249 Commercial loans ..................... 792 1,067 701 Consumer and other loans ............. 215 396 288 ------------ ------------ ------------ Total .............................. $ 1,117 1,642 1,238 Real estate and other assets owned, net 2,003 2,016 516 ------------ ------------ ------------ Total non-performing assets .............. $ 9,166 9,608 11,641 ============ ============ ============ As a percentage of total assets ........ 0.27% 0.32% 0.42% Interest Income (1) ...................... $ 97 372 154
---------- (1) This is the amount of interest that would have been recorded on loans accounted for on a non-accrual basis for the three months ended March 31, 2005 and 2004 and the year ended December 31, 2004, if such loans had been current for the entire period. The following table illustrates the loan loss experience:
ALLOWANCE FOR LOAN LOSS Three months ended Year ended Three months ended March 31, December 31, March 31, (Dollars in Thousands) .............. 2005 2004 2004 ------------ ------------ ------------ Balance at beginning of period ......... $ 26,492 23,990 23,990 Charge offs: Real estate loans .................... (31) (419) (137) Commercial loans ..................... (255) (1,150) (140) Consumer and other loans ............. (115) (776) (166) ------------ ------------ ------------ Total charge offs ................... $ (401) (2,345) (443) ------------ ------------ ------------ Recoveries: Real estate loans .................... 56 171 42 Commercial loans ..................... 60 120 24 Consumer and other loans ............. 72 361 126 ------------ ------------ ------------ Total recoveries .................... $ 188 652 192 ------------ ------------ ------------ Chargeoffs, net of recoveries ......... (213) (1,693) (251) Acquisition (1) ....................... 2,032 -- -- Provision ............................. 1,490 4,195 830 ------------ ------------ ------------ Balance at end of period ............... $ 29,801 26,492 24,569 ============ ============ ============ Ratio of net charge offs to average loans outstanding during the period.. 0.01% 0.10% 0.02%
---------- (1) Acquisition of First National Bank-West 12 The following table summarizes the allocation of the allowance for loan losses:
March 31, 2005 December 31, 2004 March 31, 2004 -------------------------- -------------------------- -------------------------- Percent Percent Percent of loans in of loans in of loans in (Dollars in thousands) Allowance category Allowance category Allowance category -------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Real estate loans ........ $ 2,987 22.8% 2,693 22.9% 2,154 21.2% Commercial real estate ... 9,699 29.3% 9,222 30.3% 7,650 33.3% Other commercial ......... 11,513 27.7% 9,836 26.9% 10,339 25.3% Consumer and other loans.. 5,602 20.2% 4,741 19.9% 4,426 20.2% ------------ ------------ ------------ ------------ ------------ ------------ Totals ................ $ 29,801 100.0% 26,492 100.0% 24,569 100.0% ============ ============ ============ ============ ============ ============
The Company acquired the following loans during 2005 for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected.
------------------------------- March 31, (Dollars in thousands) 2005 ------------------------------- ------------ Contractually required payments receivable at acquisition: Commercial Loans ........ $ 1,842 Cash flows expected to be collected at acquisition ... 1,668 Basis in acquired loans at acquisition ................ 1,200
13 9) Intangible Assets The following table sets forth information regarding the Company's core deposit intangibles and mortgage servicing rights as of March 31, 2005:
----------------------------------------------- Core Deposit Mortgage (Dollars in thousands) Intangible Servicing Rights (1) Total ----------------------------------------------- ------------- -------------------- ------------ Gross carrying value ...................... $ 12,716 Accumulated Amortization .................. (5,614) ------------ Net carrying value ........................ $ 7,102 1,210 8,312 ============ WEIGHTED-AVERAGE AMORTIZATION PERIOD (Period in years) ......................... 10.0 9.6 9.9 AGGREGATE AMORTIZATION EXPENSE For the three months ended March 31, 2005.. $ 283 67 350 ESTIMATED AMORTIZATION EXPENSE For the year ended December 31, 2005 ...... $ 1,287 129 1,416 For the year ended December 31, 2006 ...... 1,248 82 1,330 For the year ended December 31, 2007 ...... 1,183 79 1,262 For the year ended December 31, 2008 ...... 1,126 77 1,203 For the year ended December 31, 2009 ...... 1,030 74 1,104
