Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
FORM 10-K 
 	 	 	
☒	 	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the fiscal year ended December 31, 2003 or
 	 	 	
o	 	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934	
COMMISSION FILE 000-18911
GLACIER BANCORP, INC. 
 	 	 	
DELAWARE 	 	81-0519541	
(State of Incorporation) 	 	(IRS Employer Identification Number)	
49 Commons Loop, Kalispell, MT 59901
(Address of Principal Office) 
Registrant’s telephone number, including area code: (406) 756-4200 
Securities registered pursuant to Section 12(b) of the Act: NONE 
Securities registered pursuant to Section 12(g) of the Act: 
Common Stock, $.01 par value 
Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such filing requirements for the past 90 days. ☒ 
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o 
Indicate by check mark whether the Registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2). Yes ☒ No o 
The aggregate market value of the voting common equity held by non-affiliates of the Registrant at June 30, 2003 (the last business day of the most recent second quarter), was $439,998,423 (based on the average bid and ask price as quoted on the NASDAQ National Market at the close of business on that date). 
As of March 2, 2004, there were issued and outstanding 19,537,242 shares of the Registrant’s common stock. No preferred shares are issued or outstanding. 
Document Incorporated by Reference 
Portions of the 2004 Annual Meeting Proxy Statement dated March 29, 2004 are incorporated by reference into Part III of this Form 10-K. 

TABLE OF CONTENTS
									
PART I	
	Item 1. Business	
	Item 2. Properties	
	Item 3. Legal Proceedings	
	Item 4. Submission of Matter to a Vote of Security Holders	
PART II	
	Item 5. Market Price of and Dividends on Registrant’s Common Equity & Related Stockholder Matters	
	Item 6. Selected Financial Data	
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	
	Item 7a. Quantitative and Qualitative Disclosures about Market Risk	
	Item 8. Financial Statements and Supplementary Data	
Independent Auditors’ Report	
Consolidated Statements of Financial Condition	
Consolidated Statements of Operations	
Consolidated Statements of Stockholders’ Equity	
Consolidated Statements of Cash Flows	
	Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure	
	Item 9a. Disclosure of Controls and Procedures	
PART III	
	Item 10. Directors and Executive Officers of the Registrant	
	Item 11. Executive Compensation	
	Item 12. Security Ownership of Certain Beneficial Owners and Management	
	Item 13. Certain Relationships and Related Transactions	
	Item 14. Principal Accounting Fees and Services	
PART IV	
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K	
SIGNATURES	
EXHIBIT 10.(B)	
EXHIBIT 10.(C)	
EXHIBIT 10.(D)	
EXHIBIT 10.(I)	
EXHIBIT 14	
EXHIBIT 23	
EXHIBIT 31.1	
EXHIBIT 31.2	
EXHIBIT 32	

Table of Contents
GLACIER BANCORP, INC.
FORM 10-K ANNUAL REPORT
For the year ended December 31, 2003
TABLE OF CONTENTS 
 	 	 	 	 	
 	 	 	 	Page
	
PART I.	 	 	 	 	
Item 1.	 	Business	 	3	
Item 2.	 	Properties	 	20	
Item 3.	 	Legal Proceedings	 	20	
Item 4.	 	Submission of Matter to a Vote of Security Holders	 	20	
PART II.		
Item 5.	 	Market for the Registrant’s Common Equity and Related Stockholder Matters	 	20	
Item 6.	 	Selected Financial Data	 	21	
Item 7.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	23	
Item 7a.	 	Quantitative and Qualitative Disclosure about Market Risk	 	32	
Item 8.	 	Financial Statements and Supplementary Data	 	33	
Item 9.	 	Changes in and Disagreements with Accountants in Accounting and Financial Disclosures	 	63	
Item 9a.	 	Controls and Procedures	 	63	
PART III.		
Item 10.	 	Directors and Executive Officers of the Registrant	 	63	
Item 11.	 	Executive Compensation	 	63	
Item 12.	 	Security Ownership of Certain Beneficial Owners and Management	 	63	
Item 13.	 	Certain Relationships and Related Transactions	 	64	
Item 14	 	Principal Accountant Fees and Services	 	64	
PART IV.		
Item 15.	 	Exhibits, Financial Statement Schedules and Reports on Form 8-K	 	64	
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PART I. 
This Annual Report and Form 10-K may be deemed to include forward looking statements, which management believes are a benefit to shareholders. These forward looking statements describe management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of the Company’s style of banking and the strength of the local economy. The words “will,” “believe,” “expect,” “should,” and “anticipate” and words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company’s filings with the SEC, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national, and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the Company’s ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches are lower than expected; (4) costs or difficulties related to the integration of acquisitions are greater than expected; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged; and (7) the Company’s ability to realize the efficiencies it expects to receive from its investments in personnel and infrastructure. 
Item 1. Business 
GENERAL DEVELOPMENT OF BUSINESS 
Glacier Bancorp, Inc. headquartered in Kalispell, Montana (the “Company”), is a Delaware corporation incorporated in 1990, pursuant to the reorganization of Glacier Bank, FSB into a bank holding company. The Company is a regional multi-bank holding company providing commercial banking services from 54 banking offices throughout Montana, Idaho and Utah. The Company offers a wide range of banking products and services, including transaction and savings deposits, commercial, consumer, and real estate loans, mortgage origination services, and retail brokerage services. The Company serves individuals, small to medium-sized businesses, community organizations and public entities. 
Subsidiaries 
The Company is the parent holding company of its eight wholly owned subsidiaries, Glacier Bank (“Glacier”), First Security Bank of Missoula (“First Security”), Western Security Bank (“Western”), Mountain West Bank in Idaho (“Mountain West”), Big Sky Western Bank (“Big Sky”), Valley Bank of Helena (“Valley”), Glacier Bank of Whitefish (“Whitefish”), and Glacier Capital Trust I (“Glacier Trust”). 
The Company provides full service brokerage services (selling products such as stocks, bonds, mutual funds, limited partnerships, annuities and other insurance products) through Raymond James Financial Services, a non-affiliated company. The Company shares in the commissions generated, without devoting significant management and staff time to this portion of the business. 
The Company formed Glacier Capital Trust I (Glacier Trust) as a financing subsidiary on December 18, 2000. On January 25, 2001, Glacier Trust issued 1,400,000 preferred securities at $25 per preferred security. The purchase of the securities entitles the shareholder to receive cumulative cash distributions at an annual interest rate of 9.40% from payments on the junior subordinated debentures of Glacier Bancorp, Inc. The subordinated debentures will mature and the preferred securities must be redeemed by February 1, 2031. In exchange for the Company’s capital contribution, the Company owns all of the outstanding common securities of Glacier Trust. 
Recent Acquisitions 
The Company’s strategy has been to profitably grow its business through internal growth and selective acquisitions. The Company continues to look for profitable expansion opportunities in existing and contiguous markets. On July 15, 2003 Pend Oreille Bancorp was acquired and its branches became additional branches of Mountain West. On February 28, 2001, the Company acquired Western, through the purchase of WesterFed Financial Corporation, its parent company. On March 15, 2001, the Company acquired seven Wells Fargo & Company and First Security Corporation branches located in Idaho and Utah. The acquisitions were accounted for under the purchase method of accounting. Accordingly, the assets and liabilities of the acquired banks were recorded by the Company at their respective fair values at the date of the acquisition and the results of the banks operations had been included with those of the Company since the date of acquisition. The excess of the Company’s purchase price over the net fair value of the assets 
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acquired and liabilities assumed, including identifiable intangible assets, was recorded as goodwill. 
Mountain West was acquired February 4, 2000 and Big Sky was acquired on January 20, 1999. Both acquisitions were accounted for using the pooling of interests method of accounting. Under this method, financial information for each of the periods presented includes the combined companies as though the merger had occurred prior to the earliest date presented. 
FDIC and FHLB 
The Federal Deposit Insurance Corporation (“FDIC”) insures each subsidiary bank’s deposit accounts. Each subsidiary bank is a member of the Federal Home Loan Bank of Seattle (“FHLB”), which is one of twelve banks which comprise the Federal Home Loan Bank System and all subsidiaries, with the exception of Mountain West, are members of the Federal Reserve Bank of Minneapolis (“FRB”). 
Bank Locations 
Glacier Bancorp, Inc.’s office is located at 49 Commons Loop, Kalispell, MT 59901 and its telephone number is (406) 756-4200. Glacier’s address is 202 Main Street, Kalispell, MT 59901 (406) 756-4200, First Security’s address is 1704 Dearborn, Missoula, MT 59801 (406) 728-3115, Western’s address is 2929 3rd Avenue North, Billings, MT 59101 (406) 252-3700, Mountain West’s address is 125 Ironwood Drive, Coeur d’Alene, Idaho 83816 (208) 765-0284, Big Sky’s address is 47995 Gallatin Road, Big Sky, MT, 59716 (406) 995-2321, Valley’s address is 3030 North Montana Avenue, Helena, MT 59601 (406) 495-2400, and Whitefish’s address is 319 East 2nd Street, Whitefish, MT 59937 (406) 863-6300. See “Item 2. Properties.” 
The following abbreviated organizational chart illustrates the various existing parent/subsidiary relationships at December 31, 2003: 
 
FINANCIAL INFORMATION ABOUT SEGMENTS 
The Company has seven wholly owned banking subsidiaries, Glacier Bank, First Security, Western, Mountain West, Big Sky, Valley, and Whitefish. For information regarding the holding company, as separate from the subsidiaries, see “Item 7 — Management’s Discussion & Analysis” and footnote 16 to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data”. 
The business of the Company’s subsidiaries (collectively referred to hereafter as “Banks”) consists primarily of attracting deposit accounts from the general public and originating commercial, residential, installment and other loans. The Banks’ principal sources of income are interest on loans, loan origination fees, fees on deposit accounts and interest and dividends on investment securities. The principal expenses are interest on deposits, FHLB advances, and repurchase agreements, as well as general and administrative expenses. 
Business Segment Results 
The Company evaluates segment performance internally based on individual bank charter, and thus the operating segments are so defined. The following schedule provides selected financial data for the Company’s operating segments. Centrally provided services to the Banks are allocated based on estimated usage of those services. The operating segment identified as “Other” includes the Parent company, nonbank unit, and eliminations of transactions between segments. During the third quarter of 2001, certain branches of Western were transferred to other Company owned banks located in the same geographic area which accounted for the change in activity for certain segments. 
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 	 	 	 	 	 	Glacier	 	 	 	 	 	 	 	 	 	First Security	 	 	 	 	 	 	 	 	 	Western	 	 	
(Dollars in thousands)	 	2003
	 	2002
	 	2001
	 	2003
	 	2002
	 	2001
	 	2003
	 	2002
	 	2001
	
Condensed Income Statements	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income	 	 	22,565	 	 	 	22,787	 	 	 	19,032	 	 	 	22,246	 	 	 	20,596	 	 	 	14,239	 	 	 	13,670	 	 	 	13,699	 	 	 	17,094	 	
Noninterest income	 	 	8,184	 	 	 	7,554	 	 	 	7,216	 	 	 	4,392	 	 	 	3,880	 	 	 	3,070	 	 	 	4,043	 	 	 	2,782	 	 	 	4,517	 	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Total revenues	 	 	30,749	 	 	 	30,341	 	 	 	26,248	 	 	 	26,638	 	 	 	24,476	 	 	 	17,309	 	 	 	17,713	 	 	 	16,481	 	 	 	21,611	 	
Provision for loan losses	 	 	(375	)	 	 	(1,080	)	 	 	(962	)	 	 	(1,250	)	 	 	(1,800	)	 	 	(975	)	 	 	—	 	 	 	(325	)	 	 	(1,350	)	
Core deposit intangible expense	 	 	(304	)	 	 	(332	)	 	 	(254	)	 	 	(270	)	 	 	(325	)	 	 	(136	)	 	 	(348	)	 	 	(419	)	 	 	(650	)	
Goodwill and merger expense	 	 	—	 	 	 	—	 	 	 	(393	)	 	 	—	 	 	 	—	 	 	 	(143	)	 	 	—	 	 	 	—	 	 	 	(590	)	
Other noninterest expense	 	 	(14,283	)	 	 	(12,913	)	 	 	(12,120	)	 	 	(9,766	)	 	 	(9,192	)	 	 	(6,813	)	 	 	(8,661	)	 	 	(7,832	)	 	 	(10,795	)	
Minority interest	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Pretax earnings	 	 	15,787	 	 	 	16,016	 	 	 	12,519	 	 	 	15,352	 	 	 	13,159	 	 	 	9,242	 	 	 	8,704	 	 	 	7,905	 	 	 	8,226	 	
Income tax (expense) benefit	 	 	(5,437	)	 	 	(5,763	)	 	 	(4,505	)	 	 	(5,288	)	 	 	(4,761	)	 	 	(3,556	)	 	 	(2,604	)	 	 	(2,432	)	 	 	(3,026	)	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Net income	 	 	10,350	 	 	 	10,253	 	 	 	8,014	 	 	 	10,064	 	 	 	8,398	 	 	 	5,686	 	 	 	6,100	 	 	 	5,473	 	 	 	5,200	 	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Average Balance Sheet Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	 	534,774	 	 	 	477,195	 	 	 	493,342	 	 	 	528,791	 	 	 	455,039	 	 	 	310,253	 	 	 	427,786	 	 	 	397,277	 	 	 	529,514	 	
Total loans	 	 	336,978	 	 	 	320,774	 	 	 	309,738	 	 	 	305,209	 	 	 	324,638	 	 	 	260,787	 	 	 	199,607	 	 	 	216,238	 	 	 	331,079	 	
Total deposits	 	 	340,788	 	 	 	331,661	 	 	 	315,252	 	 	 	349,118	 	 	 	350,945	 	 	 	241,897	 	 	 	220,978	 	 	 	224,486	 	 	 	326,583	 	
Stockholders’ equity	 	 	56,866	 	 	 	51,014	 	 	 	45,509	 	 	 	47,822	 	 	 	41,457	 	 	 	27,326	 	 	 	47,782	 	 	 	45,065	 	 	 	45,035	 	
End of Year Balance Sheet Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	 	595,778	 	 	 	490,999	 	 	 	474,421	 	 	 	578,803	 	 	 	487,699	 	 	 	427,976	 	 	 	446,405	 	 	 	405,282	 	 	 	406,359	 	
Net loans	 	 	330,012	 	 	 	319,906	 	 	 	316,626	 	 	 	295,195	 	 	 	300,481	 	 	 	341,214	 	 	 	196,732	 	 	 	188,793	 	 	 	229,007	 	
Total deposits	 	 	358,600	 	 	 	327,018	 	 	 	340,186	 	 	 	340,650	 	 	 	352,805	 	 	 	345,423	 	 	 	219,950	 	 	 	226,482	 	 	 	237,477	 	
Performance Ratios	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Return on average assets	 	 	1.94	%	 	 	2.15	%	 	 	1.62	%	 	 	1.90	%	 	 	1.85	%	 	 	1.83	%	 	 	1.43	%	 	 	1.38	%	 	 	0.98	%	
Return on average equity	 	 	18.20	%	 	 	20.10	%	 	 	17.61	%	 	 	21.04	%	 	 	20.26	%	 	 	20.81	%	 	 	12.77	%	 	 	12.14	%	 	 	11.55	%	
Efficiency ratio	 	 	47.44	%	 	 	43.65	%	 	 	48.64	%	 	 	37.68	%	 	 	38.88	%	 	 	40.97	%	 	 	50.86	%	 	 	50.06	%	 	 	55.69	%	
Regulatory Capital Ratios & Other	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tier I risk-based capital ratio	 	 	13.75	%	 	 	13.54	%	 	 	12.04	%	 	 	12.04	%	 	 	11.06	%	 	 	9.80	%	 	 	15.04	%	 	 	15.33	%	 	 	13.04	%	
Tier II risk-based capital ratio	 	 	14.90	%	 	 	14.79	%	 	 	13.17	%	 	 	13.29	%	 	 	12.31	%	 	 	10.95	%	 	 	16.30	%	 	 	16.61	%	 	 	14.30	%	
Leverage capital ratio	 	 	8.97	%	 	 	9.48	%	 	 	8.32	%	 	 	7.80	%	 	 	7.82	%	 	 	7.56	%	 	 	9.23	%	 	 	9.83	%	 	 	8.62	%	
Full time equivalent employees	 	 	176	 	 	 	170	 	 	 	164	 	 	 	119	 	 	 	120	 	 	 	121	 	 	 	105	 	 	 	105	 	 	 	97	 	
Locations	 	 	11	 	 	 	11	 	 	 	11	 	 	 	9	 	 	 	9	 	 	 	9	 	 	 	7	 	 	 	8	 	 	 	8	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Mountain West	 	 	 	 	 	 	 	 	 	Big Sky	 	 	 	 	 	 	 	 	 	Valley	 	 	
(Dollars in thousands)	 	2003
	 	2002
	 	2001
	 	2003
	 	2002
	 	2001
	 	2003
	 	2002
	 	2001
	
Condensed Income Statements	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income	 	 	17,061	 	 	 	13,629	 	 	 	10,141	 	 	 	7,264	 	 	 	6,860	 	 	 	4,678	 	 	 	7,845	 	 	 	7,522	 	 	 	5,998	 	
Noninterest income	 	 	10,206	 	 	 	6,392	 	 	 	3,855	 	 	 	1,729	 	 	 	1,591	 	 	 	1,294	 	 	 	3,730	 	 	 	2,641	 	 	 	1,990	 	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Total revenues	 	 	27,267	 	 	 	20,021	 	 	 	13,996	 	 	 	8,993	 	 	 	8,451	 	 	 	5,972	 	 	 	11,575	 	 	 	10,163	 	 	 	7,988	 	
Provision for loan losses	 	 	(1,124	)	 	 	(695	)	 	 	(276	)	 	 	(250	)	 	 	(330	)	 	 	(333	)	 	 	(630	)	 	 	(1,335	)	 	 	(365	)	
Core deposit intangible expense	 	 	(205	)	 	 	(224	)	 	 	(208	)	 	 	(41	)	 	 	(49	)	 	 	(21	)	 	 	(75	)	 	 	(90	)	 	 	(56	)	
Goodwill and merger expense	 	 	(56	)	 	 	—	 	 	 	(1,492	)	 	 	—	 	 	 	—	 	 	 	(60	)	 	 	—	 	 	 	—	 	 	 	(134	)	
Other noninterest expense	 	 	(17,902	)	 	 	(13,439	)	 	 	(10,854	)	 	 	(4,141	)	 	 	(3,618	)	 	 	(2,983	)	 	 	(5,471	)	 	 	(5,371	)	 	 	(4,356	)	
Minority interest	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Pretax earnings	 	 	7,980	 	 	 	5,663	 	 	 	1,166	 	 	 	4,561	 	 	 	4,454	 	 	 	2,575	 	 	 	5,399	 	 	 	3,367	 	 	 	3,077	 	
Income tax (expense) benefit	 	 	(2,216	)	 	 	(1,633	)	 	 	(150	)	 	 	(1,730	)	 	 	(1,705	)	 	 	(995	)	 	 	(1,754	)	 	 	(1,053	)	 	 	(1,114	)	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Net income	 	 	5,764	 	 	 	4,030	 	 	 	1,016	 	 	 	2,831	 	 	 	2,749	 	 	 	1,580	 	 	 	3,645	 	 	 	2,314	 	 	 	1,963	 	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Average Balance Sheet Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	 	464,464	 	 	 	366,254	 	 	 	281,318	 	 	 	190,745	 	 	 	170,000	 	 	 	117,542	 	 	 	201,702	 	 	 	173,785	 	 	 	129,514	 	
Total loans	 	 	264,418	 	 	 	186,233	 	 	 	138,991	 	 	 	121,080	 	 	 	111,911	 	 	 	85,642	 	 	 	96,045	 	 	 	96,471	 	 	 	91,090	 	
Total deposits	 	 	318,196	 	 	 	260,420	 	 	 	228,761	 	 	 	106,743	 	 	 	92,894	 	 	 	68,998	 	 	 	131,687	 	 	 	127,243	 	 	 	108,503	 	
Stockholders’ equity	 	 	53,071	 	 	 	42,045	 	 	 	30,537	 	 	 	17,387	 	 	 	15,021	 	 	 	9,121	 	 	 	17,837	 	 	 	15,047	 	 	 	10,772	 	
End of Year Balance Sheet Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	 	547,035	 	 	 	396,777	 	 	 	342,841	 	 	 	209,342	 	 	 	179,543	 	 	 	168,865	 	 	 	219,105	 	 	 	190,536	 	 	 	165,372	 	
Net loans	 	 	313,021	 	 	 	214,453	 	 	 	162,701	 	 	 	125,664	 	 	 	111,378	 	 	 	110,363	 	 	 	97,292	 	 	 	97,937	 	 	 	103,062	 	
Total deposits	 	 	372,936	 	 	 	275,809	 	 	 	254,133	 	 	 	115,496	 	 	 	95,897	 	 	 	97,488	 	 	 	134,405	 	 	 	126,418	 	 	 	124,072	 	
Performance Ratios	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Return on average assets	 	 	1.24	%	 	 	1.10	%	 	 	0.36	%	 	 	1.48	%	 	 	1.62	%	 	 	1.34	%	 	 	1.81	%	 	 	1.33	%	 	 	1.52	%	
Return on average equity	 	 	10.86	%	 	 	9.58	%	 	 	13.28	%	 	 	16.28	%	 	 	18.30	%	 	 	17.32	%	 	 	20.44	%	 	 	15.38	%	 	 	18.22	%	
Efficiency ratio	 	 	66.61	%	 	 	68.24	%	 	 	89.70	%	 	 	46.50	%	 	 	43.39	%	 	 	51.31	%	 	 	47.91	%	 	 	53.73	%	 	 	56.91	%	
Regulatory Capital Ratios & Other	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tier I risk-based capital ratio	 	 	10.48	%	 	 	9.85	%	 	 	10.03	%	 	 	10.36	%	 	 	10.77	%	 	 	9.53	%	 	 	13.25	%	 	 	11.43	%	 	 	10.02	%	
Tier II risk-based capital ratio	 	 	11.68	%	 	 	10.85	%	 	 	11.06	%	 	 	11.61	%	 	 	12.03	%	 	 	10.79	%	 	 	14.49	%	 	 	12.45	%	 	 	11.05	%	
Leverage capital ratio	 	 	7.34	%	 	 	6.71	%	 	 	6.33	%	 	 	7.82	%	 	 	8.04	%	 	 	7.10	%	 	 	7.35	%	 	 	7.54	%	 	 	7.22	%	
Full time equivalent employees	 	 	204	 	 	 	152	 	 	 	153	 	 	 	54	 	 	 	43	 	 	 	42	 	 	 	62	 	 	 	61	 	 	 	67	 	
Locations	 	 	15	 	 	 	11	 	 	 	12	 	 	 	4	 	 	 	3	 	 	 	3	 	 	 	6	 	 	 	6	 	 	 	6	 	
5 

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Whitefish	 	 	 	 	 	 	 	 	 	Other	 	 	 	 	 	 	 	 	 	Consolidated	 	 	
(Dollars in thousands)	 	2003
	 	2002
	 	2001
	 	2003
	 	2002
	 	2001
	 	2003
	 	2002
	 	2001
	
Condensed Income Statements	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income	 	 	5,194	 	 	 	4,901	 	 	 	4,290	 	 	 	(3,493	)	 	 	(3,527	)	 	 	(3,098	)	 	 	92,352	 	 	 	86,467	 	 	 	72,374	 	
Noninterest income	 	 	1,273	 	 	 	1,096	 	 	 	1,157	 	 	 	5	 	 	 	(19	)	 	 	152	 	 	 	33,562	 	 	 	25,917	 	 	 	23,251	 	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Total revenues	 	 	6,467	 	 	 	5,997	 	 	 	5,447	 	 	 	(3,488	)	 	 	(3,546	)	 	 	(2,946	)	 	 	125,914	 	 	 	112,384	 	 	 	95,625	 	
Provision for loan losses	 	 	(180	)	 	 	(180	)	 	 	(264	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,809	)	 	 	(5,745	)	 	 	(4,525	)	
Core deposit intangible expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,243	)	 	 	(1,439	)	 	 	(1,325	)	
Goodwill and merger expense	 	 	—	 	 	 	—	 	 	 	(5	)	 	 	—	 	 	 	—	 	 	 	(857	)	 	 	(56	)	 	 	—	 	 	 	(3,674	)	
Other noninterest expense	 	 	(3,071	)	 	 	(2,634	)	 	 	(2,572	)	 	 	(1,350	)	 	 	(1,375	)	 	 	(1,858	)	 	 	(64,645	)	 	 	(56,374	)	 	 	(52,351	)	
Minority interest	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(35	)	 	 	—	 	 	 	—	 	 	 	(35	)	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Pretax earnings	 	 	3,216	 	 	 	3,183	 	 	 	2,606	 	 	 	(4,838	)	 	 	(4,921	)	 	 	(5,696	)	 	 	56,161	 	 	 	48,826	 	 	 	33,715	 	
Income tax (expense) benefit	 	 	(1,054	)	 	 	(1,040	)	 	 	(819	)	 	 	1,930	 	 	 	1,963	 	 	 	2,139	 	 	 	(18,153	)	 	 	(16,424	)	 	 	(12,026	)	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Net income	 	 	2,162	 	 	 	2,143	 	 	 	1,787	 	 	 	(2,908	)	 	 	(2,958	)	 	 	(3,557	)	 	 	38,008	 	 	 	32,402	 	 	 	21,689	 	

 	 	 	 	

 	 	 	 	

 	 	 	 	
 	 	
Average Balance Sheet Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	 	139,516	 	 	 	121,757	 	 	 	103,264	 	 	 	(4,094	)	 	 	(7,242	)	 	 	(18,495	)	 	 	2,483,684	 	 	 	2,154,065	 	 	 	1,946,252	 	
Total loans	 	 	72,206	 	 	 	63,676	 	 	 	61,617	 	 	 	(356	)	 	 	(364	)	 	 	(306	)	 	 	1,395,187	 	 	 	1,319,577	 	 	 	1,278,638	 	
Total deposits	 	 	70,857	 	 	 	64,107	 	 	 	62,188	 	 	 	(11,056	)	 	 	(9,868	)	 	 	(10,190	)	 	 	1,527,311	 	 	 	1,441,888	 	 	 	1,341,992	 	
Stockholders’ equity	 	 	11,652	 	 	 	10,080	 	 	 	8,879	 	 	 	(26,407	)	 	 	(24,152	)	 	 	(16,447	)	 	 	226,010	 	 	 	195,577	 	 	 	160,732	 	
End of Year Balance Sheet Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	 	149,531	 	 	 	129,255	 	 	 	121,409	 	 	 	(6,366	)	 	 	1,253	 	 	 	(21,496	)	 	 	2,739,633	 	 	 	2,281,344	 	 	 	2,085,747	 	
Net loans	 	 	72,800	 	 	 	68,066	 	 	 	59,721	 	 	 	(351	)	 	 	(361	)	 	 	(367	)	 	 	1,430,365	 	 	 	1,300,653	 	 	 	1,322,327	 	
Total deposits	 	 	68,124	 	 	 	67,810	 	 	 	64,885	 	 	 	(12,536	)	 	 	(12,316	)	 	 	(17,600	)	 	 	1,597,625	 	 	 	1,459,923	 	 	 	1,446,064	 	
Performance Ratios	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Return on average assets	 	 	1.55	%	 	 	1.76	%	 	 	1.73	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.53	%	 	 	1.50	%	 	 	1.11	%	
Return on average equity	 	 	18.55	%	 	 	21.26	%	 	 	20.13	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	16.82	%	 	 	16.57	%	 	 	13.49	%	
Efficiency ratio	 	 	47.49	%	 	 	43.92	%	 	 	47.31	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	52.37	%	 	 	51.44	%	 	 	59.97	%	
Regulatory Capital Ratios & Other	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tier I risk-based capital ratio	 	 	12.32	%	 	 	11.64	%	 	 	11.65	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	12.98	%	 	 	12.99	%	 	 	11.81	%	
Tier II risk-based capital ratio	 	 	13.57	%	 	 	12.88	%	 	 	12.90	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	14.23	%	 	 	14.24	%	 	 	13.07	%	
Leverage capital ratio	 	 	7.60	%	 	 	8.09	%	 	 	7.06	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	8.45	%	 	 	8.95	%	 	 	8.21	%	
Full time equivalent employees	 	 	33	 	 	 	30	 	 	 	28	 	 	 	54	 	 	 	56	 	 	 	56	 	 	 	807	 	 	 	737	 	 	 	728	 	
Locations	 	 	2	 	 	 	2	 	 	 	2	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	54	 	 	 	50	 	 	 	51	 	
Internet Access 
Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through the Company’s website (www.glacierbancorp.com) as soon as reasonably practicable after the Company has filed the material with, or furnished it to, the Securities and Exchange Commission. 
Market Area 
The Company’s primary market area includes the four northwest Montana counties of Flathead, Lake, Lincoln and Glacier; the west central Montana counties of Missoula, Silver Bow, Lewis & Clark, Gallatin, and Yellowstone; in Idaho, the Company’s primary market area includes Kootenai and Blaine counties. Kalispell, the location of its home office, is the county seat of Flathead County, and is the primary trade center of what is known as the Flathead Basin. Glacier has its main office and a branch office in Kalispell, with branches in Columbia Falls, Evergreen, Bigfork, and Polson (the county seat of Lake County), Libby (the county seat of Lincoln County), Anaconda (the county seat of Deer Lodge County), and Butte (the county seat of Silver Bow County). First Security’s main office and seven of the branch locations are in Missoula (the county seat of Missoula County) and its ninth branch is in Hamilton (the county seat of Ravailli County). Western Security’s main office and five of its branches are located in Billings (the county seat of Yellowstone County) and two branches are located in Laurel and Lewistown (the county seat of Fergus County). Mountain West has eleven offices in Idaho, Coeur d’Alene, Post Falls, Hayden Lake, Nampa, Hailey, Ketchum, two offices in Sandpoint and three offices in Boise, two offices in Utah, Brigham City and Park City, and one office in Newport, Washington. Big Sky’s main office is in Bozeman (the county seat of Gallatin County), with two branches in Bozeman and a branch in Big Sky. Valley’s main office and five branch locations are in Helena (the state capital and the county seat of Lewis & Clark County). Whitefish’s main office is located in Whitefish with its one branch in Eureka. 
Northwest Montana has a diversified economic base, primarily comprised of wood products, primary metal manufacturing, medical services, agriculture, high-tech related manufacturing and tourism. Tourism is heavily influenced by the close proximity of Glacier National Park, which has in excess of 1.5 million visitors per year. The area also contains the Big Mountain Ski Area, and Flathead 
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Table of Contents
Lake, the largest natural freshwater lake west of the Mississippi. Missoula, the home of the University of Montana, has a large population base with a diverse economy comprised of government services, transportation, medical services, forestry, technology, tourism, trade and education. Missoula is located on Interstate Highway 90, and has good air service. Helena, the county seat of Lewis and Clark County and the state capital, is highly dependent on state and federal government, but also has tourism, trade, transportation, and education contributing to its economy. Bozeman, the home of Montana State University, is the gateway to Yellowstone National Park and the Big Sky ski resort, both of which are very active tourist areas. Bozeman also has a high-tech center and is located on Interstate 90, and has good air service. Billings, the largest city in Montana, is located on Interstate 90 and is the western termination point of Interstate 94, and has very good air service. Agriculture, medical services, transportation, oil related industries and education are the primary economical activities. Coeur d’Alene, located in northern Idaho, is one of the fastest growing areas in the United States. Boise, the state capital, is also growing rapidly, with much of the growth related to high-tech manufacturing. 
Competition 
Glacier and Whitefish comprise the largest financial institution group in terms of total deposits in the three county area of northwest Montana, and have approximately 26% of the total deposits in this area. Glacier’s three Butte, Montana offices have approximately 21% of the deposits in Silver Bow County and Glacier’s Anaconda office has 22% of the deposits in Deer Lodge County. First Security has approximately 28% of the total deposits in Missoula County. Western has approximately 12% of the deposits in Yellowstone and Fergus counties combined. Big Sky has approximately 10% of Gallatin County’s deposits and Valley has approximately 19% of Lewis and Clark County’s total deposits. In Idaho, Mountain West has approximately 12% of the deposits in Kootenai and Blaine counties, 7% in Bonner County, and 2% in Ada and Canyon counties. In Utah, Mountain West has 5% of the deposits in the Box Elder and Summit counties combined. In Washington, Mountain West has 44% of the deposits in Pend Oreille County. 
There are a large number of depository institutions including savings banks, commercial banks, and credit unions in the counties in which the Company has offices. The Banks, like other depository institutions, are operating in a rapidly changing environment. Non-depository financial service institutions, primarily in the securities and insurance industries, have become competitors for retail savings and investment funds. Mortgage banking/brokerage firms are actively competing for residential mortgage business. In addition to offering competitive interest rates, the principal methods used by banking institutions to attract deposits include the offering of a variety of services and convenient office locations and business hours. The primary factors in competing for loans are interest rates and rate adjustment provisions, loan maturities, loan fees, and the quality of service to borrowers and brokers. 
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Table of Contents
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY 
Average Balance Sheet 
The following three-year schedule provides (i) the total dollar amount of interest and dividend income of the Company for earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest and dividend income; (iv) interest rate spread; and (v) net interest margin. 
AVERAGE BALANCE SHEET
(Dollars in Thousands) 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	For the year ended 12-31-03
	 	For the year ended 12-31-02
	 	For the year ended 12-31-01
	
 	 	 	 	 	 	Interest	 	Average	 	 	 	 	 	Interest	 	Average	 	 	 	 	 	Interest	 	Average	
 	 	Average	 	and	 	Yield/	 	Average	 	and	 	Yield/	 	Average	 	and	 	Yield/	
 	 	Balance
	 	Dividends
	 	Rate
	 	Balance
	 	Dividends
	 	Rate
	 	Balance
	 	Dividends
	 	Rate
	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Real Estate Loans	 	$	336,494	 	 	 	23,883	 	 	 	7.10	%	 	$	380,993	 	 	 	29,290	 	 	 	7.69	%	 	$	428,999	 	 	 	34,012	 	 	 	7.93	%	
Commercial Loans	 	 	770,352	 	 	 	50,203	 	 	 	6.52	%	 	 	649,665	 	 	 	47,013	 	 	 	7.24	%	 	 	556,907	 	 	 	48,292	 	 	 	8.67	%	
Consumer and Other Loans	 	 	288,341	 	 	 	20,013	 	 	 	6.94	%	 	 	288,919	 	 	 	22,559	 	 	 	7.81	%	 	 	292,732	 	 	 	25,528	 	 	 	8.72	%	

 	 	 	 	 	 	 	 	

 	 	 	 	
 	 	 	 	 	 	
Total Loans	 	 	1,395,187	 	 	 	94,099	 	 	 	6.74	%	 	 	1,319,577	 	 	 	98,862	 	 	 	7.49	%	 	 	1,278,638	 	 	 	107,832	 	 	 	8.43	%	
Tax-Exempt Investment Securities (1)	 	 	226,971	 	 	 	11,410	 	 	 	5.03	%	 	 	156,315	 	 	 	8,074	 	 	 	5.17	%	 	 	81,416	 	 	 	4,624	 	 	 	5.68	%	
Taxable Investment Securities	 	 	688,239	 	 	 	25,321	 	 	 	3.68	%	 	 	509,137	 	 	 	27,053	 	 	 	5.31	%	 	 	420,511	 	 	 	25,464	 	 	 	6.06	%	

 	 	 	 	 	 	 	 	

 	 	 	 	
 	 	 	 	 	 	
Total Earning Assets	 	 	2,310,397	 	 	 	130,830	 	 	 	5.66	%	 	 	1,985,029	 	 	 	133,989	 	 	 	6.75	%	 	 	1,780,565	 	 	 	137,920	 	 	 	7.75	%	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Non-Earning Assets	 	 	173,287	 	 	 	 	 	 	 	 	 	 	 	169,036	 	 	 	 	 	 	 	 	 	 	 	165,687	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
TOTAL ASSETS	 	$	2,483,684	 	 	 	 	 	 	 	 	 	 	$	2,154,065	 	 	 	 	 	 	 	 	 	 	$	1,946,252	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
LIABILITIES AND STOCKHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NOW Accounts	 	$	227,154	 	 	 	484	 	 	 	0.21	%	 	$	206,410	 	 	 	723	 	 	 	0.35	%	 	$	183,399	 	 	 	1,758	 	 	 	0.96	%	
Savings Accounts	 	 	139,958	 	 	 	500	 	 	 	0.36	%	 	 	127,245	 	 	 	857	 	 	 	0.67	%	 	 	102,736	 	 	 	1,855	 	 	 	1.81	%	
Money Market Accounts	 	 	375,402	 	 	 	3,840	 	 	 	1.02	%	 	 	355,211	 	 	 	6,771	 	 	 	1.91	%	 	 	287,150	 	 	 	9,575	 	 	 	3.33	%	
Certificates of Deposit	 	 	456,790	 	 	 	12,397	 	 	 	2.71	%	 	 	495,951	 	 	 	17,917	 	 	 	3.61	%	 	 	552,469	 	 	 	29,504	 	 	 	5.34	%	
FHLB Advances	 	 	601,679	 	 	 	16,860	 	 	 	2.80	%	 	 	409,168	 	 	 	16,959	 	 	 	4.15	%	 	 	349,023	 	 	 	18,280	 	 	 	5.24	%	
Repurchase Agreements and Other Borrowed Funds	 	 	101,075	 	 	 	4,397	 	 	 	4.35	%	 	 	76,087	 	 	 	4,295	 	 	 	5.64	%	 	 	66,658	 	 	 	4,574	 	 	 	6.86	%	

