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1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _________________ COMMISSION FILE 0-18911 GLACIER BANCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE 81-0519541 - --------------------------------- --------------------------------- (State or other jurisdiction (IRS Employer Identification No.) of 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 - -------------------------------------------------- -------------- N/A ----------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Registrant's common stock outstanding on May 5, 2000 was 10,401,701 No preferred shares are issued or outstanding. 1
2 GLACIER BANCORP, INC. QUARTERLY REPORT ON FORM 10-Q INDEX Page # ------ PART I. FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Condensed Statements of Financial Condition - March 31, 2000, December 31, and March 31, 1999 (unaudited) .... 3 Consolidated Condensed Statements of Operations - Three months ended March 31, 2000 and 1999 (unaudited) ........ 4 Consolidated Condensed Statements of Cash Flows - Three months ended March 31, 2000 and 1999 (unaudited) ........ 5 Notes to Consolidated Condensed Financial Statements ........... 6 Item 2 - Management's Discussion and Analysis Of Financial Condition and Results of Operations .............. 11 Item 3 - Quantitative and Qualitative Disclosure about Market Risk .... 13 PART II. OTHER INFORMATION .............................................. 14 Signatures .................................................................... 15 2
3 GLACIER BANCORP, INC. CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION - ---------------------------------------------------------------------------------------------------------------- (Unaudited - dollars in thousands except per share data) MARCH 31, December 31, March 31, - -------------------------------------------------------- 2000 1999 1999 ------------ ------------ ------------ Assets: Cash on hand and in banks .............................. $ 40,161 50,590 33,215 Federal funds sold ..................................... 1,450 64 0 Interest bearing cash deposits ......................... 12,150 1,711 13,807 ------------ ------------ ------------ Cash and cash equivalents ....................... 53,761 52,365 47,022 ------------ ------------ ------------ Investments: Investment securities, held-to-maturity ......... 0 500 500 Investment securities, available-for-sale ....... 64,309 61,560 62,169 Mortgage backed securities, held-to-maturity .... 0 251 280 Mortgage backed securities, available-for-sale .. 142,816 147,001 90,706 ------------ ------------ ------------ Total Investments .......................... 207,125 209,312 153,655 ------------ ------------ ------------ Net loans receivable: Real estate loans ............................... 224,169 225,041 243,487 Commercial Loans ................................ 295,104 279,341 213,077 Installment and other loans ..................... 160,194 154,548 116,933 Allowance for losses ............................ (7,102) (6,722) (5,956) ------------ ------------ ------------ Total Loans, net ........................... 672,365 652,208 567,541 ------------ ------------ ------------ Premises and equipment, net ............................ 24,592 24,670 20,789 Real estate and other assets owned ..................... 460 550 106 Federal Home Loan Bank of Seattle stock, at cost ....... 15,523 15,134 13,636 Federal Reserve stock, at cost ......................... 1,527 1,467 1,430 Accrued interest receivable ............................ 5,577 5,611 4,849 Goodwill, net .......................................... 6,899 7,035 2,545 Deferred taxes.......................................... 1,380 2,642 0 Other assets ........................................... 3,686 3,007 2,860 ------------ ------------ ------------ $ 992,895 974,001 814,433 ============ ============ ============ Liabilities and stockholders' equity: Deposits - non-interest bearing ........................ $ 148,253 126,927 113,905 Deposits - interest bearing ............................ 524,455 517,179 428,756 Advances from Federal Home Loan Bank of Seattle ........ 200,926 208,650 154,675 Securities sold under agreements to repurchase ......... 12,979 19,766 16,839 Other borrowed funds ................................... 9,885 6,848 1,741 Accrued interest payable ............................... 2,186 2,717 2,437 Current income taxes ................................... 1,581 108 1,871 Deferred income taxes .................................. 0 0 1,355 Other liabilities ...................................... 4,830 6,442 6,277 Minority Interest ...................................... 305 308 319 ------------ ------------ ------------ Total liabilities ............................... 905,400 888,945 728,175 ------------ ------------ ------------ Common stock, $.01 par value per share ................. 104 96 95 Paid-in capital ........................................ 87,410 87,394 66,785 Retained earnings - substantially restricted ........... 4,664 2,997 18,297 Accumulated other comprehensive earnings (loss) ........ (4,683) (5,431) 1,081 ------------ ------------ ------------ Total stockholders' equity ...................... 87,495 85,056 86,258 ------------ ------------ ------------ $ 992,895 974,001 814,433 ============ ============ ============ (1) Number of shares outstanding ................ 10,397,526 9,550,444 9,516,450 See accompanying notes to consolidated condensed financial statements 3
