10-Q 1 v11357e10vq.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 June 30, 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 July 25, 2005 was 31,279,150. 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 - Unaudited June 30, 2005, and June 30, 2004 and audited December 31, 2004 ......... 3 Condensed Consolidated Statements of Operations - Unaudited three and six months ended June 30, 2005 and 2004 ............ 4 Condensed Consolidated Statements of Stockholders' Equity and Other Comprehensive Income - Audited year ended December 31, 2004 and unaudited six months ended June 30, 2005 ........................... 5 Condensed Consolidated Statements of Cash Flows - Unaudited six months ended June 30, 2005 and 2004 ...................... 6 Notes to Condensed Consolidated Financial Statements - Unaudited ....... 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 20 Item 3 - Quantitative and Qualitative Disclosure about Market Risk ............ 27 Item 4 - Controls and Procedures .............................................. 27 PART II. OTHER INFORMATION ....................................................... 27 Item 1 - Legal Proceedings .................................................... 27 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds .......... 27 Item 3 - Defaults Upon Senior Securities ...................................... 27 Item 4 - Submission of Matters to a Vote of Security Holders ................. 28 Item 5 - Other Information .................................................... 28 Item 6 - Exhibits ............................................................. 28 Signatures .................................................................... 29
GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, December 31, June 30, (Dollars in thousands, except per share data) 2005 2004 2004 -------------------------------------------------------------------------------- ----------- ------------ ----------- (UNAUDITED) (unaudited) ASSETS: Cash on hand and in banks ................................................ $ 109,402 79,300 69,848 Fed funds sold ........................................................... 10,576 - - Interest bearing cash deposits ........................................... 19,657 13,007 13,302 ----------- ---------- ---------- Cash and cash equivalents ........................................ 139,635 92,307 83,150 Investment securities, available-for-sale ................................ 1,084,101 1,085,626 1,135,598 Loans receivable, net .................................................... 2,093,521 1,687,329 1,555,159 Loans held for sale ...................................................... 28,677 14,476 16,085 Premises and equipment, net .............................................. 69,280 55,732 53,037 Real estate and other assets owned, net .................................. 2,319 2,016 448 Accrued interest receivable .............................................. 17,820 15,637 15,480 Core deposit intangible, net ............................................. 7,904 4,939 5,468 Goodwill ................................................................. 72,382 37,376 37,375 Other assets ............................................................. 16,296 15,299 14,109 ----------- ---------- ---------- $ 3,531,935 3,010,737 2,915,909 =========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Non-interest bearing deposits ............................................ $ 630,983 460,059 402,337 Interest bearing deposits ................................................ 1,576,872 1,269,649 1,233,418 Advances from Federal Home Loan Bank of Seattle .......................... 804,047 818,933 848,770 Securities sold under agreements to repurchase ........................... 95,235 76,158 72,268 Other borrowed funds ..................................................... 5,576 5,057 14,051 Accrued interest payable ................................................. 6,574 4,864 5,667 Deferred tax liability ................................................... 9,262 8,392 128 Subordinated debentures .................................................. 85,000 80,000 80,000 Other liabilities ........................................................ 20,627 17,441 17,206 ----------- ---------- ---------- Total liabilities ................................................ 3,234,176 2,740,553 2,673,845 ----------- ---------- ---------- Preferred shares, 1,000,000 shares authorized. None outstanding .......... - - - Common stock, $.01 par value per share. 62,500,000 shares authorized .... 313 307 306 Paid-in capital .......................................................... 238,941 227,552 224,872 Retained earnings - substantially restricted ............................. 51,808 36,391 21,489 Accumulated other comprehensive income (loss) ............................ 6,697 5,934 (4,603) ----------- ---------- ---------- Total stockholders' equity ....................................... 297,759 270,184 242,064 ----------- ---------- ---------- $ 3,531,935 3,010,737 2,915,909 =========== ========== ========== Number of shares outstanding ............................................. 31,258,586 30,686,763 30,571,291 Book value per share ..................................................... $ 9.53 8.80 7.92
See accompanying notes to condensed consolidated financial statements. 3 GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ---------------------------- (UNAUDITED - dollars in thousands, except per share data) 2005 2004 2005 2004 -------------------------------------------------------------------- ------------- ------------- ------------- ------------- INTEREST INCOME: Real estate loans ............................................ $ 8,097 5,408 14,712 10,689 Commercial loans ............................................. 19,588 13,715 36,112 26,938 Consumer and other loans ..................................... 7,011 4,912 12,741 9,748 Investment securities and other .............................. 11,849 11,406 23,487 23,531 ------------ ------------ ------------ ------------ Total interest income .................................. 46,545 35,441 87,052 70,906 ------------ ------------ ------------ ------------ INTEREST EXPENSE: Deposits ..................................................... 5,582 3,413 9,651 6,896 Federal Home Loan Bank of Seattle advances ................... 5,770 4,491 11,013 8,936 Securities sold under agreements to repurchase ............... 601 177 999 334 Subordinated debentures ...................................... 1,629 1,555 3,184 2,517 Other borrowed funds ......................................... 876 26 1,662 55 ------------ ------------ ------------ ------------ Total interest expense ................................. 14,458 9,662 26,509 18,738 ------------ ------------ ------------ ------------ NET INTEREST INCOME ................................................ 32,087 25,779 60,543 52,168 Provision for loan losses .................................... 1,552 965 3,042 1,795 ------------ ------------ ------------ ------------ Net interest income after provision for loan losses .... 30,535 24,814 57,501 50,373 ------------ ------------ ------------ ------------ NON-INTEREST INCOME: Service charges and other fees ............................... 6,241 4,982 11,445 9,055 Miscellaneous loan fees and charges .......................... 1,609 1,340 2,887 2,359 Gains on sale of loans ....................................... 2,884 2,026 4,976 3,797 Loss on sale of investments .................................. (107) - (137) - Other income ................................................. 