 	 	 	 	 	 	 	 	

 	 	 	 	
 	 	 	 	 	 	
Total Interest Bearing Liabilities	 	 	1,902,058	 	 	 	38,478	 	 	 	2.02	%	 	 	1,670,072	 	 	 	47,522	 	 	 	2.85	%	 	 	1,541,435	 	 	 	65,546	 	 	 	4.25	%	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Non-interest Bearing Deposits	 	 	328,007	 	 	 	 	 	 	 	 	 	 	 	257,072	 	 	 	 	 	 	 	 	 	 	 	216,238	 	 	 	 	 	 	 	 	 	
Other Liabilities	 	 	27,609	 	 	 	 	 	 	 	 	 	 	 	31,344	 	 	 	 	 	 	 	 	 	 	 	27,847	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Total Liabilities	 	 	2,257,674	 	 	 	 	 	 	 	 	 	 	 	1,958,488	 	 	 	 	 	 	 	 	 	 	 	1,785,520	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Common Stock	 	 	186	 	 	 	 	 	 	 	 	 	 	 	171	 	 	 	 	 	 	 	 	 	 	 	157	 	 	 	 	 	 	 	 	 	
Paid-In Capital	 	 	203,543	 	 	 	 	 	 	 	 	 	 	 	170,291	 	 	 	 	 	 	 	 	 	 	 	152,420	 	 	 	 	 	 	 	 	 	
Retained Earnings	 	 	14,217	 	 	 	 	 	 	 	 	 	 	 	19,195	 	 	 	 	 	 	 	 	 	 	 	5,929	 	 	 	 	 	 	 	 	 	
Accumulated Other Comprehensive Earnings	 	 	8,064	 	 	 	 	 	 	 	 	 	 	 	5,920	 	 	 	 	 	 	 	 	 	 	 	2,226	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Total Stockholders’ Equity	 	 	226,010	 	 	 	 	 	 	 	 	 	 	 	195,577	 	 	 	 	 	 	 	 	 	 	 	160,732	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	 	$	2,483,684	 	 	 	 	 	 	 	 	 	 	$	2,154,065	 	 	 	 	 	 	 	 	 	 	$	1,946,252	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	 	 	 	 	$	92,352	 	 	 	 	 	 	 	 	 	 	$	86,467	 	 	 	 	 	 	 	 	 	 	$	72,374	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Net Interest Spread	 	 	 	 	 	 	 	 	 	 	3.64	%	 	 	 	 	 	 	 	 	 	 	3.90	%	 	 	 	 	 	 	 	 	 	 	3.49	%	
Net Interest Margin on average earning assets(1)	 	 	 	 	 	 	 	 	 	 	4.00	%	 	 	 	 	 	 	 	 	 	 	4.36	%	 	 	 	 	 	 	 	 	 	 	4.06	%	
Return on Average Assets (2)	 	 	 	 	 	 	 	 	 	 	1.53	%	 	 	 	 	 	 	 	 	 	 	1.50	%	 	 	 	 	 	 	 	 	 	 	1.11	%	
Return on Average Equity (3)	 	 	 	 	 	 	 	 	 	 	16.82	%	 	 	 	 	 	 	 	 	 	 	16.57	%	 	 	 	 	 	 	 	 	 	 	13.49	%	
(1) Without tax effect on non-taxable securities income 
(2) Net income divided by average total assets 
(3) Net income divided by average equity 
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Table of Contents
Rate/Volume Analysis 
Net interest income can be evaluated from the perspective of relative dollars of change in each period. Interest income and interest expense, which are the components of net interest income, are shown in the following table on the basis of the amount of any increases (or decreases) attributable to changes in the dollar levels of the Company’s interest-earning assets and interest-bearing liabilities (“Volume”) and the yields earned and rates paid on such assets and liabilities (“Rate”). The change in interest income and interest expense attributable to changes in both volume and rates has been allocated proportionately to the change due to volume and the change due to rate. 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	Years Ended December 31,	
 	 	2003 vs. 2002
	 	2002 vs. 2001
	
 	 	Increase (Decrease) due to:
	 	Increase (Decrease) due to:
	
(Dollars in thousands)	 	Volume
	 	Rate
	 	Net
	 	Volume
	 	Rate
	 	Net
	
Interest Income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Real Estate Loans	 	$	(3,421	)	 	$	(1,986	)	 	$	(5,407	)	 	$	(3,806	)	 	$	(916	)	 	$	(4,722	)	
Commercial Loans	 	 	8,733	 	 	 	(5,543	)	 	 	3,190	 	 	 	8,044	 	 	 	(9,323	)	 	 	(1,279	)	
Consumer and Other Loans	 	 	(45	)	 	 	(2,501	)	 	 	(2,546	)	 	 	(332	)	 	 	(2,637	)	 	 	(2,969	)	
Investment Securities	 	 	13,185	 	 	 	(11,581	)	 	 	1,604	 	 	 	9,803	 	 	 	(4,764	)	 	 	5,039	 	

 	 	 	 	

 	 	 	 	
 	 	
Total Interest Income	 	 	18,452	 	 	 	(21,611	)	 	 	(3,159	)	 	 	13,709	 	 	 	(17,640	)	 	 	(3,931	)	

 	 	 	 	

 	 	 	 	
 	 	
Interest Expense	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NOW Accounts	 	 	73	 	 	 	(312	)	 	 	(239	)	 	 	221	 	 	 	(1,255	)	 	 	(1,034	)	
Savings Accounts	 	 	86	 	 	 	(443	)	 	 	(357	)	 	 	443	 	 	 	(1,441	)	 	 	(998	)	
Money Market Accounts	 	 	385	 	 	 	(3,316	)	 	 	(2,931	)	 	 	2,270	 	 	 	(5,074	)	 	 	(2,804	)	
Certificates of Deposit	 	 	(1,415	)	 	 	(4,105	)	 	 	(5,520	)	 	 	(3,018	)	 	 	(8,570	)	 	 	(11,588	)	
FHLB Advances	 	 	7,979	 	 	 	(8,078	)	 	 	(99	)	 	 	3,150	 	 	 	(4,471	)	 	 	(1,321	)	
Other Borrowings and Repurchase Agreements	 	 	1,411	 	 	 	(1,309	)	 	 	102	 	 	 	647	 	 	 	(926	)	 	 	(279	)	

 	 	 	 	

 	 	 	 	
 	 	
Total Interest Expense	 	 	8,519	 	 	 	(17,563	)	 	 	(9,044	)	 	 	3,713	 	 	 	(21,737	)	 	 	(18,024	)	

 	 	 	 	

 	 	 	 	
 	 	
Net Interest Income	 	$	9,933	 	 	$	(4,048	)	 	$	5,885	 	 	$	9,996	 	 	$	4,097	 	 	$	14,093	 	

 	 	 	 	

 	 	 	 	
 	 	
Net interest income increased $5.885 million in 2003 over 2002. The increase was primarily due to increases in volumes and the decrease in rates on deposits. For additional information see “Item 7 — Management’s Discussion and Analysis”. 
INVESTMENT ACTIVITIES 
It has generally been the Company’s policy to maintain a liquidity portfolio only slightly above policy limits because higher yields can generally be obtained from loan originations than from short-term deposits and investment securities. 
Liquidity levels may be increased or decreased depending upon yields on investment alternatives and upon management’s judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of the level of yield that will be available in the future. 
The Company’s investment securities are generally classified as available for sale and are carried at estimated fair value with unrealized gains or losses reflected as an adjustment to stockholders’ equity. 
The Company uses an effective tax rate of 35% in calculating the tax equivalent yield. Approximately $279 million of the investment portfolio is comprised of tax exempt investments which is an increase of $77 million from the prior year. The increase in tax exempt investments is the result of higher after tax yields on tax exempt investment securities versus taxable investment securities and the availability to fund the investments. 
For information about the Company’s equity investment in the stock of the FHLB of Seattle, see “Sources of Funds — Advances and Other Borrowings”. 
For additional information, see “Item 7 — Management’s Discussion & Analysis” and footnote 3 to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data”. 
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LENDING ACTIVITY 
General 
The Banks focus their lending activity primarily on several types of loans: 1) first-mortgage, conventional loans secured by residential properties, particularly single-family, 2) installment lending for consumer purposes (e.g., auto, home equity, etc.), and 3) commercial lending that concentrates on targeted businesses. “Item 7 — Management’s Discussion & Analysis” and footnote 4 to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data” contain more information about the lending portfolio. 
Loan Portfolio Composition

The following table summarizes the Company’s loan portfolio: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	At	 	At	 	At	 	At	 	At	
(Dollars in thousands)	 	12/31/03
	 	12/31/02
	 	12/31/01
	 	12/31/00
	 	12/31/99
	
TYPE OF LOAN
	 	Amount
	 	Percent
	 	Amount
	 	Percent
	 	Amount
	 	Percent
	 	Amount
	 	Percent
	 	Amount
	 	Percent
	
Real Estate Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Residential first mortgage loans	 	$	301,511	 	 	 	21.08	%	 	$	310,205	 	 	 	23.85	%	 	$	395,417	 	 	 	29.90	%	 	$	224,631	 	 	 	30.62	%	 	$	219,482	 	 	 	33.65	%	
Loans held for sale	 	$	16,973	 	 	 	1.19	%	 	$	51,987	 	 	 	4.00	%	 	$	27,403	 	 	 	2.07	%	 	$	7,058	 	 	 	0.96	%	 	$	5,896	 	 	 	0.90	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

Total	 	$	318,484	 	 	 	22.27	%	 	$	362,192	 	 	 	27.85	%	 	$	422,820	 	 	 	31.98	%	 	$	231,689	 	 	 	31.58	%	 	$	225,378	 	 	 	34.55	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

Commercial Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Real estate	 	$	483,684	 	 	 	33.82	%	 	$	397,803	 	 	 	30.58	%	 	$	379,346	 	 	 	28.69	%	 	$	198,414	 	 	 	27.05	%	 	$	154,155	 	 	 	23.64	%	
Other commercial loans	 	$	359,030	 	 	 	25.10	%	 	$	276,675	 	 	 	21.27	%	 	$	241,811	 	 	 	18.29	%	 	$	142,519	 	 	 	19.43	%	 	$	125,462	 	 	 	19.24	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

Total	 	$	842,714	 	 	 	58.92	%	 	$	674,478	 	 	 	51.85	%	 	$	621,157	 	 	 	46.97	%	 	$	340,933	 	 	 	46.48	%	 	$	279,617	 	 	 	42.88	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

Installment and Other Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consumer loans	 	$	95,739	 	 	 	6.69	%	 	$	112,893	 	 	 	8.68	%	 	$	142,875	 	 	 	10.80	%	 	$	86,336	 	 	 	11.77	%	 	$	87,967	 	 	 	13.49	%	
Home equity loans	 	$	199,693	 	 	 	13.96	%	 	$	174,033	 	 	 	13.38	%	 	$	156,140	 	 	 	11.81	%	 	$	83,539	 	 	 	11.39	%	 	$	66,566	 	 	 	10.21	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

Total	 	$	295,432	 	 	 	20.65	%	 	$	286,926	 	 	 	22.06	%	 	$	299,015	 	 	 	22.61	%	 	$	169,875	 	 	 	23.16	%	 	$	154,533	 	 	 	23.70	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

Net deferred loan fees, premiums and discounts	 	($	2,275	)	 	 	-0.16	%	 	($	1,999	)	 	 	-0.15	%	 	($	2,011	)	 	 	-0.15	%	 	($	1,137	)	 	 	-0.16	%	 	($	598	)	 	 	-0.10	%	
Allowance for Losses	 	($	23,990	)	 	 	-1.68	%	 	($	20,944	)	 	 	-1.61	%	 	($	18,654	)	 	 	-1.41	%	 	($	7,799	)	 	 	-1.06	%	 	($	6,722	)	 	 	-1.03	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

NET LOANS	 	$	1,430,365	 	 	 	100.00	%	 	$	1,300,653	 	 	 	100.00	%	 	$	1,322327	 	 	 	100.00	%	 	$	733,561	 	 	 	100.00	%	 	$	652,208	 	 	 	100.00	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

Loan Portfolio Maturities or Repricing Term

The stated maturities or first repricing term (if applicable) for the loan portfolio at December 31, 2003 was as follows: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Dollars in thousands)
	 	Real Estate
	 	Commercial
	 	Consumer
	 	Totals
	
Variable Rate Maturing or Repricing in:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
One year or less	 	$	95,518	 	 	 	311,785	 	 	 	117,965	 	 	 	525,268	 	
One to five years	 	 	54,621	 	 	 	253,645	 	 	 	2,836	 	 	 	311,102	 	
Thereafter	 	 	1,122	 	 	 	8,820	 	 	 	—	 	 	 	9,942	 	
Fixed Rate Maturing or Repricing in:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
One year or less	 	 	87,734	 	 	 	152,086	 	 	 	71,265	 	 	 	311,085	 	
One to five years	 	 	55,020	 	 	 	81,901	 	 	 	70,274	 	 	 	207,195	 	
Thereafter	 	 	24,469	 	 	 	34,477	 	 	 	33,092	 	 	 	92,038	 	

 	 	 	 	

Totals	 	$	318,484	 	 	 	842,714	 	 	 	295,432	 	 	 	1,456,630	 	

 	 	 	 	

Real Estate Lending 
The Banks’ lending activities consist of the origination of both construction and permanent loans on residential and commercial real Estate. The Banks actively solicit mortgage loan applications from real estate brokers, contractors, existing customers, customer referrals, and walk-ins to their offices. The Banks’ lending policies generally limit the maximum loan-to-value ratio on residential 
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Table of Contents
mortgage loans to 80% of the lesser of the appraised value or purchase price or up to 90% of the loan if insured by a private mortgage insurance company. The Banks also provide interim construction financing for single-family dwellings, and make land acquisition and development loans on properties intended for residential use. 
Consumer Lending 
The majority of all consumer loans are secured by real estate, automobiles, or other assets. The Banks intend to continue lending for such loans because of their short-term nature, generally between three months and five years, with an average term of approximately two years. Moreover, interest rates on consumer loans are generally higher than on mortgage loans. The Banks also originate second mortgage and home equity loans, especially to its existing customers in instances where the first and second mortgage loans are less than 80% of the current appraised value of the property. 
Commercial Loans 
The Banks make commercial loans of various types including commercial real estate, operating loans, equipment loans and a relatively small amount of unsecured loans. The Company’s credit risk management includes stringent credit policies, regular credit examinations, management review of loans experiencing deterioration of credit quality, individual loan approval limits, and committee approval of larger loan requests. The Company has focused on increasing the mix of loans to include more commercial loans. Commercial lenders at each of the banks are actively seeking new and expanded lending relationships within their markets. 
Loan Approval Limits 
Individual loan approval limits have been established for each lender based on the loan type and experience of the individual. Each subsidiary bank has an Officer Loan Committee consisting of senior lenders and members of senior management. The Officer Loan Committee has approval authority up to $500,000 ($1,000,000 for Western Security Bank and Mountain West Bank). Loans between $500,000 and $2,000,000 ($3,500,000 for Glacier Bank of Kalispell and First Security Bank of Missoula) go to the individual Bank’s Board of Directors for approval. Loans over these limits up to $5,000,000 are approved by the Executive Loan Committee of the Company’s Board of Directors. The membership of the Executive Loan Committee consists of the bank’s senior loan officers and the Company’s Credit Administrator. Loans greater than $5,000,000 are approved by the Company’s Board of Directors. Under banking laws loans to one borrower and related entities are limited to a set percentage of the unimpaired capital and surplus of the bank. 
Loan Purchases and Sales 
Fixed-rate, long-term mortgage loans are generally sold in the secondary market. The Banks have been active in the secondary market, primarily through the origination of conventional FHA and VA residential mortgages for sale in whole, or in part, to savings associations, banks and other purchasers in the secondary market. The sale of loans in the secondary mortgage market reduces the Banks’ risk of increases in interest rates of holding long-term, fixed-rate loans in the loan portfolio and allows the Banks to continue to make loans during periods when deposit flows decline or funds are not otherwise available for lending purposes. In connection with conventional loan sales, the Banks typically sell a majority of mortgage loans originated, retaining servicing only on loans sold to certain lenders. The Banks have also been very active in generating commercial SBA loans, and other commercial loans, with a portion of those loans sold to other investors. As of December 31, 2003, loans serviced for others aggregated approximately $190 million. 
Loan Origination and Other Fees 
In addition to interest earned on loans, the Banks receive loan origination fees for originating loans. Loan fees generally are a percentage of the principal amount of the loan and are charged to the borrower for originating the loan, and are normally deducted from the proceeds of the loan. Loan origination fees are generally 1.0% to 1.5% on residential mortgages and .5% to 1.5% on commercial loans. Consumer loans require a flat fee as well as a minimum interest amount. The Banks also receive other fees and charges relating to existing loans, which include charges and fees collected in connection with loan modifications and tax service fees. 
Non-Performing Loans and Asset Classification 
Loans are reviewed on a regular basis and are placed on a non-accrual status when the collection of principal or interest is unlikely. The Banks typically place loans on non-accrual when principal or interest is due and has remained unpaid for 90 days or more unless the loan is secured by collateral having realizable value sufficient to discharge the debt in full. Once a loan has been classified as non-accrual previously accrued unpaid interest is reversed. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate repayment of the loan. 
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The following table sets forth information regarding the Banks’ non-performing assets at the dates indicated: 
NONPERFORMING ASSETS 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	At	 	At	 	At	 	At	 	At	
(Dollars in thousands)	 	12/31/03
	 	12/31/02
	 	12/31/01
	 	12/31/00
	 	12/31/1999
	
Non-accrual loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mortgage loans	 	$	1,129	 	 	$	2,476	 	 	$	4,044	 	 	$	687	 	 	$	613	 	
Commercial loans	 	 	8,246	 	 	 	5,157	 	 	 	4,568	 	 	 	442	 	 	 	776	 	
Consumer loans	 	 	687	 	 	 	409	 	 	 	620	 	 	 	25	 	 	 	74	 	

 	 	 	 	

 	 	
Total	 	 	10,062	 	 	 	8,042	 	 	 	9,232	 	 	 	1,154	 	 	 	1,463	 	

 	 	 	 	

 	 	
Accruing Loans 90 days or more overdue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mortgage loans	 	 	379	 	 	 	846	 	 	 	818	 	 	 	576	 	 	 	62	 	
Commercial loans	 	 	1,798	 	 	 	968	 	 	 	376	 	 	 	91	 	 	 	99	 	
Consumer loans	 	 	242	 	 	 	184	 	 	 	243	 	 	 	83	 	 	 	104	 	

 	 	 	 	

 	 	
Total	 	 	2,419	 	 	 	1,998	 	 	 	1,437	 	 	 	750	 	 	 	265	 	

 	 	 	 	

 	 	
Real estate and other assets owned, net	 	 	587	 	 	 	1,542	 	 	 	593	 	 	 	291	 	 	 	550	 	
Total non-performing loans and real estate and other assets owned, net	 	 	13,068	 	 	 	11,582	 	 	$	11,262	 	 	$	2,195	 	 	$	2,278	 	

 	 	 	 	

 	 	
As a percentage of total assets	 	 	0.48	%	 	 	0.51	%	 	 	0.53	%	 	 	0.21	%	 	 	0.23	%	

 	 	 	 	

 	 	
Interest Income (1)	 	$	665	 	 	$	596	 	 	$	658	 	 	$	101	 	 	$	132	 	

 	 	 	 	

 	 	
(1)	 	This is the amount of interest that would have been recorded on loans accounted for on a non-performing basis as of the end of each period if such loans had been current for the entire period.	
Non-performing assets as a percentage of total assets at December 31, 2003 were         .48 percent versus .51 percent at the same time as last year, which compares to the Peer Group average of .65 percent at September 30, 2003, the most recent information available. The reserve for loan losses was 184 percent of non-performing assets at December 31, 2003, up from 181 percent a year ago. 
With the continuing change in loan mix from residential real estate to commercial and consumer loans, which historically have greater credit risk, the Company has increased the balance in the reserve for loan losses account. The reserve balance has increased $3,046,000, or 15 percent, to $23,990,000, which is 1.65 percent of total loans outstanding, up from 1.58 percent of loans at December 31, 2002. 
Allowance for Loan Losses 
The Allowance for Loan and Lease Losses (ALLL) is maintained at a level that allows for the absorption of loan losses inherent within the bank’s loan portfolios. The Company is committed to the early recognition of problem loans and to a strong conservative allowance. 
Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise. Accordingly, the ALLL is maintained within a range based upon a best estimate. The adequacy of the ALLL is based on management’s current judgment about the credit quality of the loan portfolio and considers all known relevant internal and external factors that affect loan losses. An evaluation of the adequacy of the ALLL is conducted at a minimum on a quarterly basis and is documented and approved by the subsidiary Banks’ Boards of Directors. 
The primary responsibility for credit risk assessment and identification of problem loans rests with the loan officer of account. This continuous process, utilizing the bank’s credit risk rating process, is necessary to support management’s evaluation of adequacy of the ALLL. An independent loan review function verifying loan risk ratings validates the loan officer and management’s evaluation about the credit quality of the loan portfolio. The loan review function also assesses the evaluation process and provides an independent analysis of the adequacy of the ALLL. 
The ALLL methodology is designed to reasonably estimate the probable loan and lease loss within the Bank’s loan portfolios. The methodology is based upon a process of estimating general, specific, and other allowance allocations. 
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 	•	 	General allocations are estimated by applying loan loss rates to groups of loans as defined by Financial Accounting Standards Board (FASB) Statement No. 5 Accounting for Contingencies.	
 	•	 	Specific allocations are estimated for loans that are impaired or have been selected for individual review as defined by FASB Statement No. 114 Accounting by Creditors for Impairment of a Loan—an amendment of FASB Statements No. 5 and 15.	
 	•	 	Allocations that include other factors that warrant an increase or decrease in the ALLL balance.	
At a minimum, the process includes the following elements: 
 	•	 	Is well documented with clear explanations of the supporting analyses	
 	•	 	Includes an analysis of the loan portfolio whether on an individual or group basis	
 	•	 	Considers all known relevant internal and external factors that may affect loan losses	
 	•	 	Applies procedures consistently but, when appropriate, is modified for new factors	
 	•	 	Ensures the ALLL balance is recorded in accordance with GAAP	
The Banks’ charge-off policy is generally consistent with bank regulatory standards. Consumer loans generally are charged off when the loan becomes over 120 days delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned (“REO”) until such time as it is sold. When such property is acquired, it is recorded at the lower of the unpaid principal balance or estimated fair value, not to exceed estimated net realizable value. Any write-down at the time of recording REO is charged to the allowance for loan losses. Any subsequent write-downs are a charge to current expenses. 
Loan Loss Experience 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years ended December 31,
	
(Dollars in thousands)	 	2003
	 	2002
	 	2001
	 	2000
	 	1999
	
Balance at beginning of period	 	$	20,944	 	 	 	18,654	 	 	 	7,799	 	 	 	6,722	 	 	 	5,668	 	
Charge offs:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Residential real estate	 	 	(416	)	 	 	(887	)	 	 	(677	)	 	 	(98	)	 	 	(44	)	
Commercial loans	 	 	(912	)	 	 	(2,522	)	 	 	(723	)	 	 	(450	)	 	 	(409	)	
Consumer loans	 	 	(1,078	)	 	 	(1,328	)	 	 	(2,029	)	 	 	(424	)	 	 	(433	)	

 	 	 	 	

 	 	
Total charge offs	 	$	(2,406	)	 	 	(4,737	)	 	 	(3,429	)	 	 	(972	)	 	 	(886	)	

 	 	 	 	

 	 	
Recoveries:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Residential real estate	 	 	126	 	 	 	276	 	 	 	33	 	 	 	5	 	 	 	1	 	
Commercial loans	 	 	274	 	 	 	326	 	 	 	266	 	 	 	43	 	 	 	110	 	
Consumer loans	 	 	284	 	 	 	680	 	 	 	567	 	 	 	137	 	 	 	106	 	

 	 	 	 	

 	 	
Total recoveries	 	$	684	 	 	 	1,282	 	 	 	866	 	 	 	185	 	 	 	217	 	

 	 	 	 	

 	 	
Chargeoffs, net of recoveries	 	 	(1,722	)	 	 	(3,455	)	 	 	(2,563	)	 	 	(787	)	 	 	(669	)	
Acquisitions (1)	 	 	959	 	 	 	—	 	 	 	8,893	 	 	 	—	 	 	 	—	 	
Provision	 	 	3,809	 	 	 	5,745	 	 	 	4,525	 	 	 	1,864	 	 	 	1,723	 	

 	 	 	 	

 	 	
Balance at end of period	 	$	23,990	 	 	 	20,944	 	 	 	18,654	 	 	 	7,799	 	 	 	6,722	 	

 	 	 	 	

 	 	
Ratio of net charge offs to average loans outstanding during the period	 	 	0.12	%	 	 	0.26	%	 	 	0.20	%	 	 	0.11	%	 	 	0.11	%	
(1) Acquisition of Pend Oreille Bank, WesterFed Financial Corporation and several branches 
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Allocation of the Allowance for Loan Loss 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2003
	 	2002
	 	2001
	 	2000
	 	1999
	
 	 	 	 	 	 	Percent	 	 	 	 	 	Percent	 	 	 	 	 	Percent	 	 	 	 	 	Percent	 	 	 	 	 	Percent	
 	 	 	 	 	 	of loans in	 	 	 	 	 	of loans in	 	 	 	 	 	of loans in	 	 	 	 	 	of loans in	 	 	 	 	 	of loans in	
(Dollars in thousands)
	 	Allowance
	 	category
	 	Allowance
	 	category
	 	Allowance
	 	category
	 	Allowance
	 	category
	 	Allowance
	 	category
	
Residential first mortgage and loans held for sale	 	$	2,147	 	 	 	21.8	%	 	 	2,334	 	 	 	27.4	%	 	 	2,722	 	 	 	31.5	%	 	 	1,227	 	 	 	31.2	%	 	 	1,174	 	 	 	34.2	%	
Commercial real estate	 	 	7,464	 	 	 	33.2	%	 	 	7,088	 	 	 	30.1	%	 	 	5,906	 	 	 	28.3	%	 	 	2,300	 	 	 	26.7	%	 	 	1,526	 	 	 	23.4	%	
Other commercial	 	 	9,951	 	 	 	24.7	%	 	 	7,670	 	 	 	20.9	%	 	 	6,225	 	 	 	18.0	%	 	 	2,586	 	 	 	19.2	%	 	 	2,466	 	 	 	19.0	%	
Consumer	 	 	4,428	 	 	 	20.3	%	 	 	3,852	 	 	 	21.6	%	 	 	3,801	 	 	 	22.2	%	 	 	1,686	 	 	 	22.9	%	 	 	1,556	 	 	 	23.4	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

Totals	 	$	23,990	 	 	 	100.0	%	 	 	20,944	 	 	 	100.0	%	 	 	18,654	 	 	 	100.0	%	 	 	7,799	 	 	 	100.0	%	 	 	6,722	 	 	 	100.0	%	

 	 	 	 	

 	 	 	 	

 	 	 	 	

SOURCES OF FUNDS 
General 
Deposits are the most important source of the Banks’ funds for lending and other business purposes. In addition, the Banks derive funds from loan repayments, advances from the FHLB of Seattle, repurchase agreements, and loan sales. Loan repayments are a relatively stable source of funds, while interest bearing deposit inflows and outflows are significantly influenced by general interest rate levels and money market conditions. Borrowings and advances may be used on a short-term basis to compensate for reductions in normal sources of funds such as deposit inflows at less than projected levels. They also may be used on a long-term basis to support expanded activities and to match maturities of longer-term assets. Deposits obtained through the Banks have traditionally been the principal source of funds for use in lending and other business purposes. Currently, the Banks have a number of different deposit programs designed to attract both short-term and long-term deposits from the general public by providing a wide selection of accounts and rates. These programs include regular statement savings, interest-bearing checking, money market deposit accounts, fixed rate certificates of deposit with maturities ranging form three months to five years, negotiated-rate jumbo certificates, non-interest demand accounts, and individual retirement accounts. 
“Item 7 — Management’s Discussion and Analysis” contains information relating to changes in the overall deposit portfolio. 
Deposits are obtained primarily from individual and business residents of the Banks’ market area. The Banks issue negotiated-rate certificate accounts with balances of $100,000, or more, and have paid a limited amount of fees to brokers to obtain deposits. The following table illustrates the amounts outstanding for deposits greater than $100,000, according to the time remaining to maturity: 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Certificate	 	Demand	 	 	
(Dollars in thousands)
	 	Accounts
	 	Deposits
	 	Totals
	
Within three months	 	$	28,507	 	 	 	498,130	 	 	 	526,637	 	
Three months to six months	 	 	11,110	 	 	 	—	 	 	 	11,110	 	
Seven months to twelve months	 	 	22,188	 	 	 	—	 	 	 	22,188	 	
Over twelve months	 	 	17,488	 	 	 	—	 	 	 	17,488	 	

 	 	 	 	
 	 	
Totals	 	$	79,293	 	 	 	498,130	 	 	 	577,423	 	

 	 	 	 	
 	 	
For additional information, see “Item 7 — Management’s Discussion & Analysis” and footnote 7 to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data”. 
In addition to funds obtained in the ordinary course of business, the Company formed Glacier Trust as a financing subsidiary. Glacier Trust issued 1,400,000 preferred securities at $25 per preferred security. The purchase of the securities entitles the shareholder to receive cumulative cash distributions at an annual interest rate of 9.40% from payments on the junior subordinated debentures of Glacier Bancorp, Inc. The subordinated debentures will mature and the preferred securities must be redeemed by February 1, 2031. In exchange for the Company’s capital contribution, the Company owns all of the outstanding common securities of the trust. The purpose of the issuance of the securities was to finance the acquisition of WesterFed Financial Corporation and seven Wells Fargo & Company and First Security Corporation branches in 2001. For additional information regarding the subordinated debentures and the acquisitions, see Notes 10 and 20 to the Consolidated Financial Statements “Item 8 — Financial Statements and Supplementary Data”. 
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Advances and Other Borrowings 
As a member of the Federal Home Loan Bank of Seattle (“FHLB”), the Banks may borrow from the FHLB on the security of stock which it is required to own in that bank and certain of its home mortgages and other assets (principally, securities which are obligations of, or guaranteed by, the United States), provided certain standards related to credit-worthiness have been met. Advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s capital or on the FHLB’s assessment of the institution’s credit-worthiness. FHLB advances have been used from time to time to meet seasonal and other withdrawals of savings accounts and to expand lending by matching a portion of the estimated amortization and prepayments of retained fixed rate mortgages. All of the Banks are members in the FHLB. 
From time to time, primarily as a short-term financing arrangement for investment or liquidity purposes, the Banks have made use of repurchase agreements with various securities dealers. This process involves the “selling” of one or more of the securities in the Banks’ portfolio and by entering into an agreement to “repurchase” that same security at an agreed upon later date. A rate of interest is paid to the dealer for the subject period of time. In addition, although the Banks have offered retail repurchase agreements to its retail customers, the Government Securities Act of 1986 imposed confirmation and other requirements which generally made it impractical for financial institutions to offer such investments on a broad basis. Through policies adopted by the Board of Directors, the Banks enter into repurchase agreements with local municipalities, and large balance customers, and have adopted procedures designed to ensure proper transfer of title and safekeeping of the underlying securities. 
The following chart illustrates the average balances and the maximum outstanding month-end balances for FHLB advances and repurchase agreements: 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	For the year ended December 31,
	