4 GLACIER BANCORP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - -------------------------------------------------------- -------------------------------- (Unaudited - dollars in thousands except per share data) THREE MONTHS ENDED MARCH 31, - -------------------------------------------------------- -------------------------------- 2000 1999 ------------ ------------ INTEREST INCOME: Real estate loans .................................................... $ 4,560 4,570 Commercial loans ..................................................... 6,330 4,851 Consumer and other loans ............................................. 3,499 2,813 Investment securities ................................................ 3,857 2,164 ------------ ------------ Total interest income .......................................... 18,246 14,398 ------------ ------------ INTEREST EXPENSE: Deposits ............................................................. 4,947 3,919 Advances ............................................................. 3,144 1,847 Repurchase agreements ................................................ 187 185 Other borrowed funds ................................................. 67 22 ------------ ------------ Total interest expense ......................................... 8,345 5,973 ------------ ------------ NET INTEREST INCOME ....................................................... 9,901 8,425 Provision for loan losses ............................................ 487 358 ------------ ------------ Net Interest Income after provision for loan losses ....................... 9,414 8,067 ------------ ------------ NON-INTEREST INCOME: Service charges and other fees ....................................... 1,859 1,555 Miscellaneous loan fees and charges .................................. 935 1,492 Gains (Losses) on sale of investments ................................ (30) 19 Other income ......................................................... 451 323 ------------ ------------ Total fees and other income ..................................... 3,215 3,389 ------------ ------------ NON-INTEREST EXPENSE: Compensation, employee benefits and related expenses .......................................... 3,957 3,344 Occupancy expense .................................................... 1,115 1,068 Data processing expense .............................................. 276 282 Other expenses ....................................................... 2,288 2,211 Minority interest .................................................... 15 11 ------------ ------------ Total non-interest expense ...................................... 7,650 6,916 ------------ ------------ EARNINGS BEFORE INCOME TAXES .............................................. 4,979 4,540 Federal and state income tax expense ...................................... 1,751 1,571 ------------ ------------ NET EARNINGS .............................................................. $ 3,228 2,969 ============ ============ Basic earnings per share (1) .............................................. $ 0.31 0.29 Diluted earnings per share (1) ........................................... 0.31 0.29 Dividends declared per share (1) .......................................... 0.15 0.14 Return on average assets (annualized) ..................................... 1.33% 1.46% Return on average equity (annualized) .................................... 15.06% 13.91% Basic weighted average shares outstanding (1) ............................ 10,396,939 10,184,669 Diluted weighted average shares outstanding ............................... 10,502,217 10,367,848 (1) Number of shares outstanding adjusted for 10% stock dividend in 1999 See accompanying notes to consolidated condensed financial statements 4
5 GLACIER BANCORP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ------------------------------- THREE MONTHS ENDED MARCH 31, - ------------------------------------------------------------------------------ ------------------------------- (Unaudited -dollars in thousands) 2000 1999 - ------------------------------------------------------------------------------ ------------ ------------ OPERATING ACTIVITIES : Net earnings ............................................................ $ 3,228 2,969 Adjustments to reconcile net earnings to net cash provided by operating activities: Mortgage loans held for sale originated or acquired ................... (20,171) (44,786) Proceeds from sales of mortgage loans held for sale ................... 15,539 51,792 Proceeds from sales of commercial loans ............................... 3,139 7,920 Provision for loan losses ............................................. 487 358 Depreciation of premises and equipment ................................ 