---------- (1) The mortgage servicing rights are included in other assets and the gross carrying value and accumulated amortization are not readily available. On February 28, 2005, the Company acquired First National Bank-West in Evanston, Wyoming, which resulted in additional core deposit intangible of $2,446,000. The acquisition also resulted in additional goodwill of $22,813,000. 10) Deposits The following table illustrates the amounts outstanding for deposits greater than $100,000 at March 31, 2005, according to the time remaining to maturity:
--------------------------- Certificates Non-Maturity (Dollars in thousands) of Deposit Deposits Totals --------------------------- ------------ ------------ ------------ Within three months ....... $ 57,295 726,690 783,985 Three to six months ....... 33,967 -- 33,967 Seven to twelve months .... 21,729 -- 21,729 Over twelve months ........ 31,352 -- 31,352 ------------ ------------ ------------ Totals ................. $ 144,343 726,690 871,033 ============ ============ ============
14 11) Advances and Other Borrowings The following chart illustrates the average balances and the maximum outstanding month-end balances for Federal Home Loan Bank of Seattle (FHLB) advances and repurchase agreements:
As of and As of and As of and for the three for the for the three (Dollars in thousands) months ended year ended months ended March 31, 2005 December 31, 2004 March 31, 2004 -------------- ----------------- -------------- FHLB Advances: Amount outstanding at end of period.... $858,961 818,933 801,679 Average balance ....................... $739,928 791,245 815,825 Maximum outstanding at any month-end... $858,961 862,136 830,855 Weighted average interest rate ........ 2.87% 2.34% 2.19% Repurchase Agreements: Amount outstanding at end of period.... $ 79,148 76,158 63,453 Average balance ....................... $ 80,970 69,480 63,271 Maximum outstanding at any month-end... $ 79,148 80,265 67,558 Weighted average interest rate ........ 2.06% 1.25% 1.00%
12) Stockholders' Equity The Federal Reserve Board has adopted capital adequacy guidelines that are used to assess 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, 2005.
CONSOLIDATED Tier 1 (Core) Tier 2 (Total) Leverage (Dollars in thousands) Capital Capital Capital ----------- ----------- ----------- GAAP Capital ............................. $ 273,449 273,449 273,449 Less: Goodwill and intangibles .......... (67,291) (67,291) (67,291) Accumulated other comprehensive Unrealized gain on AFS securities (177) (177) (177) Other adjustments .................... (151) (151) (151) Plus: Allowance for loan losses ......... -- 27,762 -- Subordinated debentures .............. 80,000 80,000 80,000 ----------- ----------- ----------- Regulatory capital computed .............. $ 285,830 313,592 285,830 =========== =========== =========== Risk weighted assets ..................... $ 2,220,982 2,220,982 =========== =========== Total average assets ..................... $ 3,227,116 =========== Capital as % of defined assets ........... 12.87% 14.12% 8.86% Regulatory "well capitalized" requirement 6.00% 10.00% 5.00% ----------- ----------- ----------- Excess over "well capitalized" requirement 6.87% 4.12% 3.86% =========== =========== ===========
15 13) Comprehensive Earnings The Company's only component of other comprehensive earnings is the unrealized gains and losses on available-for-sale securities.
For the three months ended March 31, ---------------------- Dollars in thousands 2005 2004 -------- -------- Net earnings ........................................... $ 11,520 10,610 Unrealized holding (loss) gain arising during the period (9,530) 9,169 Tax benefit (expense) ................................. 3,755 (3,614) -------- -------- Net after tax .............................. (5,775) 5,555 Reclassification adjustment for losses included in net income .............................. 30 -- Tax benefit ............................................ (12) -- -------- -------- Net after tax .............................. 18 -- Net unrealized (loss) gain on securities ... (5,757) 5,555 -------- -------- Total comprehensive earnings ........... $ 5,763 16,165 ======== ========
14) Segment Information The Company evaluates segment performance internally based on individual bank charters, and thus the operating segments are so defined. The following schedule provides selected financial data for the Company's operating segments. Centrally provided services to the Banks are allocated based on estimated usage of those services. The operating segment identified as "Other" includes the Parent, non-bank units, and eliminations of transactions between segments.
