SEC Filing | Glacier Bancorp, Inc.

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999 |_| Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _________________ COMMISSION FILE 0-18911 GLACIER BANCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE 81-0519541 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 49 Commons Loop, Kalispell, Montana 59901 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (406) 756-4200 - -------------------------------------------------------------------------------- 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 October 25, 1999 was 9,545,517. No preferred shares are issued or outstanding. 1

GLACIER BANCORP, INC. Quarterly Report on Form 10-Q Index Page # ------ Part I. Financial Information Item 1 - Financial Statements Consolidated Condensed Statements of Financial Condition - September 30, 1999, December 31, and September 30, 1998 (unaudited) ....... 3 Consolidated Condensed Statements of Operations - Three months and nine months ended September 30, 1999 and 1998 (unaudited) 4 Consolidated Condensed Statements of Cash Flows - nine months ended September 30, 1999 and 1998 (unaudited) ................. 5 Notes to Consolidated Condensed Financial Statements ...................... 6 Item 2 - Management's Discussion and Analysis Of Financial Condition and Results of Operations ......................... 11 Item 3 - Quantitative and Qualitative Disclosure about Market Risk .............. 16 Part II. Other Information ............................................................ 17 Signatures ............................................................................ 18 2

GLACIER BANCORP, INC. CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION - ---------------------------------------------------- ------------- ------------ ------------- (Unaudited - $ in thousands except per share data) September 30, December 31, September 30, - ---------------------------------------------------- 1999 1998 1998 ------------- ------------ ------------- Assets: Cash on hand and in banks ......................... $ 29,944 33,806 29,618 Federal funds sold ................................ 278 5,883 8,925 Interest bearing cash deposits .................... 4,800 2,494 19,188 ----------- ----------- ----------- Cash and cash equivalents ....................... 35,022 42,183 57,731 ----------- ----------- ----------- Investments: Investment securities, held-to-maturity ......... 0 8,272 8,309 Investment securities, available-for-sale ....... 54,159 50,618 53,272 Mortgage backed securities, held-to-maturity .... 0 0 0 Mortgage backed securities, available-for-sale .. 134,567 46,596 38,606 ----------- ----------- ----------- Total Investments ............................. 188,726 105,486 100,187 ----------- ----------- ----------- Net loans receivable: Real estate loans ............................... 196,499 215,271 209,188 Commercial Loans ................................ 239,415 194,321 188,779 Installment and other loans ..................... 135,776 113,749 114,344 Allowance for losses ............................ (5,896) (5,133) (4,641) ----------- ----------- ----------- Total Loans, net .............................. 565,794 518,208 507,670 ----------- ----------- ----------- Premises and equipment, net ....................... 19,090 17,382 16,721 Real estate and other assets owned ................ 183 151 271 Federal Home Loan Bank of Seattle stock, at cost .. 13,997 12,366 12,091 Federal Reserve stock, at cost .................... 1,431 1,219 1,067 Accrued interest receivable ....................... 4,871 4,348 4,329 Goodwill, net ..................................... 2,432 2,601 2,658 Other assets ...................................... 3,710 2,083 1,675 ----------- ----------- ----------- $ 835,256 706,027 704,400 =========== =========== =========== Liabilities and stockholders' equity: Deposits - non-interest bearing ................... $ 118,876 100,177 98,520 Deposits - interest bearing ....................... 383,905 375,667 372,770 Advances from Federal Home Loan Bank of Seattle ... 193,942 124,886 130,478 Securities sold under agreements to repurchase .... 43,771 17,239 13,356 Other borrowed funds .............................. 7,769 1,468 3,606 Accrued interest payable .......................... 2,992 2,278 2,784 Current income taxes .............................. 178 0 43 Deferred income taxes ............................. 0 1,601 2,113 Other liabilities ................................. 4,781 4,588 4,043 Minority Interest ................................. 307 313 312 ----------- ----------- ----------- Total liabilities ............................. 756,521 628,217 628,025 ----------- ----------- ----------- Common stock, $.01 par value per share (1) ........ 95 95 95 Paid-in capital ................................... 80,859 60,104 40,609 Retained earnings - substantially restricted ...... 1,420 16,415 34,159 Accumulated other comprehensive earnings .......... (3,639) 1,196 1,512 ----------- ----------- ----------- Total stockholders' equity .................... 78,735 77,810 76,375 ----------- ----------- ----------- $ 835,256 706,027 704,400 =========== =========== =========== Book value per share .......................... $ 8.25 8.22 8.13 Total shares outstanding at end of period (1) ..... 9,540,989 9,460,210 9,396,910 =========== =========== =========== (1) Number of shares outstanding adjusted for 10% stock dividend in 1998 and 1999. See accompanying notes to consolidated financial statements. 3

