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1 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, 1997 [ ] 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 81-0468393 - -------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer) of incorporation or organization) (Identification No.) P.O. Box 27; 202 Main Street, Kalispell, Montana 59903-0027 - -------------------------------------------------------------------------------- (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 July 25, 1997, was 6,812,017. No preferred shares are issued or outstanding.
2 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, 1997, December 31, and June 30, 1996..................3 Consolidated Statements of Operations - Three and six months ended June 30, 1997 and 1996..............4 Consolidated Statements of Cash Flows - Six months ended June 30, 1997 and 1996........................5 Notes to Consolidated Financial Statements.....................6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations .............11 PART II. OTHER INFORMATION ....................................................15 SIGNATURES ...........................................................15 2
3 GLACIER BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited - dollars in thousands except per share data) June 30, December 31, June 30, 1997 1996 1996 -------- -------- -------- Assets: Cash on hand and in banks ................................. 28,786 24,666 22,130 Federal funds sold ........................................ 235 1,483 710 Interest bearing cash deposits ............................ 365 1,000 860 -------- -------- -------- Cash and cash equivalents ........................... 29,386 27,149 23,700 -------- -------- -------- Investments: Investment securities, held-to-maturity ............. 15,394 16,410 18,020 Investment securities, available-for-sale ........... 37,875 42,989 39,191 Mortgaged backed securities, held-to-maturity ....... 3,317 4,045 3,724 Mortgaged backed securities, available-for-sale ..... 48,159 42,061 40,046 -------- -------- -------- Total Investments .............................. 104,745 105,505 100,981 -------- -------- -------- Net loans receivable: Real estate loans ................................... 201,893 198,607 194,770 Commercial Loans .................................... 110,813 100,070 92,223 Installment and other loans ......................... 96,128 91,248 86,791 Allowance for losses ................................ (3,469) (3,284) (3,111) -------- -------- -------- Total Loans, net ............................... 405,365 386,641 370,673 -------- -------- -------- Premises and equipment, net ............................... 11,614 11,292 10,470 Real estate and other assets owned ........................ 142 410 36 Federal Home Loan Bank of Seattle stock, at cost .......... 9,879 8,586 8,038 Federal Reserve stock, at cost ............................ 340 340 280 Accrued interest receivable ............................... 3,840 3,473 3,530 Goodwill, net ............................................. 1,442 1,526 1,610 Other assets .............................................. 857 1,070 728 -------- -------- -------- 567,610 545,992 520,046 ======== ======== ======== Liabilities and stockholders' equity: Deposits - interest bearing ............................... 264,717 257,409 248,004 Deposits - non-interest bearing ........................... 65,275 64,330 59,449 Advances from Federal Home Loan Bank of Seattle ........... 136,237 143,289 120,892 Securities sold under agreements to repurchase ............ 20,667 9,791 21,779 Other borrowed funds ...................................... 12,001 5,202 10,548 Accrued interest payable .................................. 1,506 799 1,478 Advance payments by borrowers for taxes and insurance ..... 1,125 940 1,113 Current income taxes ...................................... 132 0 333 Deferred income taxes ..................................... 1,658 1,446 923 Other liabilities ......................................... 8,550 10,409 6,453 Minority Interest ......................................... 458 429 391 -------- -------- -------- Total liabilities ................................... 512,326 494,044 471,363 -------- -------- -------- Common stock, $.01 par value per share, 12,500,000 shares authorized (1) .................... 69 46 45 Paid-in capital ........................................... 34,663 34,571 27,087 Retained earnings - substantially restricted .............. 21,197 18,392 23,273 Treasury stock at cost (2) ................................ (1,066) (1,066) (1,066) Net unrealized gain (loss) on securities available-for-sale 421 5 (656) -------- -------- -------- Total stockholders' equity .......................... 55,284 51,948 48,683 -------- -------- -------- 567,610 545,992 520,046 ======== ======== ======== Book value per share ................................ 8.12 7.65 7.27 ======== ======== ======== (1) Number of shares outstanding adjusted for three for two stock split in 1997. (1) Total sharese outstanding at end period 6,811,517 6,793,664 6,693,713 (2) Treasury Shares 85,890 85,890 85,890