Three months ended and as of March 31, 2005 --------------------------------------------------------- Mountain First First (Dollars in thousands) Glacier West Security Western National --------- --------- --------- --------- --------- Revenues from external customers $ 10,335 12,168 9,075 6,371 1,144 Intersegment revenues 145 -- 5 -- -- Expenses (7,741) (9,572) (6,413) (4,871) (883) Intercompany eliminations -- -- -- -- -- --------- --------- --------- --------- --------- Net income $ 2,739 2,596 2,667 1,500 261 ========= ========= ========= ========= ========= Total Assets $ 685,498 659,006 617,048 443,633 272,335 ========= ========= ========= ========= =========
Total Big Sky Valley Whitefish Other Consolidated --------- --------- --------- --------- ------------ Revenues from external customers 4,089 3,779 2,953 (299) 49,615 Intersegment revenues -- 34 -- 14,842 15,026 Expenses (3,004) (2,844) (1,999) (768) (38,095) Intercompany eliminations -- -- -- (15,026) (15,026) --------- --------- --------- --------- ---------- Net income 1,085 969 954 (1,251) 11,520 ========= ========= ========= ========= ========== Total Assets 257,217 241,496 162,727 (32,520) 3,306,440 ========= ========= ========= ========= ==========
16
Three months ended and as of March 31, 2004 --------------------------------------------------------- Mountain First Big (Dollars in thousands) Glacier West Security Western Sky --------- --------- --------- --------- --------- Revenues from external customers $ 9,335 9,224 8,820 6,344 3,412 Intersegment revenues 68 -- 4 2 -- Expenses (6,719) (7,605) (5,997) (4,618) (2,518) Intercompany eliminations -- -- -- -- -- --------- --------- --------- --------- --------- Net income $ 2,684 1,619 2,827 1,728 894 ========= ========= ========= ========= ========= Total Assets $ 603,740 558,012 598,702 449,044 214,116 ========= ========= ========= ========= =========
Total Valley Whitefish Other Consolidated --------- --------- --------- ------------ Revenues from external customers 3,387 2,261 93 42,876 Intersegment revenues 36 -- 13,137 13,247 Expenses (2,525) (1,602) (682) (32,266) Intercompany eliminations -- -- (13,247) (13,247) --------- --------- --------- ------------ Net income 898 659 (699) 10,610 ========= ========= ========= ============ Total Assets 220,461 155,173 29,793 2,829,041 ========= ========= ========= ============
15) Rate/Volume Analysis Net interest income can be evaluated from the perspective of relative dollars of change in each period.
Three Months Ended March 31, (Dollars in Thousands) 2005 vs. 2004 Increase (Decrease) due to: --------------------------------- INTEREST INCOME Volume Rate Net ------- ------- ------- Real Estate Loans .......... $ 1,665 (331) 1,334 Commercial Loans ........... 2,661 640 3,301 Consumer and Other Loans ... 1,027 (133) 894 Investment Securities ...... (62) (425) (487) ------- ------- ------- Total Interest Income 5,291 (249) 5,042 INTEREST EXPENSE NOW Accounts ............... 17 20 37 Savings Accounts ........... 18 29 47 Money Market Accounts ...... 93 361 454 Certificates of Deposit .... 15 33 48 FHLB Advances .............. (413) 1,211 798 Other Borrowings and Repurchase Agreements .... 1,887 (296) 1,591 ------- ------- ------- Total Interest Expense 1,617 1,358 2,975 ------- ------- ------- NET INTEREST INCOME ........ $ 3,674 (1,607) 2,067 ======= ======= =======
Interest income and interest expense, which are the components of net interest income, are shown in the following table on the basis of the amount of any increases (or decreases) attributable to changes in the dollar levels of the Company's interest-earning assets and interest-bearing liabilities ("Volume") and the yields earned and rates paid on such assets and liabilities ("Rate"). The change in interest income and interest expense attributable to changes in both volume and rates has been allocated proportionately to the change due to volume and the change due to rate. 17 16) Average Balance Sheet The following schedule provides (i) the total dollar amount of interest and dividend income of the Company for earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest and dividend income; (iv) interest rate spread; and (v) net interest margin. Non-accrual loans are included in the average balance of the loans.
