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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]		Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended June 30, 2002
[   ]		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.

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DELAWARE		81-0519541
(State or other jurisdiction of incorporation or organization)		(IRS Employer 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

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N/A

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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 July 31, 2002 was 17,209,265. No preferred shares are issued or outstanding.

 

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		Consolidated Statements of Financial Condition
		Consolidated Statements of Operations
		Consolidated Statements of Stockholders’ Equity and Comprehensive Income
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Securities Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
EXHIBIT 99

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Table of Contents

GLACIER BANCORP, INC.
Quarterly Report on Form 10-Q

Index

Page #

Part I.

Financial Information

Item 1  —

Financial Statements

Consolidated Statements of Financial Condition June 30, 2002, December 31, and June 30, 2001 (unaudited)

3

Consolidated Statements of Operations — Three and Six months ended June 30, 2002 and 2001 (unaudited)

4

Consolidated Statements of Stockholders’ Equity and Comprehensive Income — Year ended December 31, 2001 and Six months ended June 30, 2002 (unaudited)

5

Consolidated Statements of Cash Flows — Six months ended June 30, 2002 and 2001 (unaudited)

6

Notes to Consolidated Financial Statements (unaudited)

7

Item 2  —

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3  —

Quantitative and Qualitative Disclosure about Market Risk

24

Part II.

Other Information

25

Item 1  —

Legal Proceedings

25

Item 2  —

Changes in Securities and Use of Proceeds

25

Item 3  —

Defaults Upon Senior Securities

25

Item 4  —

Submission of Matters to a Vote of Security Holders

25

Item 5  —

Other Information

26

Item 6  —

Exhibits and Reports on Form 8-K

26

Signatures

26

 

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Glacier Bancorp, Inc.
Consolidated Statements of Financial Condition

				June 30,				December 31,				June 30,
(Unaudited - dollars in thousands except per share data)				2002				2001				2001
Assets:
	Cash on hand and in banks			$	59,812				73,456				69,446
	Interest bearing cash deposits				7,410				23,970				18,938
		Cash and cash equivalents			67,222				97,426				88,384
	Investments:
		Investment securities, available-for-sale			213,752				158,036				156,525
		Mortgage backed securities, available-for-sale			403,029				350,542				352,267
		Total investments			616,781				508,578				508,792
	Net loans receivable:
		Real estate loans			372,318				421,996				484,959
		Commercial Loans			650,749				620,134				590,021
		Consumer and other loans			292,639				298,851				317,289
		Allowance for loan losses			(19,941	)			(18,654	)			(18,465	)
		Total loans, net			1,295,765				1,322,327				1,373,804
	Premises and equipment, net				47,455				50,566				52,376
	Real estate and other assets owned, net				699				593				462
	Federal Home Loan Bank of Seattle stock, at cost				37,093				32,822				31,146
	Federal Reserve stock, at cost				4,250				4,185				4,428
	Accrued interest receivable				13,047				12,409				13,896
	Core deposit intangible, net				7,541				8,261				9,013
	Goodwill, net				32,692				33,510				35,544
	Other assets				15,023				15,070				16,251
				$	2,137,568				2,085,747				2,134,096
Liabilities and stockholders’ equity:
	Deposits — non-interest bearing			$	256,519				234,318				231,007
	Deposits — interest bearing				1,175,893				1,211,746				1,212,343
	Advances from Federal Home Loan Bank of Seattle				406,603				367,295				416,222
	Securities sold under agreements to repurchase				34,744				32,585				30,741
	Other borrowed funds				8,457				1,060				11,480
	Accrued interest payable				6,452				9,179				11,211
	Current income taxes				538				95				182
	Deferred tax liability				5,083				1,780				1,244
	Trust preferred securities				35,000				35,000				35,000
	Minority interest				—				—				353
	Other liabilities				13,471				15,706				18,953
		Total liabilities			1,942,760				1,908,764				1,968,736
	Preferred shares, 1,000,000 shares authorized. None outstanding				—				—				—
	Common stock, $.01 par value per share 50,000,000 shares authorized				172				169				166
	Paid-in capital				170,894				167,371				162,572
	Retained earnings — substantially restricted				16,926				7,687				563
	Accumulated other comprehensive income				6,816				1,756				2,059
		Total stockholders’ equity			194,808				176,983				165,360
				$	2,137,568				2,085,747				2,134,096
	Number of shares outstanding				17,180,089				16,874,422				16,613,425
	Book value of equity per share			$	11.34				10.49				9.95
	Tangible book value per share			$	9.00				8.01				7.27

See accompanying notes to consolidated financial statements

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Glacier Bancorp, Inc
Consolidated Statements of Operations

			Three months ended June 30,								Six months ended June 30,
(unaudited - dollars in thousands except per share data)			2002				2001				2002				2001
Interest income:
	Real estate loans		$	7,225				10,291				15,063				16,980
	Commercial loans			11,649				12,323				23,081				21,700
	Consumer and other loans			5,686				7,436				11,499				12,488
	Investments			8,947				8,723				16,942				13,980
	Total interest income			33,507				38,773				66,585				65,148
Interest expense:
	Deposits			6,673				13,064				14,115				21,798
	FHLB Advances			4,181				5,226				8,366				8,837
	Securities sold under agreements to repurchase			133				262				289				525
	Trust preferred securities			903				905				1,807				1,506
	Other borrowed funds			16				79				40				143
	Total interest expense			11,906				19,536				24,617				32,809
Net interest income				21,601				19,237				41,968				32,339
	Provision for loan losses			1,260				1,838				2,560				2,423
	Net interest income after provision for loan losses			20,341				17,399				39,408				29,916
Non-interest income:
	Service charges and other fees			3,443				3,549				6,606				5,992
	Miscellaneous loan fees and charges			1,182				1,070				2,025				1,763
	Gains on sale of loans			1,175				943				2,272				1,410
	Gains on sale of investments, net			2				—				2				64
	Other income			532				938				1,278				1,398
	Total non-interest income			6,334				6,500				12,183				10,627
Non-interest expense:
	Compensation, employee benefits and related expenses			7,533				6,908				15,315				12,165
	Occupancy and equipment expense			2,324				2,531				4,625				3,990
	Outsourced data processing expense			515				976				961				1,237
	Core deposit intangibles amortization			360				406				721				574
	Goodwill amortization			249				513				498				737
	Other expenses			3,610				3,862				7,085				6,993
	Minority interest			—				20				—				35
	Total non-interest expense			14,591				15,216				29,205				25,731
Earnings before income taxes				12,084				8,683				22,386				14,812
	Federal and state income tax expense			4,105				3,075				7,659				5,290
Net earnings			$	7,979				5,608				14,727				9,522
Basic earnings per share			$	0.47				0.34				0.86				0.65
Diluted earnings per share			$	0.46				0.33				0.85				0.63
Dividends declared per share			$	0.16				0.15				0.32				0.30
Return on average assets (annualized)				1.51	%			1.04	%			1.41	%			1.08	%
Return on average equity (annualized)				16.77	%			14.03	%			15.78	%			13.64	%
Return on tangible average equity (annualized)				21.40	%			17.82	%			20.31	%			16.34	%
Average outstanding shares — basic				17,139,048				16,336,932				17,076,598				14,678,575
Average outstanding shares — diluted				17,451,887				16,770,005				17,378,301				15,189,394