GLACIER BANCORP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - ---------------------------------------------------- -------------------------------- ------------------------------ (unaudited - $ in thousands except per share data) Three months ended September 30, Nine months ended September 30 - ---------------------------------------------------- -------------------------------- ------------------------------ 1999 1998 1999 1998 ---------- --------- --------- --------- Interest income: Real estate loans ............................... $ 3,898 4,445 11,943 13,598 Commercial loans ................................ 5,137 4,323 14,240 12,055 Consumer and other loans ........................ 2,966 2,783 8,330 8,385 Investment securities ........................... 3,347 2,046 7,986 6,263 ---------- --------- --------- --------- Total interest income ......................... 15,348 13,597 42,499 40,301 ---------- --------- --------- --------- Interest expense: Deposits ........................................ 3,461 3,858 10,274 11,079 Advances ........................................ 2,672 1,866 6,754 6,044 Repurchase agreements ........................... 599 182 1,006 595 Other borrowed funds ............................ 30 31 214 163 ---------- --------- --------- --------- Total interest expense ........................ 6,762 5,937 18,248 17,881 ---------- --------- --------- --------- Net interest income ............................... 8,586 7,660 24,251 22,420 Provision for loan losses ....................... 418 308 1,090 1,094 ---------- --------- --------- --------- Net Interest Income after provision for loan losses 8,168 7,352 23,161 21,326 ---------- --------- --------- --------- Non-interest income: Loan fees and service charges ................... 2,465 2,760 7,423 7,545 Gains on sale of investments .................... 1 1 4 14 Other income .................................... 331 187 874 1,475 ---------- --------- --------- --------- Total fees and other income ................... 2,797 2,948 8,301 9,034 ---------- --------- --------- --------- Non-interest expense: Compensation, employee benefits and related expenses .......................... 3,000 3,040 9,167 8,882 Occupancy and equipment expense ................. 785 717 2,348 2,039 Other expenses .................................. 2,236 2,097 5,941 6,284 Minority interest ............................... 13 33 36 132 ---------- --------- --------- --------- Total non-interest expense .................... 6,034 5,887 17,492 17,337 ---------- --------- --------- --------- Earnings before income taxes ...................... 4,931 4,413 13,970 13,023 Federal and state income tax expense .............. 1,768 1,678 4,910 4,879 ---------- --------- --------- --------- Net earnings ...................................... $ 3,163 2,735 9,060 8,144 ========== ========= ========= ========= Basic earnings per share (1) ...................... 0.33 0.29 0.95 0.88 Diluted earnings per share (1) .................... 0.33 0.29 0.94 0.86 Dividends declared per share (1) .................. 0.15 0.12 0.44 0.33 Return on average assets (annualized) ............. 1.53% 1.56% 1.59% 1.56% Return on beginning equity (annualized) ........... 16.07% 15.18% 15.52% 16.04% Average outstanding shares - basic (1) ............ 9,535,927 9,328,529 9,512,180 9,260,444 Average outstanding shares - diluted (1) .......... 9,635,637 9,485,039 9,616,155 9,421,218 (1) Adjusted for stock dividends See accompanying notes to consolidated financial statements. 4

GLACIER BANCORP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Nine months ended September 30, - ---------------------------------------------------------------------- ------------------------------- (dollars in thousands) 1999 1998 - ---------------------------------------------------------------------- ------------------------------- OPERATING ACTIVITIES: Net earnings ....................................................... $ 9,060 8,140 Adjustments to reconcile net nearnings to net cash provided by operating activities: Mortgage loans held for sale originated or acquired .............. (87,003) (116,082) Proceeds from sales of mortgage loans held for sale .............. 104,037 98,647 Provision for loan losses ........................................ 1,090 1,094 Depreciation of premises and equipment ........................... 1,109 1,104 Amortization of goodwill ......................................... 169 121 Amortization of investment securities premiums and discounts, net ............................................. 480 (228) Net decrease in deferred income taxes ............................ 356 54 Net (increase) decrease in accrued interest receivable ........... (523) 147 Net increase in accrued interest payable ......................... 714 1,098 Net increase (decrease) in current income taxes .................. 451 (410) Net (increase) decrease in other assets .......................... (957) 181 Net increase in other liabilities and minority interest .......... 187 1,136 FHLB stock dividends ............................................. (740) (626) --------- --------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ............... 28,430 (5,624) --------- --------- INVESTING ACTIVITIES: Proceeds from maturities and prepayments of investment securities available-for-sale .................................... 19,094 25,323 Purchases of investment securities available-for-sale .............. (110,549) (9,351) Proceeds from maturities and prepayments of investment securities held-to-maturity ...................................... 0 7,944 Purchases of investment securities held-to-maturity ................ 0 (1,204) Principal collected on installment and commercial loans ............ 145,742 104,007 Installment and commercial loans originated or acquired ............ (215,058) (150,759) Proceeds from sales of commercial loans ............................ 1,867 8,761 Principal collections on mortgage loans ............................ 75,018 74,952 Mortgage loans originated or acquired .............................. (73,279) (42,070) Net proceeds from sales (acquisition) of real estate owned ......... (32) (150) Net purchase of FHLB and FRB stock ................................. (1,103) (754) Net addition of premises and equipment ............................. (2,817) (3,103) Acquisition of minority interest ................................... 0 (283) --------- --------- NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES ............... (161,117) 13,313 --------- --------- FINANCING ACTIVITIES: Net increase in deposits ........................................... 26,937 41,492 Net increase (decrease) in FHLB advances and other borrowed funds .. 75,357 (19,863) Net increase (decrease) in securities sold under repurchase agreements ....................................................... 26,532 (8,317) Cash dividends paid to stockholders ................................ (4,510) (3,157) Proceeds from exercise of stock options ............................ 1,210 1,192 --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES ...................... 125,526 11,347 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS ...................... (7,161) 19,036 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 42,183 38,695 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 35,022 57,731 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest ................... $ 17,534 16,913 Income taxes ............... 4,732 5,320 See accompanying notes to consolidated financial statements. 5