4 GLACIER BANCORP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended Six months ended June 30, June 30, June 30, June 30, 1997 1996 1997 1996 -------- -------- -------- -------- INTEREST INCOME: Real estate loans......................... $ 4,057 3,944 8,056 7,848 Commercial loans.......................... 2,619 2,133 4,995 4,312 Consumer and other loans.................. 2,321 2,082 4,533 3,954 Mortgage backed securities................ 935 821 1,764 1,550 Investments............................... 1,053 1,159 2,148 2,300 -------- -------- -------- -------- Total interest income............... 10,985 10,139 21,496 19,964 -------- -------- -------- -------- INTEREST EXPENSE: Deposits.................................. 2,754 2,505 5,444 4,978 Advances.................................. 1,896 1,764 3,846 3,530 Repurchase agreements .................... 280 212 428 428 Other borrowed funds ..................... 56 51 106 57 -------- -------- -------- -------- Total interest expense.............. 4,986 4,532 9,824 8,993 -------- -------- -------- -------- Net interest income ...................... 5,999 5,607 11,672 10,971 Provision for loan losses ................ 209 116 372 215 -------- -------- -------- -------- Net interest income after provision for loan losses ........................ 5,790 5,491 11,300 10,756 -------- -------- -------- -------- NON-INTEREST INCOME: Loan fees and service charges ............ 1,825 1,778 3,522 3,432 Gains (Losses) on sale of investments..... 0 0 0 0 Other income.............................. 184 277 365 535 -------- -------- -------- -------- Total fees and other income ......... 2,009 2,055 3,887 3,967 -------- -------- -------- -------- Compensation, employee benefits and related expenses............... 2,262 2,110 4,541 4,148 Occupancy expense ........................ 460 421 937 785 Data processing expense .................. 200 141 385 278 Other expenses............................ 1,241 1,231 2,536 2,493 Minority interest......................... 18 17 31 36 -------- -------- -------- -------- Total non-interest expense........... 4,181 3,920 8,430 7,740 -------- -------- -------- -------- 3,618 3,626 6,757 6,983 1,326 1,425 2,479 2,754 -------- -------- -------- -------- $ 2,292 2,201 4,278 4,229 ======== ======== ======== ======== Earnings per common shares(1) ........... $ 0.34 0.33 0.63 0.63 Dividends declared per common share(1) .. 0.12 0.11 0.23 0.21 Return on average assets (annualized) ... 1.64% 1.71% 1.54% 1.67% Return on beginning equity (annualized) . 17.36% 18.34% 16.47% 18.07% Weighted average shares outstanding(1) .. 6,802,626 6,687,242 6,799,459 6,689,424 - ------------ (1) Adjusted for three for two stock split in 1997 4
5 GLACIER BANCORP, INC. Consolidated Statements of Cash Flows Six months ended June 30, (dollars in thousands) 1997 1996 ------- ------- OPERATING ACTIVITIES : Net Earnings ....................................................... 4,278 4,229 Adjustments to reconcile Net Earnings to Net Cash Provided by Operating Activities: Provision for loan losses ........................................ 372 215 Depreciation of premises and equipment ........................... 422 371 Amortization of goodwill ......................................... 84 84 Loss (gain) on sale of investments ............................... 0 0 Amortization of investment securities premiums and discounts, net 72 79 Net decrease in deferred income taxes ............................ (61) (138) Net increase in interest receivable .............................. (367) (177) Net increase in interest payable ................................. 707 811 Net increase (decrease) in current income taxes .................. 132 (211) Net decrease in other assets ..................................... 213 76 Net decrease in other liabilities and minority interest .......... (1,830) (573) FHLB stock dividends ............................................. (322) (279) ------- ------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES .............. 