10-Q 1 v13873e10vq.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 September 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 incorporation (IRS Employer or organization) Identification No.) 49 Commons Loop, Kalispell, Montana 59901 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (406) 756-4200 -------------------------------------------------------------------------------- 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 ___ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X The number of shares of Registrant's common stock outstanding on October 25, 2005 was 31,382,842. 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 September 30, 2005, and September 30, 2004 and audited December 31, 2004 ........ 3 Condensed Consolidated Statements of Operations - Unaudited three and nine months ended September 30, 2005 and 2004 ............... 4 Condensed Consolidated Statements of Stockholders' Equity and Other Comprehensive Income - Audited year ended December 31, 2004 and unaudited nine months ended September 30, 2005 ......................... 5 Condensed Consolidated Statements of Cash Flows - Unaudited nine months ended September 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 ............................................................................... 28
GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data) SEPTEMBER 30, December 31, September 30, 2005 2004 2004 ---- ---- ---- (UNAUDITED) (unaudited) ASSETS: Cash on hand and in banks .................................... $ 114,781 79,300 69,625 Fed funds sold ............................................... 8,137 -- -- Interest bearing cash deposits ............................... 19,117 13,007 9,001 ----------- ---------- ---------- Cash and cash equivalents .................................. 142,035 92,307 78,626 Investment securities, available-for-sale .................... 1,024,485 1,085,626 1,136,666 Loans receivable, net ........................................ 2,207,249 1,687,329 1,643,984 Loans held for sale .......................................... 26,800 14,476 15,630 Premises and equipment, net .................................. 73,579 55,732 54,244 Real estate and other assets owned, net ...................... 1,803 2,016 493 Accrued interest receivable .................................. 17,515 15,637 15,494 Core deposit intangible, net ................................. 7,516 4,939 5,204 Goodwill ..................................................... 72,382 37,376 37,376 Other assets ................................................. 16,516 15,299 14,982 ----------- ---------- ---------- $ 3,589,880 3,010,737 3,002,699 =========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Non-interest bearing deposits ................................ $ 684,151 460,059 438,578 Interest bearing deposits .................................... 1,702,977 1,269,649 1,249,543 Advances from Federal Home Loan Bank of Seattle .............. 654,368 818,933 854,056 Securities sold under agreements to repurchase ............... 111,196 76,158 73,074 Other borrowed funds ......................................... 12,313 5,057 9,612 Accrued interest payable ..................................... 5,784 4,864 5,439 Deferred tax liability ....................................... 7,644 8,392 8,375 Subordinated debentures ...................................... 85,000 80,000 80,000 Other liabilities ............................................ 21,047 17,441 21,044 ----------- ---------- ---------- Total liabilities .......................................... 3,284,480 2,740,553 2,739,721 ----------- ---------- ---------- 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 .............................................. 240,197 227,552 225,586 Retained earnings - substantially restricted ................. 60,682 36,391 29,005 Accumulated other comprehensive income ....................... 4,208 5,934 8,081 ----------- ---------- ---------- Total stockholders' equity ................................. 305,400 270,184 262,978 ----------- ---------- ---------- $ 3,589,880 3,010,737 3,002,699 =========== ========== ========== Number of shares outstanding ................................. 31,345,769 30,686,763 30,634,181 Book value per share ......................................... $ 9.74 8.80 8.58
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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------- -------------------------------- ------------------------------- 2005 2004 2005 2004 ---- ---- ---- ---- INTEREST INCOME: Real estate loans ............................ $ 8,946 5,865 23,658 16,554 Commercial loans ............................. 21,803 14,744 57,915 41,682 Consumer and other loans ..................... 7,666 5,166 20,407 14,914 Investment securities and other .............. 11,155 11,865 34,642 35,396 ------------ ---------- ----------- ---------- Total interest income ................... 49,570 37,640 136,622 108,546 ------------ ---------- ----------- ---------- INTEREST EXPENSE: Deposits ..................................... 6,914 3,510 16,565 10,406 Federal Home Loan Bank of Seattle advances ... 5,830 4,787 16,843 13,723 Securities sold under agreements to repurchase 804 231 1,803 565 Subordinated debentures ...................... 1,633 1,547 4,817 4,064 Other borrowed funds ......................... 629 180 2,291 235 ------------ ---------- ----------- ---------- Total interest expense .................. 15,810 10,255 42,319 28,993 ------------ ---------- ----------- ---------- NET INTEREST INCOME ........................... 33,760 27,385 94,303 79,553 Provision for loan losses .................... 1,607 1,200 4,649 2,995 ------------ ---------- ----------- ---------- Net interest income after provision for loan losses .......................... 32,153 26,185 89,654 76,558 ------------ ---------- ----------- ---------- NON-INTEREST INCOME: Service charges and other fees ............... 6,575 5,331 18,020 14,386 Miscellaneous loan fees and charges .......... 1,806 1,106 4,693 3,465 Gains on sale of loans ....................... 3,258 2,211 8,234 6,008 Loss on sale of investments .................. (1) -- (138) -- Other income ................................. 698 489 2,148 1,537 ------------ ---------- ----------- ---------- Total non-interest income ............... 