Notes to Consolidated Condensed Financial Statements 1) Basis of Presentation: In the opinion of Management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Glacier Bancorp Inc.'s (the "Company") financial condition as of September 30, 1999, and September 30, 1998 and the results of operations for the nine months and three months ended September 30, 1999 and 1998 and cash flows for the nine months ended September 30, 1999 and 1998. The accompanying consolidated condensed financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Operating results for the nine months and three months ended September 30, 1999 are not necessarily indicative of the results anticipated for the year ending December 31, 1999. 2) Organizational Structure: The Company is the parent company for seven subsidiaries: Glacier Bank ("Glacier"); Glacier Bank of Whitefish ("Whitefish"); Glacier Bank of Eureka ("Eureka"); First Security Bank of Missoula ("Missoula"); Valley Bank of Helena ("Helena"), Big Sky Western Bank ("Big Sky"), and Community First, Inc. ("CFI"). On February 1, 1998, Glacier was converted from a federal savings bank charter to a State of Montana commercial bank charter. On August 31, 1998, the acquisition of HUB Financial Corporation and Valley Bank of Helena was completed. Effective January 20, 1999, Big Sky Western Bank became a subsidiary of the Company. The pooling method of interests accounting method was used for both acquisitions. Under this method, financial information for each of the periods presented includes the combined companies as though the mergers had occurred prior to the earliest date presented. At September 30, 1999, the Company owned 100% of Glacier, Missoula, Helena, Big Sky and CFI, 94% of Whitefish, and 98% of Eureka. CFI provides full service brokerage services through Raymond James Financial Services, Inc. On January 20, 1999, the Company completed the acquisition of Big Sky Western Bank. Under the terms of the acquisition agreement, Big Sky became a wholly owned subsidiary of the Company, whereby shareholders of Big Sky received shares of the Company in exchange for their shares of Big Sky. Big Sky operates three offices in Gallatin County, Montana. The following abbreviated organizational chart illustrates the various relationships: - -------------------------------------------------------------------------------- Glacier Bancorp, Inc. (Parent Holding Company) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Glacier Bank First Security Bank Glacier Bank Glacier Bank (Commercial bank) of Missoula of Whitefish of Eureka (Commercial bank) (Commercial bank) (Commercial bank) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Big Sky Valley Bank Community First, Inc. Western Bank of Helena (Brokerage services) (Commercial bank) (Commercial bank) - -------------------------------------------------------------------------------- 6

3) Stock Dividend: On August 27, 1998 and May 27, 1999, a 10% stock dividend was approved by the Board of Directors. As a result, all per share amounts from time periods preceding these dates have been restated to illustrate the effect of the stock dividend. Any fractional shares were paid in cash. 4) Ratios: Return on average assets was calculated based on the average of the total assets for the period. Return on beginning equity was calculated based on the stockholders' equity at the beginning of each period presented. 5) Cash Dividend Declared: On September 30, 1999, the Board of Directors declared of $.15 per share quarterly cash dividend to stockholders of record on October 12, payable on October 21, 1999. 6) Computation of Earnings Per Share: Basic earnings per common share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares if dilutive outstanding stock options were exercised, using the treasury stock method. Previous period amounts are restated for the effect of the stock dividend. The following schedule contains the data used in the calculation of basic and diluted earnings per share. Three Three Nine Nine months ended months ended months ended months ended Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998 ----------------- ----------------- ----------------- ----------------- Net income available to common stockholders, basic and diluted $ 3,162,636 2,734,627 9,059,402 8,143,368 ========= ========= ========= ========= Average outstanding shares - basic 9,535,927 9,328,529 9,512,180 9,260,444 Add: dilutive stock options 99,710 156,510 103,975 160,774 ------ ------- ------- ------- Average outstanding shares - diluted 9,635,637 9,485,039 9,616,155 9,421,218 ========= ========= ========= ========= Basic earnings per share $ .33 .29 .95 .88 === === === === Diluted earnings per share $ .33 .29 .94 .86 === === === === 7