886 500 1,450 1,048 ------------ ------------ ------------ ------------ Total non-interest income .............................. 11,513 8,848 20,621 16,259 ------------ ------------ ------------ ------------ NON-INTEREST EXPENSE: Compensation, employee benefits and related expenses .................................. 12,474 9,851 23,418 19,657 Occupancy and equipment expense .............................. 3,152 2,733 6,007 5,364 Outsourced data processing expense ........................... 423 368 655 781 Core deposit intangibles amortization ........................ 384 251 667 545 Other expenses ............................................... 6,043 4,805 10,803 9,087 ------------ ------------ ------------ ------------ Total non-interest expense ............................. 22,476 18,008 41,550 35,434 ------------ ------------ ------------ ------------ EARNINGS BEFORE INCOME TAXES ....................................... 19,572 15,654 36,572 31,198 Federal and state income tax expense ......................... 6,482 4,891 11,962 9,825 ------------ ------------ ------------ ------------ NET EARNINGS ....................................................... $ 13,090 10,763 24,610 21,373 ============ ============ ============ ============ Basic earnings per share ........................................... $ 0.42 0.35 0.79 0.70 Diluted earnings per share ......................................... $ 0.41 0.35 0.78 0.69 Dividends declared per share ....................................... $ 0.15 0.14 0.29 0.27 Return on average assets (annualized) .............................. 1.52% 1.51% 1.51% 1.53% Return on average equity (annualized) .............................. 18.03% 17.60% 17.56% 17.54% Average outstanding shares - basic ................................. 31,228,123 30,568,564 30,997,527 30,500,828 Average outstanding shares - diluted ............................... 31,753,966 31,081,085 31,530,648 31,021,306
See accompanying notes to condensed consolidated financial statements. 4 GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME AUDITED YEAR ENDED DECEMBER 31, 2004 AND UNAUDITED SIX MONTHS ENDED JUNE 30, 2005
Retained Accumulated Total Common Stock earnings other comp- stock- ------------------------ Paid-in substantially rehensive holders' (Dollars in thousands, except per share data) Shares Amount capital restricted income equity --------------------------------------------------------------- ----------- ------------ -------- ------------- ----------- -------- Balance at December 31, 2003 ................................. 30,254,173 $ 303 222,527 8,393 6,616 237,839 Comprehensive income: Net earnings ............................................ -- -- -- 44,616 -- 44,616 Unrealized loss on securities, net of reclassification adjustment and taxes ................................... -- -- -- -- (682) (682) ------- Total comprehensive income 43,934 ------- Cash dividends declared ($.54 per share) ..................... -- -- -- (16,618) -- (16,618) Stock options exercised ...................................... 522,094 5 5,434 -- -- 5,439 Repurchase and retirement of stock ........................... (89,063) (1) (1,804) -- -- (1,805) Acquisition of fractional shares ............................. (441) -- (9) -- -- (9) Tax benefit from stock related compensation .................. -- -- 1,404 -- -- 1,404 ---------- ----------- ------- ------- ----- ------- Balance at December 31, 2004 ................................. 30,686,763 $ 307 227,552 36,391 5,934 270,184 Comprehensive income: Net earnings ............................................ -- -- -- 24,610 -- 24,610 Unrealized gain on securities, net of reclassification .. adjustment and taxes -- -- -- -- 763 763 ------- Total comprehensive income 25,373 ------- Cash dividends declared ($.29 per share) ..................... -- -- -- (9,193) -- (9,193) Stock options exercised ...................................... 218,722 2 2,686 -- -- 2,688 Acquisition of fractional shares ............................. (337) -- (8) -- -- (8) Stock issued in connection of acquisition of Citizens Community Bank ............................................. 353,438 4 8,711 -- -- 8,715 ---------- ----------- ------- ------- ----- ------- Balance at June 30, 2005 (unaudited .......................... 31,258,586 $ 313 238,941 51,808 6,697 297,759 ========== =========== ======= ======= ===== =======
See accompanying notes to condensed consolidated financial statements. 5 GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, ------------------------- (UNAUDITED - dollars in thousands) 2005 2004 ------------------------------------------------------------------------ ---------- ----------- OPERATING ACTIVITIES : Net cash provided by operating activities ............................ $ 27,964 35,876 --------- -------- INVESTING ACTIVITIES: Proceeds from sales, maturities and prepayments of investments available-for-sale ................................... 231,317 124,561 Purchases of investments available-for-sale .......................... (103,175) (185,351) Principal collected on installment and commercial loans .............. 292,459 283,618 Installment and commercial loans originated or acquired .............. (501,339) (403,443) Principal collections on mortgage loans .............................. 243,728 146,440 Mortgage loans originated or acquired ................................ (265,167) (170,138) Net purchase of FHLB and FRB stock ................................... (14) (1,901) Net funds received on acquisition of banks and branches .............. 3,651 14,524 Net addition of premises and equipment ............................... (7,044) (2,046) --------- -------- NET CASH USED IN INVESTING ACTIVITIES ........................... (105,584) (193,736) --------- -------- FINANCING ACTIVITIES: Net increase in deposits ............................................. 128,750 22,990 Net (decrease) increase in FHLB advances and other borrowed funds .... (16,367) 77,509 Net increase in securities sold under repurchase agreements .......... 19,078 15,300 Proceeds from issuance of subordinated debentures .................... - 45,000 Cash dividends paid .................................................. (9,193) (8,277) Proceeds from exercise of stock options and other stock issued ....... 2,688 4,162 Repurchase and retirement of stock ................................... - (1,805) Cash paid for stock split ............................................ (8) (9) --------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES ........................ 124,948 154,870 --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............. 47,328 (2,990) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 92,307 86,140 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 139,635 83,150 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest ............... $ 24,799 17,423 Income taxes ........... $ 10,430 8,907
The following schedule summarizes the acquisition of Bank Holding Co. and subsidiaries in 2005
FIRST NATIONAL CITIZENS BANK BANKS - WEST CO. HOLDING COMPANY ---------------- --------------- Fair Value of assets acquired $267,126 126,394 Cash paid for the capital stock 41,000 8,602 Capital stock issued - 8,715 Liabilities assumed 226,126 109,077