AVERAGE BALANCE SHEET For the Three months ended 3-31-05 For the Three months ended 3-31-04 ---------------------------------- ---------------------------------- (Dollars in Thousands) Interest Average Interest Average Average and Yield/ Average and Yield/ ASSETS Balance Dividends Rate Balance Dividends Rate ----------- --------- ------- ----------- --------- ------- Real Estate Loans $ 410,478 6,615 6.45% $ 312,096 5,281 6.77% Commercial Loans 1,032,198 16,524 6.49% 859,587 13,223 6.19% Consumer and Other Loans 359,451 5,730 6.46% 296,506 4,836 6.56% ----------- --------- ----------- --------- Total Loans 1,802,127 28,869 6.50% 1,468,189 23,340 6.39% Tax -Exempt Investment Securities (1) 282,164 3,467 4.92% 281,218 3,465 4.93% Investment Securities 827,503 8,171 3.95% 834,147 8,660 4.15% ----------- --------- ----------- --------- Total Earning Assets 2,911,794 40,507 5.56% 2,583,554 35,465 5.49% --------- --------- Non-Earning Assets 201,859 178,411 ----------- ----------- TOTAL ASSETS $ 3,113,653 $ 2,761,965 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY NOW Accounts $ 283,159 150 0.21% $ 246,298 113 0.18% Savings Accounts 178,570 155 0.35% 152,943 108 0.28% Money Market Accounts 431,992 1,310 1.23% 389,865 857 0.88% Certificates of Deposit 435,033 2,454 2.29% 432,271 2,405 2.24% FHLB Advances 739,928 5,243 2.87% 815,825 4,445 2.19% Repurchase Agreements and Other Borrowed Funds 283,010 2,739 3.92% 106,994 1,148 4.31% ----------- --------- ----------- --------- Total Interest Bearing Liabilities 2,351,692 12,051 2.08% 2,144,196 9,076 1.70% --------- --------- Non-interest Bearing Deposits 459,311 343,350 Other Liabilities 28,732 27,464 ----------- ----------- Total Liabilities 2,839,735 2,515,010 ----------- ----------- Common Stock 308 305 Paid-In Capital 227,932 223,680 Retained Earnings 39,948 13,567 Accumulated Other Comprehensive Earnings 5,730 9,403 ----------- ----------- Total Stockholders' Equity 273,918 246,955 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,113,653 $ 2,761,965 =========== =========== Net Interest Income $ 28,456 $ 26,389 ========= ========= Net Interest Spread 3.48% 3.79% Net Interest Margin on average earning assets 3.96% 4.11% Return on Average Assets 1.50% 1.55% Return on Average Equity 17.06% 17.28%
(1) Excludes tax effect on non-taxable investment security income 18 17) Acquisitions On February, 28, 2005 the Company completed the acquisition of First National Bank - West, Evanston, Wyoming, ("FNB") with total assets of $241 million, loans of $90 million, and deposits of $225 million. This bank has seven locations in western Wyoming and became the eighth subsidiary bank of the Company and the first to be located in the state of Wyoming. A portion of the purchase price was allocated to core deposit intangible of $2,446,000 and goodwill of $22,813,000. The acquisition of Citizens Bank Holding Company and its subsidiary bank Citizens Community Bank, Pocatello, Idaho, with assets of approximately $115 million, was completed after the close of business on March 31, 2005. This bank operates from three banking offices in Pocatello and Idaho Falls, and a loan production office in Rexburg, Idaho. As of April 1, 2005 this bank became the ninth subsidiary bank of the Company. Mountain West Bank of Coeur d'Alene entered into a purchase and sale agreement with Zions First National Bank to acquire the Zions branch in Bonners Ferry, Idaho with total deposits of approximately $23 million. Subject to regulatory approval the transaction is expected to close on May 20, 2005. Acquisitions are accounted for under the purchase method of accounting. Accordingly, the assets and liabilities of acquired branches and banks are recorded by the Company at their respective fair values at the date of the acquisition and the results of operations are included with those of the Company from the date of acquisition forward. The excess of the Company's purchase price over the net fair value of the assets acquired and liabilities assumed, including identifiable intangible assets, is recorded as goodwill. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent acquisition On February, 28, 2005 the Company completed the acquisition of First National Bank - West, Evanston, Wyoming, ("FNB"), accordingly, results of operations and financial condition include FNB from that date forward. Financial Condition This section discusses the changes in Statement of Financial Condition items from March 31, 2004 and December 31, 2004, to March 31, 2005.