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 September 30, 1999 Gross Unrealized Estimated - --------------------------------------------- Weighted Amortized ---------------- Fair Dollars in thousands Yield Cost Gains Losses Value - --------------------------------------------- ----- ---- ----- ------ ----- U.S. Government and Federal Agencies maturing within one year .................. 6.72% 4,802 15 (2) 4,815 maturing one year through five years ...... 6.56% 2,701 33 0 2,734 maturing after ten years .................. 5.14% 1,080 1 (6) 1,075 ----- ----- - --- ----- 6.47% 8,583 49 (8) 8,624 ----- ----- -- --- ----- State and Local Governments and other issues: maturing within one year .................. 6.13% 471 2 (24) 449 maturing one year through five years ...... 5.05% 1,359 21 (2) 1,378 maturing five years through ten years ..... 5.01% 2,335 41 (24) 2,352 maturing after ten years .................. 5.19% 43,421 169 (2,234) 41,356 ----- ------ --- ------- ------ 5.19% 47,586 233 (2,284) 45,535 ----- ------ --- ------- ------ Mortgage-Backed Securities .................. 7.19% 30,562 233 (702) 30,093 Real Estate Mortgage Investment Conduits .... 6.88% 107,993 235 (3,754) 104,474 ----- ------- --- ------- ------- Total Securities ..................... 6.50% 194,724 750 (6,748) 188,726 ===== ======= === ======= ======= Effective January 1, 1999, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting and reporting standards that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivatives' fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The adoption of SFAS 133 had no impact on the financial statements of the Company except that it allowed for a one-time reclassification of the investment portfolio from held-to-maturity to either trading or available-for-sale. The net effect on the consolidated statement of financial condition of this reclassification was an increase in total assets of $288,000, deferred tax liabilities of $98,000 and unrealized gains on securities available-for-sale of $190,000. 8

Investment Securities as of December 31, 1998 Gross Unrealized Estimated - --------------------------------------------- Weighted Amortized ---------------- Fair (dollars in thousands) yield Cost Gains Losses Value - --------------------------------------------- ----- ---- ----- ------ ----- - --------------------------------------------- Held-to-Maturity - --------------------------------------------- U.S. Government and Federal Agencies: maturing within one year .............. 7.90% $ 3,010 63 0 3,073 maturing one year through five years .. 7.10% 1,237 66 0 1,303 -------- ------- ------- ------- ------- 7.67% 4,247 129 0 4,376 -------- ------- ------- ------- ------- State and Local Governments and other issues: maturing within one year .............. 5.50% 552 5 0 557 maturing one year through five years .. 5.56% 811 24 0 835 maturing five years through ten years . 5.01% 1,222 44 0 1,266 maturing after ten years .............. 5.67% 1,440 86 0 1,526 -------- ------- ------- ------- ------- 5.42% 4,025 159 0 4,184 -------- ------- ------- ------- ------- Total Held-to-Maturity Securities 6.58% $ 8,272 288 0 8,560 ======== ======= ======= ======= ======= - --------------------------------------------- Available-for-Sale - --------------------------------------------- U.S. Government and Federal Agencies: maturing within one year .............. 5.88% $ 2,676 9 (1) 2,684 maturing one year through five years .. 5.91% 5,993 79 6,072 maturing after ten years .............. 6.51% 1,816 10 (1) 1,825 -------- ------- ------- ------- ------- 6.01% 10,485 98 (2) 10,581 -------- ------- ------- ------- ------- State and Local Governments and other issues: maturing within one year .............. 6.88% $ 250 0 0 250 maturing one year through five years .. 6.00% 100 7 107 maturing five years through ten years . 5.06% 1,167 69 0 1,236 maturing after ten years .............. 5.30% 37,173 1,590 (319) 38,444 -------- ------- ------- ------- ------- 5.30% 38,690 1,666 (319) 40,037 -------- ------- ------- ------- ------- Mortgage-Backed Securities .................. 7.56% 18,299 546 (63) 18,782 Real Estate Mortgage Investment Conduits .... 6.33% 27,715 184 (85) 27,814 -------- ------- ------- ------- ------- Total Available-for-Sale Securities 6.03% $95,189 2,494 (469) 97,214 ======== ======= ======= ======= ======= 9