12,336 9,137 32,957 25,396 ------------ ---------- ----------- ---------- NON-INTEREST EXPENSE: Compensation, employee benefits and related expenses .................................. 13,685 10,067 37,103 29,724 Occupancy and equipment expense .............. 3,356 2,662 9,363 8,026 Outsourced data processing expense ........... 615 346 1,270 1,127 Core deposit intangibles amortization ........ 388 265 1,055 810 Other expenses ............................... 6,132 4,649 16,935 13,736 ------------ ---------- ----------- ---------- Total non-interest expense .............. 24,176 17,989 65,726 53,423 ------------ ---------- ----------- ---------- EARNINGS BEFORE INCOME TAXES .................. 20,313 17,333 56,885 48,531 Federal and state income tax expense ......... 6,738 5,653 18,700 15,478 ------------ ---------- ----------- ---------- NET EARNINGS .................................. $ 13,575 11,680 38,185 33,053 ============ ========== =========== ========== Basic earnings per share ...................... $ 0.43 0.38 1.23 1.08 Diluted earnings per share .................... $ 0.42 0.37 1.21 1.06 Dividends declared per share .................. $ 0.15 0.14 0.44 0.41 Return on average assets (annualized) ......... 1.52% 1.57% 1.51% 1.54% Return on average equity (annualized) ......... 17.88% 18.12% 17.67% 17.74% Average outstanding shares - basic ............ 31,304,413 30,600,409 31,100,946 30,535,546 Average outstanding shares - diluted .......... 31,960,244 31,164,520 31,673,706 31,073,706
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 NINE MONTHS ENDED SEPTEMBER 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 Other comprehensive income: Net earnings .......................... -- -- -- 38,185 -- 38,185 Unrealized loss on securities, net of reclassification adjustment and taxes -- -- -- -- (1,726) (1,726) -------- Total other comprehensive income ........... 36,459 -------- Cash dividends declared ($.44 per share) ... -- -- -- (13,894) -- (13,894) Stock options exercised .................... 305,905 2 3,942 -- -- 3,944 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 September 30, 2005 (unaudited) .. 31,345,769 $ 313 240,197 60,682 4,208 305,400 =========== ===== ======== ======= ====== ========
See accompanying notes to condensed consolidated financial statements. 5 GLACIER BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - dollars in thousands) NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- ------------------------------- 2005 2004 ---- ---- OPERATING ACTIVITIES: Net cash provided by operating activities ......................... $ 49,342 55,340 --------- -------- INVESTING ACTIVITIES: Proceeds from sales, maturities and prepayments of investments available-for-sale ................................. 290,540 185,037 Purchases of investments available-for-sale ........................ (109,211) (227,988) Principal collected on installment and commercial loans ............ 549,964 457,348 Installment and commercial loans originated or acquired ............ (839,240) (632,755) Principal collections on mortgage loans ............................ 329,594 214,558 Mortgage loans originated or acquired .............................. (385,971) (272,699) Net purchase of FHLB and FRB stock ................................. (14) (1,943) Net funds received on acquisition of banks and branches ............ 3,651 14,524 Net addition of premises and equipment ............................. (12,721) (4,374) --------- -------- NET CASH USED IN INVESTING ACTIVITIES ......................... (173,408) (268,292) --------- -------- FINANCING ACTIVITIES: Net increase in deposits ........................................... 308,024 75,356 Net (decrease) increase in FHLB advances and other borrowed funds .. (159,310) 78,355 Net increase in securities sold under repurchase agreements ........ 35,038 16,106 Proceeds from issuance of subordinated debentures .................. -- 45,000 Cash dividends paid ................................................ (13,894) (12,441) Proceeds from exercise of stock options and other stock issued ..... 3,944 4,876 Repurchase and retirement of stock ................................. -- (1,805) Cash paid for acquisition of fractional shares ..................... (8) (9) --------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES ...................... 173,794 205,438 --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........... 49,728 (7,514) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 92,307 86,140 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 142,035 78,626 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest ......................... $ 41,400 27,907 Income taxes...................... $ 18,077 12,129
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 September 30, 2005, and September 30, 2004, stockholders' equity for the nine months ended September 30, 2005, the results of operations for the three and nine months ended September 30, 2005 and 2004, and cash flows for the nine months ended September 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 nine months ended September 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 September 28, 2005, the Board of Directors declared a $.15 per share quarterly cash dividend payable on October 20, 2005 to stockholders of record on October 11, 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 Nine Nine months ended months ended months ended months ended Sept. 30, 2005 Sept. 30, 2004 Sept. 30, 2005 Sept. 30, 2004 -------------- -------------- -------------- -------------- Net earnings available to common stockholders .................... $13,575,000 11,680,000 38,185,000 33,053,000 Average outstanding shares - basic . 31,304,413 30,600,409 31,100,946 30,535,546 Add: Dilutive stock options ....... 655,831 564,111 572,760 538,160 ----------- ---------- ---------- ---------- Average outstanding shares - diluted 31,960,244 31,164,520 31,673,706 31,073,706 =========== ========== ========== ========== Basic earnings per share ........... $ 0.43 0.38 1.23 1.08 =========== ========== ========== ========== Diluted earnings per share ......... $ 0.42 0.37 1.21 1.06 =========== ========== ========== ==========