See accompanying notes to consolidated financial statements

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Glacier Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
and Comprehensive Income
Year ended December 31, 2001 and Six months ended June 30, 2002

															Retained
															earnings
															(accumulated				Accumulated				Total
			Common Stock												deficit)				other comp-				stock-
											Paid-in				substantially				rehensive				holders'
(Unaudited - dollars in thousands except per share data)			Shares				Amount				capital				restricted				income				equity
Balance at December 31, 2000				11,447,150				114				101,828				(4,087	)			258				98,113
Comprehensive income:
	Net earnings			—				—				—				21,689				—				21,689
	Unrealized gain on securities, net of reclassification adjustment			—				—				—				—				1,498				1,498
Total comprehensive income																								23,187
Cash dividends declared ($.60 per share)				—				—				—				(9,915	)			—				(9,915	)
Stock options exercised				864,571				9				6,755				—				—				6,764
Tax benefit from stock related compensation				—				—				2,778				—				—				2,778
Conversion of debentures				32,239				1				341				—				—				342
Stock issued in connection with merger of WesterFed Financial Corporation				4,530,462				45				55,669				—				—				55,714
Balance at December 31, 2001				16,874,422				169				167,371				7,687				1,756				176,983
Comprehensive income:
	Net earnings			—				—				—				14,727				—				14,727
	Unrealized gain on securities, net of reclassification adjustment			—				—				—				—				5,060				5,060
Total comprehensive income																								19,787
Cash dividends declared ($.32 per share)				—				—				—				(5,488	)			—				(5,488	)
Stock options exercised				305,667				3				3,523				—				—				3,526
Balance at June 30, 2002				17,180,089			$	172				170,894				16,926				6,816				194,808

See accompanying notes to consolidated financial statements

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Glacier Bancorp, Inc.
Consolidated Statements of Cash Flows

							Six months ended June 30,
(Unaudited - dollars in thousands except per share data)							2002				2001
OPERATING ACTIVITIES:
	Net cash provided by (used in) operating activities						$	29,305				(7,196	)
INVESTING ACTIVITIES:
	Proceeds from sales, maturities and prepayments of investments available-for-sale							105,754				115,613
	Purchases of investments available-for-sale							(208,096	)			(233,276	)
	Principal collected on installment and commercial loans							303,572				204,562
	Installment and commercial loans originated or acquired							(327,974	)			(231,066	)
	Principal collections on mortgage loans							134,549				131,482
	Mortgage loans originated or acquired							(99,352	)			(106,590	)
	Net purchase of FHLB and FRB stock							(3,359	)			(3,551	)
	Acquisition of WesterFed Financial Corporation and several branches							—				107,568
	Sale of branches							—				(53,131	)
	Net decrease in premises and equipment							2,148				1,167
	NET CASH USED IN INVESTING ACTIVITIES							(92,758	)			(67,222	)
FINANCING ACTIVITIES:
	Net (decrease) increase in deposits							(13,652	)			15,834
	Net increase in FHLB advances and other borrowed funds							46,704				61,223
	Net increase (decrease) in securities sold under repurchase agreements							2,159				(1,987	)
	Proceeds from issuance of trust preferred securities							—				35,000
	Cash dividends paid to stockholders							(5,488	)			(4,136	)
	Proceeds from exercise of stock options and other stock issued							3,526				5,082
	NET CASH PROVIDED BY FINANCING ACTIVITIES							33,249				111,016
	NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS							(30,204	)			36,598
	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD							97,426				51,786
	CASH AND CASH EQUIVALENTS AT END OF PERIOD						$	67,222				88,384
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
	Cash paid during the period for:	Interest					$	27,345				33,777
		Income taxes					$	7,219				5,970

OPERATING ACTIVITY DISCLOSURE

In addition to net earnings of $14.727 million, the 2002 increase in net cash provided by operations is primarily the result of activity in mortgage loans held for sale. Loan origination activity was strong during the first six months, however, the balance of loans held for sale declined by $13.206 million due to the timing of when loan sales were completed. During the first six months of 2001, mortgage loans held for sale increased $12.014 million and other liabilities were reduced, partially offsetting this use of cash was net operating earnings of $9.522 million.

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

1)		Basis of Presentation:
		In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Glacier Bancorp Inc.’s (the “Company”) financial condition as of June 30, 2002, December 31, 2001, and June 30, 2001, stockholders’ equity for the six months ended June 30, 2001 and the year ended December 31, 2001, and the results of operations for the three and six months ended June 30, 2002 and 2001, and the cash flows for the six months ended June 30, 2002 and 2001.
		The accompanying consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These 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, 2001. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results anticipated for the year ending December 31, 2002. Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation.
2)		Organizational Structure:
		The Company, headquartered in Kalispell, Montana, is a Delaware corporation incorporated in 1990, pursuant to the reorganization of Glacier Bank, FSB into a bank holding company. The Company is the parent company for nine wholly owned operating 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”), Glacier Bank of Whitefish (“Whitefish”), Community First, Inc. (“CFI”), and Glacier Capital Trust I (“Glacier Trust”), all located in Montana, and Mountain West Bank (“Mountain West”) which is located in Idaho and Utah.
		CFI provides full service brokerage services through Raymond James Financial Services, Inc.
		The following abbreviated organizational chart illustrates the various relationships:

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3)		Ratios:
		Returns on average assets and average equity were calculated based on daily averages.
4)		Cash Dividend Declared:
		On June 26, 2002, the Board of Directors declared a $.16 per share quarterly cash dividend to stockholders of record on July 9, 2002, payable on July 18, 2002.
5)		Computation of Earnings Per Share:
		Basic earnings per common share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares if dilutive outstanding stock options were exercised, using the treasury stock method.
		The following schedule contains the data used in the calculation of basic and diluted earnings per share.