8) Stockholders' Equity: The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in supervising a bank holding company. The following table illustrates the Federal Reserve Board's capital adequacy guidelines and the company's compliance with those guidelines as of September 30, 1999: ------------------------------------------ Tier 1 (Core) Tier 2 (Total) Leverage (dollars in thousands) Capital Capital Capital ------------------------------------------ --------- --------- --------- GAAP Capital ............................. $ 78,735 $ 78,735 $ 78,735 Less: Goodwill .......................... (2,432) (2,432) (2,432) Plus: Net unrealized losses on securities available-for-sale ............... 3,639 3,639 3,639 Minority Interest ................ 307 307 307 Allowance for loan losses ........ -- 5,896 -- Other regulatory adjustments ............. (157) (157) (157) ========= ========= ========= Regulatory capital computed .............. $ 80,092 $ 85,988 $ 80,092 ========= ========= ========= Risk weighted assets $ 542,167 $ 542,167 ========= ========= Total average assets $ 828,998 ========= Capital as % of defined assets ........... 14.77% 15.86% 9.66% Regulatory "well capitalized" requirement 6.00% 10.00% 5.00% --------- --------- --------- Excess over "well capitalized" requirement 8.77% 5.86% 4.66% ========= ========= ========= 9) Comprehensive Income: The Company's only component of comprehensive income is the unrealized gains and losses on available-for-sale securities. For the three months For the nine months ended September 30, ended September 30, ---------------------------------------------------------------------- --------------------- --------------------- Dollars in thousands 1999 1998 1999 1998 ---------------------------------------------------------------------- ---- ---- ---- ---- Net earnings ......................................................... $ 3,163 2,735 9,060 8,144 ------- ----- ----- ----- Unrealized holding gains(losses) arising during the period ........... (3,135) 730 (8,023) 485 Transfer from held-to-maturity ....................................... 0 0 288 0 Tax expense .......................................................... 1,236 (270) 2,900 (187) ----- ----- ----- ----- Net after tax .................................................. (1,899) 460 (4,835) 298 Less: reclassification adjustment for amounts included in net income ............................................ 1 1 4 14 Tax expense .......................................................... 0 0 (2) (5) ----- ----- ----- ----- Net after tax .................................................. 1 1 2 9 Net unrealized loss on securities............................... (1,898) 461 (4,833) 307 ----- ----- ----- ----- Total comprehensive earnings.............................. $ 1,265 3,196 4,227 8,451 ======= ======= ======= =======

10) Recent and Pending Acquisitions On September 10, 1999 the Company announced that it had signed a definitive agreement to acquire Mountain West Bank as a separate subsidiary of the Company. Mountain West is a commercial bank that has grown to approximately $87 million in assets in its five years of operation. Mountain West is based in Coeur d' Alene, with offices in Hayden Lake, Post Falls and Boise, Idaho. Coeur d' Alene and Boise are two of the fastest growing market areas in the state of Idaho. This is Glacier Bancorp's first acquisition outside of the state of Montana. Consistent with the other banking subsidiaries, Mountain West will retain its name, autonomy, local decision making authority, current employees and directors. The transaction is subject to regulatory and shareholder approval and is expected to close in early 2000. The acquisition of the two Butte Montana offices of Washington Mutual branch real estate and approximately $73 million in deposits was completed as of October 8, 1999. The addition of the Butte market further expands the Company's Western Montana operations. The acquired deposits were used to reduce borrowed funds. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition - September 30, 1999 compared to December 31, 1998 From December 31, 1998 total assets have grown $129.2 million, or 18.3 percent, to $835.3 million. Total investments have increased $83 million since December 31, 1998. Higher investment yields, a steeper yield curve, and the anticipated deposit acquisition from Washington Mutual, which was completed October 8, 1999, provided an opportunity to increase the investment portfolio. Total loans, net of the reserve for loan losses, have also increased $47.6 million, or 9.2 percent since December 31, 1998. Real estate loans decreased $18.8 million during the period, while commercial loans increased $45.1 million, consistent with management's decision to restructure the loan portfolio and to not retain long-term, low-interest rate mortgage loans. Loans sold to the secondary market amounted to $104.0 million and $98.7 million during the first nine months of 1999 and 1998, respectively. The amount of loans serviced for others on September 30, 1999 was $130.3 million. Total deposits increased 26.9 million, which was the result of a $18.7 million increase in non-interest bearing deposits and an $8.2 million increase in interest bearing deposits. All six institutions are members of the FHLB. Accordingly, management of the Company has a wide range of versatility in managing the liquidity and asset/liability mix for each individual institution as well as the Company as a whole. The following table demonstrates the available FHLB lines of credit and the extent of utilization as of September 30, 1999 (in thousands): Available line Amount Used Available -------------- ----------- --------- Glacier Bank $173,564 128,415 45,149 Glacier Bank of Whitefish 12,130 9,460 2,670 Glacier Bank of Eureka 8,246 4,494 3,752 First Security Bank Missoula 36,184 25,000 11,184 Valley Bank of Helena 15,767 6,924 8,843 Big Sky Western Bank 17,507 11,600 5,907 -------- -------- -------- Totals $263,398 185,893 77,505 ======== ======== ======== 11