(Dollars in thousands)	 	2003
	 	2002
	 	2001
	
FHLB Advances	 	 	 	 	 	 	 	 	 	 	 	 	
Amount outstanding at end of period	 	$	777,294	 	 	 	483,660	 	 	 	367,295	 	
Average balance	 	$	601,679	 	 	 	409,168	 	 	 	349,023	 	
Maximum outstanding at any month-end	 	$	777,294	 	 	 	483,660	 	 	 	416,222	 	
Weighted average interest rate	 	 	2.80	%	 	 	4.15	%	 	 	5.24	%	
Repurchase Agreements:	 	 	 	 	 	 	 	 	 	 	 	 	
Amount outstanding at end of period	 	$	56,968	 	 	 	46,206	 	 	 	32,585	 	
Average balance	 	$	61,609	 	 	 	35,479	 	 	 	27,375	 	
Maximum outstanding at any month-end	 	$	74,808	 	 	 	46,206	 	 	 	37,814	 	
Weighted average interest rate	 	 	1.09	%	 	 	1.46	%	 	 	2.11	%	
For additional information concerning the Company’s advances and repurchase agreements, see footnotes 8 and 9 to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data”. 
EMPLOYEES 
As of December 31, 2003, the Company employed 885 persons, 729 of who were full time, none of whom were represented by a collective bargaining group. The Company provides its employees with a comprehensive benefit program, including medical insurance, dental plan, life and accident insurance, long-term disability coverage, sick leave, profit sharing plan and employee stock options. Prior to 2002, the Company had a noncontributory defined contribution retirement plan and an employee savings plan; however as of January 1, 2002, both plans were merged into the new profit sharing plan. The Company considers its employee relations to be excellent. See Note 13 in the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data” for detailed information regarding profit sharing plan costs and eligibility. 
SUPERVISION AND REGULATION 
Introduction 
Banking is a highly regulated industry. Banking laws and regulations are primarily intended to protect depositors, not shareholders. The following discussion identifies some of the more significant state and federal laws and regulations affecting the banking industry. It is intended to provide a brief summary of these laws and regulations and, therefore, is not complete and is qualified by the statutes and regulations referenced in the discussion. 
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Bank Holding Company Regulation 
General. The Company is a bank holding company as defined in the Bank Holding Company Act of 1956, as amended, because of its ownership of Glacier Bank, First Security Bank of Missoula, Western Security Bank, Mountain West Bank, Big Sky Western Bank, Valley Bank of Helena, and Glacier Bank of Whitefish, all of which are Montana-state chartered commercial banks (with the exception of Mountain West Bank, an Idaho state-chartered bank), and all of which are members of the Federal Reserve (with the exception of Mountain West Bank, a non-Fed member FDIC-insured bank). As a bank holding company, the Company is subject to regulation, supervision and examination by the Federal Reserve. In general, the Bank Holding Company Act limits the business of bank holding companies to owning or controlling banks and engaging in other activities closely related to banking. The Company must also file reports and provide additional information with the Federal Reserve. Under the Financial Services Modernization Act of 1999, a bank holding company may apply to the Federal Reserve to become a financial holding company, and thereby engage (directly or through a subsidiary) in certain expanded activities deemed financial in nature, such as securities brokerage and insurance underwriting. 
Holding Company Bank Ownership. The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before (1) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares, (2) acquiring all or substantially all of the assets of another bank or bank holding company, or (3) merging or consolidating with another bank holding company. 
Holding Company Control of Nonbanks. With some exceptions, the Bank Holding Company Act also prohibits a bank holding company from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve regulation or order, have been identified as activities closely related to the business of banking or of managing or controlling banks. 
Transactions with Affiliates. Subsidiary banks of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to the holding company or its subsidiaries, on investments in their securities, and on the use of their securities as collateral for loans to any borrower. These regulations and restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds for payment of dividends, interest and operational expenses. 
Tying Arrangements. The Company is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services. For example, with certain exceptions, neither the Company nor its subsidiaries may condition an extension of credit to a customer on either (1) a requirement that the customer obtain additional services provided by us or (2) an agreement by the customer to refrain from obtaining other services from a competitor. 
Support of Subsidiary Banks. Under Federal Reserve policy, the Company is expected to act as a source of financial and managerial strength to the Bank. This means that the Company is required to commit, as necessary, resources to support the Bank. Any capital loans a bank holding company makes to its subsidiary banks are subordinate to deposits and to certain other indebtedness of those subsidiary banks. 
State Law Restrictions. As a Delaware corporation, the Company is subject to certain limitations and restrictions under applicable Delaware corporate law. For example, state law restrictions in Delaware include limitations and restrictions relating to indemnification of directors, distributions to shareholders, transactions involving directors, officers or interested shareholders, maintenance of books, records, and minutes, and observance of certain corporate formalities. 
The Subsidiaries 
General. With the exception of Mountain West Bank, the Company’s subsidiaries are subject to extensive regulation and supervision by the Montana Department of Commerce’s Banking and Financial Institutions Division and the FRB as a result of their membership in the Federal Reserve System. Mountain West Bank is subject to regulation by the Idaho Department of Finance and by the FDIC as a state non-member commercial bank. In addition, Mountain West’s Utah and Washington branches are regulated to a limited extent by the Utah Department of Financial Institutions and the Washington Department of Financial Institutions, respectively. 
The federal laws that apply to the Banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for loans. Federal laws also regulate community reinvestment and insider credit transactions and impose safety and soundness standards. 
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Community Reinvestment. The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their jurisdiction, federal bank regulators must evaluate the record of financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. 
Insider Credit Transactions. Banks are also subject to certain restrictions on extensions of credit to insiders—executive officers, directors, principal shareholders, and their related interests. Extensions of credit to insiders must be made on substantially the same terms, including interest rates and collateral, and follow credit underwriting procedures that are not less stringent than those prevailing at the time for comparable transactions with non-insiders. Also, extensions of credit to insiders must not involve more than the normal risk of repayment or present other unfavorable features. 
Safety and Soundness Standards. Federal law imposes upon banks certain non-capital safety and soundness standards. These standards cover, among other things, internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation and benefits. Additional standards apply to asset quality, earnings and stock valuation. An institution that fails to meet these standards must develop a plan acceptable to its regulators, specifying the steps that the institution will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions. 
Interstate Banking and Branching 
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”) permits nationwide interstate banking and branching under certain circumstances. This legislation generally authorizes interstate branching and relaxes federal law restrictions on interstate banking. Currently, bank holding companies may purchase banks in any state, and states may not prohibit such purchases. Additionally, banks are permitted to merge with banks in other states as long as the home state of neither merging bank has opted out. The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low-income area. 
Federal bank regulations prohibit banks from using their interstate branches primarily for deposit production and have implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition. 
With regard to interstate bank mergers, Montana “opted-out” of the Interstate Act. Subject to certain conditions, an in-state bank that has been in existence for at least 5 years may merge with an out-of-state bank. Banks, bank holding companies, and their respective subsidiaries cannot acquire control of a bank located in Montana if, after the acquisition, the acquiring institution, together with its affiliates, would directly or indirectly control more than 22% of the total deposits of insured depository institutions and credit unions located in Montana. Montana law does not authorize the establishment of a branch bank in Montana by an out-of-state bank. 
Idaho has enacted “opting in” legislation in accordance with the Interstate Act provisions allowing banks to engage in interstate merger transactions subject to certain “aging” requirements. Branches may not be acquired or opened separately in Idaho by an out-of-state bank, but once an out-of-state bank has acquired a bank within Idaho, either through merger or acquisition of all or substantially all of the bank’s assets, the out-of-state bank may open additional branches within Idaho. 
Utah and Washington have each enacted “opting in” legislation similar in certain respects to that enacted by Idaho, allowing banks to engage in interstate merger transactions subject to certain aging requirements. De novo branching by an out of state bank is generally prohibited; however, once an out of state bank has acquired a Utah or Washington branch, that bank may establish additional branches within that state. 
Deposit Insurance 
The deposits of the Banks are currently insured to a maximum of $100,000 per depositor through the Bank Insurance Fund (“BIF”) administered by the FDIC. All insured banks are subject to semi-annual deposit insurance premium assessments by the FDIC. The FDIC has implemented a risk-based insurance premium system under which banks are assessed insurance premiums based on how much risk they present to the Bank Insurance Fund. Banks with higher levels of capital and a low degree of supervisory concern are assessed lower premiums than banks with lower levels of capital or a higher degree of supervisory concern. 
Dividends 
The principal source of the Company’s cash revenues is dividends received from the Company’s subsidiary Banks. The payment of dividends is subject to government regulation, in that regulatory authorities may prohibit banks and bank holding companies from paying dividends which would constitute an unsafe or unsound banking practice. In addition, a bank may not pay cash dividends if 
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that payment could reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements. 
Capital Adequacy 
Regulatory Capital Guidelines. Federal bank regulatory agencies use capital adequacy guidelines in the examination and regulation of bank holding companies and banks. The guidelines are “risk-based,” meaning that they are designed to make capital requirements more sensitive to differences in risk profiles among banks and bank holding companies. 
Tier I and Tier II Capital. Under the guidelines, an institution’s capital is divided into two broad categories, Tier I capital and Tier II capital. Tier I capital generally consists of common shareholders’ equity, surplus and undivided profits. Tier II capital generally consists of the allowance for loan losses, hybrid capital instruments, and subordinated debt. The sum of Tier I capital and Tier II capital represents an institution’s total capital. The guidelines require that at least 50% of an institution’s total capital consist of Tier I capital. 
Risk-based Capital Ratios. The adequacy of an institution’s capital is gauged primarily with reference to the institution’s risk-weighted assets. The guidelines assign risk weightings to an institution’s assets in an effort to quantify the relative risk of each asset and to determine the minimum capital required to support that risk. An institution’s risk-weighted assets are then compared with its Tier I capital and total capital to arrive at a Tier I risk-based ratio and a total risk-based ratio, respectively. The guidelines provide that an institution must have a minimum Tier I risk-based ratio of 4% and a minimum total risk-based ratio of 8%. 
Leverage Ratio. The guidelines also employ a leverage ratio, which is Tier I capital as a percentage of total assets, less intangibles. The principal objective of the leverage ratio is to constrain the maximum degree to which a bank holding company may leverage its equity capital base. The minimum leverage ratio is 3%; however, for all but the most highly rated bank holding companies and for bank holding companies seeking to expand, regulators expect an additional cushion of at least 1% to 2%. 
Prompt Corrective Action. Under the guidelines, an institution is assigned to one of five capital categories depending on its total risk-based capital ratio, Tier I risk-based capital ratio, and leverage ratio, together with certain subjective factors. The categories range from “well capitalized” to “critically undercapitalized.” Institutions that are “undercapitalized” or lower are subject to certain mandatory supervisory corrective actions. 
Corporate Governance and Accounting Legislation 
Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 (the “Act”) to address corporate and accounting fraud. The Act establishes a new accounting oversight board to enforce auditing standards and restricts the scope of services that accounting firms may provide to their public company audit clients. Among other things, the Act also (i) requires chief executive officers and chief financial officers to certify to the accuracy of periodic reports filed with the Securities and Exchange Commission (the “SEC”); (ii) imposes new disclosure requirements regarding internal controls, off-balance-sheet transactions, and pro forma (non-GAAP) disclosures; (iii) accelerates the time frame for reporting of insider transactions and periodic disclosures by public companies; and (iv) requires companies to disclose whether or not they have adopted a code of ethics for senior financial officers and whether the audit committee includes at least one “audit committee financial expert.” 
The Act also requires the SEC, based on certain enumerated factors, to regularly and systematically review corporate filings. To deter wrongdoing, the Act: (i) subjects bonuses issued to top executives to disgorgement if a restatement of a company’s financial statements was due to corporate misconduct; (ii) prohibits an officer or director from misleading or coercing an auditor; (iii) prohibits insider trades during pension fund “blackout periods”; (iv) imposes new criminal penalties for fraud and other wrongful acts; and (v) extends the period during which certain securities fraud lawsuits can be brought against a company or its officers. 
As a publicly reporting company, we are subject to the requirements of the Act and related rules and regulations issued by the SEC and NASDAQ. We anticipate that we will incur additional expense as a result of the Act, but we do not expect that such compliance will have a material impact on our business. 
Anti-Terrorism Legislation 
On October 26, 2001, President Bush signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA Patriot Act”) of 2001. Among other things, the USA Patriot Act (1) prohibits banks from providing correspondent accounts directly to foreign shell banks; (2) imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions or wealthy foreign individuals (3) requires financial institutions to establish an anti-money- laundering compliance program, and (4) generally eliminates civil liability for persons who file suspicious activity reports. The Act also increases governmental powers to investigate terrorism, including expanded government access to account records. The 
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Department of the Treasury is empowered to administer and make rules to implement the Act. While the USA Patriot Act may, to some degree, affect the Company’s record-keeping and reporting expenses, the Company does not believe that the Act will have a material adverse effect on its business and operations. 
Financial Services Modernization 
Gramm-Leach-Bliley Act of 1999. The Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act, brought about significant changes to the laws affecting banks and bank holding companies. Generally, the Act (i) repealed the historical restrictions on preventing banks from affiliating with securities firms, (ii) provided a uniform framework for the activities of banks, savings institutions and their holding companies, (iii) broadened the activities that may be conducted by national banks and banking subsidiaries of bank holding companies, (iv) provided an enhanced framework for protecting the privacy of consumer information and (v) addressed a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions. 
Bank holding companies that qualify and elect to become financial holding companies can engage in a wider variety of financial activities than permitted under previous law, particularly with respect to insurance and securities underwriting activities. In addition, in a change from previous law, bank holding companies will be in a position to be owned, controlled or acquired by any company engaged in financially related activities, so long as the company meets certain regulatory requirements. The act also permits national banks (and, in states with wildcard statutes, certain state banks), either directly or through operating subsidiaries, to engage in certain non-banking financial activities. 
The Company does not believe that the act will negatively affect our operations in the short term. However, to the extent the legislation permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. This consolidation could result in a growing number of larger financial institutions that offer a wider variety of financial services than we currently offer, and these companies may be able to aggressively compete in the markets we currently serve. 
Effects of Government Monetary Policy 
The Company’s earnings and growth are affected by general economic conditions, and by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve implements a national monetary policy for such purposes as curbing inflation and combating recession, but its open market operations in U.S. government securities, control of the discount rate applicable to borrowings from the Federal Reserve, and establishment of reserve requirements against certain deposits, influence the growth of bank loans, investments and deposits, and also affect interest rates charged on loans or paid on deposits. The Company cannot predict with certainty the nature and impact of future changes in monetary policies and their impact on the Company or its subsidiary Banks. 
TAXATION 
Federal Taxation 
The Company files consolidated federal, Montana, Idaho, and Utah income tax returns, using the accrual method of accounting. All required tax returns have been filed. 
Financial institutions are subject to the provisions of the Internal Revenue Code of 1986, as amended in the same general manner as other corporations. See note 12 to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data” for additional information. 
State Taxation 
Under Montana and Idaho law, financial institutions are subject to a corporation license tax, which incorporates or is substantially similar to applicable provisions of the Internal Revenue Code. The corporation license tax is imposed on federal taxable income, subject to certain adjustments. State taxes are incurred at the rate of 6.75% in Montana, 8% in Idaho, and 5% in Utah. 
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Item 2. Properties 
At December 31, 2003, the Company owned 40 of its 54 offices, including its headquarters and other property having an aggregate book value of approximately $43 million, and leased the remaining branches. 9 offices are leased in Montana, 4 offices are leased in Idaho, and 1 office is leased in Utah. The following schedule provides property information for the Company’s operating segments as of December 31, 2003. 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Properties	 	Properties	 	NetBook	
(Dollars in thousands)
	 	Leased
	 	Owned
	 	Value
	
Glacier	 	 	2	 	 	 	9	 	 	$	7,845	 	
First Security	 	 	3	 	 	 	6	 	 	 	6,483	 	
Western	 	 	1	 	 	 	6	 	 	 	4,967	 	
Mountain West	 	 	5	 	 	 	10	 	 	 	12,384	 	
Big Sky	 	 	2	 	 	 	2	 	 	 	6,813	 	
Valley	 	 	1	 	 	 	5	 	 	 	3,042	 	
Whitefish	 	 	—	 	 	 	2	 	 	 	1,546	 	

 	 	 	 	
 	 	
 	 	 	14	 	 	 	40	 	 	$	43,080	 	

 	 	 	 	
 	 	
The Company believes that all of its facilities are well maintained, adequate and suitable for the current operations of its business, as well as fully utilized. 
For additional information concerning the Company’s premises and equipment and lease obligations, see Note 5 and 19 to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data”. 
Item 3. Legal Proceedings 
The Company and its subsidiaries are parties to various claims, legal actions and complaints in the ordinary course of their businesses. In the Company’s opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the consolidated financial position or results of operations of the Company. 
Item 4. Submission of Matter to a Vote of Security Holders 
No matters were submitted to a vote of security holders in the fourth quarter of 2003. 
PART II 
Item 5. Market Price of and Dividends on Registrant’s Common Equity & Related Stockholder Matters 
The Company’s stock trades on the NASDAQ National Market under the symbol: GBCI. The primary market makers are: D.A. Davidson & Company, Inc., Archipelago, LLC, Knight Securities LP, Piper Jaffray Companies, Inc., Morgan Stanley & Co., Inc., Cincinnati Stock Exchange, Goldman, Sachs & Co., and Keafe, Bruyette & Woods, Inc. 
The market range of high and low bid prices for the Company’s common stock for the periods indicated are shown below. The sale price information has been adjusted retroactively for all stock dividends and splits previously issued. As of December 31, 2003, there were approximately 9,669 shareholders of Company common stock. Following is a schedule of quarterly common stock price ranges: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2003
	 	2002
	
Quarter
	 	High
	 	Low
	 	High
	 	Low
	
First	 	$	26.99	 	 	$	21.25	 	 	$	21.14	 	 	$	17.36	 	
Second	 	$	26.20	 	 	$	22.95	 	 	$	22.72	 	 	$	18.95	 	
Third 	 	$	29.65	 	 	$	24.45	 	 	$	22.36	 	 	$	17.94	 	
Fourth 	 	$	33.00	 	 	$	26.92	 	 	$	21.82	 	 	$	18.09	 	
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The Company paid cash dividends on its common stock of $.75 and $.61 per share for the years ended December 31, 2003 and 2002, respectively. 
Unregistered Securities 
On September 26, 2001, the Company’s Board of Directors approved the issuance of 33,024 shares of Company common stock, to be issued in exchange for outstanding debentures issued by Big Sky Western Bank with a principal amount of $350,000 (the “Debentures”). The Debentures were scheduled to mature on December 31, 2001, and were convertible into common stock at that time. In connection with the Company’s acquisition of Big Sky on January 20, 1999 (the “Acquisition”), the Company assumed the obligation to deliver shares of Company common stock to those Debenture holders that elect to convert their Debentures into stock upon maturity. Based on the conversion provision in the Debentures and the exchange ratio for the Acquisition, the Debentures were convertible into an aggregate of 27,993 shares of Company common stock at the time of the Acquisition. As adjusted for subsequent stock dividends by the Company, the Debentures were convertible into an aggregate of 33,024 shares of Company common stock. 
In issuing the Shares, the Company relied upon the exemption from registration set forth in Section 3(a)(9) of the Securities Act of 1933, as amended (“1933 Act”). Section 3(a)(9) of the 1933 Act applies when securities are exchanged “by the issuer with its existing securities holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.” No commission or other consideration was paid or given, directly or indirectly, for soliciting the conversion of the Debentures. Further, the exchange was available exclusively to existing securities holders. 
With respect to the “same issuer” requirement of Section 3(a)(9) of the 1933 Act, the Company recognized that Big Sky issued the Debentures and that the Company was issuing the common stock upon conversion. The Company, however, relied on “no-action positions” taken by SEC Commission Staff with respect to Section 3(a)(9) in which a bank holding company in a reorganization has assumed joint and several responsibility for the due payment of principal and interest of the convertible debt securities of the acquired operating subsidiary and substituted the holding company’s common stock for the operating subsidiary’s common stock as the underlying security for conversion purposes, the bank holding company was allowed to issue its common stock upon conversion of the debt securities, without registration under the 1933 Act. 
The Company, with the assistance of legal counsel, confirmed with SEC Staff that the issuance of the Shares in exchange for the Debentures was an exempt transaction under Section 3(a)(9) of the Securities Act. 
Item 6. Selected Financial Data 
The following financial data of the Company are derived from the Company’s historical audited financial statements and related footnotes. The information set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and related footnotes contained elsewhere in this report. 
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Summary of Operations and Selected Financial Data 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	At December 31,
	
(dollars in thousands, except per share data)
	 	2003
	 	2002
	 	2001
	 	2000
	 	1999
	
Summary of Financial Condition:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	2,739,633	 	 	 	2,281,344	 	 	 	2,085,747	 	 	 	1,056,712	 	 	 	974,001	 	
Investment securities, available for sale	 	 	1,050,311	 	 	 	739,961	 	 	 	508,578	 	 	 	211,888	 	 	 	209,312	 	
Loans receivable, net	 	 	1,430,365	 	 	 	1,300,653	 	 	 	1,322,327	 	 	 	733,561	 	 	 	652,208	 	
Allowance for loan losses	 	 	(23,990	)	 	 	(20,944	)	 	 	(18,654	)	 	 	(7,799	)	 	 	(6,722	)	
Intangibles	 	 	42,816	 	 	 	40,011	 	 	 	41,771	 	 	 	6,493	 	 	 	7,035	 	
Deposits	 	 	1,597,625	 	 	 	1,459,923	 	 	 	1,446,064	 	 	 	720,570	 	 	 	644,106	 	
Advances from Federal Home Loan Bank	 	 	777,294	 	 	 	483,660	 	 	 	367,295	 	 	 	196,791	 	 	 	208,650	 	
Securities sold under agreements to repurchase and other borrowed funds	 	 	64,986	 	 	 	61,293	 	 	 	32,585	 	 	 	29,529	 	 	 	26,614	 	
Stockholders’ equity	 	 	237,839	 	 	 	212,249	 	 	 	176,983	 	 	 	98,113	 	 	 	85,056	 	
Equity per common share*	 	 	12.28	 	 	 	11.16	 	 	 	9.54	 	 	 	7.79	 	 	 	6.76	 	
Equity as a percentage of total assets	 	 	8.68	%	 	 	9.30	%	 	 	8.49	%	 	 	9.28	%	 	 	8.73	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years ended December 31,
	
(dollars in thousands, except per share data)
	 	2003
	 	2002
	 	2001
	 	2000
	 	1999
	
Summary of Operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	$	130,830	 	 	 	133,989	 	 	 	137,920	 	 	 	78,837	 	 	 	64,719	 	
Interest expense	 	 	38,478	 	 	 	47,522	 	 	 	65,546	 	 	 	37,357	 	 	 	27,635	 	

 	 	 	 	

 	 	
Net interest income	 	 	92,352	 	 	 	86,467	 	 	 	72,374	 	 	 	41,480	 	 	 	37,084	 	
Provision for loan losses	 	 	3,809	 	 	 	5,745	 	 	 	4,525	 	 	 	1,864	 	 	 	1,723	 	
Non-interest income	 	 	33,562	 	 	 	25,917	 	 	 	23,251	 	 	 	13,294	 	 	 	12,809	 	
Non-interest expense	 	 	65,944	 	 	 	57,813	 	 	 	57,385	 	 	 	31,327	 	 	 	29,096	 	

 	 	 	 	

 	 	
Earnings before income taxes	 	 	56,161	 	 	 	48,826	 	 	 	33,715	 	 	 	21,583	 	 	 	19,074	 	
Income taxes	 	 	18,153	 	 	 	16,424	 	 	 	12,026	 	 	 	7,580	 	 	 	6,722	 	

 	 	 	 	

 	 	
Net earnings	 	 	38,008	 	 	 	32,402	 	 	 	21,689	 	 	 	14,003	 	 	 	12,352	 	

 	 	 	 	

 	 	
Basic earnings per common share*	 	 	1.97	 	 	 	1.72	 	 	 	1.26	 	 	 	1.11	 	 	 	0.98	 	
Diluted earnings per common share*	 	 	1.94	 	 	 	1.69	 	 	 	1.22	 	 	 	1.10	 	 	 	0.97	 	
Dividends declared per share*	 	 	0.75	 	 	 	0.61	 	 	 	0.55	 	 	 	0.54	 	 	 	0.53	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	At or for the years ended December 31,
	
 	 	2003
	 	2002
	 	2001
	 	2000
	 	1999
	
Ratios:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings as a percent of	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
average assets	 	 	1.53	%	 	 	1.50	%	 	 	1.10	%	 	 	1.39	%	 	 	1.41	%	
average stockholders’ equity	 	 	16.82	%	 	 	16.57	%	 	 	13.49	%	 	 	15.83	%	 	 	14.60	%	
Dividend payout ratio	 	 	38.07	%	 	 	35.45	%	 	 	43.48	%	 	 	48.36	%	 	 	53.70	%	
Average equity to average asset ratio	 	 	9.10	%	 	 	9.08	%	 	 	8.26	%	 	 	8.78	%	 	 	9.73	%	
Net interest margin on average earning assets (tax equivalent)	 	 	4.20	%	 	 	4.51	%	 	 	4.08	%	 	 	4.48	%	 	 	4.67	%	
Allowance for loan losses as a percent of loans	 	 	1.65	%	 	 	1.58	%	 	 	1.39	%	 	 	1.05	%	 	 	1.02	%	
Allowance for loan losses as a percent of nonperforming assets	 	 	184	%	 	 	181	%	 	 	165	%	 	 	372	%	 	 	295	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	At or for the years ended December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	 	2001
	 	2000
	 	1999
	
Other Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans originated and purchased	 	$	1,509,850	 	 	 	1,204,852	 	 	 	994,527	 	 	 	570,652	 	 	 	528,325	 	
Loans serviced for others	 	$	189,601	 	 	 	253,063	 	 	 	286,996	 	 	 	146,534	 	 	 	159,451	 	
Number of full time equivalent employees	 	 	807	 	 	 	737	 	 	 	728	 	 	 	423	 	 	 	434	 	
Number of offices	 	 	54	 	 	 	50	 	 	 	51	 	 	 	30	 	 	 	31	 	
Number of shareholders of record	 	 	1,763	 	 	 	1,586	 	 	 	1,645	 	 	 	1,228	 	 	 	1,212	 	
*revised for stock splits and dividends 
All amounts have been restated to include mergers using the pooling of interests accounting method. 
Acquisitions using the purchase method of accounting include the operations since the acquisition date. 
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Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Year ended December 31, 2003 Compared to December 31, 2002 
The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than can be obtained from reading the Consolidated Financial Statements alone. The discussion should be read in conjunction with the audited financial statements and the notes thereto included later in this report. All numbers, except per share data, are expressed in thousands of dollars. 
Management Highlights 
The past year the Company experienced strong asset growth. The steep slope of the yield curve and a strong capital base provided an opportunity to significantly increase the investment securities portfolio. Commercial loan growth was also very positive increasing $168 million. The historical low interest rates for mortgage loans during most of 2003 resulted in a large volume of residential loans being refinanced which reduced the amount of residential real estate loans held by the Company and also created a large volume of prepayments of the mortgage related securities held in the investment portfolio. 
The refinancing activity resulted in the loss of higher rate mortgage loans which reduced interest income. In addition the earnings on other types of loans also declined due to refinancing and new loans booked at substantially reduced rates. Securities prepayment activity resulted in a high level of premium amortization, which reduced the earnings on the existing securities, and the reinvestment of funds was generally at lower rates. Offsetting the reduced interest income was further reduction in interest expense on deposits and borrowed funds as maturing items were replaced with lower rate liabilities. The net interest margin declined through much of the year until the fourth quarter when the margin increased. 
Non-interest bearing deposits increased 25% during the year providing a stable low-cost funding source for a portion of the asset growth. Non-interest bearing deposits also ended the year with increased totals. Asset growth that exceeded the increase in deposits was funded with Federal Home Loan Bank advances which also were at low interest rates. 
With the very low mortgage loan rates the origination of residential loans was at an all time high which resulted in an increase of nearly $5 million in gain-on-sale of loans. Service charges and fee income also increased nicely in 2003. The Company also took the opportunity to record a net gain on the sale of securities of $1 million during the year. 
Total revenue from net interest income and non-interest income increased $13.5 million, or 12%, over the prior year, the cumulative effect of the above described items. 
Non-interest expense increased $8 million, or 14%, from last year with the largest increase occurring in compensation and benefits expense. Additional locations and related staffing, commissions on residential loan originations, and merit increases were the primary reasons for this increase. Other operating expenses also increased reflecting the increased volume of activities in loan and deposit operations. 
Looking forward, our future performance will depend on many factors including economic conditions, interest rate changes, increasing competition for deposits and quality loans, and regulatory burden. Increasing interest rates slow the volume of real estate loan originations which reduces the fee income from that activity while at the same time reducing commission expense for loan originators. Increasing rates result in increased earnings on assets, however, the cost of interest bearing funds also increase. The Company goal of asset and liability management practices is to maintain or increase the level of net interest income within an acceptable level of interest rate risk. During 2003 the earnings on the mortgage-backed securities investments was reduced significantly by the premium amortization expense. Higher interest rates result in a reduction of premium amortization which adds substantially to the investment earnings and the net interest margin. 
Regulatory burden seems to be never-ending as additional regulations continue to add cost. The Sarbanes-Oxley Act will result in substantial increases in audit and consulting fees during 2004, and future years, to assure compliance. 
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Table of Contents
Financial Condition
Assets 
The following table summarizes the asset balances as of December 31, 2003 and 2002, the amount of change, and percentage change during 2003: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31,
	 	 	 	 	
Assets ($ in thousands)
	 	2003
	 	2002
	 	$ change
	 	% change
	
Cash on hand and in banks	 	$	77,093	 	 	$	74,624	 	 	$	2,469	 	 	 	3	%	
Investment securities and interest bearing deposits	 	 	1,059,358	 	 	 	744,714	 	 	 	314,644	 	 	 	42	%	
Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Real estate	 	 	317,774	 	 	 	361,522	 	 	 	(43,748	)	 	 	-12	%	
Commercial	 	 	841,305	 	 	 	673,256	 	 	 	168,049	 	 	 	25	%	
Consumer	 	 	295,276	 	 	 	286,819	 	 	 	8,457	 	 	 	3	%	

 	 	 	 	

Total loans	 	 	1,454,355	 	 	 	1,321,597	 	 	 	132,758	 	 	 	10	%	
Allowance for loan losses	 	 	(23,990	)	 	 	(20,944	)	 	 	(3,046	)	 	 	15	%	

 	 	 	 	

Total loans net of allowance for loan losses	 	 	1,430,365	 	 	 	1,300,653	 	 	 	129,712	 	 	 	10	%	

 	 	 	 	

Other assets	 	 	172,817	 	 	 	161,353	 	 	 	11,464	 	 	 	7	%	

 	 	 	 	

Total Assets	 	$	2,739,633	 	 	$	2,281,344	 	 	$	458,289	 	 	 	20	%	

 	 	 	 	

The year was very good in terms of total asset growth with assets increasing $458 million, or 20 percent over the December 31, 2002 balances. The Pend Oreille bank acquisition by the Mountain West Bank subsidiary on July 15, 2003 contributed $66 million of that growth. Without the acquisition assets increased $392 million, or 17 percent. The majority of the increase in assets was in the investment portfolio which increased $310 million or 42 percent over the prior year end balances. Investments were acquired to use the funding derived from increasing deposits, and borrowing capacity, that exceeded quality loan growth opportunities. 
Loans, including $50 million from the acquisition, increased $133 million, or 10 percent. Commercial loans increased $168 million, or 25 percent, during the period and continues to be the focus of our lending. 
Real estate loan volume was at record levels during 2003 with originations of $805 million, up from $588 million in 2002. Most of the residential loans originated were sold in the secondary market, which coupled with the refinancing of loans existing in our portfolio, resulted in a reduction of $44 million in real estate loans outstanding at December 31, 2003 compared to the December 31, 2002 balances. Of the $44 million decrease, $35 million was attributed to a reduction in loans held for sale from one year end to the next, with the remaining $9 million reduction coming from loans held for investment. 
Consumer loans showed an increase of $8 million during the year, a 3 percent increase from last year. The type of loans contained in the consumer loan portfolio is changing. With extremely low, or zero, interest rates offered by automobile manufacturers the number of loans for motor vehicles made by the banks is quite small. The balances for those loans continues to decline while home equity loans continue to increase. During 2003 home equity loans increased approximately $26 million, or 15 percent, and now comprise 68 percent of the consumer loan amount outstanding. 
The following table summarizes the major asset components as a percentage of total assets as of December 31, 2003, 2002, and 2001: 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31,
	
Assets:
	 	2003
	 	2002
	 	2001
	
Cash, and Cash Equivalents, Investment Securities, FHLB and Federal Reserve Stock	 	 	43.2	%	 	 	37.8	%	 	 	30.8	%	
Real Estate Loans and Loans Held for Sale	 	 	11.5	%	 	 	15.7	%	 	 	20.1	%	
Commercial Loans	 	 	30.1	%	 	 	28.9	%	 	 	29.2	%	
Consumer Loans	 	 	10.6	%	 	 	12.4	%	 	 	14.1	%	
Other Assets	 	 	4.6	%	 	 	5.2	%	 	 	5.8	%	

 	 	 	 	
 	 	
 	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	

 	 	 	 	
 	 	
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The percentage of assets held as Cash, and cash equivalents, Investment Securities, FHLB and Federal Reserve Stock has increased from 30.8 percent at December 31, 2001 to 43.2 percent at December 31, 2003. Most of this increase is attributed to investment securities which increased by $310 million during 2003. Several factors have influenced this increase including 1) declining yields on the loan portfolio; 2) increasing levels of non-interest earning deposits which has provided additional low cost funding; 3) strong capital position to support larger asset base; 4) growth rate in loans insufficient to use available liquidity; 5) very steep slope in the short end of the yield curve; and 6) well structured asset/liability mix with limited interest rate risk. 
With the low interest rates, and resulting refinance activity, coupled with the decision to not hold fixed rate long term mortgages, residential real estate loans have declined which moved the percentage of assets from 20.1 to 11.5 percent. 
Although the balances in commercial loans have continued to increase the percentage of loans to total assets has only increased approximately 1 percent due to the large increase in investment securities added to the asset totals. 
The total consumer loans ratio also declined in 2003 due to the significant increase in total assets. 
Liabilities 
The following table summarizes the liability balances as of December 31, 2003 and 2002, the amount of change, and percentage change during 2003: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31,
	 	 	 	 	
Liabilities ($ in thousands)
	 	2003
	 	2002
	 	$ change
	 	% change
	
Non-interest bearing deposits	 	$	369,052	 	 	$	295,016	 	 	$	74,036	 	 	 	25	%	
Interest-bearing deposits	 	 	1,228,573	 	 	 	1,164,907	 	 	 	63,666	 	 	 	5	%	
Advances from Federal Home Loan Bank	 	 	777,294	 	 	 	483,660	 	 	 	293,634	 	 	 	61	%	
Securities sold under agreements to repurchase and other borrowed funds	 	 	64,986	 	 	 	61,293	 	 	 	3,693	 	 	 	6	%	
Other liabilities	 	 	26,889	 	 	 	29,219	 	 	 	(2,330	)	 	 	-8	%	
Subordinated debentures	 	 	35,000	 	 	 	35,000	 	 	 	—	 	 	 	0	%	

 	 	 	 	

Total liabilities	 	$	2,501,794	 	 	$	2,069,095	 	 	$	432,699	 	 	 	21	%	

 	 	 	 	

Non-interest bearing deposits increased $74 million, or 25 percent, during the year with $10 million coming from the Pend Oreille acquisition. A High Performance Checking program was implemented during 2003 at the four banks not previously using the program, which contributed to the deposit growth. Interest bearing deposits increased $64 million of which $49 million was from the Pend Oreille acquisition. Interest rates offered by the bank subsidiaries have been mid-market which has resulted in small growth in interest bearing deposits. The company balances its funding needs between deposits and borrowings to minimize interest expense. 
Advances from the Federal Home Loan Bank of Seattle (FHLB) increased $294 million during 2003. Proceeds were used to acquire investment securities with a resulting increase in net interest income, although at a lower level than the interest spread experienced on the core asset base. The difference in interest rates between the very short maturities, 30 days, and the two to five year maturity (slope of the yield curve) has provided this opportunity. Reduction in the difference in rates between maturities (a flattening of the yield curve) could result in curtailment of this strategy with a resulting reduction in investments and advances. 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31,
	
Liabilities and Stockholder’s Equity:
	 	2003
	 	2002
	 	2001
	
Deposit Accounts 	 	 	58.3	%	 	 	64.0	%	 	 	69.3	%	
FHLB Advances	 	 	28.4	%	 	 	21.2	%	 	 	17.6	%	
Other Borrowings and Repurchase Agreements	 	 	2.4	%	 	 	2.7	%	 	 	3.3	%	
Other Liabilities	 	 	2.2	%	 	 	2.8	%	 	 	1.3	%	
Stockholders’ Equity	 	 	8.7	%	 	 	9.3	%	 	 	8.5	%	

 	 	 	 	
 	 	
 	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	

 	 	 	 	
 	 	
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With the significant increase in FHLB advances used to fund asset growth in the form of investment securities, the advances as a percentage of assets increased during 2003 and the percentage of assets funded by deposits decreased even with the substantial increase in deposit balances. 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stockholders’ equity	 	December 31,
	 	 	 	 	
($ in thousands except per share data)
	 	2003
	 	2002
	 	$ change
	 	% change
	
Common equity	 	$	231,223	 	 	$	202,138	 	 	$	29,085	 	 	 	14	%	
Net unrealized gain on securities	 	 	6,616	 	 	 	10,111	 	 	 	(3,495	)	 	 	-35	%	

 	 	 	 	
 	 	 	 	 	 	
Total stockholders’ equity	 	$	237,839	 	 	$	212,249	 	 	$	25,590	 	 	 	12	%	

 	 	 	 	
 	 	 	 	 	 	
Stockholders’ equity to total assets	 	 	8.68	%	 	 	9.30	%	 	 	 	 	 	 	 	 	
Tangible equity to total assets	 	 	7.23	%	 	 	7.68	%	 	 	 	 	 	 	 	 	
Book value per common share	 	$	12.28	 	 	$	11.16	 	 	$	1.12	 	 	 	10	%	
Tangible book value per common share	 	$	10.07	 	 	$	9.06	 	 	$	1.01	 	 	 	11	%	
Market price per share at end of quarter	 	$	32.47	 	 	$	21.42	 	 	$	11.05	 	 	 	52	%	
Stockholders’ equity 
Total equity and book value per share have increased substantially from the prior year, primarily the result of earnings retention, and stock options exercised. Net unrealized gains on securities declined from a year ago, primarily the result of increasing intermediate term interest rates. Total average diluted shares outstanding were 19,620,458 in 2003 compared to the 10 percent stock dividend adjusted 19,188,934 in 2002. The increase in diluted shares was the result of stock options exercised and the effect of the increase in stock price from December 31, 2002 of $21.42 (stock dividend adjusted) to the December 31, 2003 closing price of $32.47. 
Results of Operations 
Operating results include amounts related to the operation of the three branches acquired in the Pend Oreille acquisition as of July 15, 2003. 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue summary	 	Years ended December 31,
	
($ in thousands)
	 	2003
	 	2002
	 	$ change
	 	% change
	
Net interest income	 	$	92,352	 	 	$	86,467	 	 	$	5,885	 	 	 	7	%	
Fees and other revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service charges, loan fees, and other fees	 	 	19,756	 	 	 	17,954	 	 	 	1,802	 	 	 	10	%	
Gain on sale of loans	 	 	10,674	 	 	 	5,709	 	 	 	4,965	 	 	 	87	%	
Gain on sale of investments, net of impairment charge	 	 	1,253	 	 	 	238	 	 	 	1,015	 	 	 	426	%	
Other income	 	 	1,879	 	 	 	2,016	 	 	 	(137	)	 	 	-7	%	

 	 	 	 	

Total non-interest income	 	 	33,562	 	 	 	25,917	 	 	 	7,645	 	 	 	29	%	

 	 	 	 	

Total revenue	 	$	125,914	 	 	$	112,384	 	 	$	13,530	 	 	 	12	%	

 	 	 	 	

Tax equivalent net interest margin	 	 	4.20	%	 	 	4.51	%	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	
Net income of $38.008 million was a $5.606 million increase over the $32.402 million for the year ended December 31, 2002, an increase of 17 percent. The following narrative provides additional information on those results. 
Interest Income -Historical low interest rates during most of the year resulted in a $3 million reduction in interest income even though the earning assets of the Company increased significantly. With the sustained low rates throughout the year many loans of all types were refinanced with the rate on the new loans substantially lower than the prepaid loans. New loans also were at much lower rates than the average rates earned on the existing loans. Mortgage related investment securities experienced much of the same results as the loan portfolio. Investments were prepaid which negatively impacted interest income in two ways: 1) securities that were purchased at a premium that experienced prepayments had an acceleration of the amortization of the premium which reduced the 
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income; 2) reinvestment of the proceeds was at a lower rate than previously enjoyed on the amounts invested. The weighted average yield on earning assets (tax free income adjusted for tax effects) decreased from 6.91 percent for the year 2002 to 5.86 percent in 2003. Increased balances in earning assets offset much of the rate impact. 
Interest expense — Interest expense decreased even more with total interest expense $9 million, or 19 percent, lower in 2003. Most of the expense reduction came from deposits as rates continued to decline during the year. In addition higher rate certificates of deposits matured which further reduced interest expense. These rate reductions coupled with increasing balances in non-interest bearing deposits resulted in the deposit expense reduction. The balance in FHLB advances increased $294 million during the year, however, with a combination of maturing higher cost advances and lower rates on new advances the interest expense on total advances decreased by $99,000 from the prior year. The weighted average rate on advances decreased from 4.15 percent for 2002 to 2.80 for 2003. The weighted rate on total advances outstanding at December 31, 2003 was 2.19 percent. 
The prolonged low interest rates have resulted in a reduction in the net interest margin (ratio of net interest income divided by average earning assets) from 4.51 percent in 2002 to 4.20 percent in 2003 with the third quarter of 2003 being the lowest level at 4.12 percent. The ratio increased to 4.17 percent in the fourth quarter of 2003 primarily due to increased earnings on investments. With the low interest rates many real estate loans have either been refinanced which lowers the future earnings rate on the loans that are retained, or the loan is paid off which also lowers future earnings. To remain competitive it has become necessary to reduce rates to market levels on all loan types which reduces interest income on those loans. Investment income also is lower on securities purchased during this low rate period than on securities previously held in the portfolio. Prepayment of mortgage-backed securities also has occurred as underlying mortgage loans have been prepaid. This prepayment not only reduced the level of assets with higher rates but also resulted in much faster amortization of premiums associated with the securities further reducing interest income. To offset the reduction in interest income, rates on interest bearing deposits have been reduced and matured borrowings have been renewed at lower rates. The increased level of non-interest bearing deposits has reduced the need for additional borrowings which also has resulted in lower interest expense. 
Non-interest income – Total non-interest income increased $8 million, or 29 percent over the prior year. $2 million of the increase was from increased volumes in loan and deposit activity and the resulting fees. $1 million of the increase was contributed by net gains on sale of investment securities. The largest portion of the increase was from a $5 million increase in the gain on sale of loans, the majority of which was from residential real estate loans. The low interest rates during 2003 resulted in a very large increase in the number of loans being refinanced to obtain low long term financing, and an increase in new home loans because of affordable monthly payments. 
Increasing rates affect the level of fee income created from the origination and sale of mortgage loans as the refinance of loans is substantially reduced or eliminated. Purchases of homes can also be affected because of reduced affordability due to higher monthly payments with higher interest rates. The subsidiary banks are located in areas of robust population growth which somewhat mitigates the risk of significant reduction in home purchases. Reduction in refinance activity also reduces the variable expenses such as commissions for loan origination and could result in additional reductions in expense. 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-interest expense summary	 	Years ended December 31,
	
($ in thousands)
	 	2003
	 	2002
	 	$ change
	 	% change
	
Compensation and employee benefits	 	$	36,173	 	 	$	30,448	 	 	$	5,725	 	 	 	19	%	
Occupancy and equipment expense	 	 	9,931	 	 	 	9,591	 	 	 	340	 	 	 	4	%	
Outsourced data processing	 	 	1,650	 	 	 	2,048	 	 	 	(398	)	 	 	-19	%	
Core deposit intangibles amortization	 	 	1,243	 	 	 	1,439	 	 	 	(196	)	 	 	-14	%	
Other expenses	 	 	16,947	 	 	 	14,287	 	 	 	2,660	 	 	 	19	%	

 	 	 	 	

Total non-interest expense	 	$	65,944	 	 	$	57,813	 	 	$	8,131	 	 	 	14	%	

 	 	 	 	

Non-interest expense — Non-interest expense also increased $8 million, a 14 percent increase, with $6 million of the increase in the compensation and benefits classification. The Pend Oreille acquisition, additional branches in the Boise and Bozeman markets, commissions paid to mortgage loan originators, normal increases for job performance, and some benefits that are tied to the Company stock price performance account for the majority of the increase. Advertising and marketing, start up expenses for the High Performance Checking program, and other volume related expenses made up most of the remainder of the increased expense. 
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The efficiency ratio, which measures the cost per dollar of revenue generated, increased from 51 percent in 2002 to 52 percent in 2003. Although this increased from the prior year it is still significantly less than the 61 percent average of similar sized banking companies. 
 	 	 	 	 	 	 	 	 	