599 412 Amortization of goodwill .............................................. 136 56 Amortization of investment securities premiums and discounts, net ..... 38 246 Net loss (gain) on investment sales and loan sales .................... 30 (19) Net decrease (increase) in deferred income taxes ...................... 771 (230) Net decrease (increase) in accrued interest receivable ................ 34 (106) Net increase (decrease) in accrued interest payable ................... (531) 76 Net increase in current income taxes .................................. 1,473 1,653 Net (increase) in other assets ........................................ (679) (198) Net (decrease) in other liabilities and minority interest ............. (1,615) (562) FHLB stock dividends .................................................. (236) (281) ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 2,242 19,299 ------------ ------------ INVESTING ACTIVITIES: Proceeds from sales, maturities and prepayments of investment securities available-for-sale ....................................... 10,932 8,170 Purchases of investment securities available-for-sale ................... (7,574) (46,508) Proceeds from maturities and prepayments of investment securities held-to-maturity ......................................... 0 828 Principal collected on installment and commercial loans ................. 57,190 45,247 Installment and commercial loans originated or acquired ................. (81,738) (65,285) Principal collections on mortgage loans ................................. 32,117 27,280 Mortgage loans originated or acquired ................................... (26,720) (18,419) Net proceeds from sales (acquisition) of real estate owned .............. 90 41 Net purchase of FHLB and FRB stock ...................................... (213) (640) Net addition of premises and equipment .................................. (521) (631) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES .............................. (16,437) (49,917) ------------ ------------ FINANCING ACTIVITIES: Net increase (decrease) increase in deposits ............................ 28,602 (2,071) Net increase (decrease) in FHLB advances and other borrowed funds ....... (4,687) 28,889 Net (decrease) in securities sold under repurchase agreements ........... (6,787) (400) Cash dividends paid to stockholders ..................................... (1,561) (1,297) Proceeds from exercise of stock options and other stock issued .......... 24 647 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES ........................... 15,591 25,768 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ 1,396 (4,850) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................ 52,365 51,872 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 53,761 47,022 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest ............................... $ 8,876 6,919 Income taxes ........................... 278 161 See accompanying notes to consolidated condensed financial statements 5
6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1) Basis of Presentation: In the opinion of Management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Glacier Bancorp Inc.'s (the "Company") financial condition as of March 31, 2000, December 31, 1999, and March 31, 1999 and the results of operations and cash flows for the three months ended March 31, 2000 and 1999 The accompanying consolidated condensed financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results anticipated for the year ending December 31, 2000. 2) Organizational Structure: The Company is the parent company for seven subsidiaries: Glacier Bank ("Glacier"); Glacier Bank of Whitefish ("Whitefish"); Glacier Bank of Eureka ("Eureka"); First Security Bank of Missoula ("Missoula"); Valley Bank of Helena ("Helena"), Big Sky Western Bank ("Big Sky"), Mountain West Bank (Mountain West) and Community First, Inc. ("CFI"). CFI provides full service brokerage services through Raymond James Financial Services, Inc. Big Sky Western Bank became a subsidiary of the Company on January 20, 1999 and Mountain West became a subsidiary on February 4, 2000. The pooling of interests accounting method was used for both acquisitions. Under this method, financial information for each of the periods presented includes the combined companies as though the mergers had occurred prior to the earliest date presented. At March 31, 2000, the Company owned 100% of Glacier, Missoula, Helena, Big Sky, Mountain West and CFI; 94% of Whitefish, and 98% of Eureka. The following abbreviated organizational chart illustrates the various relationships: Glacier Bancorp, Inc. (Parent Holding Company) Glacier Bank First Security Bank Glacier Bank Glacier Bank (Commercial bank) of Missoula of Whitefish of Eureka (Commercial bank) (Commercial bank) (Commercial bank) Big Sky Valley Bank Mountain West Bank Community First, Inc. Western Bank of Helena (Commercial bank) (Brokerage services) (Commercial bank) (Commercial bank) On February 4, 2000, the Company issued 844,257 shares of common stock in exchange for all of the outstanding stock of Mountain West Bank. This business combination has been accounted for as a pooling-of-interests combination and, accordingly, the consolidated condensed financial statements for periods prior to the combination have been restated to include the accounts and results of operations of Mountain West Bank. The results of operations previously reported by the separate companies and the combined amounts presented in the accompanying consolidated condensed financial statements are summarized below: (Dollars in thousands) 6