See accompanying notes to condensed consolidated financial statements. 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 June 30, 2005, and June 30, 2004, stockholders' equity for the six months ended June 30, 2005, the results of operations for the three and six months ended June 30, 2005 and 2004, and cash flows for the six months ended June 30, 2005 and 2004. The condensed consolidated statement of financial condition and statement of stockholders' equity and other comprehensive income of the Company as of December 31, 2004 have been derived from the audited consolidated statements of the Company as of that date. 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 six months ended June 30, 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 nine 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, Citizens Community Bank ("Citizens") located in Idaho, and First National Bank - West ("First National") located in Wyoming. In addition, the Company owns three subsidiaries, Glacier Capital Trust I ("Glacier Trust I"), Glacier Capital Trust II ("Glacier Trust II"), and Citizens (ID) Statutory Trust I ("Citizens Trust I") for the purpose of issuing trust preferred securities and in accordance with Financial Accounting Standards Board Interpretation 46(R) the subsidiaries are not consolidated into the Company's financial statements. 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) -------------------------- ------------------------ ------------------------ ------------------------------- -------------------------- ------------------------ ------------------------ ------------------------------- Citizens Community Bank (Commercial bank) Glacier Capital Trust I Glacier Capital Trust II Citizens (ID) Statutory Trust I -------------------------- ------------------------ ------------------------ -------------------------------
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 June 29, 2005, the Board of Directors declared a $.15 per share quarterly cash dividend payable on July 21, 2005 to stockholders of record on July 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 as 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 Six Six months ended months ended months ended months ended June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004 ------------- ------------- ------------- ------------- Net earnings available to common stockholders ........................ $13,090,000 10,763,000 24,610,000 21,373,000 Average outstanding shares - basic ..... 31,228,123 30,568,564 30,997,527 30,500,828 Add: Dilutive stock options ............ 525,843 512,521 533,121 520,478 ----------- ---------- ---------- ---------- Average outstanding shares - diluted ... 31,753,966 31,081,085 31,530,648 31,021,306 =========== ========== ========== ========== Basic earnings per share ............... $ 0.42 0.35 0.79 0.70 =========== ========== ========== ========== Diluted earnings per share ............. $ 0.41 0.35 0.78 0.69 =========== ========== ========== ==========
There were approximately 297,448 and 0 shares excluded from the six months ended diluted share calculation as of June 30, 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 earnings would have been reduced to the pro forma amounts indicated below:
Three months ended June 30, Six months ended June 30, ---------------------------- ------------------------- 2005 2004 2005 2004 ------------ ------ ------ ------ Net earnings (in thousands): As reported $ 13,090 10,763 24,610 21,373 Compensation cost (207) (123) (415) (245) ------------ ------ ------ ------ Proforma 12,883 10,640 24,195 21,128 ------------ ------ ------ ------ Basic earnings per share: As reported 0.42 0.35 0.79 0.70 Compensation cost (0.01) - (0.01) (0.01) ------------ ------ ------ ------ Proforma 0.41 0.35 0.78 0.69 ============ ====== ====== ====== Diluted earnings per share: As reported 0.41 0.35 0.78 0.69 Compensation cost - (0.01) (0.01) (0.01) ------------ ------ ------ ------ Proforma 0.41 0.34 0.77 0.68 ============ ====== ====== ======
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 JUNE 30, 2005
Estimated Weighted Amortized Gross Unrealized Fair (Dollars in thousands) Yield Cost Gains Losses Value -------------------------------------------------- -------- ---------- ---------- ---------- ---------- U.S. GOVERNMENT AND FEDERAL AGENCIES: maturing within five years...................... 4.20% $ 3,951 10 - 3,961 maturing five years through ten years........... 5.52% 354 8 - 362 maturing after ten years........................ 3.22% 380 2 - 382 ---------- ---------- ---------- ---------- 4.22% 4,685 20 - 4,705 ---------- ---------- ---------- ---------- STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES: maturing within one year........................ 4.20% 1,160 2 - 1,162 maturing one year through five years............ 4.56% 3,274 54 (5) 3,323 maturing five years through ten years........... 4.70% 7,697 411 (7) 8,101 maturing after ten years........................ 5.09% 290,432 14,880 (197) 305,115 ---------- ---------- ---------- ---------- 5.07% 302,563 15,347 (209) 317,701 ---------- ---------- ---------- ---------- MORTGAGE-BACKED SECURITIES........................ 4.68% 76,645 575 (680) 76,540 REAL ESTATE MORTGAGE INVESTMENT CONDUITS.......... 3.95% 631,187 962 (4,872) 627,277 FHLMC AND FNMA STOCK.............................. 5.74% 7,593 - (107) 7,486 FHLB AND FRB STOCK, AT COST....................... 0.70% 50,392 - - 50,392 ---------- ---------- ---------- ---------- TOTAL INVESTMENTS............................ 4.18% $1,073,065 16,904 (5,868) 1,084,101 ========== ========== ========== ==========
INVESTMENTS AS OF DECEMBER 31, 2004
Estimated Weighted Amortized Gross Unrealized Fair (Dollars in thousands) Yield Cost Gains Losses Value -------------------------------------------------- -------- ---------- ---------- ---------- ---------- U.S. GOVERNMENT AND FEDERAL AGENCIES: 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 six months ended June 30, 2005 and 2004 of $6,932,000 and $6,959,000, respectively, and for the three months ended June 30, 2005 and 2004 of $3,465,000 and $3,494,000, respectively. Gross proceeds from sales of investment securities for the six months ended June 30, 2005 and 2004 were $116,014,000 and $0 respectively, resulting in gross gains of approximately $471,000 and $0 and gross losses of approximately $608,000 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) 6/30/2005 12/31/2004 6/30/2004 ------------------------- ------------------------- ------------------------- Amount Percent Amount Percent Amount Percent ------------ ------- ------------ ------- ------------ ------- Real Estate Loans: Residential first mortgage loans $ 480,626 22.6% $ 382,750 22.5% $ 328,180 20.9% Loans held for sale 28,677 1.4% 14,476 0.9% 16,085 1.0% ------------ ------- ------------ ------- ------------ ------- Total 509,303 24.0% 397,226 23.4% 344,265 21.9% Commercial Loans: Real estate 623,411 29.3% 526,455 30.9% 459,909 29.3% Other commercial loans 595,970 28.1% 466,582 27.4% 475,744 30.3% ------------ ------- ------------ ------- ------------ ------- Total 1,219,381 57.4% 993,037 58.3% 935,653 59.6% Consumer and Other Loans: Consumer loans 148,144 7.0% 95,663 5.6% 94,346 6.0% Home equity loans 285,956 13.5% 248,684 14.6% 228,216 14.5% ------------ ------- ------------ ------- ------------ ------- Total 434,100 20.5% 344,347 20.2% 322,562 20.5% Net deferred loan fees, premiums and discounts (7,669) -0.4% (6,313) -0.3% (6,090) -0.4% Allowance for Losses (32,917) -1.5% (26,492) -1.6% (25,146) -1.6% ------------ ------- ------------ ------- ------------ ------- Net Loans $ 2,122,198 100.0% $ 1,701,805 100.0% $ 1,571,244 100.0% ============ ======= ============ ======= ============ =======
11 The following table sets forth information regarding the Company's non-performing assets at the dates indicated: NONPERFORMING ASSETS