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 $2.4 million or .28% of total assets at September 30, 1999, compared to $2.8 million, or .40% of total assets, as of December 31, 1998. September 30, 1999 December 31, 1998 ------------------ ----------------- Total Allowance for Loan and Real Estate Owned Losses: $5.9 million $5.1 million Allowance as a percentage of Total Loans: 1.03% .98% Allowance as a percentage of Non-performing Assets: 250% 184% Impaired Loans - As of September 30, 1999, there were no loans considered impaired. Interest income on impaired loans and interest recoveries on loans that have been charged off, is recognized on a cash basis after principal has been fully paid, or at the time a loan becomes fully performing based on the terms of the loan. Minority Interest - The minority interest on the consolidated statements of financial condition represents the minority stockholders' share in the retained earnings of the Company. These are shares of Eureka and Whitefish that are still outstanding. As of September 30, 1999, the Company owns 47,280 shares of Whitefish and 49,084 shares of Eureka. The Company's ownership of Whitefish and Eureka is 94% and 98%, respectively. Results of Operations - The three months ended 9/30/99 compared to the three months ended 9/30/98. Net income was $3.163 million, or basic earnings per share of $.33, for the third quarter of 1999, compared with $2.735 million, or basic earnings per share of $.29, for the same quarter of 1998. Return on average assets and return on beginning equity in the third quarter of 1999 were 1.53 percent and 16.07 percent, respectively, which compares to returns of 1.56 percent and 15.18 percent for the same quarter of 1998. Included in 1998 were after tax merger and reorganization expenses of $305 thousand. Net interest income - Net interest income for the quarter was $8.586 million, an increase of $926,000 thousand, or 12.1 percent, over the same period in 1998. Growth in earning assets while maintaining a net interest margin as a percentage of earning assets, on a tax equivalent basis, of 4.6 percent, were the reasons for this increase. Consistent with management's decision to restructure the loan portfolio there has been a significant shift in the mix of loans, with higher yielding commercial loans up $50.6 million, or 26.8 percent, and consumer loans up $21.4 million, or 18.7 percent. Real estate loans are down $12.7 million, or 6.1 percent, the result of prepayments and management's decision not to retain long-term low-rate mortgage loans. Total investments, including mortgage-backed securities, increased $88.5 million, or 88.4 percent, with most of the increase occurring during the second quarter. Total deposits increased $31.5 million, or 6.7 percent, with $20.4 million of the increase occurring in non-interest bearing deposits, which increased 20.7 percent. Borrowed funds in the form of Federal Home Loan Bank advances, and repurchase agreements were used to fund the asset growth in excess of deposit growth. Upon the October 8, 1999 completion of the Washington Mutual branch purchase, additional deposits of approximately $73 million were acquired and borrowed funds were reduced by $67 million. 12

Loan loss provision and non-performing assets - The third quarter provision for loan losses was $418 thousand, up from $308 thousand during the same quarter in 1998. Non-performing assets as a percentage of loans at September 30, 1999 were .42 percent, well below the average of the Company's peer group of similar sized companies as reported in the Federal Reserve Bank's "Bank Performance Report", which was .80 percent at June 30, 1999, the most recent information available. The reserve for loan losses was 250 percent of non-performing assets as of September 30, 1999. Non-interest income - Non-interest income declined $151 thousand, from the third quarter of 1998. Income from mortgage origination was lower in 1999 with less refinance activity due to higher mortgage rates. Non-interest expense - Non-interest expense increased by $147 thousand, or 2.5 percent, over the third quarter of 1998 which included merger and reorganization expense of $307 thousand. Compensation and employee benefits decreased $40 thousand, or 1.3 percent. Occupancy and equipment expense was up $68 thousand, or 9.5 percent, the result of bringing more data processing functions in-house, and additional expenses from the new branch/corporate office. Other expenses were up $139 thousand, or 6.6 percent. Adjusting for the 1998 merger and reorganization expenses other expense was up $446 thousand, much of which was from increased activity volumes. The rest of the change in expenses was the minority interest in subsidiaries which decreased by $20 thousand, resulting from the acquisition of minority shares. Results of Operations - The nine months ended 9/30/99 compared to the nine months ended 9/30/98 Net income of $9.060 million was an increase of $916 thousand, or 11.2 percent, over the first nine months of 1998. Basic earnings per share were $.95 for 1999 and $.88 for 1998, with diluted earnings per share of $.94 and $.86, respectively. Included in 1998 were after tax gains of $348 thousand from the sale of the credit card portfolio, and the trust department of Glacier Bank, and after tax merger and reorganization expenses of $561 thousand. Return on average assets was 1.59 and 1.56 percent, and return on beginning equity was 15.52 and 16.04 percent for the first nine months of 1999 and 1998, respectively. The high capital level of 11.02 percent at the beginning of the year results in a lower return on equity. The capital ratio has been reduced, with the significant asset growth and a change in the net unrealized gain/loss on investments, to 9.43 percent. Net interest income - Net interest income for the nine months was $24.251 million, an increase of $1.831 million, or 8.2 percent over the same 1998 period. More earning assets, the increase in higher yield commercial and consumer loans, and the sale of lower yield real estate loans on the secondary market, are the reasons for the net interest income increase. The net interest margin as a percentage of average earning assets on a tax equivalent basis, was 4.63 percent, about the same as the 4.64 percent in 1998. Loan loss provision -The provision for loan losses was $1.090 million, down $4 thousand from 1998, while the balance in the allowance for loan losses has increased by 1.255 million, or 27 percent since September 30, 1998. The balance in the allowance for loan losses was 250 percent of total non-performing assets at September 30, 1999, and has increased to 1.04 percent of total loans. Non-interest income - Total non-interest income is down $733 thousand of which $559 thousand was the one-time gain in 1998 from the sale of Glacier Bank's trust department, and the sale of the credit card portfolio. Most of the remaining income reduction was from a slow down in mortgage lending activity resulting from higher mortgage rates in 1999. Non-interest expense - Non-interest expense increased by $155 thousand, or .89 percent, over 1998 which included merger and reorganization expense of $635 thousand. Compensation and employee benefits increased $285 thousand, or 3.2 percent. Occupancy and equipment expense was up $309 thousand, or 15.2 percent, the result of bringing more data processing functions in-house, and additional expenses from the new branch/corporate office. Other expenses were down $343 thousand, or 5.5 percent. After adjusting other 13