Credit quality information	 	December 31,	 	December 31,	
(Unaudited - $ in thousands)
	 	2003
	 	2002
	
Allowance for loan losses	 	$	23,990	 	 	$	20,944	 	
Non-performing assets	 	 	13,068	 	 	 	11,582	 	
Allowance as a percentage of non performing assets	 	 	184	%	 	 	181	%	
Non-performing assets as a percentage of total assets	 	 	0.48	%	 	 	0.51	%	
Allowance as a percentage of total loans	 	 	1.65	%	 	 	1.58	%	
Net charge-offs as a percentage of loans	 	 	0.118	%	 	 	0.261	%	
Provision for loan losses – The provision for loan losses was $3.809 million in 2003 which was a reduction of $1.936 million from 2002. Charged off loans, net of recoveries of loans previously charged off, were $1.733 million lower in 2003 than the prior year. The balance in the allowance for loan losses increased $3.046 million from the prior year end. At December 31, 2003 non-performing assets (non-accrual loans, accruing loans 90 days or more overdue, real estate acquired by foreclosure, and repossessed personal property) totaled $13.068 million, or .48 percent of total assets; compared to $11.582 million, or .51 percent at December 31, 2002. The peer group average according to the Federal Reserve Bank Performance Report as of September 30, 2003, the most recent information available, for banking companies similar to our size was .65 percent of total assets. The allowance for loan losses was 184 percent of non-performing assets, and 1.65 percent of total loans as of December 31, 2003 which compares to 181 percent and 1.58 percent, respectively, at December 31, 2002. 
Effect of inflation and changing prices 
Generally accepted accounting principles require the measurement of financial position and operating results in terms of historical dollars, without consideration for change in relative purchasing power over time due to inflation. Virtually all assets of a financial institution are monetary in nature; therefore, interest rates generally have a more significant impact on a company’s performance than does the effect of inflation. 
Commitments 
In the normal course of business, there are various outstanding commitments to extend credit, such as letter of credit and un-advanced loan commitments, which are not reflected in the accompanying consolidated financial statements. Management does not anticipate any material losses as a result of these transactions. The Company has outstanding debt maturities, the largest of which are the advances from the Federal Home Loan Bank. See footnote 8 for the maturity schedule of the advances. 
The following table represents our contractual obligations as of December 31, 2003: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Payments Due by Period
	
(dollars in thousands)
	 	Total
	 	2004
	 	2005
	 	2006
	 	2007
	 	2008
	 	Thereafter
	
Capital lease obligations	 	 	2,645	 	 	 	157	 	 	 	161	 	 	 	166	 	 	 	149	 	 	 	124	 	 	 	1,888	 	
Operating lease obligations	 	 	5,069	 	 	 	982	 	 	 	811	 	 	 	684	 	 	 	552	 	 	 	498	 	 	 	1,542	 	

 	 	 	 	

 	 	 	 	

 	 	$	7,714	 	 	 	1,139	 	 	 	972	 	 	 	850	 	 	 	701	 	 	 	622	 	 	 	3,430	 	

 	 	 	 	

 	 	 	 	

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 
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Table of Contents
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 
The objective of interest rate risk management is to contain the risks associated with interest rate fluctuations. The process involves identification and management of the sensitivity of net interest income to changing interest rates. Managing interest rate risk is not an exact science. The interval between repricing of interest rates of assets and liabilities changes from day to day as the assets and liabilities change. For some assets and liabilities contractual maturity and the actual cash flows experienced are not the same. A good example is residential mortgages that have long term contractual maturities but may be repaid well in advance of the maturity when current prevailing interest rates become lower than the contractual rate. Interest-bearing deposits without a stated maturity could be withdrawn after seven days, however, the Bank’s experience indicates that these funding pools have a much longer duration and are not as sensitive to interest rate changes as other financial instruments. Prime based loans generally have rate changes when the Federal Reserve Bank changes short term interest rates, however, depending on the magnitude of the rate change and the relationship of the current rates to rate floors and rate ceilings that may be in place on the loans, the loan rate may not change. 
GAP analysis 
The following table gives a description of our GAP position for various time periods. As of December 31, 2003, we had a negative GAP position at six months and a positive GAP position at twelve months. The cumulative GAP as a percentage of total assets for six months is a negative 4.00% which compares to a negative 2.77% at December 31, 2002 and a negative 12.52% at December 31, 2001. The table also shows the GAP earnings sensitivity, and earnings sensitivity ratio, along with a brief description as to how they are calculated. The methodology used to compile this GAP information is based on our mix of assets and liabilities and the historical experience accumulated regarding their rate sensitivity. 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Projected maturity or repricing
	
 	 	0-6	 	6-12	 	1 - 5	 	More than	 	 	
(dollars in thousands)
	 	Months
	 	Months
	 	years
	 	5 years
	 	Total
	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest bearing deposits	 	$	8,028	 	 	 	162	 	 	 	857	 	 	 	—	 	 	 	9,047	 	
Investment securities	 	 	16,253	 	 	 	2,217	 	 	 	61,454	 	 	 	241,342	 	 	 	321,266	 	
Mortgage-backed securities	 	 	249,848	 	 	 	111,174	 	 	 	317,799	 	 	 	50,224	 	 	 	729,045	 	
Floating rate loans	 	 	450,750	 	 	 	74,518	 	 	 	311,102	 	 	 	9,942	 	 	 	846,312	 	
Fixed rate loans	 	 	236,570	 	 	 	74,516	 	 	 	207,195	 	 	 	92,037	 	 	 	610,318	 	
FHLB stock and FRB stock	 	 	39,137	 	 	 	—	 	 	 	—	 	 	 	7,506	 	 	 	46,643	 	

 	 	 	 	

 	 	
Total interest bearing assets	 	$	1,000,586	 	 	 	262,587	 	 	 	898,407	 	 	 	401,051	 	 	 	2,562,631	 	

 	 	 	 	

 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-bearing deposits	 	 	623,906	 	 	 	104,860	 	 	 	105,272	 	 	 	394,535	 	 	 	1,228,573	 	
FHLB advances	 	 	414,477	 	 	 	37,560	 	 	 	243,213	 	 	 	82,044	 	 	 	777,294	 	
Other borrowed funds and repurchase agreements	 	 	64,593	 	 	 	—	 	 	 	—	 	 	 	393	 	 	 	64,986	 	

 	 	 	 	

 	 	
Total interest bearing liabilities	 	$	1,102,976	 	 	 	142,420	 	 	 	348,485	 	 	 	476,972	 	 	 	2,070,853	 	

 	 	 	 	

 	 	
Repricing gap	 	$	(102,390	)	 	 	120,167	 	 	 	549,922	 	 	 	(75,921	)	 	 	491,778	 	
Cumulative repricing gap	 	$	(102,390	)	 	 	17,777	 	 	 	567,699	 	 	 	491,778	 	 	 	 	 	
Cumulative gap as a % of total assets	 	 	-4.00	%	 	 	0.69	%	 	 	22.15	%	 	 	19.19	%	 	 	 	 	
Gap Earnings Sensitivity (1)	 	 	 	 	 	$	108	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gap Earnings Sensitivity Ratio (2)	 	 	 	 	 	 	0.29	%	 	 	 	 	 	 	 	 	 	 	 	 	
(1) Gap Earnings Sensitivity is the estimated effect on income, after taxes of 39%, of a 1% increase or decrease in interest rates (1% of ($17,777 — $6,933)) 
(2) Gap Earnings Sensitivity Ratio is Gap Earnings Sensitivity divided by the estimated yearly earnings of $38,008. A 1% increase in 
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interest rates has this estimated percentage decrease effect on annual income. 
This table estimates the repricing maturities of the Company’s assets and liabilities, based upon the Company’s assessment of the repricing characteristics of the various instruments. Interest-bearing checking and regular savings are included in the more than 5 years category. Money market balances are included in the less than 6 months category. Mortgage-backed securities are at the anticipated principal payments based on the weighted-average-life. 
Net interest income simulation 
The traditional one-dimensional view of GAP is not sufficient to show a bank’s ability to withstand interest rate changes. Because of limitations in GAP modeling the Asset/Liability Management Committee (ALCO) of the Company uses a detailed and dynamic simulation model to quantify the estimated exposure of net interest income (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 statement of financial condition. 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 or 100 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 as a benchmark. Other non-parallel rate movement scenarios are also modeled to determine the potential impact on net interest income. The following reflects the Company’s NII sensitivity analysis as of December 31, 2003 and 2002 as compared to the 10% Board approved policy limit. 
 	 	 	 	 	 	 	 	 	
 	 	2003
	 	2002
	
+200 bp	 	 	 	 	 	 	 	 	
Estimated sensitivity	 	 	-4.57	%	 	 	-1.37	%	
Estimated decrease in net interest income	 	$	(4,220	)	 	 	(1,185	)	
- -100 bp	 	 	 	 	 	 	 	 	
Estimated sensitivity	 	 	1.28	%	 	 	0.46	%	
Estimated increase in net interest income	 	$	1,182	 	 	 	398	 	
The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of assets and liability cash flows, 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. 
Liquidity Risk 
Liquidity risk is the possibility that the Company will not be able to fund present and future obligations. The objective of liquidity management is to maintain cash flows adequate to meet current and future needs for credit demand, deposit withdrawals, maturing liabilities and corporate operating expenses. Core deposits, FHLB credit lines, available-for-sale investment securities, and net income are the key elements in meeting these objectives. All seven subsidiaries are members of the FHLB. This membership provides for established lines of credit in the form of advances that are a supplemental source of funds for lending and other general business purposes. As of year ended December 31, 2003, the Company had $965 million of available FHLB line of which $777 million was utilized. Accordingly, management of the Company has a wide range of versatility in managing the liquidity and asset/liability mix for each individual institution as well as the Company as a whole. During 2003, all seven financial institutions maintained liquidity levels in excess of regulatory requirements and deemed sufficient to meet operating cash needs. 
Capital Resources and Adequacy 
Maintaining capital strength has been a long term objective. Ample capital is necessary to sustain growth, provide protection against unanticipated declines in asset values, and to safeguard the funds of depositors. Capital also is a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. Shareholders’ equity increased $25.590 million during 2003, or 
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12 percent the net result of earnings of $38.008 million, less cash dividend payments and a decline of $3.495 million in the net unrealized gains on available-for-sale investment securities. For additional information see footnote 11 in the Consolidated Financial Statements. Dividend payments were increased by $.14 per share, or 23 percent in 2003. The payment of dividends is subject to government regulation, in that regulatory authorities may prohibit banks and bank holding companies from paying dividends which would constitute an unsafe or unsound banking practice. 
Critical Accounting Policies 
Companies may apply certain critical accounting policies requiring management to make subjective or complex judgments, often as a result of the need to estimate the effect of matters that are inherently uncertain. The Company considers its only material critical accounting policy to be the allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged against earnings. The balance of allowance for loan losses is maintained at the amount management believes will be adequate to absorb known and inherent losses in the loan portfolio. The appropriate balance of allowance for loan losses is determined by applying estimated loss factors to the credit exposure from outstanding loans. Estimated loss factors are based on subjective measurements including management’s assessment of the internal risk classifications, changes in the nature of the loan portfolio, industry concentrations and the impact of current local, regional and national economic factors on the quality of the loan portfolio. Changes in these estimates and assumptions are reasonably possible and may have a material impact on the Company’s consolidated financial statements, results of operations or liquidity. 
For additional information regarding the allowance for loan losses, its relation to the provision for loans losses and risk related to asset quality, see Note 4 to the Consolidated Financial Statements in “Item 8 – Financial Statements and Supplementary Data”. 
Impact of Recently Issued Accounting Standards 
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN46), Consolidation of Variable Interest Entities and, in December 2003, issued Revised Interpretation No. 46 (FIN 46R), Consolidation of Variable Interest Entities, which replaced FIN 46. Variable interest entities are entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. On December 31, 2003, the Company adopted FIN 46R for its existing variable interest entities. The adoption of FIN 46 and FIN 46R did not have a material effect on the Company’s financial statements, except as described below. 
Historically, issuer trusts that issued trust preferred securities have been consolidated by their parent companies and trust preferred securities have been treated as eligible for Tier 1 capital treatment by bank holding companies under Federal Reserve rules and regulations relating to minority interest in equity accounts of consolidated subsidiaries. Applying the provisions of FIN 46R, the Company is no longer permitted to consolidate the issuer trust, beginning on December 31, 2003. Although the Federal Reserve has stated in its July 2, 2003 Supervisory Letter that trust preferred securities will be treated as Tier 1 capital until notice is given to the contrary, the Supervisory Letter also indicates that the Federal Reserve will review the regulatory implications of any accounting treatment changes and will provide further guidance if necessary or warranted. 
Year Ended December 31, 2002 Compared to December 31, 2001 
Financial Condition 
Total assets increased $195,597,000, or 9.4%, over the December 31, 2001 asset level. Total gross loans outstanding decreased 1.4%, or $19,384,000. Residential real estate loans held for investment decreased $85,058,000, or 21.6%. With the continued decline in interest rates during 2002 a large number of real estate loans were refinanced which combined with the Company strategy of selling long term real estate loans as they are originated has resulted in a net reduction in real estate loans outstanding. Consumer loans, including home equity loans, also decreased 12,032,000, or 4.2%. The majority of the consumer loan decrease is attributed to dealer originated loans. Commercial loans, which continue to be our lending focus, increased $53,123,000 or 8.6%. Investment securities increased $231,383,000, or 45.5%, the result of redeploying the cash received from the residential real estate loans to mortgage related investment securities, and the investment of other liquid funds. 
Total liabilities increased $160,331,000, or 8.4%, primarily the result of the increase in FHLB and other borrowings which increased $144,013,000 or 36%. Total deposits decreased $13,859,000 or 1.0% however, there was a significant shift from interest bearing deposits to non-interest bearing deposits. Non-interest bearing deposits increased $60,698,000 or 26% and interest bearing deposits decreased $46,839,000 or 3.9%. Federal Home Loan Bank advances increased $116,365,000, or 31.7% and securities sold under repurchase agreements and other borrowed funds were up $27,648,000, or 82.2%. 
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During 2002, the Company increased dividends per share to $.67, an increase of 11.7% over the prior year. Stockholders’ equity, excluding accumulated other comprehensive income, increased $26,911,000, or 15.4% the result of earnings retention and the exercise of stock options. Accumulated other income, which is comprised of unrealized gains on securities available-for-sale, increased $8,355,000 or 475.8%. 
Results of Operations 
The 2002 results of operations include the full year impact of the first quarter 2001 acquisitions of WesterFed Financial Corporation and branch purchases in Idaho and Utah. 
Interest Income — Interest income was $133,989,000 and $137,920,000 for the years ended December 31, 2002 and 2001, respectively, a $3,931,000, or 2.9% decrease, primarily the result of continuing low interest rates. The weighted average yield on the loan and investment portfolios decreased from 7.8% to 6.9%, also the result of lower interest rates. 
Interest Expense — Interest expense was $47,522,000 for the year ended December 31, 2002, down from $65,546,000 in 2001, a $18,024,000, or 27.50%, decrease. The increase in non-interest bearing deposits and significant reductions in rates paid on interest bearing deposits and borrowed funds, are the primary reasons for the decreased interest expense. The cost of interest bearing liabilities decreased from 4.3% in 2002 to 2.8% in 2001. 
Net Interest Income — Net interest income was $86,467,000 compared to $72,374,000 in 2001, an increase of $14,093,000, or 19.5%, the net result of the items discussed in the above paragraphs. 
Provision for Loan Losses — The provision for loan losses was $5,745,000 for 2002, up from $4,525,000 for 2001. Total loans charged off, net of recoveries, were $3,455,000 in 2002, up from the $2,563,000 experienced in 2001. The allowance for loan losses balance was $20,944,000 at year end 2002, up from $18,654,000 at year end 2001, an increase of $2,290,000. With the continual change in loan mix from residential real estate to commercial and consumer loans, which historically have greater credit risk, the Company has increased the balance in the reserve for loan losses account. At December 31, 2002, the non-performing assets (non-accrual loans, accruing loans 90 days or more overdue, real estate acquired by foreclosure or deed-in-lieu thereof, and repossessed personal property) totaled $11,582,000 or .51% of total assets; compared to $11,275,000 or .53% of total assets at December 31, 2001. The peer group average, according to the Federal Reserve Bank Performance Report as of September 30, 2002, the most recent information available, for banking companies similar to our size was .63% of total assets. The allowance for loan losses was 181% of non-performing assets at December 31, 2002, up from 165% the prior year end. The allowance for loan losses as a percentage of loans increased to 1.58% from 1.39 % at the 2002 and 2001 year ends, respectively. 
Non-interest income — Total non-interest income of $25,917,000 was up $2,666,000, or 11.5% from 2001. Loan fees and charges and gain on sale of loans increased $138,000 and $1,324,000, respectively, from the prior year, the result of increased loan originations and refinancing in the low interest rate environment. Service charges and other fees increased $1,721,000 or 14.0% from 2001. Other income decreased $691,000, primarily from the 2001 $511,000 gain on sale of Glacier Bank Cutbank office included in other income. The gain on sale of investments was $238,000 in 2002, up from $64,000 in 2001, the result of repositioning certain investments. 
Non-interest expense – Total non-interest expense was $57,813,000 compared to $57,385,000 for the year ended December 31, 2001. Prior year includes $1,975,000 of merger expenses and $1,699,000 in goodwill amortization, and current year includes a reversal of a merger related accrual of $323,000. Compensation, employee benefits, and related expenses increased $2,507,000, or 9.0% from 2001. Outsourced data processing expense has decreased $548,000, or 21.1%, a result of converting Western Security Bank’s data processing functions to the Company’s system, which also was a reason for the increase in compensation expense. Occupancy and equipment expense increased $912,000, or 10.5% from 2001. Other expenses increased $1,152,000, or 8.8%. 
The efficiency ratio (non-interest expense)/(net interest income + non-interest income), was 51.4% in 2002, down from 60.0% in 2000, which compares favorably with similar sized bank holding companies nationally which average approximately 60.5%. 
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 
Information regarding “Quantitative and Qualitative Disclosures about Market Risk” is set fourth under “Item 7 — Management’s Discussion and Analysis”. 
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Item 8. Financial Statements and Supplementary Data 
The following audited consolidated financial statements and related documents are set forth in the Annual Report on Form 10-K on the pages indicated. 
 	 	 	 	 	
 	 	Page
	
Independent Auditors’ Report	 	 	34	 	
Consolidated Statements of Financial Condition	 	 	35	 	
Consolidated Statements of Operations	 	 	36	 	
Consolidated Statements of Stockholders’ Equity and Comprehensive Income	 	 	37	 	
Consolidated Statements of Cash Flows	 	 	38	 	
Notes to Consolidated Financial Statements	 	 	39-62	 	
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Independent Auditors’ Report 
The Board of Directors and Stockholders
Glacier Bancorp, Inc.: 
We have audited the accompanying consolidated statements of financial condition of Glacier Bancorp, Inc. and subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Glacier Bancorp, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. 
As discussed in Notes 1 and 6 to the consolidated financial statements, the Company changed its accounting for goodwill in accordance with Statements of Financial Accounting Standards No. 142, Goodwill and Other Intangibles, and No. 147, Acquisitions of Certain Financial Institutions, effective January 1, 2002. 
/s/ KPMG 
Billings, Montana
February 4, 2004 
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Glacier Bancorp, Inc.
Consolidated Statements of Financial Condition 
 	 	 	 	 	 	 	 	 	
 	 	December 31,
	
(dollars in thousands, except per share data)
	 	2003
	 	2002
	
Assets:	 	 	 	 	 	 	 	 	
Cash on hand and in banks 	 	$	77,093	 	 	 	74,624	 	
Interest bearing cash deposits	 	 	9,047	 	 	 	4,753	 	

 	 	
Cash and cash equivalents	 	 	86,140	 	 	 	79,377	 	
Investment securities, available-for-sale 	 	 	1,050,311	 	 	 	739,961	 	
Federal Home Loan Bank of Seattle stock, at cost 	 	 	41,235	 	 	 	38,286	 	
Federal Reserve Bank stock, at cost	 	 	5,408	 	 	 	4,578	 	
Loans receivable, net of allowance for loan losses of $23,990 and $20,944 at December 31, 2003, and 2002, respectively	 	 	1,413,392	 	 	 	1,248,666	 	
Loans held for sale	 	 	16,973	 	 	 	51,987	 	
Premises and equipment, net 	 	 	53,251	 	 	 	47,215	 	
Real estate and other assets owned, net 	 	 	587	 	 	 	1,542	 	
Accrued interest receivable 	 	 	14,941	 	 	 	13,421	 	
Core deposit intangible, net of accumulated amortization of $4,257 and $3,014 at December 31, 2003, and 2002, respectively	 	 	5,865	 	 	 	6,822	 	
Goodwill	 	 	36,951	 	 	 	33,189	 	
Other assets	 	 	14,579	 	 	 	16,300	 	

 	 	
 	 	$	2,739,633	 	 	 	2,281,344	 	

 	 	
Liabilities:	 	 	 	 	 	 	 	 	
Non-interest bearing deposits	 	$	369,052	 	 	 	295,016	 	
Interest bearing deposits	 	 	1,228,573	 	 	 	1,164,907	 	
Advances from Federal Home Loan Bank of Seattle 	 	 	777,294	 	 	 	483,660	 	
Securities sold under agreements to repurchase 	 	 	56,968	 	 	 	46,206	 	
Other borrowed funds	 	 	8,018	 	 	 	15,087	 	
Accrued interest payable	 	 	4,353	 	 	 	6,090	 	
Deferred tax liability	 	 	7,369	 	 	 	8,629	 	
Subordinated debentures	 	 	35,000	 	 	 	35,000	 	
Other liabilities	 	 	15,167	 	 	 	14,500	 	

 	 	
Total liabilities	 	 	2,501,794	 	 	 	2,069,095	 	
Stockholders’ equity:	 	 	 	 	 	 	 	 	
Preferred shares, 1,000,000 shares authorized. None outstanding at December 31, 2003 and 2002	 	 	—	 	 	 	—	 	
Common stock, $.01 par value per share. 50,000,000 shares authorized, 19,362,670 and 19,014,400 issued and outstanding at December 31, 2003 and 2002, respectively	 	 	194	 	 	 	191	 	
Paid-in capital	 	 	222,636	 	 	 	216,974	 	
Retained earnings — substantially restricted	 	 	8,393	 	 	 	(15,027	)	
Accumulated other comprehensive income	 	 	6,616	 	 	 	10,111	 	

 	 	
Total stockholders’ equity 	 	 	237,839	 	 	 	212,249	 	

 	 	
 	 	$	2,739,633	 	 	 	2,281,344	 	

 	 	
See accompanying notes to consolidated financial statements. 
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Glacier Bancorp, Inc.
Consolidated Statements of Operations 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years ended December 31,
	
(dollars in thousands, except per share data)
	 	2003
	 	2002
	 	2001
	
Interest Income:	 	 	 	 	 	 	 	 	 	 	 	 	
Real estate loans	 	$	23,883	 	 	 	29,290	 	 	 	34,012	 	
Commercial loans	 	 	50,203	 	 	 	47,013	 	 	 	48,292	 	
Consumer and other loans	 	 	20,013	 	 	 	22,559	 	 	 	25,528	 	
Investment securities and other	 	 	36,731	 	 	 	35,127	 	 	 	30,088	 	

 	 	 	 	
 	 	
Total Interest Income	 	 	130,830	 	 	 	133,989	 	 	 	137,920	 	

 	 	 	 	
 	 	
Interest Expense:	 	 	 	 	 	 	 	 	 	 	 	 	
Deposits 	 	 	17,221	 	 	 	26,268	 	 	 	42,692	 	
Federal Home Loan Bank of Seattle advances 	 	 	16,860	 	 	 	16,959	 	 	 	18,280	 	
Securities sold under agreements to repurchase 	 	 	673	 	 	 	591	 	 	 	1,014	 	
Subordinated debentures	 	 	3,615	 	 	 	3,616	 	 	 	3,313	 	
Other borrowed funds	 	 	109	 	 	 	88	 	 	 	247	 	

 	 	 	 	
 	 	
Total Interest Expense	 	 	38,478	 	 	 	47,522	 	 	 	65,546	 	

 	 	 	 	
 	 	
Net Interest Income 	 	 	92,352	 	 	 	86,467	 	 	 	72,374	 	
Provision for loan losses 	 	 	3,809	 	 	 	5,745	 	 	 	4,525	 	

 	 	 	 	
 	 	
Net interest income after provision for loan losses	 	 	88,543	 	 	 	80,722	 	 	 	67,849	 	
Non-Interest Income:	 	 	 	 	 	 	 	 	 	 	 	 	
Service charges and other fees	 	 	15,458	 	 	 	14,011	 	 	 	12,290	 	
Miscellaneous loan fees and charges	 	 	4,298	 	 	 	3,943	 	 	 	4,058	 	
Gain on sale of loans	 	 	10,674	 	 	 	5,709	 	 	 	4,132	 	
Gain on sale of investments, net of impairment charge	 	 	1,253	 	 	 	238	 	 	 	64	 	
Other income	 	 	1,879	 	 	 	2,016	 	 	 	2,707	 	

 	 	 	 	
 	 	
Total Non-Interest Income	 	 	33,562	 	 	 	25,917	 	 	 	23,251	 	

 	 	 	 	
 	 	
Non-Interest Expense:	 	 	 	 	 	 	 	 	 	 	 	 	
Compensation, employee benefits and related expenses	 	 	36,173	 	 	 	30,448	 	 	 	27,941	 	
Occupancy and equipment expense	 	 	9,931	 	 	 	9,591	 	 	 	8,679	 	
Outsourced data processing expense	 	 	1,650	 	 	 	2,048	 	 	 	2,596	 	
Core deposit intangibles amortization 	 	 	1,243	 	 	 	1,439	 	 	 	1,325	 	
Goodwill amortization 	 	 	—	 	 	 	—	 	 	 	1,699	 	
Merger expense	 	 	56	 	 	 	—	 	 	 	1,975	 	
Other expense	 	 	16,891	 	 	 	14,287	 	 	 	13,135	 	
Minority interest	 	 	—	 	 	 	—	 	 	 	35	 	

 	 	 	 	
 	 	
Total Non-Interest Expense	 	 	65,944	 	 	 	57,813	 	 	 	57,385	 	

 	 	 	 	
 	 	
Earnings before income taxes	 	 	56,161	 	 	 	48,826	 	 	 	33,715	 	
Federal and state income tax expense 	 	 	18,153	 	 	 	16,424	 	 	 	12,026	 	

 	 	 	 	
 	 	
Net Earnings	 	$	38,008	 	 	 	32,402	 	 	 	21,689	 	

 	 	 	 	
 	 	
Basic earnings per share	 	$	1.97	 	 	 	1.72	 	 	 	1.26	 	
Diluted earnings per share	 	$	1.94	 	 	 	1.69	 	 	 	1.22	 	
See accompanying notes to consolidated financial statements. 
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Glacier Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
and Comprehensive Income
Years ended December 31, 2003, 2002, and 2001 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Retained	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	earnings	 	Accumulated	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	(accumulated	 	other comp-	 	Total	
 	 	Common Stock	 	 	 	 	 	deficit)	 	rehensive	 	stock-	
 	 		 	Paid-in	 	substantially	 	income	 	holders’	
(Dollars in thousands, except per share data)
	 	Shares
	 	Amount
	 	capital
	 	restricted
	 	(loss)
	 	equity
	
Balance at December 31, 2000	 	 	12,591,865	 	 	$	132	 	 	 	145,394	 	 	 	(47,671	)	 	 	258	 	 	 	98,113	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	—	 	 	 	—	 	 	 	—	 	 	 	21,689	 	 	 	—	 	 	 	21,689	 	
Unrealized gain on securities, net of reclassification adjustment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,498	 	 	 	1,498	 	

Total comprehensive income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	23,187	 	

Cash dividends declared ($.55 per share)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(9,915	)	 	 	—	 	 	 	(9,915	)	
Stock options exercised	 	 	951,028	 	 	 	9	 	 	 	6,755	 	 	 	—	 	 	 	—	 	 	 	6,764	 	
Tax benefit from stock related compensation	 	 	—	 	 	 	—	 	 	 	2,778	 	 	 	—	 	 	 	—	 	 	 	2,778	 	
Conversion of debentures	 	 	35,463	 	 	 	1	 	 	 	341	 	 	 	—	 	 	 	—	 	 	 	342	 	

Stock issued in connection with merger of WesterFed Financial Corporation 	 	 	4,983,508	 	 	 	45	 	 	 	55,669	 	 	 	—	 	 	 	—	 	 	 	55,714	 	

 	 	 	 	

 	 	 	 	
 	 	
Balance at December 31, 2001	 	 	18,561,864	 	 	$	187	 	 	 	210,937	 	 	 	(35,897	)	 	 	1,756	 	 	 	176,983	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	—	 	 	 	—	 	 	 	—	 	 	 	32,402	 	 	 	—	 	 	 	32,402	 	
Unrealized gain on securities, net of reclassification adjustment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8,355	 	 	 	8,355	 	

Total comprehensive income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	40,757	 	

Cash dividends declared ($.61 per share)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(11,532	)	 	 	—	 	 	 	(11,532	)	
Stock options exercised	 	 	452,536	 	 	 	4	 	 	 	4,957	 	 	 	—	 	 	 	—	 	 	 	4,961	 	
Tax benefit from stock related compensation	 	 	—	 	 	 	—	 	 	 	1,080	 	 	 	—	 	 	 	—	 	 	 	1,080	 	

 	 	 	 	

 	 	 	 	
 	 	
Balance at December 31, 2002	 	 	19,014,400	 	 	$	191	 	 	 	216,974	 	 	 	(15,027	)	 	 	10,111	 	 	 	212,249	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	—	 	 	 	—	 	 	 	—	 	 	 	38,008	 	 	 	—	 	 	 	38,008	 	
Unrealized loss on securities, net of reclassification adjustment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,495	)	 	 	(3,495	)	

Total comprehensive income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	34,513	 	

Cash dividends declared ($.75 per share)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(14,573	)	 	 	—	 	 	 	(14,573	)	
Stock options exercised	 	 	348,270	 	 	 	3	 	 	 	4,671	 	 	 	—	 	 	 	—	 	 	 	4,674	 	
Acquisition of fractional shares	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(15	)	 	 	—	 	 	 	(15	)	
Tax benefit from stock related compensation	 	 	—	 	 	 	—	 	 	 	991	 	 	 	—	 	 	 	—	 	 	 	991	 	

 	 	 	 	

 	 	 	 	
 	 	
Balance at December 31, 2003	 	 	19,362,670	 	 	$	194	 	 	 	222,636	 	 	 	8,393	 	 	 	6,616	 	 	 	237,839	 	

 	 	 	 	

 	 	 	 	

 	 	Year ended December 31,
	
Disclosure of reclassification amount:
	 	2003
	 	2002
	 	2001
	
Unrealized and realized holding (loss) gains arising during the year	 	$	(2,225	)	 	 	13,980	 	 	 	2,528	 	
Tax benefit (expense)	 	 	866	 	 	 	(5,480	)	 	 	(991	)	

 	 	 	 	
 	 	
Net after tax	 	 	(1,359	)	 	 	8,500	 	 	 	1,537	 	

 	 	 	 	
 	 	
Reclassification adjustment for net gains included in net income	 	 	(3,502	)	 	 	(238	)	 	 	(64	)	
Tax expense	 	 	1,366	 	 	 	93	 	 	 	25	 	

 	 	 	 	
 	 	
Net after tax	 	 	(2,136	)	 	 	(145	)	 	 	(39	)	

 	 	 	 	
 	 	
Net change in unrealized gain on available-for-sale securities	 	$	(3,495	)	 	 	8,355	 	 	 	1,498	 	

 	 	 	 	
 	 	
See accompanying notes to consolidated financial statements. 
37 

Table of Contents
Consolidated Statements of Cash Flows 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years ended December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	 	2001
	