3,700 4,487 ------- ------- INVESTING ACTIVITIES: Proceeds from sales, maturities and prepayments of investment securities available-for-sale .................................. 12,458 16,551 Purchases of investment securities available-for-sale .............. (12,825) (28,529) Proceeds from maturities and prepayments of investment securities held-to-maturity .................................... 1,744 488 Purchases of investment securities held-to-maturity ................ 0 (995) Principal collected on installment and commercial loans ............ 42,753 42,039 Installment and commercial loans originated or acquired ............ (61,679) (65,040) Proceeds from sales of commercial loans ............................ 3,116 6,997. Principal collections on mortgage loans ............................ 14,924 20,080 Mortgage loans originated or acquired .............................. (47,049) (60,703) Proceeds from sales of mortgage loans .............................. 28,839 39,002 Net proceeds from sales of real estate owned ....................... 268 16 Net purchase of FHLB and FRB stock ................................. (971) (404) Net addition of premises and equipment ............................. (744) (544) Acquisition of minority interest ................................... 0 (109) ------- ------- NET CASH USED BY INVESTING ACTIVITIES ......................... (19,166) (31,151) ------- ------- FINANCING ACTIVITIES: Net increase in deposits ........................................... 8,253 15,868 Net increase (decrease) in FHLB advances and other borrowed funds .. (253) 9,226 Net increase in advance payments from borrowers for taxes and insurance .................................................... 185 41 Net increase in securities sold under repurchase agreements ........ 10,876 974 Cash dividends paid to stockholders ................................ (1,543) (1,034) Treasury stock purchased ........................................... 0 (192) Proceeds from exercise of stock options and additional shares issued 185 152 ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES ...................... 17,703 25,035 ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS ...................... 2,237 (1,629) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 27,149 25,329 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... 29,386 23,700 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest............ 9,117 8,182 Income taxes........ 2,347 2,965 5
6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS: 1) Basis of Presentation: In the opinion of Management, the accompanying unaudited consolidated statements contain all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of Glacier Bancorp Inc's (the "Company") Financial Condition as of June 30, 1997, December 31, and June 30, 1996 and the Results of Operations for the six and three months ended June 30, 1997 and 1996 and the Statements of Cash Flows for the six months ended June 30, 1997 and 1996. The First Security Bank of Missoula was acquired on December 31, 1996 through an exchange of stock with Missoula Bancshares, Inc. formerly the parent company of First Security Bank. The pooling of interest accounting method is being used for this merger transaction. Under this method, financial information for each of the periods presented include the combined companies as though the merger had occurred prior to the earliest date presented. 2) Organizational Structure: The Company is the parent company for five subsidiaries: Glacier Bank (the "Savings Bank"); Glacier National Bank (formerly the First National Bank of Whitefish) ("Whitefish"); First National Bank of Eureka ("Eureka"); First Security Bank of Missoula (Missoula) and Community First, Inc. (CFI). At June 30, 1997, the Company owned 100% of the Savings Bank, Missoula and CFI; 94% of Whitefish and 93% of Eureka. CFI provides full service brokerage services through INVEST Financial Services. The following abbreviated organizational chart illustrates the various relationships: Glacier Bancorp, Inc. (Parent Holding Company) Glacier First Security Bank Bank OF Missoula (Savings Bank) (Commercial bank) Community First Glacier National Bank Inc, of Whitefish (Brokerage services) (Commercial bank) First National Bank of Eureka (Commercial bank) 6