expenses for the 1998 merger and reorganization expense there was an increase of $292 thousand in 1999 primarily the result of increased activity volumes. The other area of expense reduction was the minority interest in subsidiaries which decreased by $96 thousand, resulting from the acquisition of minority shares in 1998. The discussion above may include certain "forward looking statements" concerning the future operations of the Company. The Company is taking advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 as they apply to forward looking statements. This statement is for the express purpose of availing the Company of the protections of such safe harbor with respect to all "forward looking statements." Management's ability to predict results of the effect of future plans in inherently uncertain, and is subject to factors that may cause actual results to differ materially from those projected. Year 2000 Issues The century date change for the Year 2000 is a serious issue that may impact virtually every organization including the Company. Many software programs are not able to recognize the Year 2000, since most programs and systems were designed to store calendar years in the 1900s by assuming "19" and storing only the last two digits of the year. The problem is especially important to financial institutions since many transactions, such as interest accruals and payments, are date sensitive, and because the Company and its subsidiary banks interact with numerous customers, vendors and third party service providers who must also address the Year 2000 issue. The problem is not limited to computer systems. Year 2000 issues will also potentially affect every system that has an embedded microchip, such as automated teller machines, elevators and vaults. State of Readiness The Company and its subsidiary banks are committed to addressing these Year 2000 issues in a prompt and responsible manner, and they have dedicated the resources to do so. Management has completed an assessment of its automated systems and has implemented a program consistent with applicable regulatory guidelines, to complete all steps necessary to resolve identified issues. The Company's compliance program has several phases, including (1) project management; (2) assessment; (3) testing; and (4) remediation and implementation. Project Management. The Company has formed a Year 2000 compliance committee consisting of senior management and departmental representatives. The committee has met regularly since October 1997. A Year 2000 compliance plan was developed and regular meetings have been held to discuss the process, assign tasks, determine priorities and monitor progress. The committee regularly reports to the Company's Board. Assessment. All of the Company's and its subsidiary banks' computer equipment and mission-critical software programs have been identified. This phase is complete. Primary software vendors were also assessed during this phase, and vendors who provide mission-critical software have been contacted. The Year 2000 committee has obtained written certification from providers of material services that such providers are, or will be, Year 2000 compliant. Based upon its ongoing assessment of the readiness of its vendors, suppliers and service providers, the committee developed contingency plans addressing the most reasonably likely worst case scenarios. The committee will continue to monitor and work with these vendors. The committee and other bank officers have also identified and are working with, the subsidiary banks' significant borrowers and funds providers to assess the extent to which they may be affected by Year 2000 issues. Testing. Updating and testing of the Company's and its subsidiary banks' automated systems has been completed as of September 30, 1999. 14