OPERATING ACTIVITIES :	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	$	38,008	 	 	 	32,402	 	 	 	21,689	 	
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Mortgage loans held for sale originated or acquired	 	 	(521,323	)	 	 	(409,481	)	 	 	(293,354	)	
Proceeds from sales of mortgage loans held for sale	 	 	567,010	 	 	 	390,353	 	 	 	255,671	 	
Provision for loan losses	 	 	3,809	 	 	 	5,745	 	 	 	4,525	 	
Depreciation of premises and equipment	 	 	4,283	 	 	 	4,178	 	 	 	3,837	 	
Amortization of goodwill and core deposit intangible	 	 	1,243	 	 	 	1,439	 	 	 	3,024	 	
Gain on sale of investments, net of impairment charge	 	 	(1,253	)	 	 	(238	)	 	 	(64	)	
Gain on sale of loans	 	 	(10,674	)	 	 	(5,456	)	 	 	(4,132	)	
Amortization of investment securities premiums and discounts, net	 	 	14,360	 	 	 	5,640	 	 	 	3,268	 	
Federal Home Loan Bank of Seattle stock dividends	 	 	(2,179	)	 	 	(2,170	)	 	 	(1,990	)	
Gain on sale of branches	 	 	—	 	 	 	—	 	 	 	(511	)	
Deferred tax expense	 	 	721	 	 	 	1,466	 	 	 	593	 	
Net (increase) decrease in accrued interest receivable	 	 	(1,270	)	 	 	(1,012	)	 	 	485	 	
Net decrease in accrued interest payable	 	 	(1,795	)	 	 	(3,089	)	 	 	(3,462	)	
Net increase in current income taxes	 	 	2,636	 	 	 	165	 	 	 	3,855	 	
Net decrease (increase) in other assets	 	 	1,808	 	 	 	(1,041	)	 	 	(7,706	)	
Net decrease in other liabilities and minority interest	 	 	(98	)	 	 	(1,205	)	 	 	(10,934	)	

 	 	 	 	
 	 	
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	 	 	95,286	 	 	 	17,696	 	 	 	(25,206	)	

 	 	 	 	
 	 	
INVESTING ACTIVITIES:	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from sales, maturities and prepayments of investment securities available-for-sale	 	 	389,400	 	 	 	206,554	 	 	 	183,752	 	
Purchases of investment securities available-for-sale	 	 	(715,454	)	 	 	(429,596	)	 	 	(295,498	)	
Principal collected on installment and commercial loans	 	 	566,245	 	 	 	576,109	 	 	 	433,639	 	
Installment and commercial loans originated or acquired	 	 	(705,249	)	 	 	(617,200	)	 	 	(471,819	)	
Principal collections on mortgage loans	 	 	303,251	 	 	 	259,774	 	 	 	308,530	 	
Mortgage loans originated or acquired	 	 	(283,278	)	 	 	(178,171	)	 	 	(192,668	)	
Net purchase of FHLB and FRB stock	 	 	(973	)	 	 	(3,687	)	 	 	(3,857	)	
Acquisition of Pend Oreille Bank, WesterFed Financial Corporation and several branches	 	 	(243	)	 	 	—	 	 	 	109,042	 	
Net payments for sale of branches	 	 	—	 	 	 	—	 	 	 	(53,131	)	
Net (addition) disposal of premises and equipment	 	 	(7,579	)	 	 	(828	)	 	 	984	 	
Acquisition of minority interest	 	 	—	 	 	 	—	 	 	 	(251	)	

 	 	 	 	
 	 	
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES	 	 	(453,880	)	 	 	(187,045	)	 	 	18,723	 	

 	 	 	 	
 	 	
FINANCING ACTIVITIES:	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase in deposits	 	 	77,943	 	 	 	13,859	 	 	 	18,549	 	
Net increase in FHLB advances and other borrowed funds	 	 	286,565	 	 	 	130,391	 	 	 	1,876	 	
Net increase (decrease) in securities sold under repurchase agreements	 	 	10,762	 	 	 	13,621	 	 	 	(143	)	
Proceeds from issuance of subordinated debentures	 	 	—	 	 	 	—	 	 	 	35,000	 	
Conversion of debentures	 	 	—	 	 	 	—	 	 	 	(8	)	
Cash dividends paid	 	 	(14,572	)	 	 	(11,532	)	 	 	(9,915	)	
Proceeds from exercise of stock options and other stock issued	 	 	4,674	 	 	 	4,961	 	 	 	6,764	 	
Cash paid for stock dividends	 	 	(15	)	 	 	—	 	 	 	—	 	

 	 	 	 	
 	 	
NET CASH PROVIDED BY FINANCING ACTIVITIES	 	 	365,357	 	 	 	151,300	 	 	 	52,123	 	

 	 	 	 	
 	 	
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	 	 	6,763	 	 	 	(18,049	)	 	 	45,640	 	
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	 	 	79,377	 	 	 	97,426	 	 	 	51,786	 	

 	 	 	 	
 	 	
CASH AND CASH EQUIVALENTS AT END OF YEAR	 	$	86,140	 	 	 	79,377	 	 	 	97,426	 	

 	 	 	 	
 	 	
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION	 	 	 	 	 	 	 	 	 	 	 	 	
Cash paid during the year for interest	 	$	40,219	 	 	 	62,762	 	 	 	68,545	 	
Cash paid during the year for income taxes	 	$	14,721	 	 	 	14,793	 	 	 	8,243	 	
See accompanying notes to consolidated financial statements 
38 

Table of Contents
1. Summary of Significant Accounting Policies 
(a) General 
Glacier Bancorp, Inc. (the “Company”), a Delaware corporation organized in 1990, is a multi-bank holding company that provides a full range of banking services to individual and corporate customers in Montana, Idaho, Utah and Washington through its subsidiary banks. The subsidiary banks are subject to competition from other financial service providers. The subsidiary banks are also subject to the regulations of certain government agencies and undergo periodic examinations by those regulatory authorities. 
The accounting and consolidated financial statement reporting policies of the Company conform with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported and disclosed amounts of assets and liabilities as of the date of the statement of financial condition and income and expenses for the period. Actual results could differ significantly from those estimates. 
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the subsidiary banks’ allowance for loan losses. Such agencies may require the subsidiary banks to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. 
(b) Principles of Consolidation 
The consolidated financial statements include the accounts of the Company and its eight wholly owned operating subsidiaries, Glacier Bank (“Glacier”), First Security Bank of Missoula (“First Security”), Western Security Bank (“Western”), Mountain West Bank in Idaho, (“Mountain West”), Big Sky Western Bank, (“Big Sky”), Valley Bank of Helena (“Valley”), Glacier Bank of Whitefish (“Whitefish”), and Glacier Capital Trust I (“Glacier Trust”). All significant inter-company transactions have been eliminated in consolidation. 
Pend Oreille Bancorp was acquired July 15, 2003 and its branches became additional branches of Mountain West. Western was acquired on February 28, 2001 through the purchase of WesterFed Financial Corporation, its parent company. On March 15, 2001, the Company acquired seven Wells Fargo & Company and First Security Corporation subsidiary banks located in Idaho and Utah. The acquisitions were accounted for using the purchase method of accounting. Accordingly, the financial information presented includes the operations since the date of the acquisitions. See footnote 20 for additional information related to these transactions. 
On July 31, 2001, Glacier Bank of Eureka was merged into Whitefish and the minority interest of both banks was redeemed. 
(c) Cash and Cash Equivalents 
Cash and cash equivalents include cash on hand, cash held as demand deposits at various banks and regulatory agencies, interest bearing deposits and federal funds sold with original maturities of three months or less. 
(d) Investment Securities 
Debt securities for which the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and are stated at amortized cost. Debt and equity securities held primarily for the purpose of selling in the near term are classified as trading securities and are reported at fair market value, with unrealized gains and losses included in income. Debt and equity securities not classified as held-to-maturity or trading are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of income taxes, shown as a separate component of stockholders’ equity. Currently, the Company only holds available-for-sale securities. 
Premiums and discounts on investment securities are amortized or accreted into income using a method that approximates the level-yield interest method. The cost of any investment, if sold, is determined by specific identification. Declines in the fair value of securities below carrying value that are other than temporary are charged to expense as realized losses and the related carrying value is reduced to fair value. 
(e) Loans Receivable 
Loans that are intended to be held to maturity are reported at their unpaid principal balance less charge-offs, specific valuation accounts, and any deferred fees or costs on originated loans. Purchased loans are reported net of unamortized premiums or discounts. Discounts and premiums on purchased loans and net loan fees on originated loans are amortized over the expected life of loans using methods that approximate the effective interest method. 
39 

Table of Contents
1. Summary of Significant Accounting Policies ... continued 
Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full, timely collection of interest or principal or when a loan becomes contractually past due by ninety days or more with respect to interest or principal unless such past due loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. 
(f) Loans Held for Sale 
Mortgage and commercial loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized by charges to income. A sale is recognized when the Company surrenders control of the loan and consideration, other than beneficial interests in the loan, is received in exchange. A gain is recognized to the extent the selling price exceeds the carrying value. 
(g) Allowance for Loan Losses 
Management’s periodic evaluation of the adequacy of the allowance is based on factors such as the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, current economic conditions, and independent appraisals. 
The Company also provides an allowance for losses on impaired loans. Groups of small balance homogeneous loans (generally consumer and residential real estate loans) are evaluated for impairment collectively. A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect, on a timely basis, all principal and interest according to the contractual terms of the loan’s original agreement. When a specific loan is determined to be impaired, the allowance for loan losses is increased through a charge to expense for the amount of the impairment. The amount of the impairment is measured using cash flows discounted at the loan’s effective interest rate, except when it is determined that the sole source of repayment for the loan is the operations or liquidation of the underlying collateral. In such cases, impairment is measured by determining the current value of the collateral, reduced by anticipated selling costs. The Company recognizes interest income on impaired loans only to the extent the cash payments are received. 
(h) Premises and Equipment 
Premises and equipment are stated at cost less depreciation. Depreciation is computed on a straight-line method over the estimated useful lives or the term of the related lease. The estimated useful life for office building is 15-40 years and the estimated useful life for furniture, fixtures, and equipment is 3-10 years. 
i) Real Estate Owned 
Property acquired by foreclosure or deed in lieu of foreclosure is carried at the lower of cost or estimated fair value, less selling costs. Costs, excluding interest, relating to the improvement of property are capitalized, whereas those relating to holding the property are charged to expense. Fair value is determined as the amount that could be reasonably expected in a current sale (other than a forced or liquidation sale) between a willing buyer and a willing seller. If the fair value of the asset minus the estimated cost to sell is less than the cost of the property, a loss is recognized and the asset carrying value is reduced. 
(j) Restricted Stock Investments 
The Company holds stock in the Federal Home Loan Bank of Seattle (FHLB) and the Federal Reserve Bank (FRB). FHLB and FRB stocks are restricted because they may only be sold to another member institution or the FHLB or FRB at their par values. Due to restrictive terms, and the lack of a readily determinable market value, FHLB and FRB stocks are carried at cost. 
(k) Goodwill 
The excess of purchase price over the fair value of net assets from acquisitions (“Goodwill”), prior to January 1, 2002, was being amortized using the straight-line method over periods of primarily 5 to 25 years. As of January 1, 2002, the Company ceased amortization of goodwill as a result of Financial Accounting Standards Board (FASB) Statement 142, Goodwill and Other Intangible Assets and Statement 147, Acquisition of Certain Financial Institutions. As of January 1, 2002, on an annual basis, the Company tests goodwill for impairment at the subsidiary level during the third quarter. In addition, goodwill is tested for impairment on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has occurred. As of December 31, 2003 and 2002 the accumulated amortization of goodwill was $3,001,000. 
40 

Table of Contents
1. Summary of Significant Accounting Policies ... continued 
(l) Core Deposit Intangibles 
Core deposit intangibles represent the intangible value of depositor relationships resulting from deposit liabilities assumed in acquisitions and are amortized using an accelerated method based on an estimated runoff of the related deposits, not exceeding 10 years. The useful life of the core deposit intangible is reevaluated on an annual basis, with any changes in estimated useful life being accounted for prospectively over the revised remaining life. 
(m) Income Taxes 
Deferred tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 
(n) Stock-based Compensation 
Compensation cost for stock-based compensation to employees is measured at the grant date using the intrinsic value method. Under the intrinsic value method, compensation cost is the excess of the market price of the stock at the grant date over the amount an employee must pay to ultimately acquire the stock and is recognized over any related service period. 
The per share weighted-average fair value of stock options granted during 2003, 2002 and 2001 was $2.12, $3.26, and $2.81, respectively, on the date of grant using the Black Scholes option-pricing model with the following assumptions: 2003 – expected dividend yield of 3.01%, risk-free interest rate of 3.25%, volatility ratio of 21%, and expected life of 4.8 years: 2002 – expected dividend yield of 3.02%, risk-free interest rate of 2.73%, volatility ratio of 23%, and expected life of 4.8 years: 2001 – expected dividend yield of 3.60%, risk-free interest rate of 4.44%, volatility ratio of 25%, and expected life of 4.8 years. 
The exercise price of all options granted has been equal to the fair market value of the underlying stock at the date of grant and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value of the option itself at the grant date for its stock options under FASB Statement 123, Accounting for Stock-Based Compensation, the Company’s net income would have been reduced to the pro forma amounts indicated below: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Years ended December 31,
	
 	 	 	 	2003
	 	2002
	 	2001
	
Net earnings (in thousands):	 	As reported	 	$	38,008	 	 	 	32,402	 	 	 	21,689	 	
 	 	Compensation cost	 	 	(752	)	 	 	(577	)	 	 	(329	)	

 	 	 	 	
 	 	
 	 	Pro forma	 	 	37,256	 	 	 	31,825	 	 	 	21,360	 	

 	 	 	 	
 	 	
Basic earnings per share:	 	As reported	 	 	1.97	 	 	 	1.72	 	 	 	1.26	 	
 	 	Compensation cost	 	 	(0.04	)	 	 	(0.03	)	 	 	(0.02	)	

 	 	 	 	
 	 	
 	 	Pro forma	 	 	1.93	 	 	 	1.69	 	 	 	1.24	 	

 	 	 	 	
 	 	
Diluted earnings per share:	 	As reported	 	 	1.94	 	 	 	1.69	 	 	 	1.22	 	
 	 	Compensation cost	 	 	(0.04	)	 	 	(0.03	)	 	 	(0.02	)	

 	 	 	 	
 	 	
 	 	Pro forma	 	 	1.90	 	 	 	1.66	 	 	 	1.20	 	

 	 	 	 	
 	 	
(o) Long-lived Assets 
Long-lived assets, including core deposit intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is deemed impaired if the sum of the expected future cash flows is less than the carrying amount of the asset. If impaired, an impairment loss is recognized to reduce the carrying value of the asset to fair value. At December 31, 2003 and 2002 there were no assets that were considered impaired. 
(p) Mortgage Servicing Rights 
The Company recognizes the rights to service mortgage loans for others, whether acquired or internally originated. Loan servicing rights are initially recorded at fair value based on comparable market quotes and are amortized as other expense in proportion to and 
41 

Table of Contents
1. Summary of Significant Accounting Policies ... continued 
over the period of estimated net servicing income. Loan servicing rights are evaluated quarterly for impairment by discounting the expected future cash flows, taking into consideration the estimated level of prepayments based on current industry expectations and the predominant risk characteristics of the underlying loans including loan type, note rate and loan term. Impairment adjustments, if any, are recorded through a valuation allowance. 
As of December 31, 2003 and 2002 the carrying value of servicing rights was approximately $1,388,000 and $1,973,000, respectively. Amortization expense of $729,000, $480,000, and $314,000 was recognized in the years ended December 31, 2003, 2002, and 2001, respectively. The servicing rights are included in other assets on the balance sheet and are amortized over the period of estimated net servicing income. There was no impairment of carrying value at December 31, 2003 or 2002. At December 31, 2003, the fair value of mortgage servicing rights was approximately $1,957,000. 
(q) Earnings Per Share 
Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing such net earnings by the weighted average number of common shares used to compute basic EPS plus the incremental amount of potential common stock determined by the treasury stock method. Previous period amounts are restated for the effect of stock dividends and splits. 
(r) Stock Dividend 
On April 30, 2003, the Board of Directors declared a 10 percent stock dividend, payable in common stock of the Company to shareholders of record on May 13, 2003, payable on May 22, 2003. All prior period amounts have been restated to reflect the stock dividend. 
(s) Comprehensive Income 
Comprehensive income includes net income, as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company’s only significant element of other comprehensive income is unrealized gains and losses on available-for-sale securities. 
(t) Reclassifications 
Certain reclassifications have been made to the 2002 and 2001 financial statements to conform to the 2003 presentation. 
2. Cash on Hand and in Banks 
The subsidiary banks are required to maintain an average reserve balance with either the Federal Reserve Bank or in the form of cash on hand. The amount of this required reserve balance at December 31, 2003 was $7,957,000. 
42 

Table of Contents
3. Investment Securities, Available for Sale 
A comparison of the amortized cost and estimated fair value of the Company’s investment securities, available for sale, is as follows. 
INVESTMENTS AS OF DECEMBER 31, 2003 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Weighted	 	Amortized	 	Gross Unrealized
	 	Estimated 
Fair	
(Dollars in thousands)
	 	Yield
	 	Cost
	 	Gains
	 	Losses
	 	Value
	
U.S. Government and Federal Agencies	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
maturing within one year	 	 	0.85	%	 	$	352	 	 	 	—	 	 	 	—	 	 	 	352	 	
maturing one year through five years	 	 	1.29	%	 	 	259	 	 	 	—	 	 	 	(1	)	 	 	258	 	
maturing after ten years	 	 	2.97	%	 	 	957	 	 	 	15	 	 	 	(1	)	 	 	971	 	

 	 	 	 	

 	 	 	2.22	%	 	 	1,568	 	 	 	15	 	 	 	(2	)	 	 	1,581	 	

 	 	 	 	

State and Local Governments and other issues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
maturing within one year	 	 	5.69	%	 	 	4,346	 	 	 	41	 	 	 	—	 	 	 	4,387	 	
maturing one year through five years	 	 	4.30	%	 	 	5,485	 	 	 	84	 	 	 	(102	)	 	 	5,467	 	
maturing five years through ten years	 	 	5.35	%	 	 	4,910	 	 	 	197	 	 	 	—	 	 	 	5,107	 	
maturing after ten years	 	 	5.13	%	 	 	296,237	 	 	 	10,170	 	 	 	(1,683	)	 	 	304,724	 	

 	 	 	 	

 	 	 	5.13	%	 	 	310,978	 	 	 	10,492	 	 	 	(1,785	)	 	 	319,685	 	

 	 	 	 	

Mortgage-Backed Securities	 	 	4.30	%	 	 	64,123	 	 	 	1,465	 	 	 	(342	)	 	 	65,246	 	
Real Estate Mortgage Investment Conduits	 	 	4.03	%	 	 	662,727	 	 	 	4,983	 	 	 	(3,911	)	 	 	663,799	 	
FHLB and FRB stock, at cost	 	 	5.34	%	 	 	46,643	 	 	 	—	 	 	 	—	 	 	 	46,643	 	

 	 	 	 	

Total Investments	 	 	4.41	%	 	$	1,086,039	 	 	 	16,955	 	 	 	(6,040	)	 	 	1,096,954	 	

 	 	 	 	

INVESTMENTS AS OF DECEMBER 31, 2002 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Weighted	 	Amortized	 	Gross Unrealized
	 	Estimated
Fair	
(Dollars in thousands)
	 	Yield
	 	Cost
	 	Gains
	 	Losses
	 	Value
	
U.S. Government and Federal Agencies	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
maturing after ten years	 	 	3.45	%	 	$	1,086	 	 	 	10	 	 	 	(2	)	 	 	1,094	 	

 	 	 	 	

 	 	 	3.45	%	 	 	1,086	 	 	 	10	 	 	 	(2	)	 	 	1,094	 	

 	 	 	 	

State and Local Governments and other issues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
maturing within one year	 	 	5.81	%	 	 	3,144	 	 	 	53	 	 	 	—	 	 	 	3,197	 	
maturing one year through five years	 	 	5.20	%	 	 	10,037	 	 	 	227	 	 	 	(98	)	 	 	10,166	 	
maturing five years through ten years	 	 	5.44	%	 	 	2,457	 	 	 	101	 	 	 	—	 	 	 	2,558	 	
maturing after ten years	 	 	5.44	%	 	 	236,620	 	 	 	8,046	 	 	 	(1,075	)	 	 	243,591	 	

 	 	 	 	

 	 	 	5.43	%	 	 	252,258	 	 	 	8,427	 	 	 	(1,173	)	 	 	259,512	 	

 	 	 	 	

Mortgage-Backed Securities	 	 	5.39	%	 	 	81,043	 	 	 	2,440	 	 	 	(82	)	 	 	83,401	 	
Real Estate Mortgage Investment Conduits	 	 	4.63	%	 	 	388,927	 	 	 	7,208	 	 	 	(181	)	 	 	395,954	 	
FHLB and FRB stock, at cost	 	 	6.17	%	 	 	42,864	 	 	 	—	 	 	 	—	 	 	 	42,864	 	

 	 	 	 	

Total Investments	 	 	5.06	%	 	$	766,178	 	 	 	18,085	 	 	 	(1,438	)	 	 	782,825	 	

 	 	 	 	

43 

Table of Contents
3. Investment Securities, Available for Sale...continued 
The book value of securities was as follows at: 
 	 	 	 	 	
 	 	December 31,	
(dollars in thousands)
	 	2001
	
U.S. Government and Federal Agencies	 	$	1,339	 	
State and Local Governments and Other Issues	 	 	156,697	 	
Mortgage-Backed Securities	 	 	131,064	 	
Real Estate Mortgage Investment Conduits	 	 	219,478	 	
FHLB and FRB stock	 	 	37,007	 	

 	 	$	545,585	 	

Investments with an unrealized loss position at December 31, 2003: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Less than 12 months
	 	12 months or more
	 	Total
	
 	 	Fair	 	Unrealized	 	Fair	 	Unrealized	 	Fair	 	Unrealized	
(Dollars in thousands)
	 	Value
	 	Loss
	 	Value
	 	Loss
	 	Value
	 	Loss
	
U.S. Government and Federal Agencies	 	 	610	 	 	 	1	 	 	 	173	 	 	 	1	 	 	 	783	 	 	 	2	 	
State and Local Governments and other issues	 	 	46,704	 	 	 	1,616	 	 	 	20,127	 	 	 	170	 	 	 	66,831	 	 	 	1,786	 	
Mortgage-Backed Securities	 	 	22,956	 	 	 	341	 	 	 	78	 	 	 	1	 	 	 	23,034	 	 	 	342	 	
Real Estate Mortgage Investment Conduits	 	 	235,389	 	 	 	3,910	 	 	 	—	 	 	 	—	 	 	 	235,389	 	 	 	3,910	 	

 	 	 	 	

 	 	 	 	
 	 	
Total temporarily impaired securities	 	 	305,659	 	 	 	5,868	 	 	 	20,378	 	 	 	172	 	 	 	326,037	 	 	 	6,040	 	

 	 	 	 	

 	 	 	 	
 	 	
Most of the unrealized loss is the result of changing market values due to changes in intermediate term (10 year) interest rates. The value of real estate mortgage investment conduits and mortgage-backed securities is also affected by the level of mortgage refinancing activity and resulting prepayment of the underlying mortgages. During periods of rapid prepayments, values decline because of shortening of the expected maturity and reduced earning potential. During 2003 an impairment charge for $2,249,000, for the impairment of value on collateralized mortgage obligations was recorded as a reduction in the net gain on sale of investments. 
Maturities of securities do not reflect repricing opportunities present in adjustable rate securities, nor do they reflect expected shorter maturities based upon early prepayment of principal. Weighted yields on tax-exempt investment securities exclude the tax effect. The Real Estate Mortgage Investment Conduits are backed by the FNMA, GNMA, or FHLMC. 
Interest Income includes tax-exempt interest for the years ended December 31, 2003, 2002, and 2001 of $11,410,000, $8,074,000, and $4,624,000, respectively. 
Gross proceeds from sales of investment securities for the years ended December 31, 2003, 2002, and 2001 were approximately $19,603,000, $31,695,000 and $86,311,000 respectively, resulting in gross gains of approximately $3,502,000, $451,000 and $71,000 and gross losses of approximately $0, $213,000 and $7,000, respectively. The cost of any investment sold is determined by specific identification. 
At December 31, 2003, the Company had investment securities with carrying values of approximately $177,663,000 pledged as security for deposits of several local government units, securities sold under agreements to repurchase, and as collateral for treasury tax and loan borrowings. 
44 

Table of Contents
4. Loans Receivable, Net and Loans Held for Sale 
The following is a summary of loans receivable, net and loans held for sale at: 
 	 	 	 	 	 	 	 	 	
 	 	December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	
Residential first mortgage	 	$	301,511	 	 	 	310,205	 	
Loans held for sale	 	 	16,973	 	 	 	51,987	 	
Commercial real estate	 	 	483,684	 	 	 	397,803	 	
Commercial	 	 	359,030	 	 	 	276,675	 	
Consumer	 	 	95,739	 	 	 	112,893	 	
Home equity	 	 	199,693	 	 	 	174,033	 	

 	 	
 	 	 	1,456,630	 	 	 	1,323,596	 	
Net deferred loan fees, premiums and discounts	 	 	(2,275	)	 	 	(1,999	)	
Allowance for loan losses	 	 	(23,990	)	 	 	(20,944	)	

 	 	
 	 	$	1,430,365	 	 	 	1,300,653	 	

 	 	
The following is a summary of activity in allowance for losses on loans: 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years ended December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	 	2001
	
Balance, beginning of period	 	$	20,944	 	 	 	18,654	 	 	 	7,799	 	
Acquisitions	 	 	959	 	 	 	—	 	 	 	8,893	 	
Net charge offs	 	 	(1,722	)	 	 	(3,455	)	 	 	(2,563	)	
Provision	 	 	3,809	 	 	 	5,745	 	 	 	4,525	 	

 	 	 	 	
 	 	
Balance, end of period	 	$	23,990	 	 	 	20,944	 	 	 	18,654	 	

 	 	 	 	
 	 	
     The following is the allocation of allowance for loan losses and percent of loans in each category at: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31, 2003
	 	December 31, 2002
	
 	 	 	 	 	 	Percent of	 	 	 	 	 	Percent of	
 	 	 	 	 	 	of loans in	 	 	 	 	 	of loans in	
(dollars in thousands)
	 	Amount
	 	category
	 	Amount
	 	category
	
Residential first mortgage and loans held for sale	 	$	2,147	 	 	 	21.8	%	 	$	2,334	 	 	 	27.4	%	
Commercial real estate	 	 	7,464	 	 	 	33.2	%	 	 	7,088	 	 	 	30.1	%	
Other commercial	 	 	9,951	 	 	 	24.7	%	 	 	7,670	 	 	 	20.9	%	
Consumer loans	 	 	2,220	 	 	 	6.6	%	 	 	1,830	 	 	 	8.5	%	
 	 	 	2,208	 	 	 	13.7	%	 	 	2,022	 	 	 	13.1	%	

 	 	 	 	

 	 	$	23,990	 	 	 	100.0	%	 	$	20,944	 	 	 	100.0	%	

 	 	 	 	

Substantially all of the Company’s loan receivables are with customers within the Company’s market area. Although the Company has a diversified loan portfolio, a substantial portion of its customers’ ability to honor their contracts is dependent upon the economic performance in the Company’s market areas. At December 31, 2003, no individual borrower had outstanding loans or commitments exceeding 10% of the Company’s consolidated stockholders’ equity. 
Impaired loans, which consists of those reported as non-accrual, for the years ended December 31, 2003, 2002, and 2001 were approximately $10,062,000, $8,042,000, and $9,232,000, respectively, of which no impairment allowance was deemed necessary. The average recorded investment in impaired loans for the years ended December 31, 2003, 2002, and 2001 was approximately 
45 

Table of Contents
4. Loans Receivable, Net and Loans Held for Sale ... continued 
$8,620,000, $8,275,000, and $7,842,000, respectively. Interest income that would have been recorded on impaired loans if such loans had been current for the entire period would have been approximately $665,000, $596,000, and $658,000 for the years ended December 31, 2003, 2002, and 2001, respectively. Interest income recognized on impaired loans for the years ended December 31, 2003, 2002, and 2001 was not significant. Loans ninety days overdue and still accruing for the years ended December 31, 2003, 2002, and 2001 were approximately $2,419,000, $1,998,000, and $1,437,000, respectively. 
The weighted average interest rate on loans was 6.74% and 7.48% at December 31, 2003 and 2002, respectively. 
At December 31, 2003, 2002 and 2001 loans sold and serviced for others were $189,601,000, $253,063,000, and $286,996,000, respectively. 
At December 31, 2003 the Company had $846,312,000 in variable rate loans and $610,318,000 in fixed rate loans. 
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit, and involve, to varying degrees, elements of credit risk. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The Company did not have any outstanding commitments on impaired loans as of December 31, 2003. 
The Company had outstanding commitments as follows: 
 	 	 	 	 	 	 	 	 	
 	 	December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	
Loans and loans in process	 	$	258,350	 	 	 	208,345	 	
Unused consumer lines of credit	 	 	118,691	 	 	 	78,138	 	
Letters of credit	 	 	13,636	 	 	 	18,716	 	

 	 	
 	 	$	390,677	 	 	 	305,199	 	

 	 	
Substantially all of the loans held for sale at December 31, 2003 and 2002 were committed to be sold. 
The Company has entered into transactions with its executive officers, directors, significant shareholders, and their affiliates. The aggregate amount of loans to such related parties at December 31, 2003 was approximately $27,313,000. During 2003, new loans to such related parties were approximately $24,652,000 and repayments were approximately $18,525,000. 
5. Premises and Equipment, Net 
Premises and equipment, net consist of the following at: 
 	 	 	 	 	 	 	 	 	
 	 	December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	
Land	 	$	11,487	 	 	 	10,324	 	
Office buildings and construction in progress	 	 	41,279	 	 	 	35,830	 	
Furniture, fixtures and equipment	 	 	24,533	 	 	 	22,066	 	
Leasehold improvements	 	 	2,590	 	 	 	2,613	 	
 	 	 	(26,638	)	 	 	(23,618	)	

 	 	
 	 	$	53,251	 	 	 	47,215	 	

 	 	
46 

Table of Contents
6. Goodwill and Other Intangible Assets 
     The following table sets forth information regarding the Company’s core deposit intangibles and mortgage servicing rights: 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Core Deposit	 	Mortgage	 	 	 	 	
(Dollars in thousands)
	 	Intangible
	 	Servicing Rights (1)
	 	Total
	
As of December 31, 2003	 	 	 	 	 	 	 	 	 	 	 	 	
Gross carrying value	 	$	10,122	 	 	 	 	 	 	 	 	 	
Accumulated Amortization	 	 	(4,257	)	 	 	 	 	 	 	 	 	

Net carrying value	 	$	5,865	 	 	 	1,388	 	 	 	7,253	 	

As of December 31, 2002	 	 	 	 	 	 	 	 	 	 	 	 	
Gross carrying value	 	$	9,836	 	 	 	 	 	 	 	 	 	
Accumulated Amortization	 	 	(3,014	)	 	 	 	 	 	 	 	 	

Net carrying value	 	$	6,822	 	 	 	1,973	 	 	 	8,795	 	

Weighted-Average amortization period	 	 	 	 	 	 	 	 	 	 	 	 	
(Period in years)	 	 	10.0	 	 	 	9.7	 	 	 	9.9	 	
Aggregate Amortization Expense	 	 	 	 	 	 	 	 	 	 	 	 	
For the year ended December 31, 2003	 	$	1,243	 	 	 	729	 	 	 	1,972	 	
For the year ended December 31, 2002	 	 	1,439	 	 	 	480	 	 	 	1,919	 	
Estimated Amortization Expense	 	 	 	 	 	 	 	 	 	 	 	 	
For the year ended December 31, 2004	 	 	1,061	 	 	 	96	 	 	 	1,157	 	
For the year ended December 31, 2005	 	 	891	 	 	 	94	 	 	 	985	 	
For the year ended December 31, 2006	 	 	818	 	 	 	91	 	 	 	909	 	
For the year ended December 31, 2007	 	 	800	 	 	 	88	 	 	 	888	 	
For the year ended December 31, 2008	 	 	790	 	 	 	85	 	 	 	875	 	
     (1) Gross carrying value and accumulated amortization are not readily available 
As of January 1, 2002, the Company no longer amortizes goodwill as a result of the FASB Statements 142 and 147. The following pro forma information presents the consolidated results of operations as if the adoption of Statements 142 and 147 had occurred on January 1, 2001. 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	For the year ended December 31,
	
(Dollars in thousands)
	 	2003
	 	2002
	 	2001
	
Reported net income	 	$	38,008	 	 	 	32,402	 	 	 	21,689	 	
Add back goodwill amortization, net of tax	 	 	—	 	 	 	—	 	 	 	1,368	 	

 	 	 	 	
 	 	
Adjusted net income	 	$	38,008	 	 	 	32,402	 	 	 	23,057	 	

 	 	 	 	

 	 	2003
	 	2002
	 	2001
	
 	 	Basic EPS
	 	Diluted EPS
	 	Basic EPS
	 	Diluted EPS
	 	Basic EPS
	 	Diluted EPS
	
Reported net income	 	$	1.97	 	 	 	1.94	 	 	 	1.72	 	 	 	1.69	 	 	 	1.26	 	 	 	1.22	 	
Add back goodwill amortization, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.08	 	 	 	0.08	 	

 	 	 	 	

 	 	 	 	
 	 	
Adjusted net income	 	$	1.97	 	 	 	1.94	 	 	 	1.72	 	 	 	1.69	 	 	 	1.34	 	 	 	1.30	 	

 	 	 	 	

 	 	 	 	
 	 	
47 

Table of Contents
7. Deposits 
Deposits consist of the following at: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31, 2003
	 	December 31, 2002
	
 	 	Weighted	 	 	 	 	 	 	 	 	
(dollars in thousands)
	 	Average Rate
	 	Amount
	 	Percent
	 	Amount
	 	Percent
	
Demand accounts	 	 	0.0	%	 	$	369,052	 	 	 	23.1	%	 	$	295,016	 	 	 	20.2	%	

 	 	 	 	

NOW accounts	 	 	0.2	%	 	 	249,838	 	 	 	15.6	%	 	 	214,177	 	 	 	14.7	%	
Savings accounts	 	 	0.4	%	 	 	150,367	 	 	 	9.4	%	 	 	124,787	 	 	 	8.5	%	
Money market demand accounts	 	 	1.0	%	 	 	390,344	 	 	 	24.4	%	 	 	353,998	 	 	 	24.2	%	
Certificate accounts:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
1.00% and lower	 	 	 	 	 	 	75,908	 	 	 	4.8	%	 	 	2,865	 	 	 	0.2	%	
1.01% to 2.00%	 	 	 	 	 	 	176,839	 	 	 	11.1	%	 	 	103,691	 	 	 	7.1	%	
2.01% to 3.00%	 	 	 	 	 	 	85,289	 	 	 	5.3	%	 	 	157,980	 	 	 	10.8	%	
3.01% to 4.00%	 	 	 	 	 	 	39,536	 	 	 	2.5	%	 	 	103,393	 	 	 	7.1	%	
4.01% to 5.00%	 	 	 	 	 	 	27,351	 	 	 	1.7	%	 	 	33,916	 	 	 	2.3	%	
5.01% to 6.00%	 	 	 	 	 	 	19,897	 	 	 	1.3	%	 	 	37,822	 	 	 	2.7	%	
6.01% to 7.00%	 	 	 	 	 	 	12,691	 	 	 	0.8	%	 	 	30,894	 	 	 	2.1	%	
7.01% and higher	 	 	 	 	 	 	513	 	 	 	0.0	%	 	 	1,384	 	 	 	0.1	%	

 	 	 	 	

Total certificate accounts	 	 	2.7	%	 	 	438,024	 	 	 	27.5	%	 	 	471,945	 	 	 	32.4	%	

 	 	 	 	

Total interest bearing deposits	 	 	1.4	%	 	 	1,228,573	 	 	 	76.9	%	 	 	1,164,907	 	 	 	79.8	%	

 	 	 	 	

Total deposits	 	 	1.1	%	 	$	1,597,625	 	 	 	100.0	%	 	 	1,459,923	 	 	 	100.0	%	

 	 	 	 	

Deposits with a balance in excess of $100,000	 	 	 	 	 	$	577,423	 	 	 	 	 	 	$	458,384	 	 	 	 	 	

 	 	 	 	 	 	
At December 31, 2003, scheduled maturities of certificate accounts are as follows: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years ending December 31,
	