At At At (Dollars in Thousands) 6/30/2005 12/31/2004 6/30/2004 ---------- ---------- ---------- Non-accrual loans: Real estate loans $ 8 847 756 Commercial loans 4,603 4,792 8,008 Consumer and other loans 305 311 380 ---------- ---------- ---------- Total $ 4,916 5,950 9,144 Accruing Loans 90 days or more overdue: Real estate loans 261 179 160 Commercial loans 431 1,067 796 Consumer and other loans 166 396 106 ---------- ---------- ---------- Total $ 858 1,642 1,062 Real estate and other assets owned, net 2,319 2,016 448 ---------- ---------- ---------- Total non-performing assets $ 8,093 9,608 10,654 ========== ========== ========== As a percentage of total assets 0.23% 0.32% 0.37% Interest Income (1) $ 161 372 281
(1) This is the amount of interest that would have been recorded on loans accounted for on a non-accrual basis for the six months ended June 30, 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
Six months ended Year ended Six months ended June 30, December 31, June 30, (Dollars in Thousands) 2005 2004 2004 ---------------- ------------ ----------------- Balance at beginning of period $ 26,492 23,990 23,990 Charge offs: Real estate loans (57) (419) (128) Commercial loans (562) (1,150) (439) Consumer and other loans (269) (776) (377) ------------ ------ ------ Total charge offs $ (888) (2,345) (944) ------------ ------ ------ Recoveries: Real estate loans 70 171 50 Commercial loans 203 120 84 Consumer and other loans 164 361 171 ------------ ------ ------ Total recoveries $ 437 652 305 ------------ ------ ------ Chargeoffs, net of recoveries (451) (1,693) (639) Acquisition (1) 3,834 - - Provision 3,042 4,195 1,795 ------------ ------ ------ Balance at end of period $ 32,917 26,492 25,146 ============ ====== ====== Ratio of net charge offs to average loans outstanding during the period 0.02% 0.10% 0.04%
(1) Acquisition of First National Bank-West, Citizens Community Bank, and Bonner's Ferry branch 12 The following table summarizes the allocation of the allowance for loan losses:
June 30, 2005 December 31, 2004 June 30, 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 $ 3,415 23.6% 2,693 22.9% 2,303 21.3% Commercial real estate 10,646 28.8% 9,222 30.3% 8,051 28.8% Other commercial 12,708 27.6% 9,836 26.9% 10,343 29.7% Consumer and other loans 6,148 20.0% 4,741 19.9% 4,449 20.2% ------------ ----- --------- ---- ------------ ----- Totals $ 32,917 100.0% 26,492 100.0% 25,146 100.0% ============ ===== ========= ===== ============ =====
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.
June 30, (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 June 30, 2005:
Core Deposit Mortgage (Dollars in thousands) Intangible Servicing Rights (1) Total -------------------------------------------- ------------ -------------------- ----- Gross carrying value $ 13,902 Accumulated Amortization (5,998) ------------ Net carrying value $ 7,904 1,202 9,106 ============ WEIGHTED-AVERAGE AMORTIZATION PERIOD (Period in years) 10.0 9.5 9.9 AGGREGATE AMORTIZATION EXPENSE For the three months ended June 30, 2005 $ 384 72 456 For the six months ended June 30, 2005 $ 667 139 806 ESTIMATED AMORTIZATION EXPENSE For the year ended December 31, 2005 $ 1,443 181 1,624 For the year ended December 31, 2006 1,448 82 1,530 For the year ended December 31, 2007 1,361 80 1,441 For the year ended December 31, 2008 1,283 77 1,360 For the year ended December 31, 2009 1,165 75 1,240
(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 and additional goodwill of $23,299,000. On April 1, 2005, the Company acquired Citizens Community Bank in Pocatello, Idaho which resulted in additional core deposit intangible of $975,000 and additional goodwill of $9,553,000. On May 20, 2005, the Company acquired the Zions branch in Bonners Ferry, Idaho which resulted in additional core deposit intangible of $211,000 and additional goodwill of $2,154,000. 10) Deposits The following table illustrates the amounts outstanding for deposits greater than $100,000 at June 30, 2005, according to the time remaining to maturity. Included in the three month CD maturities are brokered CD's in the amount of $24,989,000.
Certificates Non-Maturity (Dollars in thousands) of Deposit Deposits Totals ----------------------------- ------------ ------------ --------- Within three months.......... $ 105,910 832,884 938,794 Three to six months.......... 28,941 - 28,941 Seven to twelve months....... 29,406 - 29,406 Over twelve months........... 36,243 - 36,243 ------------ --------- --------- Totals $ 200,500 832,884 1,033,384 ============ ========= =========
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 six for the for the six months ended year ended months ended (Dollars in thousands) June 30, 2005 December 31, 2004 June 30, 2004 ------------- ----------------- ------------- FHLB Advances: Amount outstanding at end of period............ $ 804,047 818,933 848,770 Average balance................................ $ 741,002 791,245 823,016 Maximum outstanding at any month-end........... $ 858,961 862,136 862,136 Weighted average interest rate................. 3.00% 2.34% 2.18% Repurchase Agreements: Amount outstanding at end of period............ $ 95,235 76,158 72,268 Average balance................................ $ 86,975 69,480 66,790 Maximum outstanding at any month-end........... $ 95,235 80,265 72,268 Weighted average interest rate................. 2.32% 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 June 30, 2005.
CONSOLIDATED Tier 1 (Core) Tier 2 (Total) Leverage (Dollars in thousands) Capital Capital Capital ----------------------------------------------- ------------- -------------- ------------ GAAP Capital................................... $ 297,759 297,759 297,759 Less: Goodwill and intangibles................ (80,286) (80,286) (80,286) Accumulated other comprehensive Unrealized gain on AFS securities...... (6,697) (6,697) (6,697) Other adjustments.......................... (107) (107) (107) Plus: Allowance for loan losses............... - 30,654 - Subordinated debentures.................... 85,000 85,000 85,000 ------------- -------------- ------------ Regulatory capital computed.................... $ 295,669 326,323 295,669 ============= ============== ============ Risk weighted assets........................... $ 2,452,326 2,452,326 ============= ============== Total average assets........................... $ 3,420,214 ============ Capital as % of defined assets................. 12.06% 13.31% 8.64% Regulatory "well capitalized" requirement...... 6.00% 10.00% 5.00% ------------- -------------- ------------ Excess over "well capitalized" requirement..... 6.06% 3.31% 3.64% ============= ============== ============
15 13) Other Comprehensive Income The Company's only component of other comprehensive income is the unrealized gains and losses on available-for-sale securities.
For the three months For the six months ended June 30, ended June 30, Dollars in thousands 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Net earnings................................................. $ 13,090 10,763 24,610 21,373 Unrealized holding gain (loss) arising during the period 10,653 (27,680) 1,123 (18,511) Tax (expense) benefit........................................ (4,198) 10,906 (443) 7,292 ---------- ---------- ---------- ---------- Net after tax.................................... 6,455 (16,774) 680 (11,219) Reclassification adjustment for losses included in net income.................................... 107 - 137 - Tax benefit.................................................. (42) - (54) - ---------- ---------- ---------- ---------- Net after tax.................................... 65 - 83 - Net unrealized gain (loss) on securities......... 6,520 (16,774) 763 (11,219) ---------- ---------- ---------- ---------- Total other comprehensive income............. $ 19,610 (6,011) 25,373 10,154 ========== ========== ========== ==========
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.