7 Three months ended March 31, 1999 ------------------ Net earnings of: Glacier Bancorp, Inc. .......... $2,894 Mountain West Bank ............. 75 ------ Combined ....................... $2,969 ====== 3) Stock Dividend: On May 27, 1999, a 10% stock dividend was approved by the Board of Directors. As a result, all per share amounts from time periods proceeding this date have been restated to illustrate the effect of the stock dividend. Any fractional shares were paid in cash. 4) Ratios: Return on average assets and average equity was calculated based on daily averages. 5) Cash Dividend Declared: On March 29, 2000, the Board of Directors declared of $.15 per share quarterly cash dividend to stockholders of record on April 11, 2000, payable on April 20, 2000. 6) Computation of Earnings Per Share: Basic earnings per common share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares if dilutive outstanding stock options were exercised, using the treasury stock method. Previous period amounts are restated for the effect of the 1999 stock dividend. The following schedule contains the data used in the calculation of basic and diluted earnings per share. Three Three months ended months ended March 31, 2000 March 31, 1999 -------------- -------------- Net income available to common stockholders, basic and diluted $ 3,227,733 2,969,212 =========== ========== Average outstanding shares - basic 10,396,939 10,184,669 Add: dilutive stock options 105,278 183,179 ----------- ---------- Average outstanding shares - diluted 10,502,217 10,367,848 =========== ========== Basic earnings per share $ .31 .29 Diluted earnings per share $ .31 .29 7
8 7) Investments: A comparison of the amortized cost and estimated fair value of the Company's investment securities is as follows: INVESTMENT SECURITIES AS OF MARCH 31, 2000 Estimated AVAILABLE FOR SALE Weighted Amortized Gross Unrealized Fair U.S. GOVERNMENT AND FEDERAL AGENCIES Yield Cost Gains Losses Value -------- --------- ------- ------- ------- maturing within one year..................... 5.75% 1,698 1 (2) 1,697 maturing one year through five years......... 6.43% 4,980 10 (97) 4,893 maturing five years though ten years......... 6.59% 4,547 0 (137) 4,410 maturing after ten years..................... 7.08% 1,276 1 (14) 1,263 ---- ------- ------- ------- ------- 6.46% 12,501 12 (250) 12,263 ---- ------- ------- ------- ------- STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES: maturing within one year..................... 6.54% 377 1 (49) 329 maturing one year through five years......... 5.22% 1,297 11 (6) 1,302 maturing five years through ten years........ 7.32% 4,611 30 (17) 4,624 maturing after ten years..................... 5.21% 47,838 265 (2,312) 45,791 ---- ------- ------- ------- ------- 5.40% 54,123 307 (2,384) 52,046 ---- ------- ------- ------- ------- MORTGAGE-BACKED SECURITIES..................... 6.94% 39,861 43 (1,347) 38,557 REAL ESTATE MORTGAGE INVESTMENT CONDUITS....... 7.13% 108,354 140 (4,235) 104,259 ---- ------- ------- ------- ------- TOTAL AVAILABLE-FOR-SALE SECURITIES..... 6.62% 214,839 502 (8,216) 207,125 ==== ======= ======= ======= ======= INVESTMENT SECURITIES AS OF DECEMBER 31, 1999 Estimated DOLLARS IN THOUSANDS Weighted Amortized Gross Unrealized Fair HELD-TO-MATURITY Yield Cost Gains Losses Value -------- --------- ------- ------- ------- U.S. Government and Federal Agencies maturing one year through five years......... 6.26% 500 0 (5) 500 Mortgage-Backed Securities..................... 6.50% 251 0 (6) 247 ---- ------- ------- ------- ------- TOTAL HELD-TO-MATURITY SECURITIES....... 6.42% 751 0 (11) 747 ---- ------- ------- ------- ------- AVAILABLE FOR SALE U.S. GOVERNMENT AND FEDERAL AGENCIES maturing within one year..................... 5.98% 1,998 3 (4) 1,997 maturing one year through five years......... 6.37% 4,480 15 (105) 4,391 maturing five years though ten years......... 6.76% 4,546 0 (221) 4,325 maturing after ten years..................... 5.20% 1,322 2 (13) 1,310 ---- ------- ------- ------- ------- 6.33% 12,346 20 (343) 12,023 ---- ------- ------- ------- ------- STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES: maturing within one year..................... 6.50% 397 1 (49) 349 maturing one year through five years......... 4.92% 1,302 14 (5) 1,311 maturing five years through ten years........ 6.88% 4,120 25 (20) 4,125 maturing after ten years..................... 5.21% 46,698 39 (2,985) 43,752 ---- ------- ------- ------- ------- 5.34% 52,517 79 (3,059) 49,537 ---- ------- ------- ------- ------- MORTGAGE-BACKED SECURITIES..................... 6.96% 44,277 164 (1,310) 43,131 REAL ESTATE MORTGAGE INVESTMENT CONDUITS....... 6.94% 108,374 126 (4,630) 103,870 ---- ------- ------- ------- ------- TOTAL AVAILABLE FOR SALE SECURITIES............ 6.52% 217,514 389 (9,342) 208,561 ==== ======= ======= ======= ======= 8