There were approximately 197,209 and 0 shares excluded from the nine months ended diluted share calculation as of September 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 Sept. 30, Nine months ended Sept. 30, ---------------------------- --------------------------- 2005 2004 2005 2004 ---- ---- ---- ---- Net earnings (in thousands): As reported $ 13,575 11,680 38,185 33,053 Compensation cost (207) (129) (622) (374) -------- ------ ------ ------ Pro forma 13,368 11,551 37,563 32,679 ======== ====== ====== ====== Basic earnings per share: As reported 0.43 0.38 1.23 1.08 Compensation cost -- -- (0.02) (0.01) -------- ------ ------ ------ Pro forma 0.43 0.38 1.21 1.07 ======== ====== ====== ====== Diluted earnings per share: As reported 0.42 0.37 1.21 1.06 Compensation cost -- -- (0.02) (0.01) -------- ------ ------ ------ Pro forma 0.42 0.37 1.19 1.05 ======== ====== ====== ======
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 SEPTEMBER 30, 2005
(Dollars in thousands) Estimated Weighted Amortized Gross Unrealized Fair U.S. GOVERNMENT AND FEDERAL AGENCIES: Yield Cost Gains Losses Value ----- ---- ----- ------ ----- maturing within five years ................ 4.26% $ 3,957 -- (12) 3,945 maturing five years through ten years ..... 6.02% 332 6 -- 338 maturing after ten years .................. 3.80% 361 2 -- 363 ---------- ------ ------ --------- 4.35% 4,650 8 (12) 4,646 ---------- ------ ------ --------- STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES: maturing within one year .................. 3.47% 603 -- -- 603 maturing one year through five years ...... 4.75% 2,927 43 (8) 2,962 maturing five years through ten years ..... 4.71% 7,659 328 (7) 7,980 maturing after ten years .................. 5.09% 289,674 14,002 (267) 303,409 ---------- ------ ------ --------- 5.07% 300,863 14,373 (282) 314,954 ---------- ------ ------ --------- MORTGAGE-BACKED SECURITIES .................. 4.49% 70,545 398 (979) 69,964 REAL ESTATE MORTGAGE INVESTMENT CONDUITS .... 4.01% 583,497 321 (6,684) 577,134 FHLMC AND FNMA STOCK ........................ 5.74% 7,593 -- (198) 7,395 FHLB AND FRB STOCK, AT COST ................. 0.70% 50,392 -- -- 50,392 ---------- ------ ------ --------- TOTAL INVESTMENTS ...................... 4.21% $1,017,540 15,100 (8,155) 1,024,485 ========== ====== ====== =========
INVESTMENTS AS OF DECEMBER 31, 2004
Estimated (Dollars in thousands) Weighted Amortized Gross Unrealized Fair 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 nine months ended September 30, 2005 and 2004 of $10,382,000 and $10,432,000, respectively, and for the three months ended September 30, 2005 and 2004 of $3,450,000 and $3,473,000, respectively. Gross proceeds from sales of investment securities for the nine months ended September 30, 2005 and 2004 were $116,129,000 and $0 respectively, resulting in gross gains of approximately $471,000 and $0 and gross losses of approximately $609,000 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) 9/30/2005 12/31/2004 9/30/2004 ---------------------- --------- ---------- --------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- Real Estate Loans: Residential first mortgage loans $ 515,676 23.1% $ 382,750 22.5% $ 362,234 21.7% Loans held for sale 26,800 1.2% 14,476 0.9% 15,630 1.0% ----------- ----- ----------- ----- ----------- ----- Total 542,476 24.3% 397,226 23.4% 377,864 22.7% Commercial Loans: Real estate 676,547 30.3% 526,455 30.9% 495,617 29.9% Other commercial loans 609,880 27.3% 466,582 27.4% 480,068 28.9% ----------- ----- ----------- ----- ----------- ----- Total 1,286,427 57.6% 993,037 58.3% 975,685 58.8% Consumer and Other Loans: Consumer loans 156,981 7.0% 95,663 5.6% 90,771 5.5% Home equity loans 290,484 13.0% 248,684 14.6% 247,645 14.9% ----------- ----- ----------- ----- ----------- ----- Total 447,465 20.0% 344,347 20.2% 338,416 20.4% Net deferred loan fees, premiums and discounts (7,813) -0.4% (6,313) -0.3% (6,276) -0.3% Allowance for Losses (34,506) -1.5% (26,492) -1.6% (26,075) -1.6% ----------- ----- ----------- ----- ----------- ----- Net Loans $ 2,234,049 100.0% $ 1,701,805 100.0% $ 1,659,614 100.0% =========== ===== =========== ===== =========== =====
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 9/30/2005 12/31/2004 9/30/2004 --------- ---------- --------- Non-accrual loans: Real estate loans $ 7 847 685 Commercial loans 3,035 4,792 7,571 Consumer and other loans 244 311 367 ------ ----- ------ Total $3,286 5,950 8,623 Accruing Loans 90 days or more overdue: Real estate loans 528 179 287 Commercial loans 1,997 1,067 2,485 Consumer and other loans 248 396 420 ------ ----- ------ Total $2,773 1,642 3,192 Real estate and other assets owned, net 1,803 2,016 493 ------ ----- ------ Total non-performing assets $7,862 9,608 12,308 ====== ===== ====== As a percentage of total assets 0.22% 0.32% 0.41% Interest Income (1) $ 165 372 398
---------- (1) This is the amount of interest that would have been recorded on loans accounted for on a non-accrual basis for the nine months ended September 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 Nine months ended Year ended Nine months ended September 30, December 31, September 30, (Dollars in Thousands) 2005 2004 2004 ---------------------- ---- ---- ---- Balance at beginning of period $ 26,492 23,990 23,990 Charge offs: Real estate loans (109) (419) (237) Commercial loans (631) (1,150) (497) Consumer and other loans (421) (776) (594) -------- ------- ------- Total charge offs $ (1,161) (2,345) (1,328) -------- ------- ------- Recoveries: Real estate loans 76 171 53 Commercial loans 333 120 94 Consumer and other loans 283 361 271 -------- ------- ------- Total recoveries $ 692 652 418 -------- ------- ------- Chargeoffs, net of recoveries (469) (1,693) (910) Acquisition (1) 3,834 -- -- Provision 4,649 4,195 2,995 -------- ------- ------- Balance at end of period $ 34,506 26,492 26,075 ======== ======= ======= Ratio of net charge offs to average loans outstanding during the period 0.02% 0.10% 0.05%
---------- (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:
September 30, 2005 December 31, 2004 September 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 $ 3,668 23.8% 2,693 22.9% 2,570 22.2% Commercial real estate 11,635 29.7% 9,222 30.3% 8,738 29.4% Other commercial 12,819 26.8% 9,836 26.9% 10,136 28.4% Consumer and other loans 6,384 19.7% 4,741 19.9% 4,631 20.0% ------- ------- ------- ------- ------- ------- Totals $34,506 100.0% 26,492 100.0% 26,075 100.0% ======= ======= ======= ======= ======= =======
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.