				Three				Three				Six				Six
				months ended				months ended				months ended				months ended
				June 30, 2002				June 30, 2001				June 30, 2002				June 30, 2001
Net earnings available to common stockholders, basic				$	7,979,282				5,608,078				14,727,112				9,522,344
	After tax effect of interest on convertible subordinated debentures				—				4,000				—				8,000
Net earnings available to common stockholders, diluted				$	7,979,282				5,612,078				14,727,112				9,530,344
Average outstanding shares — basic					17,139,048				16,336,932				17,076,598				14,678,575
Add: Dilutive stock options					312,839				400,048				301,703				477,794
		Convertible subordinated debentures			—				33,025				—				33,025
Average outstanding shares — diluted					17,451,887				16,770,005				17,378,301				15,189,394
Basic earnings per share				$	0.47				0.34				0.86				0.65
Diluted earnings per share				$	0.46				0.33				0.85				0.63

6)		Investments:
		A comparison of the amortized cost and estimated fair value of the Company’s investments is as follows:

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INVESTMENTS AS OF JUNE 30, 2002

												Gross Unrealized								Estimated
				Weighted				Amortized												Fair
(Dollars in thousands)				Yield				Cost				Gains				Losses				Value
U.S. Government and Federal Agencies
	maturing after ten years				2.85	%		$	1,141				9				(2	)			1,148
					2.85	%			1,141				9				(2	)			1,148
State and Local Governments and other issues:
	maturing within one year				5.65	%			3,654				74				—				3,728
	maturing one year through five years				5.47	%			11,173				236				(112	)			11,297
	maturing five years through ten years				5.67	%			3,143				77				—				3,220
	maturing after ten years				5.60	%			191,098				4,179				(918	)			194,359
					5.59	%			209,068				4,566				(1,030	)			212,604
Mortgage-Backed Securities					5.54	%			106,191				2,245				(57	)			108,379
Real Estate Mortgage Investment Conduits					5.83	%			289,117				5,733				(200	)			294,650
		Total Available-for-Sale Investments			5.69	%		$	605,517				12,553				(1,289	)			616,781

INVESTMENTS AS OF DECEMBER 31, 2001

												Gross Unrealized								Estimated
				Weighted				Amortized												Fair
(Dollars in thousands)				Yield				Cost				Gains				Losses				Value
U.S. Government and Federal Agencies
	maturing after ten years				2.77	%		$	1,330				12				(3	)			1,339
					2.77	%			1,330				12				(3	)			1,339
State and Local Governments and other issues:
	maturing within one year				3.25	%			4,639				28				—				4,667
	maturing one year through five years				5.36	%			13,774				291				(65	)			14,000
	maturing five years through ten years				5.50	%			2,349				57				(6	)			2,400
	maturing after ten years				5.81	%			135,789				1,563				(1,722	)			135,630
					5.67	%			156,551				1,939				(1,793	)			156,697
Mortgage-Backed Securities					6.08	%			129,322				1,868				(126	)			131,064
Real Estate Mortgage Investment Conduits					6.11	%			218,470				2,941				(1,933	)			219,478
		Total Available for Sale Investments			5.96	%		$	505,673				6,760				(3,855	)			508,578

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7)		Loans
		The following table summarizes the Company’s loan portfolio. The loans mature or are repriced at various times.

				At								At
				06/30/02								12/31/2001
TYPE OF LOAN
(Dollars in Thousands)				Amount				Percent				Amount				Percent
Real Estate Loans:
	Residential first mortgage loans			$	358,831				27.7	%		$	395,417				29.9	%
	Loans held for sale				14,196				1.1	%			27,403				2.1	%
		Total			373,027				28.8	%			422,820				32.0	%
Commercial Loans:
	Real estate				381,333				29.4	%			379,346				28.7	%
	Other commercial loans				270,566				20.9	%			241,811				18.3	%
		Total			651,899				50.3	%			621,157				47.0	%
Installment and Other Loans:
	Consumer loans				130,855				10.1	%			142,875				10.8	%
	Home equity loans				161,932				12.5	%			156,140				11.8	%
		Total			292,787				22.6	%			299,015				22.6	%
	Net deferred loan fees, premiums and discounts				(2,007	)			-0.2	%			(2,011	)			-0.2	%
	Allowance for Losses				(19,941	)			-1.5	%			(18,654	)			-1.4	%
Net Loans				$	1,295,765				100.0	%		$	1,322,327				100.0	%

The following table sets forth information regarding the Company’s non-performing assets at the dates indicated:

					At				At
(Dollars in Thousands)					6/30/2002				12/31/2001
Non-accrual loans:
		Mortgage loans			$	3,677				4,044
		Commercial loans				3,002				4,568
		Consumer loans				522				620
			Total		$	7,201				9,232
Accruing Loans 90 days or more overdue:
		Mortgage loans				537				818
		Commercial loans				640				376
		Consumer loans				137				243
			Total		$	1,314				1,437
Real estate and other assets owned, net						699				593
Total non-performing loans, and real estate and other assets owned, net					$	9,214				11,262
	As a percentage of total assets					0.43	%			0.53	%
Interest Income (1)					$	274				658

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(1)

This is the amount of interest that would have been recorded on loans accounted for on a non-performing basis as of the end of each period if such loans had been current for the entire period.

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The following table illustrates th eloan loss experience:

					Six months ended				Year ended
					June 30,				December 31,
(Dollars in Thousands)					2002				2001
Balance at beginning of period					$	18,654				7,799
	Charge offs:
		Residential real estate				(494	)			(677	)
		Commercial loans				(772	)			(723	)
		Consumer loans				(672	)			(2,029	)
			Total charge offs		$	(1,938	)			(3,429	)
	Recoveries:
		Residential real estate				99				33
		Commercial loans				165				266
		Consumer loans				401				567
			Total recoveries		$	665				866
	Chargeoffs, net of recoveries					(1,273	)			(2,563	)
	Purchased reserve					—				8,893
	Provision					2,560				4,525
Balance at end of period					$	19,941				18,654
Ratio of net charge offs to average loans outstanding during the period						0.19	%			0.20	%

The following table summarizes the allocation of the allowance for loan losses:

			June 30, 2002								December 31, 2001
							Percent								Percent
							of loans in								of loans in
(Dollars in thousands)			Allowance				category				Allowance				category
Residential first mortgage			$	2,517				28.3	%			2,722				31.5	%
Commercial real estate				6,319				29.0	%			5,906				28.3	%
Other commercial				7,369				20.5	%			6,225				18.0	%
Consumer				3,736				22.2	%			3,801				22.2	%
	Totals		$	19,941				100.0	%			18,654				100.0	%

8)		Deposits
		The following table illustrates the amounts outstanding for deposits greater than $100,000 at June 30, 2002, according to the time remaining to maturity:

			Certificates				Demand
(Dollars in thousands)			of Deposit				Deposits				Totals
Within three months			$	34,990				351,987				386,977
Three to six months				19,727				—				19,727
Seven to twelve months				13,534				—				13,534
Over twelve months				13,563				—				13,563
	Totals		$	81,814				351,987				433,801

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9)		Advances and Other Borrowings
		The following chart illustrates the average balances and the maximum outstanding month-end balances for FHLB advances and repurchase agreements:

			June 30,			December 31,
	(Dollars in thousands)		2002				2001
FHLB Advances
	Amount outstanding at end of period		$	406,603				367,295
	Average balance		$	385,472				349,023
	Maximum outstanding at any month-end		$	433,262				416,222
	Weighted average interest rate			4.38	%			5.24	%
Repurchase Agreements:
	Amount outstanding at end of period		$	34,744				32,585
	Average balance		$	33,471				27,375
	Maximum outstanding at any month-end		$	41,113				37,814
	Weighted average interest rate			1.73	%			2.11	%

10)		Stockholders’ Equity:
		The Federal Reserve Board has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company. The following table illustrates the Federal Reserve Board’s capital adequacy guidelines and the Company’s compliance with those guidelines as of June 30, 2002:

CONSOLIDATED			Tier 1 (Core)				Tier 2 (Total)				Leverage
(Dollars in thousands)			Capital				Capital				Capital
GAAP Capital			$	194,808				194,808				194,808
Less: Goodwill and intangibles				(40,233	)			(40,233	)			(40,233	)
	Accumulated other comprehensive gain on AFS securities			(6,816	)			(6,816	)			(6,816	)
Less: Net unrealized loss on AFS equity securities				(32	)			(32	)			(32	)
Plus: Allowance for loan losses				—				18,433				—
	Trust preferred securities			35,000				35,000				35,000
Regulatory capital computed			$	182,727				201,160				182,727
Risk weighted assets			$	1,473,105				1,473,105
Total average assets											$	2,092,097
Capital as % of defined assets				12.40	%			13.66	%			8.73	%
Regulatory “well capitalized” requirement				6.00	%			10.00	%			5.00	%
Excess over “well capitalized” requirement				6.40	%			3.66	%			3.73	%

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11)		Comprehensive Earnings:
		The Company’s only component of other comprehensive earnings is the unrealized gains and losses on available-for-sale securities.

				For the three months							For the six months
				ended June 30,								ended June 30,
Dollars in thousands				2002				2001				2002				2001
Net earnings				$	7,979				5,608				14,727				9,522
Unrealized holding gain (loss) arising during the period					9,199				(1,345	)			8,365				2,867
Tax (expense) benefit					(3,634	)			560				(3,306	)			(1,105	)
	Net after tax				5,565				(785	)			5,059				1,762
Reclassification adjustment for gains included in net income					2				—				2				64
Tax expense					(1	)			—				(1	)			(25	)
	Net after tax				1				—				1				39
	Net unrealized gain (loss) on securities				5,566				(785	)			5,060				1,801
		Total comprehensive earnings		$	13,545				4,823				19,787				11,323

12)		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, non-bank units, and eliminations of transactions between segments. During the third quarter of 2001, certain branches of Western were transferred to other Company owned banks located in the same geographic area which accounted for the change in activity for certain segments.

			Six months ended and as of June 30, 2002
							First								Mountain
(Dollars in thousands)			Glacier				Security				Western				West				Big Sky
Revenues from external customers			$	18,656				17,018				13,661				12,453				6,285
Intersegment revenues				170				49				8				—				—
Expenses				13,989				13,174				11,070				10,878				5,007
Intercompany eliminations				—				—				—				—				—
	Net income		$	4,837				3,893				2,599				1,575				1,278
	Total Assets		$	477,718				449,117				388,613				361,026				169,094

															Total
			Valley				Whitefish				Other				Consolidated
Revenues from external customers				6,417				4,183				95				78,768
Intersegment revenues				70				—				19,017				19,314
Expenses				5,327				3,168				1,428				64,041
Intercompany eliminations				—				—				(19,314	)			(19,314	)
	Net income			1,160				1,015				(1,630	)			14,727
	Total Assets			176,176				124,319				(8,495	)			2,137,568

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			Six months ended and as of June 30, 2001
							First								Mountain
(Dollars in thousands)			Glacier				Security				Western				West				Big Sky
Revenues from external customers			$	19,792				10,322				23,713				9,406				3,593
Intersegment revenues				459				11				8				192				—
Expenses				16,682				8,213				20,680				9,493				3,189
Intercompany eliminations				—				—				—				—				—
	Net income		$	3,569				2,120				3,041				105				404
	Total Assets		$	487,522				229,601				807,438				301,383				88,010

															Total
			Valley				Whitefish				Other				Consolidated
Revenues from external customers				4,688				4,006				255				75,775
Intersegment revenues				66				6				12,659				13,401
Expenses				3,981				3,204				811				66,253
Intercompany eliminations				—				—				(13,401	)			(13,401	)
	Net income			773				808				(1,298	)			9,522
	Total Assets			145,945				95,859				(21,662	)			2,134,096

			Three months ended and as of June 30, 2002
							First								Mountain
(Dollars in thousands)			Glacier				Security				Western				West				Big Sky
Revenues from external customers			$	9,499				8,536				6,809				6,503				3,066
Intersegment revenues				69				42				2				—				—
Expenses				7,001				6,554				5,408				5,547				2,399
Intercompany eliminations				—				—				—				—
	Net income		$	2,567				2,024				1,403				956				667
	Total Assets		$	477,718				449,117				388,613				361,026				169,094

															Total
			Valley				Whitefish				Other				Consolidated
Revenues from external customers				3,270				2,128				30				39,841
Intersegment revenues				51				—				10,144				10,308
Expenses				2,711				1,574				668				31,862
Intercompany eliminations				—				—				(10,308	)			(10,308	)
	Net income			610				554				(802	)			7,979
	Total Assets			176,176				124,319				(8,495	)			2,137,568