$ Change $ Change from from March 31, December 31, March 31, December 31, March 31, ASSETS ($ IN THOUSANDS) 2005 2004 2004 2004 2004 -------------------------------------------------- ----------- ----------- ----------- ----------- ----------- Cash on hand and in banks ........................ $ 82,600 79,300 53,213 3,300 29,387 Investment securities, interest bearing deposits, FHLB stock, and FRB stock, and fed funds ...... 1,171,112 1,098,633 1,184,959 72,479 (13,847) Loans: Real estate ................................... 433,901 393,141 316,227 40,760 117,674 Commercial .................................... 1,087,989 991,081 873,743 96,908 214,246 Consumer ...................................... 387,843 344,075 300,743 43,768 87,100 ----------- ----------- ----------- ----------- ----------- Total loans ................................ 1,909,733 1,728,297 1,490,713 181,436 419,020 Allowance for loan losses ..................... (29,801) (26,492) (24,569) (3,309) (5,232) ----------- ----------- ----------- ----------- ----------- Total loans net of allowance for loan losses 1,879,932 1,701,805 1,466,144 178,127 413,788 ----------- ----------- ----------- ----------- ----------- Other assets ..................................... 172,796 130,999 124,725 41,797 48,071 ----------- ----------- ----------- ----------- ----------- Total Assets .................................. $ 3,306,440 3,010,737 2,829,041 295,703 477,399 =========== =========== =========== =========== ===========
19
$ Change excluding FNB acquisition from December 31, ASSETS (UNAUDITED - $ IN THOUSANDS) 2004 ---------------- Cash on hand and in banks ........................ $ (12,997) Investments, interest bearing deposits, FHLB stock, and FRB stock, and Fed Funds ...... (23,596) Loans: Real estate ................................... 24,659 Commercial .................................... 48,353 Consumer ...................................... 18,231 ---------------- Total loans ................................ 91,243 Allowance for loan losses ..................... (1,261) ---------------- Total loans net of allowance for losses .... 89,982 ---------------- Other assets ..................................... 10,853 ---------------- Total Assets .................................. $ 64,242 ================
At March 31, 2005 total assets were $3.306 billion, which is $477 million greater than the March 31, 2004 assets of $2.829 billion, an increase of 17 percent, and $296 million greater than the December 31, 2004 balance, an increase of 10 percent. Asset growth without FNB was $246 million, or 9 percent over the prior year. Total loans have increased $419 million from March 31, 2004, an increase of 28 percent, with the growth occurring in all loan categories. Commercial loans increased $214 million, or 25 percent, real estate loans gained $118 million, or 37 percent, and consumer loans grew by $87 million, or 29 percent. Without the FNB additions, loans increased $329 million from a year ago, a 22 percent increase. Loan volume continues to be very strong with loans increasing $91 million, without the FNB acquisition, during the first quarter, which has historically been a slow quarter for loan growth. During the same quarter last year loans increased by $36 million. Investment securities, including interest bearing deposits in other financial institutions, and federal funds sold, have decreased $14 million from March 31, 2004. Without the addition of FNB, investments would have declined $110 million from March 31, 2004. Cash flow from investment maturities, principal reductions, and proceeds from sale of securities is now being used to fund the significant growth in loans. Without the FNB additions, investments have decreased $24 million since December 31, 2004. The Company typically sells a majority of long-term mortgage loans originated, retaining servicing only on loans sold to certain lenders. The sale of loans in the secondary mortgage market reduces the Company's risk of holding long-term, fixed rate loans in the loan portfolio. Mortgage loans sold for the three months ended March 31, 2005 and 2004 were $59 million and $67 million, respectively. The Company has also been active in generating commercial SBA loans. A portion of some of those loans is sold to other investors. The amount of loans sold and serviced for others at March 31, 2005 was approximately $196 million. 20