(dollars in thousands)
	 	Total
	 	2004
	 	2005
	 	2006
	 	2005
	 	Thereafter
	
1.00% and lower	 	$	75,908	 	 	 	75,841	 	 	 	40	 	 	 	6	 	 	 	—	 	 	 	21	 	
1.01% to 2.00%	 	 	176,839	 	 	 	155,702	 	 	 	18,892	 	 	 	2,117	 	 	 	123	 	 	 	5	 	
2.01% to 3.00%	 	 	85,289	 	 	 	57,391	 	 	 	9,218	 	 	 	15,695	 	 	 	986	 	 	 	1,999	 	
3.01% to 4.00%	 	 	39,536	 	 	 	21,548	 	 	 	8,865	 	 	 	1,786	 	 	 	3,358	 	 	 	3,979	 	
4.01% to 5.00%	 	 	27,351	 	 	 	6,218	 	 	 	5,150	 	 	 	4,256	 	 	 	11,697	 	 	 	30	 	
5.01% to 6.00%	 	 	19,897	 	 	 	7,965	 	 	 	2,314	 	 	 	2,653	 	 	 	6,965	 	 	 	—	 	
6.01% to 7.00%	 	 	12,691	 	 	 	3,948	 	 	 	6,489	 	 	 	2,166	 	 	 	14	 	 	 	74	 	
7.01% and higher	 	$	513	 	 	 	18	 	 	 	495	 	 	 	—	 	 	 	—	 	 	 	—	 	

 	 	 	 	

 	 	 	 	
 	 	
 	 	 	438,024	 	 	 	328,631	 	 	 	51,463	 	 	 	28,679	 	 	 	23,143	 	 	 	6,108	 	

 	 	 	 	

 	 	 	 	
 	 	
     Interest expense on deposits is summarized as follows: 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years ended December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	 	2001
	
NOW accounts	 	$	484	 	 	 	723	 	 	 	1,758	 	
Savings accounts	 	 	500	 	 	 	857	 	 	 	1,855	 	
Money market demand accounts	 	 	3,840	 	 	 	6,771	 	 	 	9,575	 	
Certificate accounts	 	 	12,397	 	 	 	17,917	 	 	 	29,504	 	

 	 	 	 	
 	 	
 	 	$	17,221	 	 	 	26,268	 	 	 	42,692	 	

 	 	 	 	
 	 	
48 

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8. Advances from Federal Home Loan Bank of Seattle 
Advances from the Federal Home Loan Bank of Seattle (FHLB) consist of the following: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Totals as of	
 	 	Maturing in years ending December 31,
	 	December 31,
	
(dollars in thousands)
	 	2004
	 	2005
	 	2006
	 	2007
	 	2008
	 	2009-2013
	 	2003
	 	2002
	
1.00% to 2.00%	 	 	382,170	 	 	 	—	 	 	 	40,000	 	 	 	23,700	 	 	 	—	 	 	 	—	 	 	 	445,870	 	 	 	83,515	 	
2.01% to 3.00%	 	 	26,000	 	 	 	19,000	 	 	 	48,500	 	 	 	39,000	 	 	 	—	 	 	 	—	 	 	 	132,500	 	 	 	87,000	 	
3.01% to 4.00%	 	 	35,250	 	 	 	41,350	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	40,000	 	 	 	116,600	 	 	 	116,600	 	
4.01% to 5.00%	 	 	5,500	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	42,000	 	 	 	47,500	 	 	 	130,575	 	
5.01% to 6.00%	 	 	12,655	 	 	 	144	 	 	 	144	 	 	 	144	 	 	 	18,129	 	 	 	1	 	 	 	31,217	 	 	 	61,786	 	
6.01% to 7.00%	 	 	288	 	 	 	173	 	 	 	673	 	 	 	973	 	 	 	72	 	 	 	77	 	 	 	2,256	 	 	 	2,494	 	
7.01% to 8.00%	 	 	141	 	 	 	210	 	 	 	500	 	 	 	300	 	 	 	100	 	 	 	—	 	 	 	1,251	 	 	 	1,690	 	
8.01% to 9.00%	 	 	100	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	100	 	 	 	—	 	

 	 	 	 	

 	 	 	 	

 	 	
 	 	$	462,104	 	 	 	60,877	 	 	 	89,817	 	 	 	64,117	 	 	 	18,301	 	 	 	82,078	 	 	 	777,294	 	 	 	483,660	 	

 	 	 	 	

 	 	 	 	

 	 	
These advances are collateralized by the FHLB stock held by the Company and a blanket assignment of the Bank’s unpledged qualifying real estate loans and investments. The total amount of advances available, subject to collateral availability, as of December 31, 2003 was approximately $267,897,000. 
The weighted average interest rate on these advances was 2.80% and 4.15% at December 31, 2003 and 2002, respectively. 
The Federal Home Loan Bank of Seattle holds callable options, which may be exercised after a predetermined time as shown below as of December 31, 2003: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Interest	 	 	 	 	 	Earliest	
(dollars in thousands)
	 	Amount
	 	Rate
	 	Maturity
	 	Call
	
Call Terms 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Quarterly at FHLB option	 	$	23,700	 	 	 	1.22	%	 	 	2007	 	 	 	2004	 	
Quarterly at FHLB option	 	 	13,000	 	 	 	2.33	%	 	 	2007	 	 	 	2004	 	
Quarterly at FHLB option	 	 	13,000	 	 	 	2.88	%	 	 	2007	 	 	 	2005	 	
Quarterly at FHLB option	 	 	10,000	 	 	 	2.97	%	 	 	2007	 	 	 	2005	 	
Quarterly at FHLB option	 	 	3,000	 	 	 	5.37	%	 	 	2008	 	 	 	2004	 	
Quarterly at FHLB option	 	 	15,000	 	 	 	5.52	%	 	 	2008	 	 	 	2004	 	
If three month LIBOR is greater than 8% on quarterly measurement date after initial term	 	 	82,000	 	 	 	3.49% - 4.83	%	 	 	2012	 	 	 	2004	 	

 	 	$	159,700	 	 	 	 	 	 	 	 	 	 	 	 	 	

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9. Securities Sold Under Agreements to Repurchase and Other Borrowed Funds 
Securities sold under agreements to repurchase consist of the following at: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Book	 	Market	
(dollars in thousands)
	 	Repurchase	 	Weighted
average	 	value of
underlying	 	value of
underlying	
December 31, 2003
	 	amount
	 	rate
	 	assets
	 	assets
	
Securities sold under agreements to repurchase within:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
1-30 days	 	 	56,968	 	 	 	1.06	%	 	 	98,120	 	 	 	101,280	 	

 	 	 	 	
 	 	
 	 	$	56,968	 	 	 	1.06	%	 	$	98,120	 	 	 	101,280	 	

 	 	 	 	
 	 	
December 31, 2002:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Securities sold under agreements to repurchase within:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
1-30 days	 	 	46,206	 	 	 	1.46	%	 	 	67,846	 	 	 	70,722	 	

 	 	 	 	
 	 	
 	 	$	46,206	 	 	 	1.46	%	 	$	67,846	 	 	 	70,722	 	

 	 	 	 	
 	 	
The securities, consisting of agency issued or guaranteed mortgage backed securities, underlying agreements to repurchase entered into by the Company are for the same securities originally sold, and are held in a custody account by a third party. For the year ended December 31, 2003 and 2002 securities sold under agreements to repurchase averaged approximately $61,609,000 and $35,480,000, respectively, and the maximum outstanding at any month end during the year was approximately $74,808,000 and $46,206,000, respectively. 
The Company also has a treasury tax and loan account note option program which provides short term funding with no fixed maturity date up to $19,500,000 at federal funds rates minus 25 basis points. At December 31, 2003 and 2002 the outstanding balance under this program was approximately $7,309,000 and $15,087,000. The borrowings are secured with investment securities with a par value of approximately $26,415,000 and a market value of approximately $28,722,000. For the year ended December 31, 2003, the maximum outstanding at any month end was approximately $15,052,000 and the average balance was approximately $4,235,000. 
During 1999, the Company assumed Big Sky’s subordinated convertible debentures as part of the merger transaction. The outstanding balance at December 31, 2000 was $350,000. The interest rate was 7.5 percent, payable quarterly. On December 31, 2001, the debentures became due and were exchanged for 33,257 shares of Company stock and $8,508 in cash. 
10. Subordinated Debentures 
On January 25, 2001, 1,400,000 shares of trust preferred shares were issued by Glacier Trust whose common equity is wholly owned by the Company. The Trust Preferred Securities bear a cumulative fixed interest rate of 9.40% and mature on February 1, 2031. Interest distributions are payable quarterly. The Trust Preferred Securities are subject to mandatory redemption upon repayment of the Subordinated Debentures of $35,000,000 at their stated maturity date or their earlier redemption in an amount equal to their liquidation amount plus accumulated and unpaid distributions to the date of redemption. The Company guaranteed the payment of distributions and payments for redemption or liquidation of the Trust Preferred Securities to the extent of funds held by the Trust. The obligations of the Company under the Subordinated Debentures together with the guarantee and other back-up obligations, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of the Trust under the Trust Preferred Securities. 
As a result of the adoption of FIN 46R, the Company deconsolidated the Trust. The $35,000,000 of subordinated debentures issued by the Company to the Trust are reflected in the consolidated balance sheets as of December 31, 2003 and 2002. 
The Subordinated Debentures are unsecured, bear interest at a rate of 9.40% per annum and mature on February 1, 2031. Interest is payable quarterly. The Company may defer the payment of interest at any time from time to time for a period not exceeding 20 consecutive quarters provided that the deferral period does not extend past the stated maturity. During any such deferral period, 
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Table of Contents
10. Subordinated Debentures... continued 
distributions on the Trust Preferred Securities will also be deferred and the Company’s ability to pay dividends on its common shares will be restricted. 
Subject to approval by the Federal Reserve Bank, the Trust Preferred Securities may be redeemed prior to maturity at the Company’s option on or after February 1, 2006 at par. The Trust Preferred Securities may also be redeemed at any time in whole (but not in part) in the event of unfavorable changes in laws or regulations that result in (1) Glacier Trust becoming subject to federal income tax on income received on the Subordinated Debentures, (2) interest payable by Parent Company on the Subordinated Debentures becoming non-deductible for federal tax purposes, (3) the requirement for Glacier Trust to register under the Investment Company Act of 1940, as amended, or (4) loss of the ability to treat the Trust Preferred Securities as “Tier 1 Capital” under the Federal Reserve capital adequacy guidelines. 
11. Regulatory Capital 
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 adequacy guidelines and the Company’s compliance with those guidelines as of December 31, 2003: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Minimum capital	 	Well capitalized	
 	 	Actual
	 	requirement
	 	requirement
	
 	 	Amount
	 	Ratio
	 	Amount
	 	Ratio
	 	Amount
	 	Ratio
	
Tier 1 (core) capital to risk weighted assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated	 	 	223,423	 	 	 	12.98	%	 	 	68,864	 	 	 	4.00	%	 	 	103,296	 	 	 	6.00	%	
Glacier	 	 	51,010	 	 	 	13.75	%	 	 	14,838	 	 	 	4.00	%	 	 	22,256	 	 	 	6.00	%	
First Security	 	 	42,897	 	 	 	12.04	%	 	 	14,252	 	 	 	4.00	%	 	 	21,378	 	 	 	6.00	%	
Western	 	 	40,796	 	 	 	15.04	%	 	 	10,850	 	 	 	4.00	%	 	 	16,275	 	 	 	6.00	%	
Mountain West	 	 	37,695	 	 	 	10.48	%	 	 	14,382	 	 	 	4.00	%	 	 	21,573	 	 	 	6.00	%	
Big Sky 	 	 	15,695	 	 	 	10.36	%	 	 	6,062	 	 	 	4.00	%	 	 	9,094	 	 	 	6.00	%	
Valley 	 	 	15,866	 	 	 	13.25	%	 	 	4,789	 	 	 	4.00	%	 	 	7,184	 	 	 	6.00	%	
Whitefish	 	 	11,119	 	 	 	12.32	%	 	 	3,609	 	 	 	4.00	%	 	 	5,414	 	 	 	6.00	%	
Tier 2 (total) capital to risk weighted assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated	 	 	245,006	 	 	 	14.23	%	 	 	137,729	 	 	 	8.00	%	 	 	172,161	 	 	 	10.00	%	
Glacier	 	 	55,281	 	 	 	14.90	%	 	 	29,675	 	 	 	8.00	%	 	 	37,094	 	 	 	10.00	%	
First Security	 	 	47,363	 	 	 	13.29	%	 	 	28,504	 	 	 	8.00	%	 	 	35,630	 	 	 	10.00	%	
Western	 	 	44,225	 	 	 	16.30	%	 	 	21,700	 	 	 	8.00	%	 	 	27,125	 	 	 	10.00	%	
Mountain West	 	 	41,995	 	 	 	11.68	%	 	 	28,764	 	 	 	8.00	%	 	 	35,955	 	 	 	10.00	%	
Big Sky 	 	 	17,595	 	 	 	11.61	%	 	 	12,125	 	 	 	8.00	%	 	 	15,156	 	 	 	10.00	%	
Valley 	 	 	17,350	 	 	 	14.49	%	 	 	9,578	 	 	 	8.00	%	 	 	11,973	 	 	 	10.00	%	
Whitefish	 	 	12,248	 	 	 	13.57	%	 	 	7,218	 	 	 	8.00	%	 	 	9,023	 	 	 	10.00	%	
Leverage capital to total average assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated	 	 	223,423	 	 	 	8.45	%	 	 	105,707	 	 	 	4.00	%	 	 	132,134	 	 	 	5.00	%	
Glacier	 	 	51,010	 	 	 	8.97	%	 	 	22,734	 	 	 	4.00	%	 	 	28,418	 	 	 	5.00	%	
First Security	 	 	42,897	 	 	 	7.80	%	 	 	22,007	 	 	 	4.00	%	 	 	27,509	 	 	 	5.00	%	
Western	 	 	40,796	 	 	 	9.23	%	 	 	17,676	 	 	 	4.00	%	 	 	22,095	 	 	 	5.00	%	
Mountain West	 	 	37,695	 	 	 	7.34	%	 	 	20,531	 	 	 	4.00	%	 	 	25,664	 	 	 	5.00	%	
Big Sky 	 	 	15,695	 	 	 	7.82	%	 	 	8,032	 	 	 	4.00	%	 	 	10,040	 	 	 	5.00	%	
Valley	 	 	15,866	 	 	 	7.35	%	 	 	8,637	 	 	 	4.00	%	 	 	10,796	 	 	 	5.00	%	
Whitefish	 	 	11,119	 	 	 	7.60	%	 	 	5,855	 	 	 	4.00	%	 	 	7,319	 	 	 	5.00	%	
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Table of Contents
11. Regulatory Capital... continued 
The following table illustrates the Federal Reserve Board’s adequacy guidelines and the Company’s compliance with those guidelines as of December 31, 2002: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Minimum capital	 	Well capitalized	
 	 	Actual
	 	requirement
	 	requirement
	
 	 	Amount
	 	Ratio
	 	Amount
	 	Ratio
	 	Amount
	 	Ratio
	
Tier 1 (core) capital to risk weighted assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated	 	 	197,131	 	 	 	12.99	%	 	 	60,712	 	 	 	4.00	%	 	 	91,069	 	 	 	6.00	%	
Glacier	 	 	45,357	 	 	 	13.54	%	 	 	13,404	 	 	 	4.00	%	 	 	20,106	 	 	 	6.00	%	
First Security	 	 	36,963	 	 	 	11.06	%	 	 	13,369	 	 	 	4.00	%	 	 	20,053	 	 	 	6.00	%	
Western	 	 	38,755	 	 	 	15.33	%	 	 	10,114	 	 	 	4.00	%	 	 	15,171	 	 	 	6.00	%	
Mountain West	 	 	25,088	 	 	 	9.85	%	 	 	10,184	 	 	 	4.00	%	 	 	15,276	 	 	 	6.00	%	
Big Sky 	 	 	13,922	 	 	 	10.77	%	 	 	5,169	 	 	 	4.00	%	 	 	7,754	 	 	 	6.00	%	
Valley 	 	 	13,647	 	 	 	11.43	%	 	 	4,776	 	 	 	4.00	%	 	 	7,164	 	 	 	6.00	%	
Whitefish	 	 	9,957	 	 	 	11.64	%	 	 	3,423	 	 	 	4.00	%	 	 	5,134	 	 	 	6.00	%	
Tier 2 (total) capital to risk weighted assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated	 	 	216,179	 	 	 	14.24	%	 	 	121,425	 	 	 	8.00	%	 	 	151,781	 	 	 	10.00	%	
Glacier	 	 	49,546	 	 	 	14.79	%	 	 	26,808	 	 	 	8.00	%	 	 	33,510	 	 	 	10.00	%	
First Security	 	 	41,147	 	 	 	12.31	%	 	 	26,738	 	 	 	8.00	%	 	 	33,422	 	 	 	10.00	%	
Western	 	 	41,991	 	 	 	16.61	%	 	 	20,228	 	 	 	8.00	%	 	 	25,285	 	 	 	10.00	%	
Mountain West	 	 	27,618	 	 	 	10.85	%	 	 	20,367	 	 	 	8.00	%	 	 	25,459	 	 	 	10.00	%	
Big Sky 	 	 	15,543	 	 	 	12.03	%	 	 	10,338	 	 	 	8.00	%	 	 	12,923	 	 	 	10.00	%	
Valley 	 	 	14,860	 	 	 	12.45	%	 	 	9,552	 	 	 	8.00	%	 	 	11,940	 	 	 	10.00	%	
Whitefish	 	 	11,021	 	 	 	12.88	%	 	 	6,845	 	 	 	8.00	%	 	 	8,557	 	 	 	10.00	%	
Leverage capital to total average assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated	 	 	197,131	 	 	 	8.95	%	 	 	88,110	 	 	 	4.00	%	 	 	110,137	 	 	 	5.00	%	
Glacier	 	 	45,357	 	 	 	9.48	%	 	 	19,132	 	 	 	4.00	%	 	 	23,915	 	 	 	5.00	%	
First Security	 	 	36,963	 	 	 	7.82	%	 	 	18,918	 	 	 	4.00	%	 	 	23,647	 	 	 	5.00	%	
Western	 	 	38,755	 	 	 	9.83	%	 	 	15,771	 	 	 	4.00	%	 	 	19,714	 	 	 	5.00	%	
Mountain West	 	 	25,088	 	 	 	6.71	%	 	 	14,959	 	 	 	4.00	%	 	 	18,699	 	 	 	5.00	%	
Big Sky 	 	 	13,922	 	 	 	8.04	%	 	 	6,929	 	 	 	4.00	%	 	 	8,662	 	 	 	5.00	%	
Valley 	 	 	13,647	 	 	 	7.54	%	 	 	7,239	 	 	 	4.00	%	 	 	9,049	 	 	 	5.00	%	
Whitefish	 	 	9,957	 	 	 	8.09	%	 	 	4,922	 	 	 	4.00	%	 	 	6,153	 	 	 	5.00	%	
The Federal Deposit Insurance Corporation Improvement Act generally restricts a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding Company if the institution would thereafter be capitalized at less than 8% of total risk-based capital, 4% of Tier I capital, or a 4% leverage ratio. At December 31, 2003 and 2002, the subsidiary banks’ capital measures exceed the highest supervisory threshold, which requires total Tier II capital of at least 10%, Tier I capital of at least 6%, and a leverage ratio of at least 5%. Each of the subsidiaries was considered well capitalized by the respective regulator as of December 31, 2003 and 2002. 
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12. Federal and State Income Taxes 
The following is a summary of consolidated income tax expense for: 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years ended December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	 	2001
	
Current:	 	 	 	 	 	 	 	 	 	 	 	 	
Federal	 	$	13,741	 	 	 	11,925	 	 	 	9,292	 	
State	 	 	3,690	 	 	 	3,033	 	 	 	2,141	 	

 	 	 	 	
 	 	
Total current tax expense	 	 	17,431	 	 	 	14,958	 	 	 	11,433	 	

 	 	 	 	
 	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	
Federal	 	 	554	 	 	 	1,139	 	 	 	454	 	
State	 	 	168	 	 	 	327	 	 	 	139	 	

 	 	 	 	
 	 	
Total deferred tax expense	 	 	722	 	 	 	1,466	 	 	 	593	 	

 	 	 	 	
 	 	
Total income tax expense	 	$	18,153	 	 	 	16,424	 	 	 	12,026	 	

 	 	 	 	
 	 	
 	 	Federal and state income tax expense differs from that computed at the federal statutory corporate tax rate as follows for:	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years ended December 31,
	
 	 	2003
	 	2002
	 	2001
	
Federal statutory rate	 	 	35.0	%	 	 	35.0	%	 	 	35.0	%	
State taxes, net of federal income tax benefit	 	 	4.4	%	 	 	4.4	%	 	 	4.4	%	
Tax-exempt interest income	 	 	-6.8	%	 	 	-5.4	%	 	 	-4.5	%	
Other, net	 	 	-0.3	%	 	 	-0.4	%	 	 	0.8	%	

 	 	 	 	
 	 	
 	 	 	32.3	%	 	 	33.6	%	 	 	35.7	%	

 	 	 	 	
 	 	
     The tax effect of temporary differences which give rise to a significant portion of deferred tax assets and deferred tax liabilities are as follows: 
 	 	 	 	 	 	 	 	 	
 	 	December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	
Deferred tax assets:	 	 	 	 	 	 	 	 	
Allowance for losses on loans	 	$	9,484	 	 	 	8,270	 	
Deferred compensation	 	 	1,390	 	 	 	1,211	 	
Other	 	 	730	 	 	 	863	 	

 	 	
Total gross deferred tax assets	 	 	11,604	 	 	 	10,344	 	

 	 	
Deferred tax liabilities:	 	 	 	 	 	 	 	 	
Federal Home Loan Bank stock dividends	 	 	(9,223	)	 	 	(8,301	)	
Fixed assets, due to differences in depreciation	 	 	(2,585	)	 	 	(1,864	)	
Available-for-sale securities fair value adjustment	 	 	(4,300	)	 	 	(6,536	)	
Other	 	 	(2,865	)	 	 	(2,272	)	

 	 	
Total gross deferred tax liabilities	 	 	(18,973	)	 	 	(18,973	)	

 	 	
Net deferred tax liability	 	$	(7,369	)	 	 	(8,629	)	

 	 	
There is no valuation allowance at December 31, 2003 and 2002 because management believes that it is more likely than not that the Company’s deferred tax assets will be realized by offsetting future taxable income from reversing taxable temporary differences and anticipated future taxable income. 
Retained earnings at December 31, 2003 includes approximately $3,600,000 for which no provision for Federal income tax has been made. This amount represents the base year bad debt reserve, which is essentially an allocation of earnings to pre-1988 bad debt deductions for income tax purposes only. This amount is treated as a permanent difference and deferred taxes are not recognized 
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12. Federal and State Income Taxes... continued 
unless it appears that this reserve will be reduced and thereby result in taxable income in the foreseeable future. The Company is not currently contemplating any changes in its business or operations which would result in a recapture of this federal bad debt reserve into taxable income. 
13. Employee Benefit Plans 
Prior to 2002, the Company had a noncontributory defined contribution retirement plan covering substantially all employees. The Company followed the policy of funding retirement plan contributions as accrued. As of January 1, 2002, the retirement plan was merged with the employee savings plan as a profit sharing plan. The plan has a 3% “safe harbor” provision which is a non-elective contribution by the Company. In addition, elective contributions, depending on the Company’s profitability, are made to the plan. The total plan expense for the years ended December 31, 2003, 2002, and 2001 was approximately $3,072,000, $2,691,000 and $1,599,000 respectively. 
The Company also has an employees’ savings plan. The plan allows eligible employees to contribute up to 25% of their monthly salaries. The Company matches an amount equal to 50% of the employee’s contribution, up to 6% of the employee’s total pay. Participants are at all times fully vested in all contributions. The Company’s contribution to the savings plan for the years ended December 31, 2003, 2002 and 2001 was approximately $693,000, $577,000, and $511,000, respectively. 
The Company has a Supplemental Executive Retirement Plan (SERP) which provides retirement benefits at the savings and retirement plan levels, for amounts that are limited by IRS regulations under those plans. The Company’s contribution to the SERP for the years ended December 31, 2003, 2002 and 2001 was approximately $53,000, $28,000, and $9,000, respectively. 
The Company has a non-funded deferred compensation plan for directors and senior officers. The plan provides for the deferral of cash payments of up to 25% of a participants’ salary, and for 100% of bonuses and directors fees, at the election of the participant. The total amount deferred was approximately $236,000, $67,000, and $59,000, for the years ending December 31, 2003, 2002, and 2001, respectively. The participant receives an earnings credit at a one year certificate of deposit rate, or at the total return rate on Company stock, on the amount deferred, as elected by the participant at the time of the deferral election. The total earnings for the years ended 2003, 2002, and 2001 were approximately $364,000, $72,000, and 164,000, respectively. In connection with the WesterFed acquisition (See note 20), the Company assumed the obligations of a deferred compensation plan for certain key employees. The plan provides predetermined periodic payments over 10 to 15 years upon retirement or death. As of December 31, 2003, the liability related to the obligation was approximately $2,029,000 and was included in other liabilities of the Consolidated Statements of Financial Condition. The amount expensed related to the obligation during 2003 was insignificant. 
The Company has entered into employment contracts with ten senior officers that provide benefits under certain conditions following a change in control of the Company. 
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14. Earnings Per Share 
The following table sets forth the computation of basic and diluted earnings per share: 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	For the Years Ended December 31,
	
 	 	2003
	 	2002
	 	2001
	
Net earnings available to common stockholders, basic	 	$	38,008,000	 	 	 	32,402,000	 	 	 	21,689,000	 	
After tax effect of interest on convertible subordinated debentures	 	 	—	 	 	 	—	 	 	 	16,000	 	

 	 	 	 	
 	 	
Net earnings available to common stockholders, diluted	 	$	38,008,000	 	 	 	32,402,000	 	 	 	21,705,000	 	

 	 	 	 	
 	 	
Average outstanding shares – basic	 	 	19,270,632	 	 	 	18,866,935	 	 	 	17,272,129	 	
Add: Dilutive stock options	 	 	349,826	 	 	 	321,999	 	 	 	446,698	 	
Convertible subordinated debentures	 	 	—	 	 	 	—	 	 	 	36,328	 	

 	 	 	 	
 	 	
Average outstanding shares – diluted	 	 	19,620,458	 	 	 	19,188,934	 	 	 	17,755,154	 	

 	 	 	 	
 	 	
Basic earnings per share	 	$	1.97	 	 	 	1.72	 	 	 	1.26	 	

 	 	 	 	
 	 	
Diluted earnings per share	 	$	1.94	 	 	 	1.69	 	 	 	1.22	 	

 	 	 	 	
 	 	
There were no options excluded from the diluted share calculation for December 31, 2003 and 2002 due to market price exceeding the option exercise price as of the end of the year. Approximately 276,000 option shares in 2001 were not included because the option exercise price exceeded the market value. 
15. Stock Option Plans 
In the year ended June 30, 1990, Incentive Stock Option Plans were approved which provided for the grant of options limited to 29,445 shares to outside Directors and 166,860 shares to certain full time employees of the Company. In the year ended December 31, 1994 a Stock Option Plan was approved which provided for the grant of options to outside Directors of the Company, limited to 50,000 shares. In the year ended December 31, 1995 a Stock Option Plan was approved which provided for the grant of options limited to 279,768 shares to certain full-time employees of the Company. In April 1999 the Directors 1994 Stock Option Plan, and the Employees 1995 Stock Option Plan, were amended to provide 100,000 and 600,000 additional shares for the Directors and Employees Plans, respectively. In April, 2002, the Directors 1994 Stock Option Plan and the Employees 1995 Stock Option Plan were amended to provide 500,000 and 1,000,000 additional shares to the director’s and employee’s plans, respectively. The option price at which the Company’s common stock may be purchased upon exercise of options granted under the plans must be at least equal to the per share market value of such stock at the date the option is granted. 
The fiscal 1990 and 1995 plans also contain provisions authorizing the grant of limited stock rights, which permit the optionee, upon a change in control of the Company, to surrender his or her options for cancellation and receive cash or common stock equal to the difference between the exercise price and the fair market value of the shares on the date of the grant. All option shares are adjusted for stock splits and stock dividends. The term of the options may not exceed five years from the date the options are granted. The employee options vest over a period of two years and the director options vest over a period of six months. 
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15. Stock Option Plans... continued 
At December 31, 2003, total shares available for option grants to employees and directors are 1,745,438. Changes in shares granted for stock options for the years ended December 31, 2003, 2002, and 2001, are summarized as follows: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Options outstanding
	 	Options exercisable
	
 	 	 	 	 	 	Weighted	 	 	 	 	 	Weighted	
 	 	 	 	 	 	average	 	 	 	 	 	average	
 	 	Shares
	 	exercise price
	 	Shares
	 	exercise price
	
Balance, December 31, 2000	 	 	973,844	 	 	$	13.04	 	 	 	639,489	 	 	$	11.94	 	
Canceled	 	 	(49,565	)	 	 	13.82	 	 	 	(20,375	)	 	 	16.22	 	
Granted	 	 	244,207	 	 	 	13.62	 	 	 	 	 	 	 	 	 	
Became exercisable	 	 	 	 	 	 	 	 	 	 	197,991	 	 	 	17.02	 	
WesterFed acquisition	 	 	1,042,777	 	 	 	6.77	 	 	 	1,042,777	 	 	 	6.77	 	
Exercised	 	 	(951,028	)	 	 	7.11	 	 	 	(951,028	)	 	 	7.11	 	

 	 	 	 	 	 	
Balance, December 31, 2001	 	 	1,260,235	 	 	 	12.40	 	 	 	908,854	 	 	 	12.07	 	
Canceled	 	 	(22,174	)	 	 	17.16	 	 	 	(3,868	)	 	 	15.11	 	
Granted	 	 	218,897	 	 	 	19.90	 	 	 	 	 	 	 	 	 	
Became exercisable	 	 	 	 	 	 	 	 	 	 	136,272	 	 	 	12.96	 	
Exercised	 	 	(452,536	)	 	 	11.05	 	 	 	(452,536	)	 	 	11.05	 	

 	 	 	 	 	 	
Balance, December 31, 2002	 	 	1,004,422	 	 	 	14.55	 	 	 	588,722	 	 	 	13.05	 	
Canceled	 	 	(32,752	)	 	 	17.74	 	 	 	(5,759	)	 	 	11.54	 	
Granted	 	 	357,546	 	 	 	22.12	 	 	 	 	 	 	 	 	 	
Became exercisable	 	 	 	 	 	 	 	 	 	 	278,797	 	 	 	16.38	 	
Exercised	 	 	(348,270	)	 	 	13.41	 	 	 	(348,270	)	 	 	13.41	 	

 	 	 	 	 	 	
Balance, December 31, 2003	 	 	980,946	 	 	 	17.62	 	 	 	513,490	 	 	 	14.34	 	

 	 	 	 	 	 	
The range of exercise prices on options outstanding at December 31, 2003 is as follows: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Weighted	 	Weighted	 	 	 	 	 	Weighted	
 	 	 	 	 	 	average	 	average	 	 	 	 	 	average	
Price range
	 	Shares
	 	exercise price
	 	life of options
	 	Shares
	 	exercise price
	
$5.14 - $8.28	 	 	77,737	 	 	$	7.99	 	 	3.0 years	 	 	77,737	 	 	$	7.99	 	
$10.19 - $11.76	 	 	58,249	 	 	 	10.65	 	 	3.8 years	 	 	58,249	 	 	 	10.65	 	
$12.31 - $14.11	 	 	155,914	 	 	 	12.56	 	 	1.8 years	 	 	155,914	 	 	 	12.56	 	
$15.91 - $17.09	 	 	105,210	 	 	 	16.55	 	 	.6 years	 	 	105,210	 	 	 	16.55	 	
$17.69 - $19.91	 	 	247,286	 	 	 	19.70	 	 	3.0 years	 	 	51,480	 	 	 	19.17	 	
$20.62 - $22.14	 	 	327,550	 	 	 	22.10	 	 	4.1 years	 	 	64,900	 	 	 	22.14	 	
$24.45 - $27.26	 	 	9,000	 	 	 	25.73	 	 	4.5 years	 	 	—	 	 	 	—	 	

 	 	 	 	 	 	
 	 	 	980,946	 	 	 	17.62	 	 	3.2 years	 	 	513,490	 	 	 	14.34	 	

 	 	 	 	 	 	
The options exercised during the year ended December 31, 2003 were at prices from $5.14 to $22.14. 
In connection with the acquisition of WesterFed Financial Corporation, outstanding options for employees and directors of WesterFed for 947,979 were exchanged for options outstanding of Company stock at a weighted exercise price of $7.45. 
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16. Parent Company Information (Condensed) 
The following condensed financial information is the unconsolidated (parent company only) information for Glacier Bancorp, Inc.: 
 	 	 	 	 	 	 	 	 	
Statements of Financial Condition	 	December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	
Assets:	 	 	 	 	 	 	 	 	
Cash	 	$	3,011	 	 	 	4,807	 	
Interest bearing cash deposits	 	 	7,152	 	 	 	6,010	 	

 	 	
Cash and cash equivalents	 	 	10,163	 	 	 	10,817	 	
Investment securities, available-for-sale	 	 	1,360	 	 	 	1,393	 	
Other assets	 	 	4,057	 	 	 	4,719	 	
Investment in subsidiaries	 	 	264,494	 	 	 	233,866	 	

 	 	
 	 	$	280,074	 	 	 	250,795	 	

 	 	
Liabilities and Stockholders’ Equity:	 	 	 	 	 	 	 	 	
Dividends payable	 	$	3,878	 	 	 	3,115	 	
Subordinated debentures	 	 	35,000	 	 	 	35,000	 	
Other liabilities	 	 	3,357	 	 	 	431	 	

 	 	
Total liabilities	 	 	42,235	 	 	 	38,546	 	
Common stock	 	 	194	 	 	 	191	 	
Paid-in capital	 	 	222,636	 	 	 	216,974	 	
Retained earnings	 	 	8,393	 	 	 	(15,027	)	
Accumulated other comprehensive income	 	 	6,616	 	 	 	10,111	 	

 	 	
Total stockholders’ equity	 	 	237,839	 	 	 	212,249	 	

 	 	
 	 	$	280,074	 	 	 	250,795	 	

 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Statements of Operations	 	Years ended December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	 	2001
	
Revenues 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends from subsidiaries	 	$	17,400	 	 	 	13,232	 	 	 	37,268	 	
Other income	 	 	288	 	 	 	178	 	 	 	371	 	
Intercompany charges for services	 	 	6,652	 	 	 	5,381	 	 	 	3,826	 	

 	 	 	 	
 	 	
Total revenues	 	 	24,340	 	 	 	18,791	 	 	 	41,465	 	
Expenses 	 	 	 	 	 	 	 	 	 	 	 	 	
Employee compensation and benefits	 	 	4,223	 	 	 	3,755	 	 	 	2,984	 	
Goodwill amortization	 	 	—	 	 	 	—	 	 	 	236	 	
Other operating expenses	 	 	7,573	 	 	 	6,778	 	 	 	6,743	 	

 	 	 	 	
 	 	
Total expenses	 	 	11,796	 	 	 	10,533	 	 	 	9,963	 	
Earnings before income tax benefit and equity in undistributed earnings of subsidiaries	 	 	12,544	 	 	 	8,258	 	 	 	31,502	 	
Income tax benefit	 	 	(1,937	)	 	 	(1,984	)	 	 	(2,181	)	

 	 	 	 	
 	 	
Income before equity in undistributed earnings of subsidiaries	 	 	14,481	 	 	 	10,242	 	 	 	33,683	 	
Earnings in excess of (less than) dividends distributed	 	 	23,527	 	 	 	22,160	 	 	 	(11,994	)	

 	 	 	 	
 	 	
Net earnings	 	$	38,008	 	 	 	32,402	 	 	 	21,689	 	

 	 	 	 	
 	 	
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16. Parent Company Information (Condensed)...continued 
 	 	 	 	 	 	 	 	 	 	 	 	 	
Statements of Cash Flows	 	Years ended December 31,
	
(dollars in thousands)
	 	2003
	 	2002
	 	2001
	
Operating Activities 	
Net earnings	 	$	38,008	 	 	 	32,402	 	 	 	21,689	 	
Adjustments to reconcile net earnings to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Goodwill amortization	 	 	—	 	 	 	—	 	 	 	236	 	
Gain on sale of investments available-for-sale	 	 	—	 	 	 	43	 	 	 	—	 	
Earnings (in excess of) less than dividends distributed	 	 	(23,527	)	 	 	(22,160	)	 	 	11,994	 	
Net increase in other assets and other liabilities	 	 	4,973	 	 	 	1,761	 	 	 	(965	)	

 	 	 	 	
 	 	
Net cash provided by operating activities	 	 	19,454	 	 	 	12,046	 	 	 	32,954	 	

 	 	 	 	
 	 	