7 3) Stock Split: The company completed a three-for-two stock split May 23, 1997. As a result, all per share amounts from time periods preceding this date have been restated to illustrate the effect of the stock split. Any fractional shares were paid in cash. 4) Computation of Earnings Per Share: Earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the period presented. Stock options are considered common stock equivalents, but are excluded from earnings per share computations due to immateriality. 5) Ratios: Return on Average Assets (ROAA) was calculated based on the average of the total assets for the period. Return on Beginning Equity (ROBE) was calculated based on the Shareholders' Equity (Capital) at the beginning of each period presented. 6) Cash Dividend Declared: On June 25, 1997, the Board of Directors declared a $.12 per share quarterly cash dividend to stockholders of record on July 11, 1997, payable on July 25, 1997. 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 JUNE 30, 1997 Amortized Gross Unrealized Estimated ---------------- (dollars in thousands) Cost Gains Losses Fair Value -------- ----- ------ ---------- HELD TO MATURITY: U.S. Government and Federal Agencies ... $11,972 11 (26) 11,957 State, Local Government and other issues 3,367 81 (1) 3,447 Mortgage-backed securities ............. 3,372 1 (21) 3,352 ------- --- ---- ------- TOTAL HELD TO MATURITY SECURITIES . $18,711 93 (48) 18,756 ======= === ==== ======= AVAILABLE FOR SALE: U.S. Government and Federal Agencies ... $18,127 49 (120) 18,056 State, Local Government and other issues 19,475 465 (43) 19,897 Mortgage-backed securities ............. 22,852 524 (121) 23,255 Real Estate Mortgage Investment Conduit 24,897 109 (180) 24,826 ------- ----- ---- ------- TOTAL AVAILABLE FOR SALE SECURITIES $85,351 1,147 (464) 86,034 ======= ===== ==== ======= 7
8 Investment Securities as of December 31, 1996 Amortized Gross Unrealized Estimated ---------------- (dollars in thousands) Cost Gains Losses Fair Value ------- --- ---- ------ HELD TO MATURITY: U.S. Government and Federal Agencies ... $12,971 16 (81) 12,906 State, Local Government and other issues 3,439 77 (1) 3,515 Mortgage-backed securities ............. 4,045 2 (32) 4,015 ------- --- ---- ------ TOTAL HELD TO MATURITY SECURITIES . $20,455 95 (114) 20,436 ======= === ==== ====== AVAILABLE FOR SALE: U.S. Government and Federal Agencies ... $27,480 50 (205) 27,325 State, Local Government and other issues 15,573 130 (39) 15,664 Mortgage-backed securities ............. 24,319 534 (164) 24,689 Real Estate Mortgage Investment Conduit 17,684 0 (312) 17,372 ------- --- ---- ------ TOTAL AVAILABLE FOR SALE SECURITIES $85,056 714 (720) 85,050 ======= === ==== ====== 8) Consolidated Statements of Cash Flows: Cash equivalents include demand deposits at other financial institutions and short term certificates of deposit. 9) Regulatory Capital Requirements - 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 Boards capital adequacy guidelines and the Company's compliance with those guidelines as of June 30, 1997. Tier I Tier II (Core) Capital (Total) Capital Leverage Capital ------------------ ----------------- --------------------- (dollars in thousands) $ % $ % $ % ------ ------- ------ ----- ------ ------ GAAP Capital . . . . . . . . . . . . . . . 55,284 55,284 55,284 Goodwill . . . . . . . . . . . . . . . . . (1,442) (1,442) (1,442) Net unrealized gains on securities available-for-sale . . . . . . . . . (421) (421) (421) Allowance for loan losses . . . . . . . . -- 3,469 -- ------ ------ ------ ----- Regulatory capital computed. . . . . . . 53,421 56,890 53,421 ====== ====== ====== ===== Capital as % of assets. . . . . . . . . . 15.99% 16.85% 9.78% Regulatory "well capitalized" requirement 6.00% 10.00% 5.00% ------ ------ ----- Excess over "well capitalized" requirement 9.99% 6.85% 4.78% ====== ====== ===== Interest-Rate-Risk ("IRR") Component FDICIA requires each federal banking agency to revise its risk-based capital standards to ensure that they take adequate account of IRR, concentration of credit risk and the risks of nontraditional activities, as well as reflect the actual performance and expected risk of loss on multi-family residential loans. Since January of 1994, the OTS has included an IRR component to its risk-based capital standards. An association's measured IRR is the change that occurs in its Net Portfolio Value ("NPV") as a result of a 200 basis point increase or decrease in interest rates (whichever leads to the lower NPV) divided by the estimated economic value (present value) of its assets; NPV equals the present value of expected cash inflows from existing assets less the present value 8