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			Three months ended and as of
			June 30, 2001
							First								Mountain
(Dollars in thousands)			Glacier				Security				Western				West				Big Sky
Revenues from external customers			$	10,305				5,254				17,433				5,690				1,879
Intersegment revenues				148				1				8				49				—
Expenses				8,509				4,115				15,200				5,799				1,641
Intercompany eliminations				—				—				—				—				—
	Net income		$	1,944				1,140				2,241				(60	)			238
	Total Assets		$	487,522				229,601				807,438				301,383				88,010

															Total
			Valley				Whitefish				Other				Consolidated
Revenues from external customers				2,651				2,032				29				45,273
Intersegment revenues				35				3				7,415				7,659
Expenses				2,240				1,588				573				39,665
Intercompany eliminations				—				—				(7,659	)			(7,659	)
	Net income			446				447				(788	)			5,608
	Total Assets			145,945				95,859				(21,662	)			2,134,096

13)		Rate/Volume Analysis
		Net interest income can be evaluated from the perspective of relative dollars of change in each period. Interest income and interest expense, which are the components of net interest income, are shown in the following table on the basis of the amount of any increases (or decreases) attributable to changes in the dollar levels of the Company’s interest-earning assets and interest-bearing liabilities (“Volume”) and the yields earned and rates paid on such assets and liabilities (“Rate”). The change in interest income and interest expense attributable to changes in both volume and rates has been allocated proportionately to the change due to volume and the change due to rate.

			Six Months Ended June 30,
			2002 vs. 2001
			Increase (Decrease) due to:
(Dollars in Thousands)			Volume				Rate				Net
Interest Income
Real Estate Loans			$	(913	)			(1,004	)			(1,917	)
Commercial Loans				5,812				(4,431	)			1,381
Consumer and Other Loans				556				(1,545	)			(989	)
Investment Securities				5,280				(2,318	)			2,962
	Total Interest Income			10,735				(9,298	)			1,437
Interest Expense
NOW Accounts				238				(817	)			(579	)
Savings Accounts				274				(787	)			(513	)
Money Market Accounts				1,767				(3,186	)			(1,419	)
Certificates of Deposit				(292	)			(4,880	)			(5,172	)
FHLB Advances				1,756				(2,227	)			(471	)
Other Borrowings and Repurchase Agreements				438				(476	)			(38	)
	Total Interest Expense			4,181				(12,373	)			(8,192	)
Net Interest Income			$	6,554				3,075				9,629

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14)		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.

				For the Six months ended 6-30-02												For the year ended 12-31-01
								Interest				Average								Interest				Average
AVERAGE BALANCE SHEET				Average				and				Yield/				Average				and				Yield/
(Dollars in Thousands)				Balance				Dividends				Rate				Balance				Dividends				Rate
ASSETS
	Real Estate Loans			$	389,073				15,063				7.74	%		$	428,999				34,012				7.93	%
	Commercial Loans				627,319				23,081				7.42	%			556,907				48,292				8.67	%
	Consumer and Other Loans				290,026				11,499				8.00	%			292,732				25,528				8.72	%
		Total Loans			1,306,418				49,643				7.66	%			1,278,638				107,832				8.43	%
	Investment Securities				620,196				16,942				5.46	%			501,927				30,088				5.99	%
		Total Earning Assets			1,926,614				66,585				6.91	%			1,780,565				137,920				7.75	%
	Non-Earning Assets				167,809												165,687
		TOTAL ASSETS		$	2,094,423											$	1,946,252
LIABILITIES AND STOCKHOLDERS’ EQUITY
	NOW Accounts			$	204,046				399				0.39	%		$	183,399				1,758				0.96	%
	Savings Accounts				126,514				464				0.74	%			102,736				1,855				1.81	%
	Money Market Accounts				339,964				3,496				2.07	%			287,150				9,575				3.33	%
	Certificates of Deposit				511,466				9,756				3.85	%			552,469				29,504				5.34	%
	FHLB Advances				385,473				8,366				4.38	%			349,023				18,280				5.24	%
	Repurchase Agreements and Other Borrowed Funds				73,238				2,136				5.88	%			66,658				4,574				6.86	%
		Total Interest Bearing Liabilities			1,640,701				24,617				3.03	%			1,541,435				65,546				4.25	%
		Non-interest Bearing Deposits			236,299												216,238
		Other Liabilities			30,790												27,847
		Total Liabilities			1,907,790												1,785,520
	Common Stock				171												157
	Paid-In Capital				169,027												152,420
	Retained Earnings				14,178												5,929
	Accumulated Other Comprehensive Earnings				3,257												2,226
		Total Stockholders’ Equity			186,633												160,732
		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,094,423											$	1,946,252
	Net Interest Income							$	41,968											$	72,374
	Net Interest Spread												3.88	%											3.49	%
	Net Interest argin on average earning assets												4.36	%											4.06	%
	Return on Average Assets												1.41	%											1.11	%
	Return on Average Equity												15.78	%											13.49	%

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15)		Recently Issued Accounting Standards
		In July 2001, the Financial Accounting Standards Board (FASB) issued Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. However, goodwill recognized in connection with a branch acquisition will continue to be subject to provisions of Statement 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company adopted the provisions of Statement 141 immediately, and Statement 142 and 144 effective January 1, 2002.
		Statement 141 required upon adoption of Statement 142 that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. The Company was required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption (March 31, 2002). In addition, to the extent an intangible asset was identified as having an indefinite useful life, the Company was required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss would be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.
		In connection with the transitional goodwill impairment evaluation, Statement 142 required the Company to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. To accomplish this, the Company identified its reporting units and determined the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company had up to six months from the date of adoption (June 30, 2002) to determine the fair value of each reporting unit and compare it to the reporting unit’s carrying amount. To the extent a reporting unit’s carrying amount exceeded its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption (January 1, 2002). This second step, if necessary, is required to be completed as soon as possible, but no later than the end of the year of adoption (December 31, 2002). Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company’s consolidated statements of operations.
		As of June 30, 2002, the Company has identified its reporting units as its banking subsidiaries and has allocated goodwill accordingly. Intangibles with definite useful lives have been re-assessed and the useful lives and residual values were determined to be adequate. Intangibles with indefinite useful lives have been tested for impairment loss. The Company estimated the fair value of each reporting unit, and determined