Balance at Balance at Acquisition September 30, (Dollars in thousands) Date 2005 ---------------------- ---- ---- Contractually required payments receivable at acquisition: Commercial Loans $1,614 868 Cash flows expected to be collected at acquisition 1,440 817 Basis in acquired loans at acquisition 994 642
13 9) Intangible Assets The following table sets forth information regarding the Company's core deposit intangibles and mortgage servicing rights as of September 30, 2005:
Core Deposit Mortgage (Dollars in thousands) Intangible Servicing Rights (1) Total ---------------------- ---------- -------------------- ----- Gross carrying value $ 13,902 Accumulated Amortization (6,386) -------- Net carrying value $ 7,516 1,179 8,695 ======== WEIGHTED-AVERAGE AMORTIZATION PERIOD (Period in years) 10.0 9.5 9.9 AGGREGATE AMORTIZATION EXPENSE For the three months ended September 30, 2005 $ 388 70 458 For the nine months ended September 30, 2005 $ 1,055 209 1,264 ESTIMATED AMORTIZATION EXPENSE For the year ended December 31, 2005 $ 1,443 230 1,673 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 78 1,361 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 September 30, 2005, according to the time remaining to maturity. Included in the three month CD maturities are brokered CD's in the amount of $105,800,000.
Certificates Non-Maturity (Dollars in thousands) of Deposit Deposits Totals ---------------------- ---------- -------- ------ Within three months $ 178,650 914,188 1,092,838 Three to six months 39,651 -- 39,651 Seven to twelve months 41,616 -- 41,616 Over twelve months 36,253 -- 36,253 --------- ------- --------- Totals $ 296,170 914,188 1,210,358 ========= ======= =========
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 nine for the for the nine (Dollars in thousands) months ended year ended months ended September 30, 2005 December 31, 2004 September 30, 2004 ------------------ ----------------- ------------------ FHLB Advances: Amount outstanding at end of period .. $654,368 818,933 854,056 Average balance ...................... $725,352 791,245 818,003 Maximum outstanding at any month-end . $858,961 862,136 862,136 Weighted average interest rate ....... 3.10% 2.34% 2.23% Repurchase Agreements: Amount outstanding at end of period .. $111,196 76,158 73,074 Average balance ...................... $ 93,575 69,480 67,564 Maximum outstanding at any month-end . $111,196 80,265 73,074 Weighted average interest rate ....... 2.58% 1.25% 1.11%
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 September 30, 2005.
CONSOLIDATED Tier 1 (Core) Tier 2 (Total) Leverage (Dollars in thousands) Capital Capital Capital ---------------------- ------- ------- ------- GAAP Capital ............................. $ 305,400 305,400 305,400 Less: Goodwill and intangibles .......... (79,898) (79,898) (79,898) Accumulated other comprehensive Unrealized gain on AFS securities (4,208) (4,208) (4,208) Other adjustments .................... (198) (198) (198) Plus: Allowance for loan losses ......... -- 32,428 -- Subordinated debentures .............. 85,000 85,000 85,000 ----------- --------- ----------- Regulatory capital computed .............. $ 306,096 338,524 306,096 =========== ========= =========== Risk weighted assets ..................... $ 2,593,321 2,593,321 =========== ========= Total average assets ..................... $ 3,468,660 =========== Capital as % of defined assets ........... 11.80% 13.05% 8.82% Regulatory "well capitalized" requirement 6.00% 10.00% 5.00% ----------- --------- ----------- Excess over "well capitalized" requirement 5.80% 3.05% 3.82% =========== ========= ===========
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 nine months ended September 30, ended September 30, Dollars in thousands 2005 2004 2005 2004 -------------------- ---- ---- ---- ---- Net earnings $ 13,575 11,680 38,185 33,053 Unrealized holding (loss) gain arising during the period (4,109) 20,932 (2,986) 2,421 Tax benefit (expense) 1,619 (8,248) 1,176 (956) -------- ------- ------- ------- Net after tax (2,490) 12,684 (1,810) 1,465 Less reclassification adjustment for losses included in net income (1) -- (138) -- Tax benefit -- -- 54 -- -------- ------- ------- ------- Net after tax (1) -- (84) -- Net unrealized (loss) gain on securities (2,489) 12,684 (1,726) 1,465 -------- ------- ------- ------- Total other comprehensive income $ 11,086 24,364 36,459 34,518 ======== ======= ======= =======
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.