9 of expected cash outflows from existing liabilities, plus the present value of net expected cash inflows from existing off-balance sheet contracts. A normal level of IRR is less than 2%. Only institutions whose measured IRR exceeds 2% must maintain an IRR component. An association must maintain capital of at least 8% of risk- weighted assets after the IRR component is deducted. In August of 1995, the Agencies adopted a joint final rule to revise their risk-based capital standards to ensure that they take adequate account of interest rate risk. As of September 1, 1995, when evaluating the capital adequacy of a bank, examiners from the Agencies consider exposure to declines in the economic value of the bank's capital due to changes in interest rates. A bank may be required to hold additional capital for IRR if it has significant exposure or a weak interest rate risk management process. Concurrent with the publication of this final rule, the Agencies proposed for comment a joint policy statement describing the process they will use to measure and assess a bank's interest rate risk. This joint policy statement was superseded by an updated Joint Policy Statement in June of 1996. Any impact the joint final rule and Joint Policy Statement may have on the National Banks or the State Bank cannot be predicted at this time. In addition, the Agencies published a joint final rule on September 6, 1996, amending their respective risk- based capital standards to incorporate a measure for market risk to cover all positions located in an institution's trading account and foreign exchange and commodity positions wherever located. This final rule took effect on January 1, 1997 and implements an amendment to the BASLE Capital Accord that sets forth a supervisory framework for measuring market risk. The final rule effectively requires banks and bank holding companies with significant exposure to market risk to measure that risk using their own internal value-at-risk model, subject to the parameters of the final rule, and to hold a sufficient amount of capital to support the institution's risk exposure. Qualified Thrift Lender - In order to avoid certain restrictions on their operations, all savings associations are required to meet a Qualified Thrift Lender ("QTL") test. The regulations require that institutions maintain a percentage of qualifying lending activity of at least 65% as measured monthly. The Savings Bank reported on its June 30, 1997 Thrift Financial Report QTL ratios of 76%, 75%, and 74% for April, May, and June 1997. Whitefish, Eureka and Missoula do not have a similar requirement. Accounting for Transfers of Assets and Extinguishments of Liabilities In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (the "Statement"). This Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings, and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This Statement amends SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," to clarify that a debt security may not be classified as held-to-maturity if it can be prepaid or otherwise settled in such a way that the holder of the security would not recover substantially all of its recorded investment. 9
10 This Statement also rescinded all previous guidance regarding the accounting for mortgage servicing rights and provides guidance for the capitalization of originated as well as purchased mortgage servicing rights and the measurement of impairment of those rights. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. Earlier or retroactive application is not permitted. The Company adopted the provisions of SFAS No. 125 as of January 1, 1997. During the quarter ended June 30, 1997, $48,737 in servicing assets were recognized and $11,782 amortized. Year-to-date assets of $116,402, and amortization of $23,267 was recorded. The estimated fair value of the servicing assets was $712,000 at June 30, 1997 with a book value of $514,652. There was no activity or balance in the valuation allowance for impairment of recognized servicing assets during 1997. The fair value of the servicing assets was determined by stratification of the associated loan balances by rate, applying prepayment assumptions to each stratified group, and calculating a present value of resulting expected cash flows. Earnings Per Share In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share" (the "Statement"). The Statement applies to entities with publicly held common stock or potential common stock and is effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 replaces APB Opinion 15, "Earnings Per Share." Opinion 15 required that entities with simple capital structures