Six months ended and as of June 30, 2005 ------------------------------------------------------------------------------------ Mountain First First (Dollars in thousands) Glacier West Security Western National Big Sky ------------------------------------------ --------- --------- --------- --------- --------- --------- Revenues from external customers $ 21,204 25,570 18,572 12,973 4,779 8,617 Intersegment revenues 430 - 13 - 81 - Expenses (16,042) (20,110) (13,167) (9,956) (3,811) (6,366) Intercompany eliminations - - - - - - --------- --------- --------- --------- --------- --------- Net earnings $ 5,592 5,460 5,418 3,017 1,049 2,251 ========= ========= ========= ========= ========= ========= Total Assets $ 683,773 731,133 616,175 443,278 266,220 268,972 ========= ========= ========= ========= ========= =========
Total Valley Whitefish Citizens Other Consolidated ---------- ---------- ---------- ---------- ------------ Revenues from external customers 7,899 5,593 2,687 (221) 107,673 Intersegment revenues 68 - - 31,181 31,773 Expenses (5,973) (3,948) (2,106) (1,584) (83,063) Intercompany eliminations - - - (31,773) (31,773) ---------- ---------- ---------- ---------- ------------ Net earnings 1,994 1,645 581 (2,397) 24,610 ========== ========== ========== ========== ============ Total Assets 247,736 161,994 132,461 (19,807) 3,531,935 ========== ========== ========== ========== ============
16
Six months ended and as of June 30, 2004 -------------------------------------------------------------------------- Mountain First (Dollars in thousands) Glacier West Security Western Big Sky ------------------------------------ ---------- ---------- ---------- ---------- ---------- Revenues from external customers $ 18,962 19,224 17,612 12,607 6,874 Intersegment revenues 130 - 10 2 - Expenses (13,628) (15,612) (11,949) (9,207) (5,185) Intercompany eliminations - - - - - ---------- ---------- ---------- ---------- ---------- Net earnings $ 5,464 3,612 5,673 3,402 1,689 ========== ========== ========== ========== ========== Total Assets $ 638,338 582,529 605,066 454,773 223,596 ========== ========== ========== ========== ==========
Total Valley Whitefish Other Consolidated ---------- ---------- ---------- ------------ Revenues from external customers 6,863 4,511 512 87,165 Intersegment revenues 69 - 26,666 26,877 Expenses (5,102) (3,210) (1,899) (65,792) Intercompany eliminations - - (26,877) (26,877) ---------- ---------- ---------- ------------ Net earnings 1,830 1,301 (1,598) 21,373 ========== ========== ========== ============ Total Assets 230,095 161,775 19,737 2,915,909 ========== ========== ========== ============
Three months ended and as of June 30, 2005 -------------------------------------------------------------------------------------- Mountain First First (Dollars in thousands) Glacier West Security Western National Big Sky ------------------------------------ ----------- --------- --------- --------- --------- --------- Revenues from external customers $ 10,869 13,402 9,497 6,602 3,635 4,528 Intersegment revenues 285 - 8 - 81 - Expenses (8,301) (10,538) (6,754) (5,085) (2,928) (3,362) Intercompany eliminations - - - - - - ----------- --------- --------- --------- --------- --------- Net earnings $ 2,853 2,864 2,751 1,517 788 1,166 =========== ========= ========= ========= ========= ========= Total Assets $ 683,773 731,133 616,175 443,278 266,220 268,972 =========== ========= ========= ========= ========= =========
Total Valley Whitefish Citizens Other Consolidated ---------- ---------- ---------- ---------- ------------ Revenues from external customers 4,120 2,640 2,687 78 58,058 Intersegment revenues 34 - - 16,339 16,747 Expenses (3,129) (1,949) (2,106) (816) (44,968) Intercompany eliminations - - - (16,747) (16,747) ---------- ---------- ---------- ---------- ------------ Net earnings 1,025 691 581 (1,146) 13,090 ========== ========== ========== ========== ============ Total Assets 247,736 161,994 132,461 (19,807) 3,531,935 ========== ========== ========== ========== ============
17
Three months ended and as of June 30, 2004 --------------------------------------------------------------------- Mountain First (Dollars in thousands) Glacier West Security Western Big Sky ---------------------------------- --------- --------- --------- --------- --------- Revenues from external customers $ 9,627 10,000 8,792 6,263 3,462 Intersegment revenues 62 - 6 - - Expenses (6,909) (8,007) (5,952) (4,589) (2,667) Intercompany eliminations - - - - - --------- --------- --------- --------- --------- Net earnings $ 2,780 1,993 2,846 1,674 795 ========= ========= ========= ========= ========= Total Assets $ 638,338 582,529 605,066 454,773 223,596 ========= ========= ========= ========= =========
Total Valley Whitefish Other Consolidated ---------- ---------- ---------- ------------ Revenues from external customers 3,476 2,250 419 44,289 Intersegment revenues 33 - 13,529 13,630 Expenses (2,577) (1,608) (1,217) (33,526) Intercompany eliminations - - (13,630) (13,630) ---------- ---------- ---------- ------------ Net earnings 932 642 (899) 10,763 ========== ========== ========== ============ Total Assets 230,095 161,775 19,737 2,915,909 ========== ========== ========== ============
15) Rate/Volume Analysis Net interest income can be evaluated from the perspective of relative dollars of change in each period. 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.