$ Change $ Change from from March 31, December 31, March 31, December 31, March 31, LIABILITIES ($ IN THOUSANDS) 2005 2004 2004 2004 2004 ---------- ---------- ---------- ---------- ---------- Non-interest bearing deposits ........ $ 528,038 460,059 366,277 67,979 161,761 Interest bearing deposits ............ 1,448,643 1,269,649 1,225,169 178,994 223,474 Advances from Federal Home Loan Bank . 858,961 818,933 801,679 40,028 57,282 Securities sold under agreements to repurchase and other borrowed funds 84,982 81,215 68,575 3,767 16,407 Other liabilities .................... 32,367 30,697 34,440 1,670 (2,073) Subordinated debentures .............. 80,000 80,000 80,000 -- -- ---------- ---------- ---------- ---------- ---------- Total liabilities ............... $3,032,991 2,740,553 2,576,140 292,438 456,851 ========== ========== ========== ========== ==========
$ Change excluding FNB acquisition from December 31, LIABILITIES (UNAUDITED - $ IN THOUSANDS) 2004 ---------------- Non-interest bearing deposits ................. $ 15,584 Interest bearing deposits ..................... 8,741 Advances from Federal Home Loan Bank .......... 40,028 Securities sold under agreements to repurchase and other borrowed funds ........ (4,380) Other liabilities ............................. 1,004 -------- Total liabilities ........................ $ 60,977 ========
Non-interest bearing deposits have increased $162 million, or 44 percent, since March 31, 2004 and $292 million, or 11 percent, since December 31, 2004. Without the FNB additions, the increase was $109 million, or 30 percent, since March 31, 2004. This continues to be a primary focus of our banks and the programs we have initiated this past year continue to gain momentum. Total deposits have increased $385 million from March 31, 2004, or 24 percent. Without the FNB deposits, the increase was $163 million. This growth in deposits, a low cost stable funding source, gives us increased flexibility in managing our asset mix. Federal Home Loan Bank advances increased $57 million and repurchase agreements and other borrowed funds increased $16 million from March 31, 2004 as we continue to take advantage of these cost effective and flexible funding sources. Liquidity and Capital Resources The objective of liquidity management is to maintain cash flows adequate to meet current and future needs for credit demand, deposit withdrawals, maturing liabilities and corporate operating expenses. The principal source of the Company's cash revenues is the dividends received from the Company's banking subsidiaries. The payment of dividends is subject to government regulation, in that regulatory authorities may prohibit banks and bank holding companies from paying dividends which would constitute an unsafe or unsound banking practice. The subsidiaries source of funds is generated by deposits, principal and interest payments on loans, sale of loans and securities, short and long-term borrowings, and net income. In addition, seven of the eight banking subsidiaries are members of the FHLB. As of March 31, 2005, the Company had $1.136 billion of available FHLB line of which $859 million was utilized. 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. During the first quarter of 2005, all eight financial institutions maintained liquidity and regulatory capital levels in excess of regulatory requirements and operational needs. 21 Commitments In the normal course of business, there are various outstanding commitments to extend credit, such as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying condensed consolidated financial statements. Management does not anticipate any material losses as a result of these transactions.
$ Change $ Change from from STOCKHOLDERS' EQUITY March 31, December 31, March 31, December 31, March 31, ($ IN THOUSANDS EXCEPT PER SHARE DATA) 2005 2004 2004 2004 2004 ----------- ----------- ----------- ----------- ----------- Common equity .......................... $ 273,272 264,250 240,730 9,022 32,542 Net unrealized gain on securities ...... 177 5,934 12,171 (5,757) (11,994) ----------- ----------- ----------- ----------- ----------- Total stockholders' equity .......... $ 273,449 270,184 252,901 3,265 20,548 =========== =========== =========== =========== =========== Stockholders' equity to total assets ... 8.27% 8.97% 8.94% Book value per common share ............ $ 8.86 8.80 8.27 0.06 0.59 Market price per share at end of quarter $ 24.40 27.23 20.64 (2.83) 3.76
Total equity and book value per share amounts have increased substantially from the prior year, primarily the result of earnings retention, and stock options exercised. Accumulated other comprehensive income, representing net unrealized gains on securities available for sale, decreased $12 million from March 31, 2004 and $6 million from year end 2004. The decline is primarily a function of interest rate changes.