present a single "earnings per common share" on the face of the income statement, whereas those with complex capital structures had to present both "primary" and "fully diluted" earnings per share ("EPS"). Primary EPS shows the amount of income attributed to each share of common stock if every common stock equivalent were converted into common stock. Fully diluted EPS considers common stock equivalents and all other securities that could be converted into common stock. SFAS No. 128 simplifies the computation of EPS by replacing the presentation of primary EPS with a presentation of basic EPS. The Statement requires dual presentation of basic and diluted EPS by entities with complex capital structures. Basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted EPS. The Company has a simple capital structure, therefore minimal impact from SFAS No. 128 is expected. Disclosure of Information About Capital Structure In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information About Capital Structure" (the "Statement"). The Statement applies to all entities and is effective for financial statements issued for periods ending after December 15, 1997. Statement No. 129 consolidates existing disclosure requirements. 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, 1996 to June 30, 1997. At June 30, 1997, total consolidated assets increased by $21,618,000, or 3.96%, over the December 31, 1996 level. This increase was primarily in loan growth of $18,724,000, an increase of 4.84%. Real Estate loans increased $3.3 million during the period, while commercial loans increased $10.8 million and Consumer loans increased $4.9 million. Loans sold to the secondary market amounted to $32.0 million and $46.0 million during the first six months of 1997 and 1996, respectively. The amount of loans serviced for others on June 30, 1997 was $114.4 million. Total deposits increased nearly $8.3 million, with the increase occurring in interest bearing deposits. Advances from the Federal Home Loan Bank ("FHLB") decreased $7.0 million while securities sold under repurchase agreements and other borrowed funds increased $10.9 million, and $6.8 million respectively. The OTS' minimum average liquidity requirement for the Savings Bank is 5.0%. For the three months ended June 30, 1997, the Savings Bank's liquidity percentage averaged 6.9%. The Savings Bank's principal source of funds are generated by deposits, payments on loans and securities, short and long term borrowings and net income. If there should ever be insufficient funds derived from these areas, the Savings Bank may borrow additional amounts from the FHLB, subject to regulatory limits. All four institutions are members of the FHLB at June 30, 1997. 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 June 30, 1997: Available line Amount used Available -------------- ----------- --------- The Savings Bank 144,245,000 100,266,000 43,979,000 Whitefish 8,430,000 6,675,000 1,755,000 Eureka 6,428,000 3,253,000 3,175,000 Missoula 13,689,000 6,522,000 7,167,000 Classified Assets and Reserves Non-performing assets, consisting of non-accrual loans, accruing loans 90 days or more overdue, and real estate and other assets acquired by foreclosure or deed-in-lieu thereof, net of related reserves, amounted to $1.5 million or .27% of total assets at June 30, 1997, as compared to $1.6 million, or .29% of total assets, at December 31, 1996. Non-performing assets continue to remain at a relatively low level. 11
12 June 30, 1997 December 31, 1996 --------------- ----------------- Total Reserves for Loan and Real Estate Owned losses: $3.5 million $3.3 million Reserves as a percentage of Total Loans: .86% .85% Reserves as a percentage of Non-performing Assets: 230% 204% Impaired Loans As of June 30, 1997, there were no loans considered impaired as measured under SFAS No. 114 criterion. 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 per 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. The Company has extended an offer to each minority stockholder notifying them that the Company would buy their shares at the current book value. As of June 30, 1997, the Company owns 46,900 shares of Whitefish and 46,389 shares of Eureka. The Company's ownership of Whitefish and Eureka is 94% and 93%, respectively. Results of Operations - The six months ended 6/30/97 compared to the six months ended 6/30/96. The following discussion pertains to the consolidated income for the Company. Net income of $4.278 million for the first six months of 1997 was an increase of $49,000, or 1.2 percent