Nine months ended and as of September 30, 2005 ------------------------------------------------------------------------------------- Mountain First First (Dollars in thousands) Glacier West Security Western National Big Sky ---------------------- ------- ---- -------- ------- -------- ------- Revenues from external customers $ 32,882 40,563 28,259 19,823 8,752 13,543 Intersegment revenues 540 15 67 -- 117 -- Expenses (24,686) (32,001) (20,204) (15,271) (6,958) (10,050) Intercompany eliminations -- -- -- -- -- -- --------- -------- -------- -------- -------- ---------- Net earnings $ 8,736 8,577 8,122 4,552 1,911 3,493 ========= ======== ======== ======== ======== ========== Total Assets $ 684,732 754,504 607,975 439,614 271,856 273,724 ========= ======== ======== ======== ======== ==========
Total Valley Whitefish Citizens Other Consolidated ------ --------- -------- ----- ------------ Revenues from external customers 12,001 8,348 5,523 (115) 169,579 Intersegment revenues 103 -- -- 48,078 48,920 Expenses (9,166) (5,992) (4,467) (2,599) (131,394) Intercompany eliminations -- -- -- (48,920) (48,920) --------- -------- -------- -------- ---------- Net earnings 2,938 2,356 1,056 (3,556) 38,185 ========= ======== ======== ======== ========== Total Assets 251,187 172,563 142,642 (8,917) 3,589,880 ========= ======== ======== ======== ==========
16
Nine months ended and as of September 30, 2004 ------------------------------------------------------------------------------ Mountain First (Dollars in thousands) Glacier West Security Western Big Sky ---------------------- ------- ---- -------- ------- ------- Revenues from external customers $ 29,084 29,914 26,648 19,180 10,660 Intersegment revenues 238 -- 20 2 -- Expenses (21,032) (24,067) (18,123) (13,950) (7,970) Intercompany eliminations -- -- -- -- -- --------- -------- -------- -------- ---------- Net earnings $ 8,290 5,847 8,545 5,232 2,690 ========= ======== ======== ======== ========== Total Assets $ 673,084 612,608 611,465 458,333 235,058 ========= ======== ======== ======== ==========
Total Valley Whitefish Other Consolidated ------ --------- ----- ------------ Revenues from external customers 10,539 6,957 960 133,942 Intersegment revenues 104 -- 40,986 41,350 Expenses (7,865) (4,926) (2,956) (100,889) Intercompany eliminations -- -- (41,350) (41,350) --------- -------- -------- ---------- Net earnings 2,778 2,031 (2,360) 33,053 ========= ======== ======== ========== Total Assets 233,223 164,851 14,077 3,002,699 ========= ======== ======== ==========
Three months ended and as of September 30, 2005 --------------------------------------------------------------------------------- Mountain First First (Dollars in thousands) Glacier West Security Western National Big Sky ---------------------- ------- ---- -------- ------- -------- ------- Revenues from external customers $ 11,678 14,993 9,687 6,850 3,973 4,926 Intersegment revenues 110 15 54 -- 36 -- Expenses (8,644) (11,891) (7,037) (5,315) (3,147) (3,684) Intercompany eliminations -- -- -- -- -- -- --------- -------- -------- -------- -------- ---------- Net earnings $ 3,144 3,117 2,704 1,535 862 1,242 ========= ======== ======== ======== ======== ========== Total Assets $ 684,732 754,504 607,975 439,614 271,856 273,724 ========= ======== ======== ======== ======== ==========
Total Valley Whitefish Citizens Other Consolidated ------ --------- -------- ----- ------------ Revenues from external customers 4,102 2,755 2,836 106 61,906 Intersegment revenues 35 -- -- 16,897 17,147 Expenses (3,193) (2,044) (2,361) (1,015) (48,331) Intercompany eliminations -- -- -- (17,147) (17,147) --------- -------- -------- -------- ---------- Net earnings 944 711 475 (1,159) 13,575 ========= ======== ======== ======== ========== Total Assets 251,187 172,563 142,642 (8,917) 3,589,880 ========= ======== ======== ======== ==========
17
Three months ended and as of September 30, 2004 ------------------------------------------------------------------------------ Mountain First (Dollars in thousands) Glacier West Security Western Big Sky ---------------------- ------- ---- -------- ------- ------- Revenues from external customers $ 10,122 10,690 9,036 6,573 3,786 Intersegment revenues 108 -- 10 -- -- Expenses (7,404) (8,455) (6,174) (4,743) (2,785) Intercompany eliminations -- -- -- -- -- --------- -------- -------- -------- ---------- Net earnings $ 2,826 2,235 2,872 1,830 1,001 ========= ======== ======== ======== ========== Total Assets $ 673,084 612,608 611,465 458,333 235,058 ========= ======== ======== ======== ==========
Total Valley Whitefish Other Consolidated ------ --------- ----- ------------ Revenues from external customers 3,676 2,446 448 46,777 Intersegment revenues 35 -- 14,320 14,473 Expenses (2,763) (1,716) (1,057) (35,097) Intercompany eliminations -- -- (14,473) (14,473) --------- -------- -------- ---------- Net earnings 948 730 (762) 11,680 ========= ======== ======== ========== Total Assets 233,223 164,851 14,077 3,002,699 ========= ======== ======== ==========
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.