March 31, December 31, March 31, CREDIT QUALITY INFORMATION ($ IN THOUSANDS) 2005 2004 2004 ---------- ---------- ---------- Allowance for loan losses ........................... $ 29,801 26,492 24,569 Non-performing assets ............................... $ 9,166 9,608 11,641 Allowance as a percentage of non performing assets .. 325% 276% 211% Non-performing assets as a percentage of total assets 0.27% 0.32% 0.42% Allowance as a percentage of total loans ............ 1.56% 1.53% 1.65% Net charge-offs as a percentage of loans ............ 0.01% 0.10% 0.02%
Allowance for Loan Loss and Non-Performing Assets Non-performing assets as a percentage of total assets at March 31, 2005 were at .27 percent, a decrease from .42 percent at March 31, 2004 and .32 percent at December 31, 2004. This compares favorably to the Federal Reserve Bank Peer Group average of .45 percent at December 31, 2004, the most recent information available. The allowance for loan losses was 325 percent of non-performing assets at March 31, 2005, compared to 211 percent a year ago. The allowance, without the addition of FNB, has increased $3.184 million, or 13 percent, from a year ago. Including FNB the increase is $5.232 million, or 21 percent. The allowance of $29.801 million, is 1.56 percent of March 31, 2005 total loans outstanding, down slightly from the 1.65 percent a year ago. The first quarter provision for loan losses expense was $1.490 million, an increase of $660 thousand from the same quarter in 2004. The additional expense relates to the growth in loans and the inherent risk associated with the size and risk characteristics of loans originated over the past twelve months. 22 RESULTS OF OPERATIONS - THE THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2004. First National Bank-West was acquired on February 28, 2005 and became the Company's eight subsidiary. The Ione, Washington branch was acquired by Mountain West on June 4, 2004. Accordingly, results of operations and financial condition for the acquisitions are included from the acquisition dates forward. The Company reported net quarterly earnings of $11.520 million, an increase of $.9 million, or 9 percent, over the $10.610 million for the first quarter of 2004. Diluted earnings per share for the quarter of $.37, is an increase of 9 percent over the per share earnings of $.34 for the same quarter of 2004. Return on average assets and return on average equity for the quarter were 1.50 percent and 17.06 percent, respectively, which compares with prior year returns for the first quarter of 1.55 percent and 17.28 percent. REVENUE SUMMARY ($ IN THOUSANDS)
Three months ended March 31, ------------------------------------------------ 2005 2004 $ change % change ------- ------- -------- -------- Net interest income ......................... $28,456 26,389 2,067 7.8% Non-interest income Service charges, loan fees, and other fees 6,482 5,092 1,390 27.3% Gain on sale of loans .................... 2,092 1,771 321 18.1% Other income ............................. 534 548 (14) -2.6% ------- ------- ------- Total non-interest income ............. 9,108 7,411 1,697 22.9% ------- ------- ------- $37,564 33,800 3,764 11.1% ======= ======= ======= Tax equivalent net interest margin .......... 4.08% 4.29% ======= =======
Net Interest Income Net interest income for the quarter increased $2.067 million, or 8 percent, over the same period in 2004, and $616 thousand from the fourth quarter of 2004. Total interest income increased $5.042 million, or 14 percent, while total interest expense was $2.975 million, or 33 percent higher. The increase in interest expense is primarily attributable to the increase in the subordinated debentures issued in March 2004 for the trust preferred securities, the increased level of FHLB advances and other borrowings, and increases in short term interest rates during 2004 and 2005. The Federal Reserve Bank has increased targeted fed funds rates seven times, 175 basis points, in the last twelve months. The net interest margin as a percentage of earning assets, on a tax equivalent basis, was 4.08 percent which was below the 4.29 percent result for the first quarter of 2004. The margin for the first quarter decreased from the 4.16 percent experienced for the fourth quarter of 2004. The interest margin for FNB is approximately 20 basis points lower than the average of the other seven banks which lowered the ratio. Also having a negative impact on the first quarter interest margin was the reduction of FHLB dividends for the 2005 quarter. Dividends received were $255 thousand less than the same quarter last year. Non-interest Income Fee income increased $1.390 million, or 27 percent, over the same period last year, driven primarily by an increased number of loan and deposit accounts and additional customer services offered. Gain on sale of loans increased $321 thousand from the first quarter of last year. Loan origination activity for housing construction and purchases remains strong in our markets and has offset much of the reduction in refinance activity experienced last year. 23 NON-INTEREST EXPENSE SUMMARY ($ IN THOUSANDS)