over the $4.229 million in the same period in 1996. Earnings per share were $.63 for each of the six month periods. Return on average assets was 1.54 percent and 1.67 percent for 1997 and 1996, respectively, while the return on beginning equity was 16.47 percent and 18.07 percent for the same periods. Increased earnings from the net interest margin were somewhat offset by an increased provision for possible loans losses, and increased expenses from new branches. Loan Loss Provision The provision for loan losses was $372,000, up from $215,000 during the same period in 1996, reflecting the increase in loans and losses experienced. As discussed above the level of non-performing assets remains at a relatively low level. Net Interest Income Net interest income for the six months was $11.672 million, an increase of $701,000, or 6.39 percent, over 1996. More net earning assets, as discussed above, was the primary reason for this increase. The Company's net interest income is determined by its interest rate spread (i.e., the difference between the yields earned on its earning assets, and the rates paid on its interest-bearing liabilities) and the relative amounts of earning assets and interest-bearing liabilities. The following table sets forth information concerning the Company's interest rate spread at June 30, 1997 and 1996: 12
13 INTEREST RATE SPREAD One way to protect against interest rate volatility is to maintain a comfortable interest spread between yields on assets and the rates paid on interest bearing liabilities. As shown below, our net interest margin decreased in 1997 from 4.62% to 4.56%, the result of higher interest rates on deposits and borrowings, a greater percentage of assets funded with interest bearing liabilities, and slightly lower rates on earning assets. Although the interest spread, and net interest margin are down from 1996, increased asset levels resulted in significantly higher net interest income. June 30, [1] ------------------- FOR THE SIX MONTHS ENDED: 1997 1996 ------ ----- Combined weighted average yield on loans and investments [2].........................................8.45% 8.46% Combined weighted average rate paid on savings deposits and borrowings...............................4.68% 4.58% Net interest spread..................................................................................3.77% 3.88% Net interest margin [3]..............................................................................4.56% 4.62% [1] Weighted averages are computed without the effect of compounding daily interest. [2] Includes dividends received on capital stock of the Federal Home Loan Bank. [3] The net interest margin (net yield on average interest earning assets) is interest income from loans and investments less interest expense from deposits, FHLB advances, and other borrowings, divided by the total amount of earning assets. Non-Interest Income Non-interest income decreased $80,000, or 2.0 percent from 1996. Loan fees and service charges on deposit accounts were up $90,000 while other income decreased by $170,000, primarily from a reduction in commissions on insurance sales, and a non-recurring $70,000 recovery in 1996. Non-Interest Expense Non-interest expense increased by $690,000, or 8.9 percent, with the largest portion of the increase in compensation and employee benefits, which increased $393,000, or 9.5 percent. Data processing expenses increased $107,000, the result of increased volumes of loan and deposit accounts. Occupancy expense was also up substantially, $152,000, or 19.4%. Opening of the new branches, volume related increases, plus other normal increases resulted in these higher expenses. Income Taxes The effective tax rate was reduced from 39.4 percent in 1996 to 36.7 percent in 1997. Increased investment in tax free bonds was the primary reason for the reduced expense. Results of Operations - The three months ended 6/30/97 compared to the three months ended 6/30/96. The following discussion pertains to the consolidated income for the Company: Net income was $2.292 million, or $.34 per share, for the second quarter of 1997, compared with $2.201 million, or $.33 per share, for the same quarter of 1996, an increase of $91,000, or 4.1%. The increase in net income is attributed to an increase in the net interest margin which was partially offset by a larger provision for loan losses, and higher expenses related to the establishment of additional branch locations. Return on average assets and return on beginning equity in the second quarter of 1997 were 1.64 percent and 17.36 percent, respectively, compared with returns of 1.71 percent and 18.34 percent for the same quarter of 1996. The lower return, as a percentage of assets, was the result of the sizeable asset growth of $47.564 million, or 9.15 percent. Stockholder equity at the beginning of the quarter increased 10.0 percent over the second quarter of 1996. The higher equity amount resulted in the reduced return on equity ratio. 13