9 8) Stockholders' Equity: The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in supervising a bank holding company. The following table illustrates the Federal Reserve Board's capital adequacy guidelines and the Company's compliance with those guidelines as of March 31, 2000: - ----------------------------------------- Tier 1 (Core) Tier 2 (Total) Leverage (dollars in thousands) Capital Capital Capital - ----------------------------------------- --------- --------- --------- GAAP Capital................................. $ 87,495 $ 87,495 $ 87,495 Less: Goodwill.............................. (6,899) (6,899) (6,899) Plus: Net unrealized losses on securities available-for-sale...................... 4,683 4,683 4,683 Minority Interest............................ 305 305 305 Allowance for loan losses.................... -- 7,102 -- --------- --------- --------- Regulatory capital computed.................. $ 85,584 $ 92,686 $ 85,584 ========= ========= ========= Risk weighted assets......................... $ 665,971 $ 665,971 ========= ========= Total average assets........................ $ 973,010 ========= Capital as % of defined assets.............. 12.85% 13.92% 8.80% Regulatory "well capitalized" requirement... 6.00% 10.00% 5.00% --------- --------- --------- Excess over "well capitalized" requirement.. 6.85% 3.92% 3.80% ========= ========= ========= 9) Comprehensive Earnings: The Company's only component of comprehensive earnings is the unrealized gains and losses on available-for-sale securities. For the three months ended March 31, - ----------------------------------------------------------- --------------------- Dollars in thousands 2000 1999 - ----------------------------------------------------------- ------- ------- Net earnings................................................. $ 3,228 2,969 ------- ------- Unrealized holding gains (losses) arising during the period.. 1,250 (646) Transfer from held-to-maturity............................... (11) 288 Tax expense.................................................. (509) 239 ------- ------- Net after tax.................................... 730 (119) Less: reclassification adjustment for amounts included in net income.................................... (30) 19 Tax expense.................................................. 12 (8) ------- ------- Net after tax.................................... (18) 11 Net unrealized gain (loss) on securities......... 748 (130) ------- ------- Total comprehensive earnings................. $ 3,976 2,839 ======= ======= 9
10 10) Subsequent Events The Board of Directors, at their meeting held on April 26, 2000, declared a 10 percent stock dividend payable May 25, 2000 in common stock of the Company, to shareholders of record on May 16, 2000. Fractional shares will be paid in cash 11) Segment Information The Company evaluates segment performance internally based on individual bank charter, 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, Community First Inc., and inter-company eliminations. Three months ended and as of March 31, 2000 - ---------------------------------- ---------------------------------------------------------------- (Dollars in thousands) Glacier Whitefish Eureka Missoula Helena - ---------------------------------- -------- -------- -------- ------- -------- Revenues from external customers 9,315 1,178 626 4,604 1,873 Intersegment revenues 373 2 - - 54 Expenses 8,120 949 507 3,668 1,612 Intercompany eliminations - - - - - -------- -------- -------- ------- -------- Net income 1,568 231 119 936 315 ======== ======== ======== ======= ======== Total Assets 461,303 54,380 27,734 196,223 83,610 ======== ======== ======== ======= ======== Mountain Total Big Sky West Other Consolidated -------- -------- -------- ------------ Revenues from external customers 1,436 2,303 126 21,461 Intersegment revenues - - 4,007 4,436 Expenses 1,300 2,144 (66) 18,233 Intercompany eliminations - - (4,436) (4,436) -------- -------- -------- -------- Net income 136 159 (236) 3,228 ======== ======== ======== ======== Total Assets 68,437 97,938 3,271 992,895 ======== ======== ======== ======== Three months ended and as of March 31, 1999 - ---------------------------------- ---------------------------------------------------------------- (Dollars in thousands) Glacier Whitefish Eureka Missoula Helena - ---------------------------------- -------- -------- -------- ------- -------- Revenues from external customers 7,920 875 526 3,703 1,716 Intersegment revenues 199 46 3 18 8 Expenses 6,699 749 445 2,814 1,444 Intercompany eliminations - - - - - -------- -------- -------- ------- -------- Net income 1,420 172 84 907 280 ======== ======== ======== ======= ======== Total Assets 370,341 41,888 27,734 169,776 74,756 ======== ======== ======== ======= ======== Mountain Total Big Sky West Other Consolidated -------- -------- -------- ------------ Revenues from external customers 790 1,921 336 17,787 Intersegment revenues 50 - 3,362 3,686 Expenses 768 1,846 53 14,818 Intercompany eliminations - - (3,686) (3,686) -------- -------- -------- -------- Net income 72 75 (41) 2,969 ======== ======== ======== ======== Total Assets 48,611 80,867 460 814,433 ======== ======== ======== ======== 10