Nine Months Ended September 30, (Dollars in Thousands) 2005 vs. 2004 Increase (Decrease) due to: --------------------------- INTEREST INCOME Volume Rate Net ------ ---- --- Real Estate Loans $ 7,007 97 7,104 Commercial Loans 11,146 5,087 16,233 Consumer and Other Loans 4,455 1,038 5,493 Investment Securities and other (903) 149 (754) -------- ------ ------- Total Interest Income 21,705 6,371 28,076 INTEREST EXPENSE NOW Accounts 67 128 195 Savings Accounts 93 248 341 Money Market Accounts 549 1,851 2,400 Certificates of Deposit 1,501 1,722 3,223 FHLB Advances (1,554) 4,674 3,120 Other Borrowings and Repurchase Agreements 3,967 80 4,047 -------- ------ ------- Total Interest Expense 4,623 8,703 13,326 -------- ------ ------- NET INTEREST INCOME $ 17,082 (2,332) 14,750 ======== ====== =======
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 9-30-05 For the Nine months ended 9-30-05 --------------------- ---------------------------------- --------------------------------- (Dollars in Thousands) Interest Average Interest Average Average and Yield/ Average and Yield/ ASSETS Balance Dividends Rate Balance Dividends Rate ------ ------- --------- ---- ------- --------- ---- Real Estate Loans $ 524,678 8,946 6.82% $ 472,892 23,658 6.67% Commercial Loans 1,245,050 21,803 6.95% 1,149,925 57,915 6.73% Consumer and Other Loans 435,822 7,666 6.98% 405,210 20,407 6.73% ---------- -------- ---------- ------- Total Loans 2,205,550 38,415 6.91% 2,028,027 101,980 6.72% Tax-Exempt Investment Securities (1) 282,457 3,450 4.89% 282,675 10,382 4.90% Other Investment Securities 798,705 7,705 3.86% 822,973 24,260 3.93% ---------- -------- ---------- ------- Total Earning Assets 3,286,712 49,570 6.03% 3,133,675 136,622 5.81% -------- ------- Goodwill and Core Deposit Intangible 80,130 70,044 Other Non-Earning Assets 181,885 170,961 ---------- ---------- TOTAL ASSETS $3,548,727 $3,374,680 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY NOW Accounts $319,332 201 0.25% $305,394 542 0.24% Savings Accounts 211,063 268 0.50% 200,228 677 0.45% Money Market Accounts 506,650 2,065 1.62% 476,947 5,085 1.43% Certificates of Deposit 589,943 4,380 2.95% 516,167 10,261 2.66% FHLB Advances 694,561 5,830 3.33% 725,352 16,843 3.10% Repurchase Agreements and Other Borrowed Funds 261,854 3,066 4.65% 275,700 8,911 4.32% ---------- -------- ---------- ------- Total Interest Bearing Liabilities 2,583,403 15,810 2.43% 2,499,788 42,319 2.26% -------- ------- Non-interest Bearing Deposits 635,032 555,197 Other Liabilities 29,007 30,780 ---------- ---------- Total Liabilities 3,247,442 3,085,765 ---------- ---------- Common Stock 313 311 Paid-In Capital 239,593 235,410 Retained Earnings 56,926 48,830 Accumulated Other Comprehensive Income 4,453 4,364 ---------- ---------- Total Stockholders' Equity 301,285 288,915 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,548,727 $3,374,680 ========== ========== Net Interest Income $33,760 $94,303 ======= ======= Net Interest Spread 3.60% 3.55% Net Interest Margin on Average Earning assets 4.08% 4.02% Return on Average Assets (annualized) 1.52% 1.51% Return on Average Equity (annualized) 17.88% 17.67%
---------- (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. On October 31, 2005, First Security completed the acquisition of Thompson Falls Holding Co. and its subsidiary bank First State Bank, with total assets of approximately $142 million. The bank operates from two banking offices in Thompson Falls and Plains, Montana. A portion of the purchase price will be allocated to core deposit intangible and goodwill. 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 Financial Condition This section discusses the changes in the Statement of Financial Condition items from September 30, 2004 and December 31, 2004, to September 30, 2005. 20 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) Total Bank Community Bank Branch ----- ---- -------------- ------ Acquisition Date Feb. 28, 2005 April 1, 2005 May 20, 2005 Total assets $417,388 267,126 126,394 23,868 Investments 132,649 124,733 7,916 -- Net loans 181,965 87,678 89,240 5,047 Non-interest bearing deposits 126,915 95,053 25,789 6,073 Interest bearing deposits 222,482 129,697 75,008 17,777
$ change from $ change from September 30, December 31, September 30, December 31, September 30, ASSETS ($ IN THOUSANDS) 2005 2004 2004 2004 2004 ---- ---- ---- ---- ---- Cash on hand and in banks $ 114,781 79,300 69,625 35,481 45,156 Investment securities, interest bearing deposits, FHLB stock, FRB stock, and fed funds 1,051,739 1,098,633 1,145,667 (46,894) (93,928) Loans: Real estate 538,339 393,141 373,662 145,198 164,677 Commercial 1,282,978 991,081 973,869 291,897 309,109 Consumer 447,238 344,075 338,158 103,163 109,080 ----------- ---------- ---------- -------- -------- Total loans 2,268,555 1,728,297 1,685,689 540,258 582,866 Allowance for loan losses (34,506) (26,492) (26,075) (8,014) (8,431) ----------- ---------- ---------- -------- -------- Total loans net of allowance for loan losses 2,234,049 1,701,805 1,659,614 532,244 574,435 ----------- ---------- ---------- -------- -------- Other assets 189,311 130,999 127,793 58,312 61,518 ----------- ---------- ---------- -------- -------- Total Assets $ 3,589,880 3,010,737 3,002,699 579,143 587,181 =========== ========== ========== ======== ========
At September 30, 2005 total assets were $3.590 billion, which is $587 million greater than the September 30, 2004 assets of $3.003 billion, an increase of 20 percent, and $579 million greater than at December 31, 2004, an increase of 19 percent. Without $417 million in assets acquired in acquisitions, total assets were up $170 million from a year ago, or 6 percent, and $162 million, or 5 percent from year end 2004. Total loans have increased $583 million from September 30, 2004, or 35 percent, with the growth occurring in all loan categories. Commercial loans have increased $309 million, or 32 percent, real estate loans gained $165 million, or 44 percent, and consumer loans grew by $109 million, or 32 percent. Acquisitions added $182 million of the total with internal growth contributing $401 million, a 24 percent increase. Loan volume continues to be very strong with internal loan growth of $358 million since December 31, 2004, or 21 percent. Including loans acquired, commercial loans are up by $292 million, or 29 percent, real estate loans increased by $145 million, or 37 percent, and consumer loans gained $103 million, or 30 percent. Investment securities, including interest bearing deposits in other financial institutions, and federal funds sold have decreased $94 million from September 30, 2004. Without the acquisitions, investments would have declined $227 million, or 20 percent, from September 30, 2004. Investment securities at quarter end represented 29% of total assets versus 38% in the prior year period. Cash flow from investment pay downs is 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 nine months ended 21 September 30, 2005 and 2004 were $331 million and $216 million, respectively, and for the three months ended September 30, 2005 and 2004 were $156 million and $73 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 September 30, 2005 was approximately $168 million.