Investing activities 	
Purchases of investment securities available-for-sale	 	 	—	 	 	 	(1,261	)	 	 	—	 	
Proceeds from sales, maturities and prepayments of securities available-for-sale	 	 	54	 	 	 	234	 	 	 	254	 	
Equity contribution to subsidiary	 	 	(10,377	)	 	 	(1,000	)	 	 	(61,934	)	
Net addition of premises and equipment	 	 	(863	)	 	 	(700	)	 	 	(921	)	
Acquisition of minority interest	 	 	—	 	 	 	—	 	 	 	(251	)	

 	 	 	 	
 	 	
Net cash used by investing activities	 	 	(11,186	)	 	 	(2,727	)	 	 	(62,852	)	

 	 	 	 	
 	 	
Financing activities 	
Proceeds from exercise of stock options and other stock issued	 	 	5,665	 	 	 	6,041	 	 	 	9,542	 	
Cash paid for stock dividends	 	 	(15	)	 	 	—	 	 	 	—	 	
Proceeds from issuance of subordinated debentures	 	 	—	 	 	 	—	 	 	 	35,000	 	
Cash dividends paid 	 	 	(14,572	)	 	 	(11,532	)	 	 	(9,915	)	

 	 	 	 	
 	 	
Net cash (used) provided by financing activities	 	 	(8,922	)	 	 	(5,491	)	 	 	34,627	 	

 	 	 	 	
 	 	
Net (decrease) increase in cash and cash equivalents	 	 	(654	)	 	 	3,828	 	 	 	4,729	 	
Cash and cash equivalents at beginning of year	 	 	10,817	 	 	 	6,989	 	 	 	2,260	 	

 	 	 	 	
 	 	
Cash and cash equivalents at end of year	 	$	10,163	 	 	 	10,817	 	 	 	6,989	 	

 	 	 	 	
 	 	
17. Unaudited Quarterly Financial Data 
Summarized unaudited quarterly financial data is as follows (in thousands except per share amounts): 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Quarters Ended, 2003
	
 	 	March 31
	 	June 30
	 	September 30
	 	December 31
	
Interest income	 	$	32,062	 	 	 	31,613	 	 	 	33,103	 	 	 	34,052	 	
Interest expense	 	 	10,230	 	 	 	9,644	 	 	 	9,439	 	 	 	9,165	 	

 	 	 	 	

Net interest income	 	 	21,832	 	 	 	21,969	 	 	 	23,664	 	 	 	24,887	 	
Provision for loan losses	 	 	841	 	 	 	1,051	 	 	 	1,221	 	 	 	696	 	
Income before income taxes	 	 	13,121	 	 	 	14,906	 	 	 	14,309	 	 	 	13,825	 	
Net earnings	 	 	8,848	 	 	 	9,932	 	 	 	9,697	 	 	 	9,531	 	
Basic earnings per share	 	 	0.46	 	 	 	0.52	 	 	 	0.50	 	 	 	0.49	 	
Diluted earnings per share	 	 	0.46	 	 	 	0.51	 	 	 	0.49	 	 	 	0.48	 	
Dividends per share	 	 	0.16	 	 	 	0.19	 	 	 	0.20	 	 	 	0.20	 	
Market range high-low	 	$	26.99-$21.25	 	 	$	26.20-$22.95	 	 	$	29.65-$24.45	 	 	$	33.00-$26.92	 	
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17. Unaudited Quarterly Financial Data...continued 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Quarters Ended, 2002
	
 	 	March 31
	 	June 30
	 	September 30
	 	December 31
	
Interest income	 	$	33,078	 	 	 	33,507	 	 	 	33,829	 	 	 	33,575	 	
Interest expense	 	 	12,711	 	 	 	11,906	 	 	 	11,698	 	 	 	11,207	 	

 	 	 	 	

Net interest income	 	 	20,367	 	 	 	21,601	 	 	 	22,131	 	 	 	22,368	 	
Provision for loan losses	 	 	1,300	 	 	 	1,260	 	 	 	1,665	 	 	 	1,520	 	
Income before income taxes	 	 	10,551	 	 	 	12,333	 	 	 	12,927	 	 	 	13,015	 	
Net earnings	 	 	6,897	 	 	 	8,128	 	 	 	8,616	 	 	 	8,761	 	
Basic earnings per share	 	 	0.37	 	 	 	0.43	 	 	 	0.46	 	 	 	0.46	 	
Diluted earnings per share	 	 	0.36	 	 	 	0.43	 	 	 	0.45	 	 	 	0.45	 	
Dividends per share	 	 	0.15	 	 	 	0.15	 	 	 	0.15	 	 	 	0.16	 	
Market range high-low	 	$	21.14-$17.36	 	 	$	22.72-$18.95	 	 	$	22.36-$17.94	 	 	$	21.82-$18.09	 	
18. Fair Value of Financial Instruments 
Financial instruments have been defined to generally mean cash or a contract that implies an obligation to deliver cash or another financial instrument to another entity. For purposes of the Company’s Consolidated Statement of Financial Condition, this includes the following items: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2003
	 	2002
	
(dollars in thousands)
	 	Amount
	 	Fair Value
	 	Amount
	 	Fair Value
	
Financial Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash 	 	$	77,093	 	 	 	77,093	 	 	 	74,624	 	 	 	74,624	 	
Interest bearing cash deposits 	 	 	9,047	 	 	 	9,047	 	 	 	4,753	 	 	 	4,753	 	
Investment securities 	 	 	321,266	 	 	 	321,266	 	 	 	260,606	 	 	 	260,606	 	
Mortgage-backed securities 	 	 	729,045	 	 	 	729,045	 	 	 	479,355	 	 	 	479,355	 	
Loans	 	 	1,430,365	 	 	 	1,450,052	 	 	 	1,300,653	 	 	 	1,341,141	 	
FHLB and Federal Reserve Bank stock	 	 	46,643	 	 	 	46,643	 	 	 	42,864	 	 	 	42,864	 	
Financial Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Deposits	 	$	1,597,625	 	 	 	1,602,619	 	 	 	1,459,923	 	 	 	1,465,029	 	
Advances from the FHLB of Seattle	 	 	777,294	 	 	 	780,647	 	 	 	483,660	 	 	 	498,286	 	
Repurchase agreements and other borrowed funds	 	 	64,986	 	 	 	64,986	 	 	 	61,293	 	 	 	61,293	 	
Subordinated debentures	 	 	35,000	 	 	 	37,660	 	 	 	35,000	 	 	 	39,060	 	
Financial assets and financial liabilities other than securities are not traded in active markets. The above estimates of fair value require subjective judgments and are approximate. Changes in the following methodologies and assumptions could significantly affect the estimates. These estimates may also vary significantly from the amounts that could be realized in actual transactions. 
Financial Assets – The estimated fair value approximates the book value of cash and interest bearing cash deposits. For investment and mortgage-backed securities, the fair value is based on quoted market prices. The fair value of loans is estimated by discounting future cash flows using current rates at which similar loans would be made. The fair value of FHLB and Federal Reserve Bank stock approximates the book value. 
Financial Liabilities – The estimated fair value of demand and savings deposits approximates the book value since rates are periodically adjusted to market rates. Certificate accounts fair value is estimated by discounting the future cash flows using current rates for similar deposits. Advances from the FHLB of Seattle fair value is estimated by discounting future cash flows using current rates for advances with similar weighted average maturities. Repurchase agreements and other borrowed funds have variable interest rates, or are short term, so fair value approximates book value. The subordinated debentures’ fair value is based on quoted market prices. 
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18. Fair Value of Financial Instruments...continued 
Off-balance sheet financial instruments – Commitments to extend credit and letters of credit represent the principal categories of off-balance sheet financial instruments. Rates for these commitments are set at time of loan closing, so no adjustment is necessary to reflect these commitments at market value. See Note 4 to consolidated financial statements. 
19. Contingencies and Commitments 
The company leases certain land, premises and equipment from third parties under operating leases. Total rent expense for the year ended December 31, 2003, 2002, and 2001 was approximately $1,025,000 $926,000, and $865,000, respectively. The total future minimum rental commitments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 2003 are as follows (Dollars in thousands): 
 	 	 	 	 	
Years ended December 31,
	 	Amount
	
2004	 	$	1,139	 	
2005	 	 	972	 	
2006	 	 	850	 	
2007	 	 	701	 	
2008	 	 	622	 	
Thereafter	 	 	3,430	 	

Total minimum future rental expense	 	$	7,714	 	

The Company is a defendant in legal proceedings arising in the normal course of business. In the opinion of management, the disposition of pending litigation will not have a material effect on the Company’s consolidated financial position, results of operations or liquidity. 
20. Acquisitions 
On July 15, 2003, the Company completed the acquisition of Pend Oreille Bancorp, and its subsidiary Pend Oreille Bank which operates from two locations in Sandpoint, Idaho and one location in Newport, Washington. The bank has approximately $66 million in total assets with deposits of $59 million and gross loans of $50 million. The Company paid $10.4 million and recorded $3.8 million in goodwill. The locations became additional branches of Mountain West Bank, the Company’s Idaho based subsidiary. 
On February 28, 2001 the Company completed the acquisition of WesterFed Financial Corporation (WesterFed). The Company issued 4,530,462 shares and $37.3 million cash to shareholders as consideration for the merger. 
On March 15, 2001, the Company acquired seven Wells Fargo & Company and First Security Corporation branches located in Idaho and Utah. 
All three acquisitions were accounted for under the purchase method of accounting. Accordingly, the assets and liabilities of the acquired banks or branches were recorded by the Company at their respective fair values at the date of the acquisition and the results of operations have been included with those of the Company since the date of acquisition. The excess of the Company’s purchase price over the net fair value of the assets acquired and liabilities assumed, including identifiable intangible assets, was recorded as goodwill. 
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21. Sale of Branches 
On June 23, 2001 the Company completed the sale of six branch locations in north central Montana with assets of $23,500,000 to Stockman Bank of Montana (“Stockman”). Stockman acquired five Western Security Bank offices and one Glacier Bank office. Included in the sale were loans of approximately $21,800,000, property and equipment with a book value of approximately $1,700,000, and deposits of $81,700,000. A gain of $511,000 was recognized on the sale. 
22. Operating Segment Information 
FASB Statement 131, Financial Reporting for Segments of a Business Enterprise, requires that a public business enterprise report financial and descriptive information about its reportable operating segments. According to the statement, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. 
The Company evaluates segment performance internally based on individual bank charter, and thus the operating segments are so defined. All segments, except for the segment defined as “other,” are based on commercial banking operations. The operating segment defined as “other” includes the Parent company, non-bank operating units, and eliminations of transactions between segments. 
The accounting policies of the individual operating segments are the same as those of the Company described in note 1. Transactions between operating segments are primarily conducted at fair value, resulting in profits that are eliminated for reporting consolidated results of operations. Expenses for centrally provided services are allocated based on the estimated usage of those services. 
The following is a summary of selected operating segment information for the years ended and as of December 31, 2003, 2002, and 2001. During the third quarter of 2001, certain branches of Western were transferred to other Company owned banks located in the same geographic area which accounted for much of the change in activity for certain segments. 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Dollars in thousands)
2003
	 	Glacier
	 	First
Security
	 	Western
	 	Mountain
West
	 	Big Sky
	 	Valley
	 	Whitefish
	 	Other
	 	Consolidated
	
Net interest income	 	$	22,565	 	 	 	22,246	 	 	 	13,670	 	 	 	17,061	 	 	 	7,264	 	 	 	7,845	 	 	 	5,194	 	 	 	(3,493	)	 	 	92,352	 	
Provision for loan losses	 	 	(375	)	 	 	(1,250	)	 	 	—	 	 	 	(1,124	)	 	 	(250	)	 	 	(630	)	 	 	(180	)	 	 	—	 	 	 	(3,809	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net interest income after provision for loan losses	 	 	22,190	 	 	 	20,996	 	 	 	13,670	 	 	 	15,937	 	 	 	7,014	 	 	 	7,215	 	 	 	5,014	 	 	 	(3,493	)	 	 	88,543	 	
Noninterest income	 	 	8,184	 	 	 	4,392	 	 	 	4,043	 	 	 	10,206	 	 	 	1,729	 	 	 	3,730	 	 	 	1,273	 	 	 	5	 	 	 	33,562	 	
Merger expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(56	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(56	)	
Core deposit amortization	 	 	(304	)	 	 	(270	)	 	 	(348	)	 	 	(205	)	 	 	(41	)	 	 	(75	)	 	 	—	 	 	 	—	 	 	 	(1,243	)	
Other noninterest expense	 	 	(14,283	)	 	 	(9,766	)	 	 	(8,661	)	 	 	(17,902	)	 	 	(4,141	)	 	 	(5,471	)	 	 	(3,071	)	 	 	(1,350	)	 	 	(64,645	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income taxes	 	 	15,787	 	 	 	15,352	 	 	 	8,704	 	 	 	7,980	 	 	 	4,561	 	 	 	5,399	 	 	 	3,216	 	 	 	(4,838	)	 	 	56,161	 	
Income tax (expense) benefit	 	 	(5,437	)	 	 	(5,288	)	 	 	(2,604	)	 	 	(2,216	)	 	 	(1,730	)	 	 	(1,754	)	 	 	(1,054	)	 	 	1,930	 	 	 	(18,153	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	$	10,350	 	 	 	10,064	 	 	 	6,100	 	 	 	5,764	 	 	 	2,831	 	 	 	3,645	 	 	 	2,162	 	 	 	(2,908	)	 	 	38,008	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Assets	 	$	595,778	 	 	 	578,803	 	 	 	446,405	 	 	 	547,035	 	 	 	209,342	 	 	 	219,105	 	 	 	149,531	 	 	 	(6,366	)	 	 	2,739,633	 	
Net loans	 	 	330,012	 	 	 	295,195	 	 	 	196,732	 	 	 	313,021	 	 	 	125,664	 	 	 	97,292	 	 	 	72,800	 	 	 	(351	)	 	 	1,430,365	 	
Deposits	 	 	358,600	 	 	 	340,650	 	 	 	219,950	 	 	 	372,936	 	 	 	115,496	 	 	 	134,405	 	 	 	68,124	 	 	 	(12,536	)	 	 	1,597,625	 	
Stockholders’ equity	 	 	58,703	 	 	 	49,334	 	 	 	47,242	 	 	 	61,031	 	 	 	17,882	 	 	 	18,176	 	 	 	12,126	 	 	 	(26,655	)	 	 	237,839	 	
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23. Operating Segment Information...continued 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Dollars in thousands)
2002
	 	Glacier
	 	First
Security
	 	Western
	 	Mountain
West
	 	Big Sky
	 	Valley
	 	Whitefish
	 	Other
	 	Consolidated
	
Net interest income	 	$	22,787	 	 	 	20,596	 	 	 	13,699	 	 	 	13,629	 	 	 	6,860	 	 	 	7,522	 	 	 	4,901	 	 	 	(3,527	)	 	 	86,467	 	
Provision for loan losses	 	 	(1,080	)	 	 	(1,800	)	 	 	(325	)	 	 	(695	)	 	 	(330	)	 	 	(1,335	)	 	 	(180	)	 	 	—	 	 	 	(5,745	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net interest income after provision for loan losses	 	 	21,707	 	 	 	18,796	 	 	 	13,374	 	 	 	12,934	 	 	 	6,530	 	 	 	6,187	 	 	 	4,721	 	 	 	(3,527	)	 	 	80,722	 	
Noninterest income	 	 	7,554	 	 	 	3,880	 	 	 	2,782	 	 	 	6,392	 	 	 	1,591	 	 	 	2,641	 	 	 	1,096	 	 	 	(19	)	 	 	25,917	 	
Core deposit amortization	 	 	(332	)	 	 	(325	)	 	 	(419	)	 	 	(224	)	 	 	(49	)	 	 	(90	)	 	 	—	 	 	 	—	 	 	 	(1,439	)	
Other noninterest expense	 	 	(12,913	)	 	 	(9,192	)	 	 	(7,832	)	 	 	(13,439	)	 	 	(3,618	)	 	 	(5,371	)	 	 	(2,634	)	 	 	(1,375	)	 	 	(56,374	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income taxes	 	 	16,016	 	 	 	13,159	 	 	 	7,905	 	 	 	5,663	 	 	 	4,454	 	 	 	3,367	 	 	 	3,183	 	 	 	(4,921	)	 	 	48,826	 	
Income tax (expense) benefit	 	 	(5,763	)	 	 	(4,761	)	 	 	(2,432	)	 	 	(1,633	)	 	 	(1,705	)	 	 	(1,053	)	 	 	(1,040	)	 	 	1,963	 	 	 	(16,424	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	$	10,253	 	 	 	8,398	 	 	 	5,473	 	 	 	4,030	 	 	 	2,749	 	 	 	2,314	 	 	 	2,143	 	 	 	(2,958	)	 	 	32,402	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Assets	 	$	490,999	 	 	 	487,699	 	 	 	405,282	 	 	 	396,777	 	 	 	179,543	 	 	 	190,536	 	 	 	129,255	 	 	 	1,253	 	 	 	2,281,344	 	
Net loans	 	 	319,906	 	 	 	300,481	 	 	 	188,793	 	 	 	214,453	 	 	 	111,378	 	 	 	97,937	 	 	 	68,066	 	 	 	(361	)	 	 	1,300,653	 	
Deposits	 	 	327,018	 	 	 	352,805	 	 	 	226,482	 	 	 	275,809	 	 	 	95,897	 	 	 	126,418	 	 	 	67,810	 	 	 	(12,316	)	 	 	1,459,923	 	
Stockholders’ equity	 	 	53,492	 	 	 	44,678	 	 	 	46,647	 	 	 	44,429	 	 	 	16,439	 	 	 	17,038	 	 	 	11,078	 	 	 	(21,552	)	 	 	212,249	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Dollars in thousands)
2001
	 	Glacier
	 	First
Security
	 	Western
	 	Mountain
West
	 	Big Sky
	 	Valley
	 	Whitefish
	 	Other
	 	Consolidated
	
Net interest income	 	$	19,032	 	 	 	14,239	 	 	 	17,094	 	 	 	10,141	 	 	 	4,678	 	 	 	5,998	 	 	 	4,290	 	 	 	(3,098	)	 	 	72,374	 	
Provision for loan losses	 	 	(962	)	 	 	(975	)	 	 	(1,350	)	 	 	(276	)	 	 	(333	)	 	 	(365	)	 	 	(264	)	 	 	—	 	 	 	(4,525	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net interest income after provision for loan losses	 	 	18,070	 	 	 	13,264	 	 	 	15,744	 	 	 	9,865	 	 	 	4,345	 	 	 	5,633	 	 	 	4,026	 	 	 	(3,098	)	 	 	67,849	 	
Noninterest income	 	 	7,216	 	 	 	3,070	 	 	 	4,517	 	 	 	3,855	 	 	 	1,294	 	 	 	1,990	 	 	 	1,157	 	 	 	152	 	 	 	23,251	 	
Merger expense	 	 	(248	)	 	 	(65	)	 	 	(136	)	 	 	(761	)	 	 	(36	)	 	 	(103	)	 	 	(5	)	 	 	(621	)	 	 	(1,975	)	
Goodwill amortization	 	 	(145	)	 	 	(78	)	 	 	(454	)	 	 	(731	)	 	 	(24	)	 	 	(31	)	 	 	—	 	 	 	(236	)	 	 	(1,699	)	
Core deposit amortization	 	 	(254	)	 	 	(136	)	 	 	(650	)	 	 	(208	)	 	 	(21	)	 	 	(56	)	 	 	—	 	 	 	—	 	 	 	(1,325	)	
Other noninterest expense	 	 	(12,120	)	 	 	(6,813	)	 	 	(10,795	)	 	 	(10,854	)	 	 	(2,983	)	 	 	(4,356	)	 	 	(2,572	)	 	 	(1,858	)	 	 	(52,351	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income taxes and minority interest	 	 	12,519	 	 	 	9,242	 	 	 	8,226	 	 	 	1,166	 	 	 	2,575	 	 	 	3,077	 	 	 	2,606	 	 	 	(5,661	)	 	 	33,750	 	
Minority interest	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(35	)	 	 	(35	)	
Income tax (expense) benefit	 	 	(4,505	)	 	 	(3,556	)	 	 	(3,026	)	 	 	(150	)	 	 	(995	)	 	 	(1,114	)	 	 	(819	)	 	 	2,139	 	 	 	(12,026	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	$	8,014	 	 	 	5,686	 	 	 	5,200	 	 	 	1,016	 	 	 	1,580	 	 	 	1,963	 	 	 	1,787	 	 	 	(3,557	)	 	 	21,689	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Assets	 	$	474,421	 	 	 	427,976	 	 	 	406,359	 	 	 	342,841	 	 	 	168,865	 	 	 	165,372	 	 	 	121,409	 	 	 	(21,496	)	 	 	2,085,747	 	
Net loans	 	 	316,626	 	 	 	341,214	 	 	 	229,007	 	 	 	162,701	 	 	 	110,363	 	 	 	103,062	 	 	 	59,721	 	 	 	(367	)	 	 	1,322,327	 	
Deposits	 	 	340,186	 	 	 	345,423	 	 	 	237,477	 	 	 	254,133	 	 	 	97,488	 	 	 	124,072	 	 	 	64,885	 	 	 	(17,600	)	 	 	1,446,064	 	
Stockholders’ equity	 	 	46,473	 	 	 	37,479	 	 	 	42,825	 	 	 	37,668	 	 	 	13,394	 	 	 	13,134	 	 	 	8,775	 	 	 	(22,765	)	 	 	176,983	 	
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Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure 
There have been no changes in or disagreements with accountants on accounting and financial disclosure. 
Item 9a. Disclosure of Controls and Procedures 
Evaluation of Disclosure Controls and Procedures. An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and timely reported as provided in the SEC’s rules and forms. 
Changes in Internal Controls. No changes occurred in the quarter and year ended December 31, 2003 in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
PART III 
Item 10. Directors and Executive Officers of the Registrant 
Information regarding “Directors and Executive Officers of the Registrant” is set forth under the headings “Business of the Meeting — Election of Directors – Information with Respect to Nominees and Other Directors — Background of Directors” and “Security Ownership of Certain Beneficial Owners and Management – Executive Officers who are not Directors” of the Company’s 2004 Annual Meeting Proxy Statement (“Proxy Statement”) and is incorporated herein by reference. 
Information regarding “Compliance with Section 16(a) of the Exchange Act” is set forth under the section “Compliance with Section 16 (a) Filing Requirements” of the Company’s Proxy Statement and is incorporated herein by reference. 
Information regarding the Company’s audit committee financial expert is set forth under the heading “Meetings and Committees of Board of Directors–Committee Membership” in our Proxy Statement and is incorporated by reference. 
On February 25, 2004, consistent with the requirements of Sarbanes-Oxley, the Company adopted a Code of Ethics applicable to senior financial officers including the principal executive officer. The Code of Ethics is filed as Exhibit 99 to our Report and can be accessed electronically by visiting the Company’s website at www.glacierbancorp.com. 
Item 11. Executive Compensation 
Information regarding “Executive Compensation” is set forth under the headings “Meetings and Committees of the Board of Directors — Compensation of Directors” and “Executive Compensation” of the Company’s Proxy Statement and is incorporated herein by reference. 
Item 12. Security Ownership of Certain Beneficial Owners and Management 
Information regarding “Security Ownership of Certain Beneficial Owners and Management” is set forth under the headings “Information with Respect to Nominees and Other Directors,” “Security Ownership of Certain Beneficial Owners and Management – Executive Officers who are not Directors” and “Beneficial Owners” of the Company’s Proxy Statement and is incorporated herein by reference. 
Information regarding “Equity Compensation Plan Information” is set forth under the heading “Equity Compensation Plan Information” of the Company’s Proxy Statement and is incorporated herein by reference. 
63 

Table of Contents
Item 13. Certain Relationships and Related Transactions 
Information regarding “Certain Relationships and Related Transactions” is set forth under the heading “Transactions with Management” of the Company’s Proxy Statement and is incorporated herein by reference. 
Item 14. Principal Accounting Fees and Services 
Information regarding “Principal Accounting Fees and Services” is set forth under the heading “Auditors” of the Company’s Proxy Statement and is incorporated herein by reference. 
PART IV 
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 
List of Financial Statements and Financial Statement Schedules 
(a)	 	(1) and (2) Financial Statements and Financial Statement Schedules	
The financial statements and related documents listed in the index set forth in Item 8 of this report are filed as part of this report. 
All other schedules to the consolidated financial statements required by Regulation S-X are omitted because they are not applicable, not material or because the information is included in the consolidated financial statements or related notes. 
(1)	 	The following exhibits are included as part of this Form 10-K:	
 	 	 	
Exhibit No.
	 	Exhibit
	
3(a) 	 	Amended and Restated Certificate of Incorporation (1)	
 	 	 	
3(b) 	 	Amended and Restated Bylaws (2)	
 	 	 	
10(a) 	 	1989 Incentive Stock Option Plan (3)	
 	 	 	
10(b) 	 	Employment Agreement dated January 1, 2003 between the Company, Glacier Bancorp, Inc. and Michael J. Blodnick	
 	 	 	
10(c) 	 	Employment Agreement dated January 1, 2003 between the Company, Glacier Bancorp, Inc. and James H. Strosahl	
 	 	 	
10(d) 	 	Employment Agreement dated January 1, 2003 between First Security Bank and William L. Bouchee	
 	 	 	
10(e) 	 	1994 Director Stock Option Plan and related agreements (5)	
 	 	 	
10(f) 	 	1995 Employee Stock Option Plan and related agreements (5)	
 	 	 	
10(g) 	 	Deferred Compensation Plan (4)	
 	 	 	
10(h) 	 	Supplemental Executive Retirement Agreement (4)	
 	 	 	
10(i) 	 	Employment agreement dated January 1, 2003, between Mountain West Bank and Jon W. Hippler	
 	 	 	
10(j) 	 	Employment agreement dated September 20, 2000 between Western Security Bank and Ralph R. Holliday (6)	
 	 	 	
14 	 	Code of Ethics	
 	 	 	
21 	 	Subsidiaries of the Company (See item 1, “Subsidiaries”)	
 	 	 	
23 	 	Consent of KPMG LLP	
 	 	 	
31.1 	 	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
 	 	 	
31.2 	 	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
 	 	 	
32 	 	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002	
64 

Table of Contents
(1)	 	Incorporated by reference to exhibit 3.2 included in the Company’s Quarterly Report on form 10-Q for the quarter ended September 30, 2000.		
 	
(2)	 	Incorporated by reference to Exhibit 3 (b) included in the Company’s Form 10-K for the fiscal year ended December 31, 1998		
 	
(3)	 	Incorporated by reference to exhibit 10 (a) included in the Company’s Registration Statement on Form S-4 (No. 33-37025), declared effective on October 4, 1990.		
 	
(4)	 	Incorporated by reference to Exhibits 10(I), 10(k) and 10(h), included in the Company’s Form 10-K for the fiscal year ended December 31, 1995.		
 	
(5)	 	Incorporated by reference to Exhibit 99.1 of the Company’s S-8 Registration Statement (No. 333-105995).		
 	
(6)	 	Incorporated by reference to exhibit 10.4 of the Company’s Registration Statement on S-4 (No. 333-52498), declared effective as of February 28, 2001.		
(b)	 	Reports on Form 8-K	
     NONE 
65 

Table of Contents
SIGNATURES 
 	 	PURSUANT to the requirements 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 March 10, 2004.	
 	 	 	
	 	GLACIER BANCORP, INC.	
 	 	 	
	 	By: /s/ Michael J. Blodnick	

	 	Michael J. Blodnick
President/CEO/Director	
 	 	PURSUANT to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 10, 2004, by the following persons in the capacities indicated.	
 	 	 	
/s/Michael J. Blodnick 
	 	President, CEO, and Director
(Principal Executive Officer)	
Michael J. Blodnick	 	 	
 	 	 	
/s/James H. Strosahl 

James H. Strosahl 	 	Executive Vice President and CFO
     (Principal Financial/Accounting Officer)	
 	 	 	
Majority of the Board of Directors	 	 	
 	 	 	
/s/ John S. MacMillan 

John S. MacMillan 	 	Chairman	
 	 	 	
/s/ James M. English 

James M. English 	 	Director	
 	 	 	
/s/ Allen Fetscher 

Allen J. Fetscher 	 	Director	
 	 	 	
/s/ Fred J. Flanders 

Fred J. Flanders 	 	Director	
 	 	 	
/s/ Jon W. Hippler 

Jon W. Hippler 	 	Director	
 	 	 	
/s/ Ralph K. Holliday 

Ralph K. Holliday 	 	Director	
 	 	 	
/s/ L. Peter Larson 

L. Peter Larson 	 	Director	
 	 	 	
/s/ F. Charles Mercord 

F. Charles Mercord 	 	Director	
 	 	 	
/s/ Everit A. Sliter 

Everit A. Sliter 	 	Director	
66 

                                                                   EXHIBIT 10(b)

                              EMPLOYMENT AGREEMENT

         AGREEMENT between Glacier Bancorp, Inc., hereinafter called "Company",
and Michael J. Blodnick, hereinafter called "Executive",

                                    RECITALS

A.       Executive has served as President and Chief Executive Officer of the
         Company.

B.       The Company desires Executive to continue his employment at the Company
         under the terms and conditions of this Agreement.

C.       Executive desires to continue his employment at the Company under the
         terms and conditions of this Agreement.

                                    AGREEMENT

1.       EMPLOYMENT. The Company agrees to employ Executive and Executive
         accepts employment by the Company on the terms and conditions set forth
         in this Agreement. Executive's title will be President and Chief
         Executive Officer of the Company. During the term of this Agreement,
         Executive will serve as a director of the Company and of the Banks.

2.       TERM. The term of this Agreement ("Term") is one year, beginning on
         January 1, 2003.

3.       DUTIES. The Company will employ Executive as its President and Chief
         Executive Officer. Executive will faithfully and diligently perform his
         assigned duties, which are as follows:

         (a)      Company Performance. Executive will be responsible for all
                  aspects of the Company's performance, including without
                  limitation, directing that daily operational and managerial
                  matters are performed in a manner consistent with the
                  Company's policies.

         (b)      Development and Preservation of Business. Executive will be
                  responsible for the development and preservation of banking
                  relationships and other business development efforts
                  (including appropriate civic and community activities).

         (c)      Report to Board. Executive will report directly to the
                  Company's board of directors. The Company's board of directors
                  may, from time to time, modify Executive's title or add,
                  delete, or modify Executive's performance responsibilities to
                  accommodate management succession, as well as any other
                  management objectives of the Company. Executive will assume
                  any additional positions, duties and responsibilities as may
                  reasonably be requested of him with or without additional
                  compensation, as appropriate and consistent with Sections 3(a)
                  and 3(b) of this Agreement.

4.       EXTENT OF SERVICES. Executive will devote all of his working time,
         attention and skill to the duties and responsibilities set forth in
         Section 3. To the extent that such activities do not interfere with his
         duties under Section 3, Executive may participate in other businesses
         as a passive investor, but (a) Executive may not actively participate
         in the operation or management of those businesses, and (b) Executive
         may not, without the Company's prior written consent, make or maintain
         any investment in a business with which the Company or its subsidiaries
         has an existing competitive or commercial relationship.

5.       COMPANY BOARD. During the term, the Company will use its best efforts
         to nominate and recommend Executive for election to the Company's board
         of directors.

6.       SALARY. Executive will receive an annual salary of $240,000.00, to be
         paid in accordance with the Company's regular payroll schedule.
         Subsequent salary increases are subject to the Company's annual review
         of Executive's compensation and performance.

7.       INCENTIVE COMPENSATION. During the Term, the Company's board of
         directors will determine the amount of bonus to be paid by the Company
         to Executive for that year. In making this determination, the Company's
         board of directors will consider factors such as Executive's
         performance of his duties and the safety, soundness and profitability
         of the Company. Executive's bonus will reflect Executive's contribution
         to the performance of the Company during the year, also taking into
         account the nature and extent of incentive bonuses paid to comparable
         senior officers at the Company. This bonus will be paid to Executive no
         later than January 31 of the year following the year in which the bonus
         is earned by Executive.

8.       INCOME DEFERRAL. Executive will be eligible to participate in any
         program available to the Company's senior management for income
         deferral, for the purpose of deferring receipt of any or all of the
         compensation he may become entitled to under this Agreement.

9.       VACATION AND BENEFITS.

         (a)      Vacation and Holidays. Executive will receive four weeks of
                  paid vacation each year in addition to all holidays observed
                  by the Company and its subsidiaries. Executive may carry over,
                  in the aggregate, up to four weeks of unused vacation to a
                  subsequent year. Any unused vacation time in excess of four
                  weeks will not accumulate or carry over from one calendar year
                  to the next. Each calendar year, Executive shall take not less
                  than one (1) week vacation.

         (b)      Benefits. Executive will be entitled to participate in any
                  group life insurance, disability, health and accident
                  insurance plans, profit sharing and pension plans and in other
                  employee fringe benefit programs the Company may have in
                  effect from time to time for its similarly situated employees,
                  in accordance with and subject to any policies adopted by the
                  Company's board of directors with respect to the plans or
                  programs, including without limitation, any incentive or
                  employee stock option plan, deferred compensation plan, 40
                  1(k) plan, and Supplemental Executive Retirement Plan (SERP).
                  The Company through this Agreement does not obligate itself to
                  make any particular benefits available to its employees.

         (c)      Business Expenses. The Company will reimburse Executive for
                  ordinary and necessary expenses which are consistent with past
                  practice at the Company (including, without limitation,
                  travel, entertainment, and similar expenses) and which are
                  incurred in performing and promoting the Company's business.
                  Executive will present from time to time itemized accounts of
                  these expenses, subject to any limits of the Company policy or
                  the rules and regulations of the Internal Revenue Service.

10.      TERMINATION OF EMPLOYMENT.

         (a)      Termination by the Company for Cause. If the Company
                  terminates Executive's employment for Cause (defined below)
                  before this Agreement terminates, the Company will pay
                  Executive the salary earned and expenses reimbursable under
                  this Agreement incurred through the date of his termination.
                  Executive will have no right to receive compensation or other
                  benefits for any period after termination under this Section
                  10(a).

         (b)      Other Termination by the Company. If the Company terminates
                  Executive's employment without Cause before this Agreement
                  terminates, or Executive terminates his employment for Good
                  Reason (defined

                  below), the Company will pay Executive for the remainder of
                  the Term the compensation and other benefits he would have
                  been entitled to if his employment had not terminated.

         (c)      Death or Disability. This Agreement terminates (1) if
                  Executive dies or (2) if Executive is unable to perform his
                  duties and obligations under this Agreement for a period of 90
                  consecutive days as a result of a physical or mental
                  disability arising at any time during the term of this
                  Agreement, unless with reasonable accommodation Executive
                  could continue to perform his duties under this Agreement and
                  making these accommodations would not pose an undue hardship
                  on the Company. If termination occurs under this Section
                  10(c), Executive or his estate will be entitled to receive all
                  compensation and benefits earned and expenses reimbursable
                  through the date Executive's employment terminated.

         (d)      Termination Related to a Change in Control.

                  (1)      Termination by Company. If the Company, or its
                           successor in interest by merger, or its transferee in
                           the event of a purchase in an assumption transaction
                           (for reasons other than Executive's death,
                           disability, or Cause) (1) terminates Executive's
                           employment within 3 years following a Change in
                           Control (as defined below), or (2) terminates
                           Executive's employment before the Change in Control
                           but on or after the date that any party either
                           announces or is required by law to announce any
                           prospective Change in Control transaction and a
                           Change in Control occurs within six months after the
                           termination, the Bank will provide Executive with the
                           greater of (1) the payment and benefits described in
                           Section 10(d)(3) below, or (2) the compensation and
                           other benefits he would have been entitled to for the
                           remainder of the Term if his employment had not been
                           terminated.

                  (2)      Termination by Executive. If Executive terminates
                           Executive's employment, with or without Good Reason,
                           within three years following a Change in Control, the
                           Company will provide Executive with the payment and
                           benefits described in Section 9(d)(3).

                  (3)      Payments. If Section 10(d)(1) or (2) is triggered in
                           accordance with its terms, the Company will: (i) pay
                           Executive in 36 monthly installments in an amount
                           equal to 2.99 times the Executive's annual salary
                           (determined as of the day before the date Executive's
                           employment was terminated) and (ii) maintain and
                           provide for 2.99 years following Executive's
                           termination, at no cost to Executive, the benefits
                           described in Section 9(b) to which Executive is
                           entitled (determined as of the day before the date of
                           such termination); but if Executive's participation
                           in any such benefit is thereafter barred or not
                           feasible, or discontinued or materially reduced, the
                           Company will arrange to provide Executive with either
                           benefits substantially similar to those benefits or a
                           cash payment of substantially similar value in lieu
                           of the benefits.