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition - This section discusses the changes in Statement of Financial Condition items from December 31, 1999 to March 31, 2000. From December 31, 1999 total assets have grown $18.894 million, or 1.94 percent, to $992.895 million. This increase was primarily the net result of an increase in loans of $20.157 million, or 3.09 percent, and a decrease in investments and cash and cash equivalents of $791 thousand. Real estate loans decreased $800 thousand during the period, while commercial loans increased $15.763 million, consistent with management's decision to restructure the loan portfolio and to not retain long-term, low-interest rate mortgage loans. Total deposits increased $28.602 million, or 4.4 percent, with $21.326 million of the increase in non-interest bearing deposits. Advances from the FHLB and other borrowed funds decreased $11.474 million because of the deposit increases. Loans sold to the secondary market amounted to $18.678 million and $60.585 million during the first three months of 2000 and 1999, respectively. The amount of loans serviced for others on March 31, 2000 was approximately $175 million. All seven institutions are members of the FHLB. Accordingly, management of the Company has a wide range of versatility in managing the liquidity and asset/liability mix for each individual institution as well as the Company as a whole. The following table demonstrates the available FHLB lines of credit and the extent of utilization as of March 31, 2000 (in thousands): Available line Amount Used Available -------------- ----------- --------- Glacier Bank $160,338 123,966 36,372 Glacier Bank of Whitefish 12,131 10,225 1,906 Glacier Bank of Eureka 9,341 4,048 5,293 First Security Bank Missoula 31,411 28,000 3,411 Valley Bank of Helena 16,059 6,287 9,772 Big Sky Western Bank 17,126 15,600 1,526 Mountain West Bank 16,221 12,800 3,421 -------- -------- -------- Totals $262,627 200,926 61,701 ======== ======== ======== Classified Assets and Reserves Non-performing assets consist of non-accrual loans, accruing loans that are 90 days or more overdue, and real estate and other assets acquired by foreclosure or deed-in-lieu thereof, net of related reserves. Non-performing assets at March 31, 2000 remained unchanged from December 31, 1999, and were $2.3 million, or .23% of total assets. Changes in the information related to the allowance for loan loss account are shown in the following table: March 31, 2000 December 31, 1999 -------------- ----------------- Total Allowance for Loan and Real Estate Owned Losses: $7.102 million $6.722 million Allowance as a percentage of Total Loans: 1.06% 1.03% Allowance as a percentage of Non-performing Assets: 310% 295% 11
12 Impaired Loans As of March 31, 2000, there were no loans considered impaired. Interest income on impaired loans and interest recoveries on loans that have been charged off, is recognized on a cash basis after principal has been fully paid, or at the time a loan becomes fully performing based on the terms of the loan. Minority Interest The minority interest on the consolidated statement of financial condition represents the minority stockholders' share in the retained earnings of the Company. These are shares of Eureka and Whitefish that are still outstanding. As of March 31, 2000, the Company owns 47,280 shares of Whitefish and 49,084 shares of Eureka. The Company's ownership of Whitefish and Eureka is 94% and 98%, respectively. Results of Operations - The three months ended 3/31/00 compared to the three months ended 3/31/99. Glacier Bancorp, Inc. reported net income of $3.228 million, or basic earnings per share of $.31, for the first quarter of 2000, compared with $2.969 million, or basic earnings per share of $.29, for the same quarter of 1999. Return on average assets and return on average equity for the quarter were 1.33 percent and 15.06 percent, respectively, which compares to returns of 1.46 percent and 13.91 percent for the same quarter of 1999. The acquisition of the two Butte Montana offices of Washington Mutual, with approximately $73 million in deposits, was completed as of October 8, 1999. Those branches have been fully integrated into Glacier Bank, the largest subsidiary of the Company. The information contained in this document includes the impact of that acquisition which was accounted for as a purchase. Under purchase accounting rules only results from the purchase date forward are affected and prior periods have not been adjusted to reflect the acquisition. Net Interest Income Net interest income for the quarter was $9.901 million, an increase of $1.476 million, or 17 percent, over the same period in 1999. Growth in earning assets was the main reason for this