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		that each unit’s fair value exceeds the carrying value of each reporting unit, and consequently no impairment is evident at this time. On an annual basis, prior to the end of the third quarter, the Company will revaluate the useful lives, residual value, and test goodwill for impairment, as required by Statement 142.
		The following table sets forth information regarding the Company’s core deposit intangibles, amortizable goodwill, and mortgage servicing rights:

			As of June 30, 2002
			Core Deposit				Amortizable				Mortgage
(Dollars in thousands)			Intangible				Goodwill				Servicing Rights(1)				Total
	Gross carrying value		$	9,836				20,489
	Accumulated Amortization			(2,295	)			(1,491	)
	Net carrying value		$	7,541				18,998				2,188				28,727
Weighted-Average amortization period (Period in years)				10.0				23.6				24.3				20.1
Aggregate Amortization Expense
	For the three months ended June 30, 2002		$	360				249				95				704
	For the six months ended June 30, 2002		$	721				498				186				1,405
Estimated Amortization Expense
	For the year ended December 31, 2002		$	1,439				995				300				2,734
	For the year ended December 31, 2003			1,219				995				286				2,500
	For the year ended December 31, 2004			1,011				995				272				2,278
	For the year ended December 31, 2005			847				995				258				2,100
	For the year ended December 31, 2006			779				995				244				2,018

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(1)

Gross carrying value and accumulated amortization are not readily available

At June 30, 2002, the Company’s goodwill totaled $32.692 million, of which $13.694 million represents goodwill that is no longer being amortized as of January 1, 2002 pursuant to Statement 142. The changes in the carrying amount of goodwill for the six months ended June 30, 2002 are as follows.

		Balance				Goodwill				Amortization				Balance
		At				Adjustments				for six months				At
(Dollars in thousands)		12/31/2001				2002(1)				ended 6/30/02				6/30/2002
Parent		$	2,151				—				—				2,151
Glacier Bank			4,074				9				(59	)			4,024
First Security			3,796				—				—				3,796
Western			4,193				(329	)			—				3,864
Mountain			16,818				—				(439	)			16,379
Big Sky			1,752				—				—				1,752
Valley			726				—				—				726
Whitefish			—				—				—				—
		$	33,510				(320	)			(498	)			32,692

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(1)

Adjustments are purchase accounting adjustments related to the WesterFed Financial Corporation acquisition on February 28, 2001.

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The following pro forma information presents the consolidated results of operations as if the adoption of Statement 142 had occurred on January 1, 2001. The table is for comparison purposes only:

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
(Dollars in thousands)		2002				2001				2002				2001
Reported net income		$	7,979				5,608				14,727				9,522
Add back goodwill amortization, net of tax			—				161				—				241
Adjusted net income		$	7,979				5,769				14,727				9,763

		For the Three Months Ended June 30,
		2002								2001
		Basic EPS				Diluted EPS				Basic EPS				Diluted EPS
Reported net income		$	0.47				0.46				0.34				0.33
Add back goodwill amortization, net of tax			—				—				0.01				0.01
Adjusted net income		$	0.47				0.46				0.35				0.34

		For the Six Months Ended June 30,
		2002								2001
		Basic EPS				Diluted EPS				Basic EPS				Diluted EPS
Reported net income		$	0.86				0.85				0.65				0.63
Add back goodwill amortization, net of tax			—				—				0.02				0.01
Adjusted net income		$	0.86				0.85				0.67				0.64

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 June 30, 2001 and December 31, 2001, to June 30, 2002.

Assets
($ in thousands)

																$ change from				$ change from
				June 30,				December 31,				June 30,				December 31,				June 30,
				2002				2001				2001				2001				2001
Cash on hand and in banks				$	59,812				73,456				69,446				(13,644	)			(9,634	)
Investment securities and interest bearing deposits					624,191				532,548				527,730				91,643				96,461
Loans:
	Real estate				372,318				421,996				484,959				(49,678	)			(112,641	)
	Commercial and Agricultural				650,749				620,134				590,021				30,615				60,728
	Consumer				292,639				298,851				317,289				(6,212	)			(24,650	)
		Total loans			1,315,706				1,340,981				1,392,269				(25,275	)			(76,563	)
	Allowance for loan losses				(19,941	)			(18,654	)			(18,465	)			(1,287	)			(1,476	)
		Total loans net of allowance for loan losses			1,295,765				1,322,327				1,373,804				(26,562	)			(78,039	)
Other assets					157,800				157,416				163,116				384				(5,316	)
	Total Assets			$	2,137,568				2,085,747				2,134,096				51,821				3,472

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At June 30, 2002 total assets were $2.138 billion which is nearly the same level as June 30, 2001 assets of $2.134 billion, and is an increase of $51.821 million from December 31, 2001.

Total loans, net of the reserve for loan losses, have decreased $78 million from June 30, 2001, with $26 million of the decrease occurring during the six months in 2002. With lower interest rates during the past year a large number of real estate loans have been refinanced, which coupled with our decision to sell the majority of the real estate loan production, has resulted in a reduction in real estate loans of $113 million, of which $50 million occurred in 2002. Commercial loans have increased $61 million, with approximately $30 million of the growth in 2002, and continue to be the lending focus. Consumer loans have declined $25 million with a significant portion of the decline attributed to the runoff in the WesterFed Financial Corporation dealer originated consumer loans. We have curtailed the origination and purchase of these loan types and are focusing on home-equity loans for the consumer loan portfolio.

Investment securities, excluding interest bearing deposits in other financial institutions, have increased $108 million. Much of the cash received from the reduction in real estate loans has been redeployed in mortgage related investment securities with characteristics that result in less interest rate risk than retaining 30 year loans.

The Company typically sells a majority of 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 increases in interest rates of holding long-term, fixed rate loans in the loan portfolio. The Company has also been active in generating commercial SBA loans. A portion of some of those loans are sold to other investors. The amount of loans sold and serviced for others on June 30, 2002 was approximately $265 million.