14 Net Interest Income Net interest income for the quarter was $5.999 million, an increase of $392,000, or 6.99 percent, over the same period in 1996. More net earning assets was the primary reason for this increase. Loan balances have increased $34.7 million from June 30, 1996, an increase of 9.4 percent. All loan classifications have increased, with commercial loans up $18.590 million, or 20.16 percent, consumer loans up $9.337 million, or 10.76 percent, and real estate loans up $7.123 million, or 3.17 percent. Total deposits increased $22.539 million, or 7.3 percent, with $5.826 million of the increase in non-interest bearing deposits. Federal Home Loan Bank advances, and other borrowed funds provided the balance of the funding for the increase in earning assets. The capital level remains strong at 9.74 percent of assets. Loan Loss Provisions and Non-Performing Assets The second quarter provision for loan losses was $209,000, up from $116,000 during the same quarter in 1996. Non-performing assets are at .37 percent of loans at June 30, 1997, well below the average of the Company's peer group which was .87 percent at March 31, 1997, the most recent information available. The reserve for loan losses was 230 percent of non-performing assets as of June 30, 1997. Non-interest Income Non-interest income decreased $46,000, or 2.2 percent from the second quarter of 1996. Loan fees and service charges on deposit accounts were up $47,000 while other income decreased by $93,000, primarily from a reduction in commissions on insurance sales, and a non-recurring $70,000 recovery in 1996. Non-interest Expense Non-interest expense increased by $261,000, or 6.7 percent, over the second quarter of 1996. The largest portion of the increase was in compensation and employee benefits which increased $152,000, or 7.2 percent. Data processing expenses increased $59,000 the result of increased volumes of loan and deposits accounts. Occupancy expense was also up substantially, $39,000, or 9.3%. Opening of the new branches, volume related increases, plus other normal increases resulted in these higher expenses. Income Taxes The effective tax rate was reduced from 39.4 percent in 1996 to 36.7 percent in 1997. Increased investment in tax free bonds was the primary reason for the reduced expense. New offices The new full service branch at Thompson Falls and the supermarket branch in Helena are now open. Both of these locations are in new communities for Glacier Bank. Stock split and dividend increase The three-for-two stock split for the common stock of Glacier Bancorp, Inc. was completed on May 23, 1997. The board of directors has also declared a dividend of $.12 per share to be paid on July 25, 1997. This dividend is an increase of 12.5 percent over the previous dividend, adjusted for the effects of the stock split. 14
15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS THERE ARE NO PENDING MATERIAL LEGAL PROCEEDINGS TO WHICH THE REGISTRANT OR IT'S SUBSIDIARIES ARE A PARTY. ITEM 2. CHANGES IN SECURITIES NONE ITEM 3. DEFAULTS ON SENIOR SECURITIES NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS THE ANNUAL SHAREHOLDER'S MEETING WAS HELD ON APRIL 23, 1997. THE ELECTION OF DIRECTORS WAS HELD WITH WILLIAM L. BOUCHEE, L. PETER LARSON, AND EVERIT A. SLITER ELECTED FOR A THREE YEAR TERM. THE RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31, 1997 WAS COMPLETED BY SHAREHOLDER VOTE. ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. NONE SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. GLACIER BANCORP, INC. AUGUST 14, 1997 BY /S/ MICHAEL J. BLODNICK - --------------- -------------------------- DATE MICHAEL J. BLODNICK EXECUTIVE VICE PRESIDENT/COO AUGUST 14, 1997 BY /S/ JAMES H. STROSAHL - --------------- ----------------------- DATE JAMES H. STROSAHL SENIOR VICE PRESIDENT/CHIEF FINANCIAL OFFICER 15
9 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 28,786 365 235 0 86,033 18,711 18,756 408,834 3,469 567,610 329,992 123,776 13,429 45,129 0 0 69 55,215 567,610 17,584 3,912 0 21,496 5,444 9,824 11,672 372 0 8,430 6,757 4,278 0 0 4,278 0.63 0.63 4.56 556 811 0 0 3,284 275 88 3,469 3,469 0 0