$ change from $ change from September 30, December 31, September 30, December 31, September 30, LIABILITIES ($ IN THOUSANDS) 2005 2004 2004 2004 2004 ---- ---- ---- ---- ---- Non-interest bearing deposits $ 684,151 460,059 438,578 224,092 245,573 Interest bearing deposits 1,702,977 1,269,649 1,249,543 433,328 453,434 Advances from Federal Home Loan Bank 654,368 818,933 854,056 (164,565) (199,688) Securities sold under agreements to repurchase and other borrowed funds 123,509 81,215 82,686 42,294 40,823 Other liabilities 34,475 30,697 34,858 3,778 (383) Subordinated debentures 85,000 80,000 80,000 5,000 5,000 ---------- --------- --------- -------- -------- Total liabilities $3,284,480 2,740,553 2,739,721 543,927 544,759 ========== ========= ========= ======== ========
Non-interest bearing deposits have increased $246 million, or 56 percent, since September 30, 2004. Without acquisitions the increase was $119 million, or 27 percent. Since December 31, 2004 the increase was $224 million, and without acquisitions $97 million, or 21 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, including $106 million in broker originated certificates of deposit, have increased $453 million from September 30, 2004 with $222 million from the acquisitions. Since December 31, 2004, without acquisitions, interest bearing deposits increased $211 million, or 17 percent. 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 $200 million, and repurchase agreements and other borrowed funds increased $41 million from September 30, 2004. Since December 31, 2004 Federal Home Loan Bank advances declined $165 million, and repurchase agreements and other borrowed funds increased $42 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 September 30, 2005, the Company had $1.389 billion of available FHLB line of which $654 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 nine months of 2005, all nine financial institutions maintained liquidity and regulatory capital levels in excess of regulatory requirements and operational needs. Lending 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 (UNAUDITED) September 30, December 31, September 30, December 31, September 30, ($ IN THOUSANDS EXCEPT PER SHARE DATA) 2005 2004 2004 2004 2004 ---- ---- ---- ---- ---- Common equity $ 301,192 264,250 254,897 36,942 46,295 Accumulated other comprehensive income 4,208 5,934 8,081 (1,726) (3,873) --------- -------- -------- ------- ------- Total stockholders' equity 305,400 270,184 262,978 35,216 42,422 Core deposit intangible, net, and goodwill (79,898) (42,315) (42,580) (37,583) (37,318) --------- -------- -------- ------- ------- $ 225,502 227,869 220,398 (2,367) 5,104 ========= ======== ======== ======= ======= Stockholders' equity to total assets 8.51% 8.97% 8.76% Tangible stockholders' equity to total tangible assets 6.42% 7.68% 7.45% Book value per common share $ 9.74 8.80 8.58 0.94 1.16 Market price per share at end of quarter $ 30.87 27.23 23.33 3.64 7.54
Total equity and book value per share amounts have increased substantially from September 30, 2004 and from year end 2004, the result of issuing stock for the Citizens Community Bank acquisition, earnings retention, and stock options exercised. Accumulated other comprehensive income, representing net unrealized gains on securities available for sale, decreased $3.873 million from September 30, 2004 and $1.726 million from year end 2004, primarily a function of interest rate changes.
September 30, December 31, September 30, ------------- ------------ ------------- CREDIT QUALITY INFORMATION ($ IN THOUSANDS) 2005 2004 2004 ---- ---- ---- Allowance for loan losses $ 34,506 $ 26,492 $ 26,075 Non-performing assets $ 7,862 9,608 12,308 Allowance as a percentage of non performing assets 439% 276% 212% Non-performing assets as a percentage of total assets 0.22% 0.32% 0.41% Allowance as a percentage of total loans 1.52% 1.53% 1.55% Net charge-offs as a percentage of loans 0.021% 0.098% 0.054%
Allowance for Loan Loss and Non-Performing Assets Non-performing assets as a percentage of total assets at September 30, 2005 were at .22 percent, a decrease from .41 percent at September 30, 2004 and .32 percent at December 31, 2004. This compares favorably to the Federal Reserve Bank Peer Group average of .45 percent at June 30, 2005, the most recent information available. The allowance for loan losses was 439 percent of non-performing assets at September 30, 2005, compared to 212 percent a year ago. The allowance, including $3.834 million from acquisitions, has increased $8.431 million, or 32 percent, from a year ago. The allowance of $34.506 million, is 1.52 percent of September 30, 2005 total loans outstanding, down slightly from the 1.55 percent a year ago. The third quarter provision for loan losses expense was $1.607 million, an increase of $407 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 SEPTEMBER 30, 2005 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2004. Operating results include amounts resulting from the acquisitions from the acquisition date forward. 23
REVENUE SUMMARY (UNAUDITED - $ IN THOUSANDS) Three months ended September 30, -------------------------------- 2005 2004 $ change % change ---- ---- -------- -------- Net interest income $ 33,760 $27,385 $ 6,375 23% Non-interest income Service charges, loan fees, and other fees 8,381 6,437 1,944 30% Gain on sale of loans 3,258 2,211 1,047 47% Loss on sale of investments (1) -- (1) n/m Other income 698 489 209 43% -------- ------- ------- -- Total non-interest income 12,336 9,137 3,199 35% -------- ------- ------- -- $ 46,096 $36,522 $ 9,574 26% ======== ======= ======= == Tax equivalent net interest margin 4.27% 4.11% ======== =======
Net Interest Income Net interest income for the quarter increased $6.375 million, or 23 percent, over the same period in 2004, and $1.673 million from the second quarter of 2005. Total interest income increased $11.930 million from the prior year's quarter, or 32 percent, while total interest expense was $5.555 million, or 54 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 the targeted fed funds rates eight times, 200 basis points, in the last twelve months. The net interest margin as a percentage of earning assets, on a tax equivalent basis, was 4.27 percent which was higher than the 4.11 percent result for the third quarter of 2004. The margin for the third quarter also increased from the 4.12 percent in the second quarter of 2005 and the 4.08 percent experienced for the first quarter of 2005. FHLB dividends received were $405 thousand less than the same quarter last year. Non-interest Income Fee income increased $1.944 million, or 30 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 $1.047 million, or 47 percent, from the third 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 $209 thousand, or 43 percent, higher than the third quarter of 2004 resulting from activity increases in a variety of sources.