Estimated Costs to Address Year 2000 Issues The total financial effect that Year 2000 issues will have on the Company cannot be predicted with any certainty at this time. In fact, in spite of all efforts being made to rectify these problems, the success of the Company's efforts will not be known until the Year 2000 actually arrives. However, based on its assessment to date, the Company does not believe that expenses related to meeting Year 2000 challenges will have a material effect on its operations or consolidated financial condition. Year 2000 challenges facing vendors of mission-critical software and systems, and facing the Company's customers, could have a material effect on the operations or consolidated financial condition of the Company, to the extent such parties are materially affected by such challenges. Risks Related to Year 2000 Issues The year 2000 poses certain risks to the Company and its subsidiary banks and their operations. Some of these risks are present because the Company purchases technology and information systems applications from other parties who face Year 2000 challenges. Other risks are inherent in the business of banking or are risks faced by many companies. Although it is impossible to identify all possible risks that the Company may face moving into the millennium, management has identified the following significant potential risks. Commercial banks may experience a contraction in their deposit base, if a significant amount of deposited funds are withdrawn by customers prior to the Year 2000, and interest rates may increase as the millennium approaches. This potential deposit contraction could make it necessary for the Company to change its sources of funding and could impact future earnings. The Company established a contingency plan for addressing this situation, should it arise, into its asset and liability management policies. The plan includes maintaining the ability to borrow funds from the Federal Home Loan Bank of Seattle. Significant demand for funds from other banks could reduce the amount of funds available to borrow. If insufficient funds are available from these sources, the Company may also sell investment securities or other liquid assets to meet liquidity needs. The Company lends significant amounts to businesses in its marketing area. If these businesses are adversely affected by Year 2000 problems, their ability to repay loans could be impaired. This increased credit risk could adversely affect the Company's financial performance. During the assessment phase of the Company's Year 2000 program, each of the Company's subsidiary banks' substantial borrowers were identified, and the Company is working with such borrowers to ascertain their levels of exposure to Year 2000 problems. To the extent that the Company is unable to assure itself of the Year 2000 readiness of such borrowers, it intends to apply additional risk assessment criteria to the indebtedness of such borrowers and make any necessary related adjustments to the Company's provision for loan losses. The Company and its subsidiary banks, like those of many other companies, can be adversely affected by the Year 2000 triggered failures of other companies upon who the Company depends for the functioning of their automated systems. Accordingly, the Company's operations could be materially affected, if the operations of mission-critical third party service providers are adversely affected. As described above, the Company has identified its mission-critical vendors and is monitoring their Year 2000 compliance programs. Contingency Plans The Company has developed specific contingency plans related to year 2000 issues, other than those described above. As the Company and its subsidiary banks continue to monitor the readiness of vendors, service providers and substantial borrowers, appropriate contingency plans will be developed that address the most reasonably likely "worst case" scenarios. Certain circumstances, as described above in "Risk," may occur for which there are no completely satisfactory contingency plans. 15

FORWARD LOOKING STATEMENTS The discussion above regarding to the century date change for the Year 2000 includes certain "forward looking statements" concerning the future operations of the Company. The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 as they apply to forward looking statements. This statement is for the express purpose of availing the Company of the protections of such safe harbor with respect to all "forward looking statements." Management's ability to predict results of the effect of future plans is inherently uncertain, and is subject to factors that may cause actual results to differ materially from those projected. Factors that could affect the actual results include the Company's success is identifying systems and programs that are not Year 2000 compliant; the possibility that systems modifications will not operate as intended; unexpected costs associated with remediation, including labor and consulting costs; the nature and amount of programming required to upgrade or replace the affected systems; the uncertainty associated with the impact of the century change on the Company's customers, vendors and third-party service providers; and the economy generally. Item 3. Quantitative and Qualitative Disclosure About Market Risk Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company's primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company's asset/liability management process which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to the Asset/Liability committee (ALCO). In this capacity ALCO develops guidelines and strategies impacting the Company's asset/liability management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends. Interest Rate Risk: Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change the interest income and expense streams associated with the Company's financial instruments also change thereby impacting net interest income (NII), the primary component of the Company's earnings. ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While ALCO routinely monitors simulated NII sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company's balance sheet. This sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance level for NII exposure over a one year horizon, assuming no balance sheet growth, given a 200 basis point (bp) upward and downward shift in interest rates. A parallel and pro rata shift in rates over a 12 month period is assumed. The following reflects the Company's NII sensitivity analysis as of June 30, 1999, the most recent information available, as compared to the 10% Board approved policy limit. Estimated Rate Change NII Sensitivity ----------- --------------- +200 bp -3.09% -200 bp .50% 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 16

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 None Item 3. Defaults on Senior Securities None Item 4. Submission of Matters to a Vote of Securities Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. a. On September 14, 1999, a Form 8-K was filed disclosing that Glacier Bank had entered into a definitive agreement with Mountain West Bank, an Idaho commercial bank. Under the terms of the Merger Agreement, Mountain West Bank will become a separate, wholly-owned subsidiary of Glacier. The transaction is subject to regulatory and shareholder approval and is expected to close in early 2000. b. Exhibit 27 - Financial data schedule 17

SIGNATURES PURSUANT to the requirments of Section 13 or 15(d) 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, on October 25, 1999. GLACIER BANCORP, INC. PURSUANT to the requirements of the Securities Exchange Act of 1934, this report has been signed below on October 25, 1999, by the following persons in the capacities indicated. /s/ Michael J. Blodnick President, CEO - ----------------------- Michael J. Blodnick /s/ James H. Strosahl Executive Vice President/CFO - ----------------------- (Principal Financial/Accounting Officer) James H. Strosahl 18

9 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 29,944 4,800 278 0 188,726 0 0 571,689 5,896 835,256 502,781 101,516 8,258 103,001 0 0 95 78,640 835,256 34,513 7,986 0 42,499 10,274 18,248 24,251 1,090 4 17,492 13,970 0 0 0 9,060 0.95 0.94 4.49 2 550 0 0 5,133 491 164 5,896 5,896 0 0