increase. The net interest margin as a percentage of earning assets, on a tax equivalent basis, has declined from 4.8 percent in 1999 to 4.4 percent in 2000. Higher interest rates in the first part of 2000 have resulted in a larger percentage increase in interest expense than in interest income. However, the growth in earning assets and the increase in non-interest bearing deposits, resulted in the significant increase in net interest income. Loan Loss Provision and Non-Performing Assets The first quarter provision for loan losses was $487 thousand, up from $358 thousand during the same quarter in 1999. Non-performing assets as a percentage of loans at March 31, 2000 were .36 percent, well below the average of the peer group which was .64 percent at December 31, 1999, the most recent information available. The reserve for loan losses was 310 percent of non-performing assets as of March 31, 2000, compared to 295 percent at year end 1999. With the growth in loan balances, and the change in loan mix from residential real estate to commercial and consumer loans, which historically have greater credit risk, both the provision expense for loan loss and the balance in the reserve account continue to increase. The reserve balance increased $380 thousand, or 6 percent, to $7.102 million during the first quarter of 2000, to 1.06 percent of total loans outstanding, up from 1.03 percent of loans at December 31, 1999. Non-interest Income Non-interest income declined $174 thousand, from the first quarter of 1999. Income from sales of mortgage loans was $557 thousand lower in 2000 with less activity due to higher mortgage rates. Other fee income increased $304 thousand, offsetting some of the mortgage fee income decline. Other miscellaneous income, somewhat offset by losses on investment sales of $30 thousand, comprised the remaining increase in non-interest income. 12
13 Non-interest Expense Non-interest expense increased by $734 thousand, or 11 percent, over the first quarter of 1999. Compensation and employee benefits increased $613 thousand, or 18 percent. Occupancy and equipment expense was up $47 thousand, or 4 percent. Other expenses were up $75 thousand, or 3 percent. The reasons for the increased operating expenses include the addition of the two Butte branches and $78 thousand in amortization of the premium paid for that acquisition, staffing increases in the Boise, and Sun Valley Idaho branches, and normal compensation adjustments that occur at the beginning of the year. Item 3. Quantitative and Qualitative Disclosure About Market Risk Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company's primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company's asset/liability management process which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to the Asset/Liability committee (ALCO). In this capacity ALCO develops guidelines and strategies impacting the Company's asset/liability management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends. Interest Rate Risk: Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change the interest income and expense streams associated with the Company's financial instruments also change thereby impacting net interest income (NII), the primary component of the Company's earnings. ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While ALCO routinely monitors simulated NII sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company's balance sheet. This sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance level for NII exposure over a one year horizon, assuming no balance sheet growth, given a 200 basis point (bp) upward and downward shift in interest rates. A parallel and pro rata shift in rates over a 12 month period is assumed. The following reflects the Company's NII sensitivity analysis as of December 31, 1999, the most recent information available, as compared to the 10% Board approved policy limit (dollars in thousands). There have been no material changes in the analysis from December 31, 1999 to March 31, 2000. +200 bp -200 bp ------- ------- Estimated sensitivity -3.66% 2.68% Estimated increase (decrease) in net interest income (1,220) 893 The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on 13
14 loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of assets and liability cashflows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no pending material legal proceedings to which the registrant or its subsidiaries are a party. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibit 27 - Financial data schedule 14
15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly cause this report to be signed on its behalf by the undersigned thereunto duly authorized. GLACIER BANCORP, INC. May 8, 2000 /s/ Michael J. Blodnick President/CEO May 8, 2000 /s/ James H. Strosahl Executive Vice President/CFO 15
9 1,000 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 40,161 12,150 1,450 0 207,125 0 0 679,467 7,102 992,895 672,708 223,440 8,597 350 0 0 104 87,391 992,895 14,389 3,857 0 18,246 4,947 8,345 9,901 487 (30) 7,650 4,979 3,228 0 0 3,228 0.31 0.31 4.43 1,698 135 0 0 6,722 140 33 7,102 7,102 0 0