Six Months Ended June 30, 2005 vs. 2004 (Dollars in Thousands) Increase (Decrease) due to: -------------------------------------- Volume Rate Net ---------- -------- -------- INTEREST INCOME Real Estate Loans $ 4,261 (238) 4,023 Commercial Loans 6,667 2,507 9,174 Consumer and Other Loans 2,770 223 2,993 Investment Securities and other (252) 208 (44) ---------- -------- -------- Total Interest Income 13,446 2,700 16,146 INTEREST EXPENSE NOW Accounts 42 72 114 Savings Accounts 57 135 192 Money Market Accounts 324 986 1,310 Certificates of Deposit 550 589 1,139 FHLB Advances (891) 2,968 2,077 Other Borrowings and Repurchase Agreements 3,371 (432) 2,939 ---------- -------- -------- Total Interest Expense 3,453 4,318 7,771 ---------- -------- -------- NET INTEREST INCOME $ 9,993 (1,618) 8,375 ========== ======== ========
18 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 6-30-05 For the Six months ended 6-30-05 ---------------------------------- -------------------------------- Interest Average Interest Average Average and Yield/ Average and Yield/ (Dollars in Thousands) Balance Dividends Rate Balance Dividends Rate ------------ --------- ------- ---------- --------- ------- ASSETS Real Estate Loans $ 482,264 8,097 6.72% $ 446,569 14,712 6.59% Commercial Loans 1,170,187 19,588 6.71% 1,101,574 36,112 6.61% Consumer and Other Loans 419,518 7,011 6.70% 389,651 12,741 6.59% ------------ --------- ---------- --------- Total Loans 2,071,969 34,696 6.72% 1,937,794 63,565 6.61% Tax -Exempt Investment Securities (1) 283,400 3,465 4.89% 282,785 6,932 4.90% Investment Securities 843,028 8,384 3.98% 835,308 16,555 3.96% ------------ --------- ---------- --------- Total Earning Assets 3,198,397 46,545 5.82% 3,055,887 87,052 5.70% --------- --------- Non-Earning Assets 258,482 230,327 ------------ ---------- TOTAL ASSETS $ 3,456,879 $3,286,214 ============ ========== LIABILITIES AND STOCKHOLDERS' EQUITY NOW Accounts $ 313,293 192 0.25% $ 298,309 341 0.23% Savings Accounts 210,694 254 0.48% 194,721 409 0.42% Money Market Accounts 491,380 1,710 1.40% 461,850 3,021 1.32% Certificates of Deposit 521,823 3,426 2.63% 478,668 5,880 2.48% FHLB Advances 742,064 5,770 3.12% 741,002 11,013 3.00% Repurchase Agreements and Other Borrowed Funds 282,468 3,106 4.41% 282,738 5,845 4.17% ------------ --------- ---------- --------- Total Interest Bearing Liabilities 2,561,722 14,458 2.26% 2,457,288 26,509 2.18% --------- --------- Non-interest Bearing Deposits 569,317 514,618 Other Liabilities 34,597 31,680 ------------ ---------- Total Liabilities 3,165,636 3,003,586 ------------ ---------- Common Stock 312 310 Paid-In Capital 238,577 233,283 Retained Earnings 49,431 44,716 Accumulated Other Comprehensive Income 2,923 4,319 ------------ ---------- Total Stockholders' Equity 291,243 282,628 ------------ ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,456,879 $3,286,214 ============ ========== Net Interest Income $ 32,087 $ 60,543 ========= ========= Net Interest Spread 3.56% 3.52% Net Interest Margin on average earning assets 4.02% 4.00% Return on Average Assets (annualized) 1.52% 1.51% Return on Average Equity (annualized) 18.03% 17.56%
(1) Excludes tax effect on non-taxable investment security income 19 17) Acquisitions On February, 28, 2005 the Company completed the acquisition of First National Bank - West, Evanston, Wyoming, with total assets of $267 million, loans of $88 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 $23,299,000. On April 1, 2005, the Company completed the acquisition of Citizens Bank Holding Company and its subsidiary bank Citizens Community Bank, Pocatello, Idaho, with total assets of $126 million, loans of $89 million, and deposits of $101 million. This bank operates from three banking offices in Pocatello and Idaho Falls, and a loan production office in Rexburg, Idaho, and became the ninth subsidiary bank of the Company. A portion of the purchase price was allocated to core deposit intangible of $975,000 and goodwill of $9,553,000. On May 20, 2005, Mountain West Bank of Coeur d'Alene completed the acquisition of the Zions First National Bank branch in Bonners Ferry, Idaho, with total assets of $24 million, loans of $5 million, and deposits of $24 million. A portion of the purchase price was allocated to core deposit intangible of $211,000 and goodwill of $2,154,000. 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 First National Bank-West and Citizen's Community Bank were acquired on February 28, 2005 and April 1, 2005, respectively, and became the Company's eighth and ninth banking subsidiaries. The Bonner's Ferry branch was acquired by Mountain West on May 20, 2005. Accordingly, results of operations and financial condition for the acquisitions are included from the acquisition dates forward. Financial Condition This section discusses the changes in Statement of Financial Condition items from June 30, 2004 and December 31, 2004, to June 30, 2005. The results of operations and financial condition include the acquisitions from the completion dates forward. The following table provides information on selected classifications of assets and liabilities acquired:
First National Citizens Bonners Ferry (UNAUDITED - $ IN THOUSANDS) Bank Community Bank Branch Total -------------- -------------- ------------- ------- Total assets $ 267,126 126,394 23,868 417,388 Investments 124,733 7,916 - 132,649 Net loans 87,678 89,240 5,047 181,965 Non-interest bearing deposits 95,053 25,789 6,073 126,915 Interest bearing deposits 129,697 75,008 17,777 222,482
20
$ change from $ change from June 30, December 31, June 30, December 31, June 30, ASSETS ($ IN THOUSANDS) 2005 2004 2004 2004 2004 ----------- ------------ ----------- ------------- ------------- Cash on hand and in banks $ 109,402 79,300 69,848 30,102 39,554 Investment securities, interest bearing deposits, FHLB stock, FRB stock, and fed funds 1,114,334 1,098,633 1,148,900 15,701 (34,566) Loans: Real estate 505,296 393,141 339,945 112,155 165,351 Commercial 1,215,919 991,081 934,100 224,838 281,819 Consumer 433,900 344,075 322,345 89,825 111,555 ----------- --------- --------- ------- ------- Total loans 2,155,115 1,728,297 1,596,390 426,818 558,725 Allowance for loan losses (32,917) (26,492) (25,146) (6,425) (7,771) ----------- --------- --------- ------- ------- Total loans net of allowance for loan losses 2,122,198 1,701,805 1,571,244 420,393 550,954 ----------- --------- --------- ------- ------- Other assets 186,001 130,999 125,917 55,002 60,084 ----------- --------- --------- ------- ------- Total Assets $ 3,531,935 3,010,737 2,915,909 521,198 616,026 =========== ========= ========= ======= =======
At June 30, 2005 total assets were $3.532 billion, which is $616 million greater than the June 30, 2004 assets of $2.916 billion, an increase of 21 percent, and $521 million greater than at December 31, 2004, an increase of 17 percent. Without the $417 million in assets acquired in acquisitions, total assets are up $199 million from a year ago, or 7 percent, and $104 million, or 3 percent from year end 2004. Total loans have increased $559 million from June 30, 2004, or 35 percent, with the growth occurring in all loan categories. Commercial loans have increased $282 million, or 30 percent, real estate loans gained $165 million, or 49 percent, and consumer loans grew by $112 million, or 35 percent. Acquisitions added $182 million of the total with internal growth contributing $377 million, a 24 percent increase. Loan volume continues to be very strong with internal loan growth of $245 million since December 31, 2004, or 14 percent. Including loans acquired, commercial loans are up by $225 million, or 23 percent, real estate loans increased by $112 million, or 29 percent, and consumer loans gained $90 million, or 26 percent. Investment securities, including interest bearing deposits in other financial institutions, and federal funds sold, have decreased $35 million from June 30, 2004. Without the acquisitions, investments would have declined $167 million, or 15 percent, from June 30, 2004. Cash flow from investment pay downs is now being used to fund the significant growth in loans. 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 six months ended June 30, 2005 and 2004 were $175 million and $143 million, respectively, and for the three months ended June 30, 2005 and 2004 were $116 million and $76 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 June 30, 2005 was approximately $197 million. 21