Liabilities
($ in thousands)

															$ change from				$ change from
			June 30,				December 31,				June 30,				December 31,				June 30,
			2002				2001				2001				2001				2001
Deposits — non-interest bearing			$	256,519				234,318				231,007				22,201				25,512
Deposits — interest bearing				1,175,893				1,211,746				1,212,343				(35,853	)			(36,450	)
Advances from Federal Home Loan Bank				406,603				367,295				416,222				39,308				(9,619	)
Other borrowed funds				43,201				33,645				42,221				9,556				980
Other liabilities				25,544				26,760				31,943				(1,216	)			(6,399	)
Trust preferred securities				35,000				35,000				35,000				—				—
	Total liabilities		$	1,942,760				1,908,764				1,968,736				33,996				(25,976	)

Total deposits have decreased $11 million from the June 30, 2001 balances, and are down $14 million from December 31, 2001. Non-interest bearing deposits are up $26 million, or 11 percent, and interest-bearing deposits are down $36 million, or 3 percent from June 30, 2001. The majority of the change in deposits has occurred since December 31, 2002. Much of the decline in interest-bearing deposits is the result of pricing strategies in the low interest rate environment. Federal home loan bank advances, other borrowed funds, and repurchase agreements, have also decreased $9 million. Other liabilities is comprised of accrued interest payable, current and deferred tax liability, merger related liabilities, and other miscellaneous liabilities. The decrease of $7 million, or 20 percent, of other liabilities is primarily the result of the decrease in accrued interest payable, which occurred due to a decrease in interest-bearing liabilities outstanding and a decrease in interest rates. In addition, merger related liabilities have been paid.

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.

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The subsidiaries source of funds is generated by deposits, principal and interest payments on loans, sale of loans and securities, short and long-term borrowings, and net income. In addition, all seven banking subsidiaries are members of the FHLB. As of June 30, 2002, the Company had $733 million of available FHLB line of which $407 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 2002, all seven financial institutions maintained liquidity levels in excess of regulatory requirements and operational needs.

Stockholders’ equity
($ in thousands except per share data)

															$ change from				$ change from
			June 30,				December 31,				June 30,				December 31,				June 30,
			2002				2001				2001				2001				2001
Common equity			$	187,992				175,227				163,301				12,765				24,691
Net unrealized gain on securities				6,816				1,756				2,059				5,060				4,757
	Total stockholders’ equity		$	194,808				176,983				165,360				17,825				29,448
Stockholders’ equity to total assets				9.11	%			8.49	%			7.75	%
Tangible equity to total assets				7.37	%			6.62	%			5.78	%
Book value per common share			$	11.34				10.49				9.95				0.85				1.39
Tangible book value per common share			$	9.00				8.01				7.27				0.99				1.73

Each of the equity ratios and book value per share amounts have increased substantially from the prior year and December 31, 2001, primarily the result of earnings retention, stock options exercised, and net unrealized gains on securities. Our equity to asset ratio is near historic highs for the Company. The increase in net unrealized gains on securities is a result of the overall market performance.

Credit quality information ($ in thousands)

		June 30,				March 31,				December 31,				June 30,
		2002				2002				2001				2001
Allowance for loan losses		$	19,941				19,498				18,654				18,465
Non-performing assets		$	9,214				12,766				11,262				11,918
Allowance as a percentage of non performing assets			216.42	%			152.73	%			165.64	%			154.93	%
Non-performing assets as a percentage of total assets			0.43	%			0.61	%			0.53	%			0.55	%
Allowance as a percentage of total loans			1.52	%			1.50	%			1.39	%			1.32	%

Allowance for Loan Loss and Non-Performing Assets

Non-performing assets as a percentage of total assets at June 30, 2002 were .43 percent versus .55 percent at the same time last year, which compares to the Peer Group average of .62 percent at March 31, 2002, the most recent information available. The allowance for loan losses was 216 percent of non-performing assets at June 30, 2002, up from 155 percent a year ago.

With the continuing change in loan mix from residential real estate to commercial and consumer loans, which historically have greater credit risk, the Company has increased the balance in the allowance for loan losses account. The allowance balance has increased $1.476 million, or 8 percent, to $19.941 million. Allowance as a percentage of total loans is 1.52 percent, up from 1.32 percent a year ago and 1.39 percent at December 31, 2001. The provision for loan losses was $2.560 million which is an increase of $137 thousand over the first six months in 2001. Net charged off loans as a percentage of loans outstanding were .097 for the first six months of 2002 which is up from .046 during the same period in 2001. The 2002 charge off rate is about the same level as the charge off rate of .20 for the full 2001 year.

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Results of Operations — The three months ended June 30, 2002 compared to the three months ended June 30, 2001.

Revenue summary
($ in thousands)

				Three months ended June 30,
				2002				2001				$ change				% change
Net interest income				$	21,601				19,237				2,364				12.3	%
Fees and other revenue:
	Service charges, loan fees, and other fees				4,625				4,619				6				0.1	%
	Gain on sale of loans				1,175				943				232				24.6	%
	Other income				534				938				(404	)			-43.1	%
		Total non-interest income			6,334				6,500				(166	)			-2.6	%
	Total revenue			$	27,935				25,737				2,198				8.5	%
Net interest margin					4.57	%			3.97	%

Net Interest Income

Net interest income for the quarter increased $2.364 million, or 12 percent, over the same period in 2001. Total interest income is $5.266 million, or 14 percent lower than the same quarter in 2001, while total interest expense is $7.630 million, or 39 percent lower. The increase in non-interest bearing deposits and the decrease in interest bearing deposits contributed to the reduced interest expense. Lower interest rates in 2002 have also reduced interest income and interest expense. The net interest margin as a percentage of earning assets, on a tax equivalent basis, increased from 4.0 percent for the 2001 quarter to 4.6 percent in the quarter ended June 30, 2002. The ratio also is an increase from the 4.4 percent for the quarter ended March 31, 2002.

Non-interest Income

Fee income from operations was approximately the same amount in the second quarter of 2002 as in 2001. Gain on sale of loans increased $232 thousand, or 25 percent, resulting from increased real estate loan originations. Included in other income in 2001 was a $511 thousand gain-on-sale of the Glacier Bank Cut Bank branch office, as a result other income was $404 thousand lower in the second quarter of 2002.

Non-interest expense summary
($ in thousands)

			Three months ended June 30,
			2002				2001				$ change				% change
Compensation and employee benefits			$	7,533				6,908				625				9.0	%
Occupancy and equipment expense				2,324				2,531				(207	)			-8.2	%
Outsourced data processing expense				515				976				(461	)			-47.2	%
Core deposit intangible amortization				360				406				(46	)			-11.3	%
Goodwill amortization(a)				249				513				(264	)			-51.5	%
Other expenses				3,610				3,882				(272	)			-7.0	%
	Total non-interest expense		$	14,591				15,216				(625	)			-4.1	%

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(a)

2001 amortization would have been $254 thousand if current accounting rules for goodwill amortization had been in place. See footnote 15 for additional information.