NON-INTEREST EXPENSE SUMMARY (UNAUDITED - $ IN THOUSANDS) Three months ended September 30, -------------------------------- 2005 2004 $ change % change ---- ---- -------- -------- Compensation and employee benefits $13,685 $10,067 $3,618 36% Occupancy and equipment expense 3,356 2,662 694 26% Outsourced data processing 615 346 269 78% Core deposit intangibles amortization 388 265 123 46% Other expenses 6,132 4,649 1,483 32% ------- ------- ------ -- Total non-interest expense $24,176 $17,989 $6,187 34% ======= ======= ====== ==
Non-interest Expense Non-interest expense increased by $6.187 million, or 34 percent, from the same quarter of 2004. Compensation and benefit expense increased $3.618 million, or 36 percent from the third quarter of 2004, with acquisitions, additional bank branches, commissions on mortgage loan production, normal compensation increases for job performance and increased cost for benefits accounting for the majority of the increase. The number of full-time- 24 equivalent employees has increased from 841 to 1052, a 25 percent increase, since September 30, 2004. Occupancy and equipment expense increased $694 thousand, or 26 percent, reflecting the acquisitions, cost of additional locations and facility upgrades. Other expenses increased $1.483 million, or 32 percent, primarily from acquisitions, additional marketing expenses, and costs associated with new branch offices. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 52 percent for the 2005 quarter, up from 49 percent for the 2004 quarter. OPERATING RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO SEPTEMBER 30, 2004
REVENUE SUMMARY (UNAUDITED - $ IN THOUSANDS) Nine months ended September 30, --------------------------------------------------------- 2005 2004 $ change % change ---- ---- -------- -------- Net interest income $ 94,303 $ 79,553 $ 14,750 19% Non-interest income Service charges, loan fees, and other fees 22,713 17,851 4,862 27% Gain on sale of loans 8,234 6,008 2,226 37% Loss on sale of investments (138) -- (138) n/m Other income 2,148 1,537 611 40% --------- -------- -------- -- Total non-interest income 32,957 25,396 7,561 30% --------- -------- -------- -- $ 127,260 $104,949 $ 22,311 21% ========= ======== ======== == Tax equivalent net interest margin 4.16% 4.15% ========= ========
Net Interest Income Net interest income for the nine months increased $14.750 million, or 19 percent, over the same period in 2004. Total interest income increased $28.076 million, or 26 percent, while total interest expense was $13.326 million, or 46 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 4.16 percent which was one basis point higher than the 4.15 percent result for the same nine months of 2004. The net interest margin was impacted by a reduction in FHLB dividends of $1.103 million in 2005 compared to the same period last year. Non-interest Income Total non-interest income increased $7.561 million, or 30 percent in 2005. Fee income increased $4.862 million, or 27 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 $2.226 million, or 37 percent, from the first nine 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 $611 thousand higher than 2004 of which $220 thousand 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 (UNAUDITED - $ IN THOUSANDS) Nine months ended September 30, ----------------------------------------------- 2005 2004 $ change % change ---- ---- -------- -------- Compensation and employee benefits $37,103 $29,724 $ 7,379 25% Occupancy and equipment expense 9,363 8,026 1,337 17% Outsourced data processing 1,270 1,127 143 13% Core deposit intangibles amortization 1,055 810 245 30% Other expenses 16,935 13,736 3,199 23% ------- ------- ------- -- Total non-interest expense $65,726 $53,423 $12,303 23% ======= ======= ======= ==
Non-interest Expense Non-interest expense increased by $12.303 million, or 23 percent, from the same nine months of 2004. Compensation and benefit expense increased $7.379 million, or 25 percent from the prior year, with acquisitions, additional bank branches, commissions on mortgage loan production, normal compensation increases for job performance and increased cost for benefits accounting for the majority of the increase. Occupancy and equipment expense increased $1.337 million, or 17 percent, reflecting the acquisitions, cost of additional locations and facility upgrades. Other expenses increased $3.199 million, or 23 percent, primarily from acquisitions, additional marketing expenses, and costs associated with new branch offices. The efficiency ratio (non-interest expense/net interest income + non-interest income) increased slightly to 52 percent up from 51 percent for the first nine 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 expected or have a more direct and pronounced effect on the Company than expected and adversely affect the 26 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 than 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 third 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) None (b) Not Applicable (c) None (d) None 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 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. --------------------- November 4, 2005 /s/ Michael J. Blodnick ----------------------- Michael J. Blodnick President/CEO November 4, 2005 /s/ James H. Strosahl --------------------- James H. Strosahl Executive Vice President/CFO 28