$ change from $ change from June 30, December 31, June 30, December 31, June 30, LIABILITIES ($ IN THOUSANDS) 2005 2004 2004 2004 2004 ----------- ------------ --------- ------------- ------------- Non-interest bearing deposits $ 630,983 460,059 402,337 170,924 228,646 Interest bearing deposits 1,576,872 1,269,649 1,233,418 307,223 343,454 Advances from Federal Home Loan Bank 804,047 818,933 848,770 (14,886) (44,723) Securities sold under agreements to repurchase and other borrowed funds 100,811 81,215 86,319 19,596 14,492 Other liabilities 36,463 30,697 23,001 5,766 13,462 Subordinated debentures 85,000 80,000 80,000 5,000 5,000 ----------- --------- --------- ------- ------- Total liabilities $ 3,234,176 2,740,553 2,673,845 493,623 560,331 =========== ========= ========= ======= =======
Non-interest bearing deposits have increased $229 million, or 57 percent, since June 30, 2004. Without acquisitions the increase was $102 million, or 25 percent. Since December 31, 2004 the increase was $171 million, and without acquisitions $44 million, or 10 percent. This continues to be a primary focus of our banks and the programs we have initiated this past year continue to gain momentum. Interest bearing deposits have increased $343 million from June 30, 2004 with $222 million from the acquisitions. Since December 31, 2004, without acquisitions, interest bearing deposits increased $85 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 decreased $45 million, and repurchase agreements and other borrowed funds increased $14 million from June 30, 2004. Since December 31, 2004 Federal Home Loan Bank advances declined $15 million, and repurchase agreements and other borrowed funds increased $20 million. 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 earnings. In addition, eight of the nine banking subsidiaries are members of the FHLB. As of June 30, 2005, the Company had $1.241 billion of available FHLB line of which $804 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 six months of 2005, all nine financial institutions maintained liquidity and regulatory capital levels in excess of regulatory requirements and operational needs. 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. 22
$ change from $ change from STOCKHOLDERS' EQUITY June 30, December 31, June 30, December 31, June 30, ($ IN THOUSANDS EXCEPT PER SHARE DATA) 2005 2004 2004 2004 2004 ---------- ------------ ---------- -------------- ------------- Common equity $ 291,062 264,250 246,667 26,812 44,395 Accumulated other comprehensive income (loss) 6,697 5,934 (4,603) 763 11,300 ---------- ------- ------- ------ ------ Total stockholders' equity $ 297,759 270,184 242,064 27,575 55,695 ========== ======= ======= ====== ====== Stockholders' equity to total assets 8.43% 8.97% 8.30% Book value per common share $ 9.53 8.80 7.92 0.73 1.61 Market price per share at end of quarter $ 26.13 27.23 22.54 (1.10) 3.59
Total equity and book value per share amounts have increased substantially from June 30, 2004 and from year end 2004, primarily the result of earnings retention, and stock options exercised. Accumulated other comprehensive income, representing net unrealized gains on securities available for sale, increased $11 million from June 30, 2004 and $763 thousand from year end 2004, primarily a function of interest rate changes.
June 30, December 31, June 30, ------------- ------------- ----------- CREDIT QUALITY INFORMATION ($ IN THOUSANDS) 2005 2004 2004 ------------- ------------- ----------- Allowance for loan losses $ 32,917 26,492 25,146 Non-performing assets $ 8,093 9,608 10,654 Allowance as a percentage of non performing assets 407% 276% 236% Non-performing assets as a percentage of total assets 0.23% 0.32% 0.37% Allowance as a percentage of total loans 1.53% 1.53% 1.58% Net charge-offs as a percentage of loans 0.021% 0.098% 0.040%
Allowance for Loan Loss and Non-Performing Assets Non-performing assets as a percentage of total assets at June 30, 2005 were at .23 percent, a decrease from .37 percent at June 30, 2004 and .32 percent at December 31, 2004. This compares favorably to the Federal Reserve Bank Peer Group average of .45 percent at March 31, 2004, the most recent information available. The allowance for loan losses was 407 percent of non-performing assets at June 31, 2005, compared to 236 percent a year ago. The allowance, including $3.834 million from acquisitions, has increased $7.771 million, or 31 percent, from a year ago. The allowance of $32.917 million, is 1.53 percent of June 30, 2005 total loans outstanding, down slightly from the 1.58 percent a year ago. The second quarter provision for loan losses expense was $1.552 million, an increase of $587 thousand from the same quarter in 2004. The additional expense relates to the continuing growth in the number and average size of loans. RESULTS OF OPERATIONS - THE THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2004. Operating results include amounts resulting from the acquisitions from the acquisition date forward. 23
REVENUE SUMMARY ($ IN THOUSANDS) Three months ended June 30, --------------------------------------------------------- 2005 2004 $ change % change ------------ ------------ ------------- --------- Net interest income $ 32,087 $ 25,779 $ 6,308 24% Non-interest income Service charges, loan fees, and other fees 7,850 6,322 1,528 24% Gain on sale of loans 2,884 2,026 858 42% Loss on sale of investments (107) - (107) n/m Other income 886 500 386 77% ------------ ------------ ------------- -- Total non-interest income 11,513 8,848 2,665 30% ------------ ------------ ------------- -- $ 43,600 $ 34,627 $ 8,973 26% ============ ============ ============= == Tax equivalent net interest margin 4.12% 4.04% ============ ============
Net Interest Income Net interest income for the quarter increased $6.308 million, or 24 percent, over the same period in 2004, and $3.631 million from the first quarter of 2005. Total interest income increased $11.104 million, or 31 percent, while total interest expense was $4.796 million, or 50 percent higher. The increase in interest expense is primarily attributable to the volume increase in interest bearing liabilities, and increases in short term interest rates during 2004 and 2005. The Federal Reserve Bank has increased targeted fed funds rates nine times, 225 basis points, in the last twelve months. The net interest margin as a percentage of earning assets, on a tax equivalent basis, was 4.12 percent which was higher than the 4.04 percent result for the second quarter of 2004. The margin for the second quarter also increased from the 4.08 percent experienced for the first quarter of 2005. The second quarter interest margin was reduced by not receiving FHLB dividends for the 2005 quarter. FHLB dividends received were $444 thousand less than the same quarter last year. Non-interest Income Fee income increased $1.528 million, or 24 percent, over the same period last year, driven primarily by an increased number of loan and deposit accounts, acquisitions, and additional customer services offered. Gain on sale of loans increased $858 thousand from the second 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. Other income was $386 thousand higher than the second quarter of 2004 of which $220 thousand was from the sale of property held for future expansion that was no longer needed.