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Non-interest Expense

Non-interest expense decreased by $625 thousand, or 4 percent, from the same quarter of 2001. However, 2001 includes $480 thousand in merger and conversion expense, so non-interest expense from operations is at a similar level as last year. During the third quarter of 2001 the data processing functions for Western Security Bank were converted to our in-house system. This has reduced the outsourced data processing costs and increased compensation and benefits expense. Compensation and benefit expense has increased $625 thousand, or 9 percent from the second quarter of 2001. Intangible asset amortization in the form of core deposit and goodwill was $360 thousand and $249 thousand, respectively, which is a decrease of $310 thousand from the prior year, primarily the result of the adoption of Statement of Financial Accounting Standard 142, see footnote 15 for further information. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 52 percent for the second 2002 quarter which is an improvement over the 59 percent for the second quarter in 2001.

Results of Operations — The six months ended June 30, 2002 compared to the six months ended June 30, 2001.

Revenue summary
($ in thousands)

				Six months ended June 30,
				2002				2001				$ change				% change
Net interest income				$	41,968				32,339				9,629				29.8	%
Fees and other revenue:
	Service charges, loan fees, and other fees				8,631				7,755				876				11.3	%
	Gain on sale of loans				2,272				1,410				862				61.1	%
	Other income				1,280				1,462				(182	)			-12.4	%
		Total non-interest income			12,183				10,627				1,556				14.6	%
	Total revenue			$	54,151				42,966				11,185				26.0	%
	Net interest margin				4.48	%			4.01	%

Net Interest Income

Net interest income for the six months was $41.968 million, an increase of $9.629 million, or 30 percent over the same six months of 2001. The WesterFed acquisition on February 28, 2001, and the Idaho and Utah branch acquisitions in March 2001 are the primary reasons for the increase. Interest income has increased $1.437 million, or 2 percent, while interest expense has declined $8.192 million, or 25 percent. The increase in non-interest bearing deposits and decrease in interest bearing deposits, and significant reductions in rates paid on deposits and borrowed funds, are the primary reasons for the decreased interest expense. As a percentage of earning assets, on a tax equivalent basis, the year-to-date interest margin has improved from 4.0 percent to 4.5 percent.

Non-interest Income

Fee income increased $876 thousand, or 11 percent, primarily the result of the acquisition in the later part of the first quarter in 2001. Gain on sale of loans increased $862 thousand, or 61 percent, resulting from increased loan originations. Mortgage interest rates have been very attractive to consumers during the past year. Included in other income in 2001 was a $511 thousand gain-on-sale of the Glacier Bank Cut Bank branch office, as a result other income was $182 thousand lower this year.

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Non-interest expense summary
($ in thousands)

			Six months ended June 30,
			2002				2001				$ change				% change
Compensation and employee benefits			$	15,315				12,165				3,150				25.9	%
Occupancy and equipment expense				4,625				3,990				635				15.9	%
Outsourced data processing expense				961				1,237				(276	)			-22.3	%
Core deposit intangible amortization				721				574				147				25.6	%
Goodwill amortization(a)				498				737				(239	)			-32.4	%
Other expenses				7,085				7,028				57				0.8	%
	Total non-interest expense		$	29,205				25,731				3,474				13.5	%

---

(a)

2001 amortization would have been $351 thousand if current accounting rules for goodwill amortization had been in place. See footnote 15 for additional information.

Non-interest Expense

Non-interest expense increased $3.474 million, or 14 percent, over 2001. However, 2001 also includes $886 thousand in merger and conversion expense, so non-interest expense from operations has increased $4.360 million over last year. The 2001 acquisitions are much of the reason for this increase. During the third quarter of 2001 the data processing functions for Western Security Bank were converted to the in-house system. This has reduced the outsourced data processing costs and increased compensation and benefits expense. Intangible asset amortization in the form of core deposit and goodwill was $721 thousand and $498 thousand, respectively, which is an increase of $147 thousand in core deposit amortization, and a decrease of $239 thousand in goodwill amortization, primarily the result of the adoption of Statement of Financial Accounting Standard 142, see footnote 15 for additional information. The efficiency ratio in 2002 is 54 percent which is an improvement over the 60 percent ratio in 2001.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

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

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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, 2001, the most recent information available, as compared to the 10% Board approved policy limit (dollars in thousands). There have been no significant changes in operation or the market that would materially affect the estimated sensitivity. The table illustrates the estimated change in net interest income over a twelve month period based on the six months activity ended June 30, 2002.

Interest Rate Sensitivity		+200 bp				-200 bp
Estimated sensitivity			-3.20	%			0.77	%
Estimated increase (decrease) in net interest income		$	(2,686	)			646

The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of assets and liability cashflows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates.

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

At the April 24, 2002 annual meeting of shareholders held in Kalispell, Montana, three proposals were voted on. The first proposal was for the election of directors, the second was the for the approval of an amendment to the 1995 employee stock option plan that would increase the number of shares available by 1,000,000 to an aggregate of 2,107,779 shares, and the third was for the approval of an amendment to the 1994 directors’ stock option plan that would increase the number of shares available by 500,000 to an aggregate of 690,750 shares. Following is a tabulation of the results:

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Proposal One — Election of Directors

Name		For				Abstain/Against
Michael J. Blodnick			13,783,065				965,559
Allen J. Fetscher			14,341,255				407,369
Fred J. Flanders			14,391,885				356,739
Jon W. Hippler			14,507,894				240,630

Proposal Two — Amendment to the 1995 employee stock option plan

For		Against				Abstain
9,254,570			1,040,628				124,349

Proposal Three — Amendment to the 1994 director stock option plan

For		Against				Abstain
9,254,107			996,872				168,568

Item 5. Other Information

     None

Item 6. Exhibits and Reports on Form 8-K.

	(a)		Exhibits
			Exhibit 99 — Certification of Chief Executive Officer and Chief Financial Officer
	(b)		Current Report on Form 8-K None

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.
August 12, 2002		By:		/s/ Michael J. Blodnick
				Michael J. Blodnick President/CEO
August 12, 2002		By:		/s/ James H. Strosahl
				James H. Strosahl Executive Vice President/CFO

26

 

Exhibit 99

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Glacier Bancorp, Inc. (the “Company”) on form 10-Q for the period ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Michael J. Blodnick, President and Chief Executive Officer, and James H. Strosahl, Executive Vice President and Chief Financial Officer, of Glacier Bancorp, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 12, 2002

		/s/ Michael J. Blodnick
		Michael J. Blodnick President/CEO
		/s/ James H. Strosahl
		James H. Strosahl Executive Vice President/CFO