Three months ended March 31, -------------------------------------------- 2005 2004 $ change % change ------- ------- ------- ------- Compensation and employee benefits . $10,944 9,806 1,138 11.6% Occupancy and equipment expense .... 2,855 2,631 224 8.5% Outsourced data processing expense . 232 413 (181) -43.8% Core deposit intangible amortization 283 294 (11) -3.7% Other expenses ..................... 4,760 4,282 478 11.2% ------- ------- ------- ------- Total non-interest expense ... $19,074 17,426 1,648 9.5% ======= ======= ======= =======
Non-interest Expense Non-interest expense increased by $1.648 million, or 9 percent, from the same quarter of 2004. Compensation and benefit expense increased $1.138 million, or 12 percent from the first quarter of 2004, with additional bank branches, normal compensation increases for job performance and increased cost for benefits accounting for the majority of the increase. The number of full-time-equivalent employees has increased from 832 to 952, a 14 percent increase, since March 31, 2004. Occupancy and equipment expense increased $224 thousand, or 9 percent, reflecting the cost of the additional locations and facility upgrades. Other expenses increased $478 thousand, or 11 percent, primarily from audit costs from compliance with Sarbanes-Oxley rules, additional marketing expenses, and costs associated with new branch offices. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 51 percent for the 2005 quarter, which is an improvement from the 52 percent for the 2004 quarter. Critical Accounting Policies Companies apply certain critical accounting policies requiring management to make subjective or complex judgments, often as a result of the need to estimate the effect of matters that are inherently uncertain. The Company considers its only critical accounting policy to be the allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged against earnings. The balance of allowance for loan loss is maintained at the amount management believes will be adequate to absorb known and inherent losses in the loan portfolio. The appropriate balance of allowance for loan losses is determined by applying estimated loss factors to the credit exposure from outstanding loans. Estimated loss factors are based on subjective measurements including management's assessment of the internal risk classifications, changes in the nature of the loan portfolio, industry concentrations and the impact of current local, regional and national economic factors on the quality of the loan portfolio. Changes in these estimates and assumptions are reasonably possible and may have a material impact on the Company's consolidated financial statements, results of operations and liquidity. Effect of inflation and changing prices Generally accepted accounting principles require the measurement of financial position and operating results in terms of historical dollars, without consideration for change in relative purchasing power over time due to inflation. Virtually all assets of a financial institution are monetary in nature; therefore, interest rates generally have a more significant impact on a company's performance than does the effect of inflation. Forward Looking Statements This Form 10-Q includes forward looking statements, which describe management's expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of the Company's style of banking and the strength of the local economies in which it operates. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company's public filings, factors that may cause actual 24 results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the company's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new banks and/or branches are lower than expected; (4) costs or difficulties related to the integration of acquisitions are greater than expected; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company believes that there have not been any material changes in information about the Company's market risk that was provided in the Form 10-K report for the year ended December 31, 2004. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(c)) as of the date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective and timely, providing them with material information relating to the Company required to be disclosed in the reports we file or submit under the Exchange Act. Changes in Internal Controls There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter 2005, to which this report relates that have materially affected, or are reasonably likely to materially affect the Company's internal controls over financial reporting. 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (a) Not Applicable (b) Not Applicable (c) Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES (a) Not Applicable (b) Not Applicable 25 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS (a) Not Applicable (b) Not Applicable (c) Not Applicable (d) Not Applicable ITEM 5. OTHER INFORMATION (a) Not Applicable (b) Not Applicable ITEM 6. EXHIBITS Exhibit 3.1 - Articles of Incorporation for Glacier Bancorp, Inc., as amended Exhibit 10.1 - Glacier Bancorp, Inc. 2005 Stock Incentive Plan Exhibit 10.2 - Form of Stock Option Agreement Exhibit 10.3 - Form of Restricted Stock Purchase Agreement Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 Exhibit 32 - Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GLACIER BANCORP, INC. May 5, 2005 /s/ Michael J. Blodnick ----------------------- Michael J. Blodnick President/CEO May 5, 2005 /s/ James H. Strosahl --------------------- James H. Strosahl Executive Vice President/CFO 26