NON-INTEREST EXPENSE SUMMARY ($ IN THOUSANDS) Three months ended June 30, --------------------------------------------------------- 2005 2004 $ change % change ------------ ------------ ------------- --------- Compensation and employee benefits $ 12,474 $ 9,851 $ 2,623 27% Occupancy and equipment expense 3,152 2,733 419 15% Outsourced data processing expense 423 368 55 15% Core deposit intangible amortization 384 251 133 53% Other expenses 6,043 4,805 1,238 26% ------------ ------------ ------------- -- Total non-interest expense $ 22,476 $ 18,008 $ 4,468 25% ============ ============ ============= ==
Non-interest Expense Non-interest expense increased by $4.468 million, or 25 percent, from the same quarter of 2004. Compensation and benefit expense increased $2.623 million, or 27 percent from the second quarter of 2004, with acquisitions, 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 842 24 to 1057, a 26 percent increase, since June 30, 2004. Occupancy and equipment expense increased $419 thousand, or 15 percent, reflecting the acquisitions, cost of additional locations and facility upgrades. Other expenses increased $1.238 million, or 26 percent, primarily from acquisitions, audit costs from compliance with Sarbanes-Oxley rules, additional marketing expenses, and costs associated with new branch offices. The efficiency ratio (non-interest expense/net interest income + non-interest income) remained at 52 percent for the 2005 quarter, the same as 2004. OPERATING RESULTS FOR SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO JUNE 30, 2004
REVENUE SUMMARY ($ IN THOUSANDS) Six months ended June 30, ----------------------------------------------- 2005 2004 $ change % change -------- -------- --------- -------- Net interest income $ 60,543 $ 52,168 $ 8,375 16% Non-interest income Service charges, loan fees, and other fees 14,332 11,414 2,918 26% Gain on sale of loans 4,976 3,797 1,179 31% Loss on sale of investments (137) - (137) n/m Other income 1,450 1,048 402 38% -------- -------- --------- --- Total non-interest income 20,621 16,259 4,362 27% -------- -------- --------- --- $ 81,164 $ 68,427 $ 12,737 19% ======== ======== ========= === Tax equivalent net interest margin 4.10% 4.17% ======== ========
Net Interest Income Net interest income for the six months increased $8.375 million, or 16 percent, over the same period in 2004. Total interest income increased $16.146 million, or 23 percent, while total interest expense was $7.771 million, or 41 percent higher. The increase in interest expense is primarily attributable to the volume increase in interest bearing liabilities, and increases in short term interest rates during 2004 and 2005. The net interest margin as a percentage of earning assets, on a tax equivalent basis, was 4.10 percent which was lower than the 4.17 percent result for the same six months of 2004. The interest margin was reduced by lower FHLB dividends in 2005. FHLB dividends received were $699 thousand less than the same period last year. Non-interest Income Total non-interest income increased $4.362 million, or 27 percent in 2005. Fee income increased $2.918 million, or 26 percent, over the same period last year, driven primarily by an increased number of loan and deposit accounts, acquisitions, and additional customer product and services offered. Gain on sale of loans increased $1.179 million, or 31 percent, from the first six months 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. Other income was $402 higher than 2004 of which $220 was from the sale of property held for future expansion that was no longer needed, and the remainder from various volume increases. 25
NON-INTEREST EXPENSE SUMMARY ($ IN THOUSANDS) Six months ended June 30, ----------------------------------------------- 2005 2004 $ change % change -------- -------- -------- -------- Compensation and employee benefits $ 23,418 $ 19,657 $ 3,761 19% Occupancy and equipment expense 6,007 5,364 643 12% Outsourced data processing expense 655 781 (126) -16% Core deposit intangible amortization 667 545 122 22% Other expenses 10,803 9,087 1,716 19% -------- -------- -------- --- Total non-interest expense $ 41,550 $ 35,434 $ 6,116 17% ======== ======== ======== ===
Non-interest Expense Non-interest expense increased by $6.116 million, or 17 percent, from the same six months of 2004. Compensation and benefit expense increased $3.761 million, or 19 percent from the prior year, with acquisitions, additional bank branches, normal compensation increases for job performance and increased cost for benefits accounting for the majority of the increase. Occupancy and equipment expense increased $643 thousand, or 12 percent, reflecting the acquisitions, cost of additional locations and facility upgrades. Other expenses increased $1.716 million, or 19 percent, primarily from acquisitions, 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) improved to 51 percent from 52 percent for the first six months of 2005. 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 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 26 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 second 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 27 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS (a) The Company's Annual Shareholders' Meeting was held April 27, 2005 (b) Not Applicable (c) A brief description of each matter voted upon at the Annual Meeting and the number of votes cast for, against, or withheld, including a separate tabulation with respect to each nominee to serve on the Board is presented below: (1) Election of Directors for three-year terms expiring in 2008 and until their successors have been elected to qualified. Michael J. Blodnick - Votes Cast For: 21,725,560 Votes Cast Witheld: 692,075 Allen J. Fetscher - Votes Cast For: 21,726,841 Votes Cast Witheld: 690,793 Fred J. Flanders - Votes Cast For: 21,510,576 Votes Cast Witheld: 907,059 (2) Approval of 2005 Stock Incentive Plan Votes Cast For: 15,500,668 Votes Cast Against: 2,357,525 Abstain: 189,891 (d) Not Applicable ITEM 5. OTHER INFORMATION (a) Not Applicable (b) Not Applicable ITEM 6. EXHIBITS 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 28 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. August 4, 2005 /s/ Michael J. Blodnick ----------------------- Michael J. Blodnick President/CEO August 4, 2005 /s/ James H. Strosahl --------------------- James H. Strosahl Executive Vice President/CFO 29