         (e)      Limitations on Payments Related to Change in Control. The
                  following apply notwithstanding any other provision of this
                  Agreement:

                  (1)      the total of the payments and benefits described in
                           Section 10(d)(3) will be less than the amount that
                           would cause them to be a "parachute payment" within
                           the meaning of Section 280G(b)(2)(A) of the Internal
                           Revenue Code;

                  (2)      the payment and benefits described in Section
                           10(d)(3) will be reduced by any compensation (in the
                           form of cash or other benefits) received by Executive
                           from the Company or its successor after the Change in
                           Control; and

                  (3)      Executive's right to receive the payments and
                           benefits described in Section 10(d)(3) terminates (i)
                           immediately if before the Change in Control
                           transaction closes, Executive terminates his
                           employment without Good Reason, or the Company
                           terminates Executive's employment for Cause, or (ii)
                           three years after a Change of Control occurs.

         (f)      Return of Bank Property. If and when Executive ceases, for any
                  reason, to be employed by the Company, Executive must return
                  to the Company all keys, pass cards, identification cards and
                  any other

                  property of the Company. At the same time, Executive also must
                  return to the Company all originals and copies (whether in
                  memoranda, designs, devices, diskettes, tapes, manuals, and
                  specifications) which constitute proprietary information or
                  material of the Company and its subsidiaries. The obligations
                  in this paragraph include the return of documents and other
                  materials which may be in his desk at work, in his car, in
                  place of residence, or in any other location under his
                  control.

         (g)      Cause. "Cause" means any one or more of the following:

                  (1)      Willful misfeasance or gross negligence in the
                           performance of Executive's duties;

                  (2)      Conviction of a crime in connection with his duties;

                  (3)      Conduct demonstrably and significantly harmful to the
                           Company, as reasonably determined on the advice of
                           legal counsel by the Company's board of directors; or

                  (4)      Permanent disability, meaning a physical or mental
                           impairment which renders Executive incapable of
                           substantially performing the duties required under
                           this Agreement, and which is expected to continue
                           rendering Executive so incapable for the reasonably
                           foreseeable future.

         (h)      Good Reason. "Good Reason" means only any one or more of the
                  following:

                  (1)      Reduction of Executive's salary or reduction or
                           elimination of any compensation or benefit plan
                           benefiting Executive, unless the reduction or
                           elimination is generally applicable to substantially
                           all Company employees (or employees of a successor or
                           controlling entity of the Company) formerly
                           benefited;

                  (2)      The assignment to Executive without his consent of
                           any authority or duties materially inconsistent with
                           Executive's position as of the date of this
                           Agreement;

                  (3)      The material breach of this Agreement by the Company,
                           or

                  (4)      A relocation or transfer of Executive's principal
                           place of employment outside Flathead County, Montana.

         (i)      Change in Control. "Change in Control" means a change "in the
                  ownership or effective control" or "in the ownership of a
                  substantial portion of the assets" of the Company, within the
                  meaning of Section 280G of the Internal Revenue Code.

11.      CONFIDENTIALITY. Executive will not, after the date this Agreement was
         signed, including during and after its Term, use for his own purposes
         or disclose to any other person or entity any confidential business
         information concerning the Company or its business operations or that
         of its subsidiaries, unless (1) the Company consents to the use or
         disclosure of confidential information; (2) the use or disclosure is
         consistent with Executive's duties under this Agreement, or (3)
         disclosure is required by law or court order. For purposes of this
         Agreement, confidential business information includes, without
         limitation, trade secrets (as defined under the Montana Uniform Trade
         Secrets Act, Montana Code Section 30-14-402), various confidential
         information on investment management practices, marketing plans,
         pricing structure and technology of either the Company or its
         subsidiaries. Executive will also treat the terms of this Agreement as
         confidential business information.

12.      NONCOMPETITION. During the Term of this Agreement and for a period of
         three years after Executive's employment with the Company has
         terminated, Executive will not, directly or indirectly, as a
         shareholder, director, officer, employee, partner, agent, consultant,
         lessor, creditor or otherwise:

         (a)      provide management, supervisory or other similar services to
                  any person or entity engaged in any business in counties in
                  which the Company or its subsidiaries may have a presence
                  which is competitive with the business of the Company or a
                  subsidiary as conducted during the term of this Agreement or
                  as conducted as of the date of termination of employment,
                  including any preliminary steps associated with the formation
                  of a new bank.

         (b)      persuade or entice, or attempt to persuade or entice any
                  employee of the Company or a subsidiary to terminate his/her
                  employment with the Company or a subsidiary.

         (c)      persuade or entice or attempt to persuade or entice any person
                  or entity to terminate, cancel, rescind or revoke its business
                  or contractual relationships with the Company or its
                  subsidiaries.

13.      ENFORCEMENT.

         (a)      The Company and Executive stipulate that, in light of all of
                  the facts and circumstances of the relationship between
                  Executive and the Company, the agreements referred to in
                  Sections 11 and 12 (including without limitation their scope,
                  duration and geographic extent) are fair and reasonably
                  necessary for the protection of the Company and its
                  subsidiaries confidential information, goodwill and other
                  protectable interests. If a court of competent jurisdiction
                  should decline to enforce any of those covenants and
                  agreements, Executive and the Company request the court to
                  reform these provisions to restrict Executive's use of
                  confidential information and Executive's ability to compete
                  with the Company to the maximum extent, in time, scope of
                  activities and geography, the court finds enforceable.

         (b)      Executive acknowledges the Company will suffer immediate and
                  irreparable harm that will not be compensable by damages alone
                  if Executive repudiates or breaches any of the provisions of
                  Sections 11 or 12 or threatens or attempts to do so. For this
                  reason, under these circumstances, the Company, in addition to
                  and without limitation of any other rights, remedies or
                  damages available to it at law or in equity, will be entitled
                  to obtain temporary, preliminary and permanent injunctions in
                  order to prevent or restrain the breach, and the Company will
                  not be required to post a bond as a condition for the granting
                  of this relief.

14.      COVENANTS. Executive specifically acknowledges the receipt of adequate
         consideration for the covenants contained in Sections 11 and 12 and
         that the Company is entitled to require him to comply with these
         Sections. These Sections will survive termination of this Agreement.
         Executive represents that if his employment is terminated, whether
         voluntarily or involuntarily, Executive has experience and capabilities
         sufficient to enable Executive to obtain employment in areas which do
         not violate this Agreement and that the Company's enforcement of a
         remedy by way of injunction will not prevent Executive from earning a
         livelihood.

15.      ARBITRATION.

         (a)      Arbitration. At either party's request, the parties must
                  submit any dispute, controversy or claim arising out of or in
                  connection with, or relating to, this Agreement or any breach
                  or alleged breach of this Agreement, to arbitration under the
                  American Arbitration Association's rules then in effect (or
                  under any other form of arbitration mutually acceptable to the
                  parties). A single arbitrator agreed on by the parties will
                  conduct the arbitration. If the parties cannot agree on a
                  single arbitrator, each party must select one arbitrator and
                  those two arbitrators will select a third arbitrator. This
                  third arbitrator will hear the dispute. The arbitrator's
                  decision is final (except as otherwise specifically provided
                  by law) and binds the parties, and either party may request
                  any court having jurisdiction to enter a judgment and to
                  enforce the arbitrator's decision. The arbitrator will provide
                  the parties with a written decision naming the substantially
                  prevailing party in the action. This prevailing party is
                  entitled to reimbursement from the other party for its costs
                  and expenses, including reasonable attorneys' fees.

         (b)      Governing Law. All proceedings will be held at a place
                  designated by the arbitrator in Flathead County, Montana. The
                  arbitrator, in rendering a decision as to any state law
                  claims, will apply Montana law.

         (c)      Exception to Arbitration. Notwithstanding the above, if
                  Executive violates Section 11 or 12, the Company will have the
                  right to initiate the court proceedings described in Section
                  13(b), in lieu of an arbitration proceeding under this Section
                  15.

16.      MISCELLANEOUS PROVISIONS.

         (a)      Entire Agreement. This Agreement constitutes the entire
                  understanding and agreement between the parties concerning its
                  subject matter and supersedes all prior agreements,
                  correspondence, representations, or understandings between the
                  parties relating to its subject matter.

         (b)      Binding Effect. This Agreement will bind and inure to the
                  benefit of the Company's, its subsidiaries' and Executive's
                  heirs, legal representatives, successors and assigns.

         (c)      Litigation Expenses. If either party successfully seeks to
                  enforce any provision of this Agreement or to collect any
                  amount claimed to be due under it, this party will be entitled
                  to reimbursement from the other party for any and all of its
                  out-of-pocket expenses and costs including, without
                  limitation, reasonable attorneys' fees and costs incurred in
                  connection with the enforcement or collection.

         (d)      Waiver. Any waiver by a party of its rights under this
                  Agreement must be written and signed by the party waiving its
                  rights. A party's waiver of the other party's breach of any
                  provision of this Agreement will not operate as a waiver of
                  any other breach by the breaching party.

         (e)      Assignment. The services to be rendered by Executive under
                  this Agreement are unique and personal. Accordingly, Executive
                  may not assign any of his rights or duties under this
                  Agreement.

         (f)      Amendment. This Agreement may be modified only through a
                  written instrument signed by both parties.

         (g)      Severability. The provisions of this Agreement are severable.
                  The invalidity of any provision will not affect the validity
                  of other provisions of this Agreement.

         (h)      Governing Law and Venue. This Agreement will be governed by
                  and construed in accordance with Montana law, except to the
                  extent that certain regulatory matters may be governed by
                  federal law. The parties must bring any legal proceeding
                  arising out of this Agreement in Flathead County, Montana.

         (i)      Counterparts. This Agreement may be executed in one or more
                  counterparts, each of which shall be deemed to be an original,
                  but all of which taken together will constitute one and the
                  same instrument.

Signed this 30th day of December, 2002.

                                                  GLACIER BANCORP, INC.

                                                  /s/ John S. MacMillan
                                                  ------------------------------
                                                  John S. MacMillan, Chairman

Attest:

/s/ James H. Strosahl
- --------------------------------
James H. Strosahl, Secretary

                                                  EXECUTIVE

                                                  /s/ Michael J. Blodnick
                                                  ------------------------------
                                                  Michael J. Blodnick

                                                                   EXHIBIT 10(c)

                              EMPLOYMENT AGREEMENT

         AGREEMENT between Glacier Bancorp, Inc., hereinafter called "Company",
and James H. Strosahl, hereinafter called "Executive"

                                    RECITALS

A.       Executive has served as Chief Financial Officer and Secretary/Treasurer
         and is willing also to serve as Executive Vice President of the
         Company.

B.       The Company desires Executive to continue his employment at the Company
         under the terms and conditions of this Agreement.

C.       Executive desires to continue his employment at the Company under the
         terms and conditions of this Agreement.

                                    AGREEMENT

1.       EMPLOYMENT. The Company agrees to employ Executive and Executive
         accepts employment by the Company on the terms and conditions set forth
         in this Agreement. Executive's title will be Executive Vice President,
         Chief Financial Officer and Secretary/Treasurer of the Company.

2.       TERM. The term of this Agreement ("Term") is one year, beginning on
         January 1, 2003.

3.       DUTIES. The Company will employ Executive as its Executive Vice
         President, Chief Financial Officer and Secretary/Treasurer. Executive
         will faithfully and diligently perform his assigned duties, which are
         as follows:

         (a)      Executive Vice President. Duties and responsibilities as set
                  forth in the document annexed, entitled "Executive Vice
                  President".

         (b)      Chief Financial Officer - Secretary/Treasurer. Duties and
                  responsibilities as set forth in. the documents annexed,
                  entitled "Chief Financial Officer" and "Secretary/Treasurer".

         (c)      Report to Board. Executive will report directly to the
                  Company's President and Chief Executive Officer. The Company's
                  board of directors may, from time to time, modify Executive's
                  title or add, delete, or modify Executive's performance
                  responsibilities to accommodate management succession, as well
                  as any other management objectives of the Company. Executive
                  will assume any additional positions, duties and
                  responsibilities as may reasonably be requested of him with or
                  without additional compensation, as appropriate and consistent
                  with Sections 3(a) and 3(b) of this Agreement.

4.       EXTENT OF SERVICES. Executive will devote all of his working time,
         attention and skill to the duties and responsibilities set forth in
         Section 3. To the extent that such activities do not interfere with his
         duties under Section 3, Executive may participate in other businesses
         as a passive investor, but (a) Executive may not actively participate
         in the operation or management of those businesses, and (b) Executive
         may not, without the Company's prior written consent, make or maintain
         any investment in a business with which the Company or its subsidiaries
         has an existing competitive or commercial relationship.

5.       SALARY. Executive will receive an annual salary of $180,889, to be paid
         in accordance with the Company's regular

         payroll schedule. Subsequent salary increases are subject to the
         Company's annual review of Executive's compensation and performance.

6.       INCENTIVE COMPENSATION. During the Term, the Company's board of
         directors will determine the amount of bonus to be paid by the Company
         to Executive for that year. In making this determination, the Company's
         board of directors will consider factors such as Executive's
         performance of his duties and the safety, soundness and profitability
         of the Company. Executive's bonus will reflect Executive's contribution
         to the performance of the Company during the year. This bonus will be
         paid to Executive no later than January 31 of the year following the
         year in which the bonus is earned by Executive.

7.       INCOME DEFERRAL. Executive will be eligible to participate in any
         program available to the Company's senior management for income
         deferral, for the purpose of deferring receipt of any or all of the
         compensation he may become entitled to under this Agreement.

8.       VACATION AND BENEFITS.

         (a)      Vacation and Holidays. Executive will receive four weeks of
                  paid vacation each year in addition to all holidays observed
                  by the Company and its subsidiaries. Executive may carry over,
                  in the aggregate, up to four weeks of unused vacation to a
                  subsequent year. Any unused vacation time in excess of four
                  weeks will not accumulate or carry over from one calendar year
                  to the next. Each calendar year, Executive shall take not less
                  than one (1) week vacation.

         (b)      Benefits. Executive will be entitled to participate in any
                  group life insurance, disability, health and accident
                  insurance plans, profit sharing and pension plans and in other
                  employee fringe benefit programs the Company may have in
                  effect from time to time for its similarly situated employees,
                  in accordance with and subject to any policies adopted by the
                  Company's board of directors with respect to the plans or
                  programs, including without limitation, any incentive or
                  employee stock option plan, deferred compensation plan, 401(k)
                  plan, and Supplemental Executive Retirement Plan (SERP). The
                  Company through this Agreement does not obligate itself to
                  make any particular benefits available to its employees.

         (c)      Business Expenses. The Company will reimburse Executive for
                  ordinary and necessary expenses which are consistent with past
                  practice at the Company (including, without limitation,
                  travel, entertainment, and similar expenses) and which are
                  incurred in performing and promoting the Company's business.
                  Executive will present from time to time itemized accounts of
                  these expenses, subject to any limits of the Company policy or
                  the rules and regulations of the Internal Revenue Service.

9.       TERMINATION OF EMPLOYMENT.

         (a)      Termination by the Company for Cause. If the Company
                  terminates Executive's employment for Cause (defined below)
                  before this Agreement terminates, the Company will pay
                  Executive the salary earned and expenses reimbursable under
                  this Agreement incurred through the date of his termination.
                  Executive will have no right to receive compensation or other
                  benefits for any period after termination under this Section
                  9(a).

         (b)      Other Termination by the Company. If the Company terminates
                  Executive's employment without Cause before this Agreement
                  terminates, or Executive terminates his employment for Good
                  Reason (defined below), the Company will pay Executive for the
                  remainder of the Term the compensation and other benefits he
                  would have been entitled to if his employment had not
                  terminated.

         (c)      Death or Disability. This Agreement terminates (1) if
                  Executive dies or (2) if Executive is unable to perform his
                  duties and obligations under this Agreement for a period of 90
                  consecutive days as a result of a physical or mental
                  disability arising at any time during the term of this
                  Agreement, unless with

                  reasonable accommodation Executive could continue to perform
                  his duties under this Agreement and making these
                  accommodations would not pose an undue hardship on the
                  Company. If termination occurs under this Section 9(c),
                  Executive or his estate will be entitled to receive all
                  compensation and benefits earned and expenses reimbursable
                  through the date Executive's employment terminated.

         (d)      Termination Related to a Change in Control.

                  (1)      Termination by Company. If the Company, or its
                           successor in interest by merger, or its transferee in
                           the event of a purchase in an assumption transaction
                           (for reasons other than Executive's death,
                           disability, or Cause) (1) terminates Executive's
                           employment within 3 years following a Change in
                           Control (as defined below), or (2) terminates
                           Executive's employment before the Change in Control
                           but on or after the date that any party either
                           announces or is required by law to announce any
                           prospective Change in Control transaction and a
                           Change in Control occurs within six months after the
                           termination, the Bank will provide Executive with the
                           greater of (1) the payment and benefits described in
                           Section 9(d)(3) below, or (2) the compensation and
                           other benefits he would have been entitled to for the
                           remainder of the Term if his employment had not been
                           terminated.

                  (2)      Termination by Executive. If Executive terminates
                           Executive's employment, with or without Good Reason,
                           within two years following a Change in Control, the
                           Company will provide Executive with the payment and
                           benefits described in Section 9(d)(3).

                  (3)      Payments. If Section 9(d)(1) or (2) is triggered in
                           accordance with its terms, the Company will: (i) pay
                           Executive in 24 monthly installments in an amount
                           equal to two times the Executive's annual salary
                           (determined as of the day before the date Executive's
                           employment was terminated) and (ii) maintain and
                           provide for 2 years following Executive's
                           termination, at no cost to Executive, the benefits
                           described in Section 9(b) to which Executive is
                           entitled (determined as of the day before the date of
                           such termination); but if Executive's participation
                           in any such benefit is thereafter barred or not
                           feasible, or discontinued or materially reduced, the
                           Company will arrange to provide Executive with either
                           benefits substantially similar to those benefits or a
                           cash payment of substantially similar value in lieu
                           of the benefits.

         (e)      Limitations on Payments Related to Change in Control. The
                  following apply notwithstanding any other provision of this
                  Agreement:

                  (1)      the total of the payments and benefits described in
                           Section 9(d)(3) will be less than the amount that
                           would cause them to be a parachute payment" within
                           the meaning of Section 280G(b)(2)(A) of the Internal
                           Revenue Code;

                  (2)      the payment and benefits described in Section 9(d)(3)
                           will be reduced by any compensation (in the form of
                           cash or other benefits) received by Executive from
                           the Company or its successor after the Change in
                           Control; and

                  (3)      Executive's right to receive the payments and
                           benefits described in Section 9(d)(3) terminates (U
                           immediately if before the Change in Control
                           transaction closes, Executive terminates his
                           employment without Good Reason, or the Company
                           terminates Executive's employment for Cause, or (ii)
                           two years after a Change of Control occurs.

         (f)      Return of Bank Property. If and when Executive ceases, for any
                  reason, to be employed by the Company, Executive must return
                  to the Company all keys, pass cards, identification. cards and
                  any other property of the Company. At the same time, Executive
                  also must return to the Company all originals and copies
                  (whether in memoranda, designs, devices, diskettes, tapes,
                  manuals, and specifications) which constitute proprietary
                  information or material of the Company and its subsidiaries.
                  The obligations in this paragraph include the return of
                  documents and other materials which may be in his desk at
                  work, in his car, in place of residence, or in any other
                  location under his control.

         (g) Cause. "Cause" means any one or more of the following:

                  (1)      Willful misfeasance or gross negligence in the
                           performance of Executive's duties;

                  (2)      Conviction of a crime in connection with his duties;

                  (3)      Conduct demonstrably and significantly harmful to the
                           Company, as reasonably determined on the advice of
                           legal counsel by the Company's board of directors; or

                  (4)      Permanent disability, meaning a physical or mental
                           impairment which renders Executive incapable of
                           substantially performing the duties required under
                           this Agreement, and which is expected to continue
                           rendering Executive so incapable for the reasonably
                           foreseeable future.

         (h)      Good Reason. "Good Reason" means only any one or more of the
                  following

                  (1)      Reduction of Executive's salary or reduction or
                           elimination of any compensation or benefit plan
                           benefiting Executive, unless the reduction or
                           elimination is generally applicable to substantially
                           all Company employees (or employees of a successor or
                           controlling entity of the Company) formerly
                           benefitted;

                  (2)      The assignment to Executive without his consent of
                           any authority or duties materially inconsistent with
                           Executive's position as of the date of this
                           Agreement;

                  (3)      The material breach of this Agreement by the Company,
                           or

                  (4)      A relocation or transfer of Executive's principal
                           place of employment outside Flathead County, Montana.

         (i)      Change in Control. "Change in Control" means a change "in the
                  ownership or effective control" or "in the ownership of a
                  substantial portion of the assets" of the Company, within the
                  meaning of Section 280G of the Internal Revenue Code.

10.      CONFIDENTIALITY. Executive will not, after the date this Agreement was
         signed, including during and after its Term, use for his own purposes
         or disclose to any other person or entity any confidential business
         information concerning the Company or its business operations or that
         of its subsidiaries, unless (1) the Company consents to the use or
         disclosure of confidential information; (2) the use or disclosure is
         consistent with Executive's duties under this Agreement, or (3)
         disclosure is required by law or court order. For purposes of this
         Agreement, confidential business information includes, without
         limitation, trade secrets (as defined under the Montana Uniform Trade
         Secrets Act, Montana Code Section 30-14-402), various confidential
         information on investment management practices, marketing plans,
         pricing structure and technology of either the Company or its
         subsidiaries. Executive will also treat the terms of this Agreement as
         confidential business information.

11.      NONCOMPETITION. During the Term of this Agreement and for a period of
         two years after Executive's employment with the Company has terminated,
         Executive will not, directly or indirectly, as a shareholder, director,
         officer, employee, partner, agent, consultant, lessor, creditor or
         otherwise:

         (a)      provide management, supervisory or other similar services to
                  any person or entity engaged in any business in counties in
                  which the Company or its subsidiaries may have a presence
                  which is competitive with the business of the Company or a
                  subsidiary as conducted during the term of this Agreement or
                  as conducted as of the date of termination of employment,
                  including any preliminary steps associated with the formation
                  of a new bank.

         (b)      persuade or entice, or attempt to persuade or entice any
                  employee of the Company or a subsidiary to terminate his/her
                  employment with the Company or a subsidiary.

         (c)      persuade or entice or attempt to persuade or entice any person
                  or entity to terminate, cancel, rescind or revoke its business
                  or contractual relationships with the Company or its
                  subsidiaries.

12.      ENFORCEMENT.

         (a)      The Company and Executive stipulate that, in light of all of
                  the facts and circumstances of the relationship between
                  Executive and the Company, the agreements referred to in
                  Sections 10 and 11 (including without limitation their scope,
                  duration and geographic extent) are fair and reasonably
                  necessary for the protection of the Company and its
                  subsidiaries confidential information, goodwill and other
                  protectable interests. If a court of competent jurisdiction
                  should decline to enforce any of those covenants and
                  agreements, Executive and the Company request the court to
                  reform these provisions to restrict Executive's use of
                  confidential information and Executive's ability to compete
                  with the Company to the maximum extent, in time, scope of
                  activities and geography, the court finds enforceable.

         (b)      Executive acknowledges the Company will suffer immediate and
                  irreparable harm that will not be compensable by damages alone
                  if Executive repudiates or breaches any of the provisions of
                  Sections 10 or 11 or threatens or attempts to do so. For this
                  reason, under these circumstances, the Company, in addition to
                  and without limitation of any other rights, remedies or
                  damages available to it at law or in equity, will be entitled
                  to obtain temporary, preliminary and permanent injunctions in
                  order to prevent or restrain the breach, and the Company will
                  not be required to post a bond as a condition for the granting
                  of this relief.

13.      COVENANTS. Executive specifically acknowledges the receipt of adequate
         consideration for the covenants contained in Sections 10 and 11 and
         that the Company is entitled to require him to comply with these
         Sections. These Sections will survive termination of this Agreement.
         Executive represents that if his employment is terminated, whether
         voluntarily or involuntarily, Executive has experience and capabilities
         sufficient to enable Executive to obtain employment in areas which do
         not violate this Agreement and that the Company's enforcement of a
         remedy by way of injunction will not prevent Executive from earning a
         livelihood.

14.      ARBITRATION.

         (a)      Arbitration. At either party's request, the parties must
                  submit any dispute, controversy or claim arising out of or in
                  connection with, or relating to, this Agreement or any breach
                  or alleged breach of this Agreement, to arbitration under the
                  American Arbitration Association's rules then in effect (or
                  under any other form of arbitration mutually acceptable to the
                  parties). A single arbitrator agreed on by the parties will
                  conduct the arbitration. If the parties cannot agree on a
                  single arbitrator, each party must select one arbitrator and
                  those two arbitrators will select a third arbitrator. This
                  third arbitrator will hear the dispute. The arbitrator's
                  decision is final (except as otherwise specifically provided
                  by law) and binds the parties, and either party may request
                  any court having jurisdiction to enter a judgment and to
                  enforce the arbitrator's decision. The arbitrator will provide
                  the parties with a written decision naming the substantially
                  prevailing party in the action. This prevailing party is
                  entitled to reimbursement from the other party for its costs
                  and expenses, including reasonable attorneys' fees.

         (b)      Governing Law. All proceedings will be held at a place
                  designated by the arbitrator in Flathead County, Montana. The
                  arbitrator, in rendering a decision as to any state law
                  claims, will apply Montana law.

         (c)      Exception to Arbitration. Notwithstanding the above, if
                  Executive violates Section 10 or 11, the Company will have the
                  right to initiate the court proceedings described in Section
                  12(b), in lieu of an arbitration proceeding under this Section
                  14.

15.      MISCELLANEOUS PROVISIONS.

         (a)      Entire Agreement. This Agreement constitutes the entire
                  understanding and agreement between the parties concerning its
                  subject matter and supersedes all prior agreements,
                  correspondence, representations, or understandings between the
                  parties relating to its subject matter.

         (b)      Binding Effect. This Agreement will bind and inure to the
                  benefit of the Company's, its subsidiaries' and Executive's
                  heirs, legal representatives, successors and assigns.

         (c)      Litigation Expenses. If either party successfully seeks to
                  enforce any provision of this Agreement or to collect any
                  amount claimed to be due under it, this party will be entitled
                  to reimbursement from the other party for any and all of its
                  out-of-pocket expenses and costs including, without
                  limitation, reasonable attorneys' fees and costs incurred in
                  connection with the enforcement or collection.

         (d)      Waiver. Any waiver by a party of its rights under this
                  Agreement must be written and signed by the party waiving its
                  rights. A party's waiver of the other party's breach of any
                  provision of this Agreement will not operate as a waiver of
                  any other breach by the breaching party.

         (e)      Assignment. The services to be rendered by Executive under
                  this Agreement are unique and personal. Accordingly, Executive
                  may not assign any of his rights or duties under this
                  Agreement.

         (f)      Amendment. This Agreement may be modified only through a
                  written instrument signed by both parties.

         (g)      Severability. The provisions of this Agreement are severable.
                  The invalidity of any provision will not affect the validity
                  of other provisions of this Agreement.

         (h)      Governing Law and Venue. This Agreement will be governed by
                  and construed in accordance with Montana law, except to the
                  extent that certain regulatory matters may be governed by
                  federal law. The parties must bring any legal proceeding
                  arising out of this Agreement in Flathead County, Montana.

         (i)      Counterparts. This Agreement may be executed in one or more
                  counterparts, each of which shall be deemed to be an original,
                  but all of which taken together will constitute one and the
                  same instrument.

Signed this 30th day of December, 2002.

                                                  GLACIER BANCORP, INC.

                                                  /s/ Michael J. Blodnick
                                                  ------------------------------
                                                  Michael J. Blodnick
                                                  President/CEO

Attest:

/s/ LeeAnn Wardinsky
- --------------------------------
LeeAnn Wardinsky
Assistant Secretary

                                                  EXECUTIVE

                                                  /s/ James H. Strosahl
                                                  ------------------------------
                                                  James H. Strosahl

                                                                   EXHIBIT 10(d)

                              EMPLOYMENT AGREEMENT

         AGREEMENT between First Security Bank of Missoula, ("Bank"), and
William L. Bouchee, ("Executive"), and ratified by Glacier Bancorp, Inc.
("Bancorp"),

                                    RECITALS

A.       First Security Bank of Missoula, ("Bank"), is a wholly owned subsidiary
         of Glacier Bancorp, Inc., ("Bancorp").

B.       Executive is the President and Chief Executive Officer of the Bank, a
         director of the Bank, and a director of Bancorp.

C.       The Bank desires Executive to continue his employment at the Bank under
         the terms and conditions of this Agreement.

D.       Executive desires to continue his employment at the Bank under the
         terms and conditions of this Agreement.

                                    AGREEMENT

1.       EMPLOYMENT. The Bank agrees to employ Executive and Executive accepts
         employment by the Bank on the terms and conditions set forth in this
         Agreement. Executive's title will be President and Chief Executive
         Officer of the Bank. During the term of this Agreement, Executive will
         serve as a director of the Bank.

2.       TERM. The term of this Agreement is for one year beginning January 1,
         2003.

3.       DUTIES. The Bank will employ Executive as its President and Chief
         Executive Officer. Executive will faithfully and diligently perform his
         assigned duties, which are as follows:

         (a)      Bank Performance. Executive will be responsible for all
                  aspects of the Bank's performance, including without
                  limitation, directing that daily operational and managerial
                  matters are performed in a manner consistent with the Bank's
                  and Bancorp's policies.

         (b)      Development and Preservation of Business. Executive will be
                  responsible for the development and preservation of banking
                  relationships and other business development efforts
                  (including appropriate civic and community activities) in
                  Missoula County.

         (c)      Report to Board. Executive will report directly to the Bank's
                  board of directors and to the Chief Executive Officer of
                  Bancorp. The Bank's board of directors may, from time to time,
                  modify Executive's title or add, delete, or modify Executive's
                  performance responsibilities to accommodate management
                  succession, as well as any other management objectives of the
                  Bank or of Bancorp. Executive will assume any additional
                  positions, duties and responsibilities as may reasonably be
                  requested of him with or without additional compensation, as
                  appropriate and consistent with Sections 3(a) and 3(b) of this
                  Agreement.

4.       EXTENT OF SERVICES. Executive will devote all of his working time,
         attention and skill to the duties and responsibilities set forth in
         Section 3. To the extent that such activities do not interfere with his
         duties under Section 3, Executive may participate in other businesses
         as a passive investor, but (a) Executive may not actively participate
         in the operation or management of those businesses, and (b) Executive
         may not, without the Bank's prior written consent, make or maintain any
         investment in a business with which the Bank or Bancorp has an existing
         competitive or commercial relationship.

5.       SALARY. Executive will receive an annual salary of $173,936.00 to be
         paid in accordance with the Bank's regular payroll schedule.

6.       INCENTIVE COMPENSATION. During the Term, the Bank's board of directors,
         subject to ratification by Bancorp's board of directors, will determine
         the amount of bonus to be paid by the Bank to Executive for that year.
         In making this determination, the Bank's board of directors will
         consider factors such as Executive's performance of his duties and the
         safety, soundness and profitability of the Bank. Executive's bonus will
         reflect Executive's contribution to the performance of the Bank during
         the year. This bonus will be paid to Executive no later than January 31
         of the year following the year in which the bonus is earned by
         Executive.

7.       INCOME DEFERRAL. Executive will be eligible to participate in any
         program available to the Bank's and Bancorp's senior management for
         income deferral, for the purpose of deferring receipt of any or all of
         the compensation he may become entitled to under this Agreement.

8.       VACATION AND BENEFITS.

         (a)      Vacation and Holidays. Executive will receive four weeks of
                  paid vacation each year in addition to all holidays observed
                  by the Bank. Executive may carry over, in the aggregate, up to
                  four weeks of unused vacation to a subsequent year. Any unused
                  vacation time in excess of four weeks will not accumulate or
                  carry over from one calendar year to the next. Each calendar
                  year Executive shall take not less than one (1) week vacation.

         (b)      Benefits. Executive will be entitled to participate in any
                  group life insurance, disability, health and accident
                  insurance plans, profit sharing and pension plans and in other
                  employee fringe benefit programs the Bank or Bancorp may have
                  in effect from time to time for its similarly situated
                  employees, in accordance with and subject to any policies
                  adopted by the Bank's board of directors with respect to the
                  plans or programs, including without limitation, any incentive
                  or employee stock option plan, deferred compensation plan, 40
                  1(k) plan, and Supplemental Executive Retirement Plan (SERP).
                  Neither the Bank nor Bancorp, through this Agreement, obligate
                  itself to make any particular benefits available to its
                  employees.

         (c)      Business Expenses. The Bank will reimburse Executive for
                  ordinary and necessary expenses which are consistent with past
                  practice at the Bank (including, without limitation, travel,
                  entertainment, and similar expenses) and which are incurred in
                  performing and promoting the Bank's business. Executive will
                  present from time to time itemized accounts of these expenses,
                  subject to any limits of the Bank policy or the rules and
                  regulations of the Internal Revenue Service.

9.       TERMINATION OF EMPLOYMENT.

         (a)      Termination by the Bank for Cause. If the Bank terminates
                  Executive's employment for Cause (defined below) before this
                  Agreement terminates, the Bank will pay Executive the salary
                  earned and expenses reimbursable under this Agreement incurred
                  through the date of his termination. Executive will have no
                  right to receive compensation or other benefits for any period
                  after termination under this Section 9(a).

         (b)      Other Termination by the Bank. If the Bank terminates
                  Executive's employment without Cause before this Agreement
                  terminates, or Executive terminates his employment for Good
                  Reason (defined below), the Bank will pay Executive for the
                  remainder of the Term the compensation and other benefits he
                  would have been entitled to if his employment had not
                  terminated.

         (c)      Death or Disability. This Agreement terminates (1) if
                  Executive dies or (2) if Executive is unable to perform his
                  duties and obligations under this Agreement for a period of 90
                  consecutive days as a result of a physical or mental
                  disability arising at any time during the term of this
                  Agreement, unless with reasonable accommodation Executive
                  could continue to perform his duties under this Agreement and
                  making these accommodations would not pose an undue hardship
                  on the Bank. If termination occurs

                  under this Section 9(c), Executive or his estate will be
                  entitled to receive all compensation and benefits earned and
                  expenses reimbursable through the date Executive's employment
                  terminated.

         (d)      Termination Related to a Change in Control.

                  (1)      Termination by Bank. If the Bank, or its successor in
                           interest by merger, or its transferee in the event of
                           a purchase in an assumption transaction (for reasons
                           other than Executive's death, disability, or Cause)
                           (1) terminates Executive's employment within one year
                           following a Change in Control (as defined below), or
                           (2) terminates Executive's employment before the
                           Change in Control but on or after the date that any
                           party either announces or is required by law to
                           announce any prospective Change in Control
                           transaction and a Change in Control occurs within six
                           months after the termination, the Bank will provide
                           Executive with the payment and benefits described in
                           Section 9(d)(3) below.

                  (2)      Termination by Executive. If Executive terminates
                           Executive's employment, with or without Good Reason,
                           within one year following a Change in Control, the
                           Bank will provide Executive with the payment and
                           benefits described in Section 9(d)(3).

                  (3)      Payments. If Section 9(d)(1) or (2) is triggered in
                           accordance with its terms, the Bank will: (i) pay
                           Executive in 12 monthly installments in an amount
                           equal to the Executive's annual salary (determined as
                           of the day before the date Executive's employment was
                           terminated) and (ii) maintain and provide for 1 year
                           following Executive's termination, at no cost to
                           Executive, the benefits described in Section 9(b) to
                           which Executive is entitled (determined as of the day
                           before the date of such termination); but if
                           Executive's participation in any such benefit is
                           thereafter barred or not feasible, or discontinued or
                           materially reduced, the Bank will arrange to provide
                           Executive with either benefits substantially similar
                           to those benefits or a cash payment of substantially
                           similar value in lieu of the benefits.

         (e)      Limitations on Payments Related to Change in Control. The
                  following apply notwithstanding any other provision of this
                  Agreement:

                  (1)      the total of the payments and benefits described in
                           Section 9(d)(3) will be less than the amount that
                           would cause them to be a "parachute payment" within
                           the meaning of Section 280G(b)(2)(A) of the Internal
                           Revenue Code;

                  (2)      the payment and benefits described in Section 9(d)(3)
                           will be reduced by any compensation (in the form of
                           cash or other benefits) received by Executive from
                           the Bank or its successor after the Change in
                           Control; and

                  (3)      Executive's right to receive the payments and
                           benefits described in Section 9(d)(3) terminates (i)
                           immediately if before the Change in Control
                           transaction closes, Executive terminates his
                           employment without Good Reason, or the Bank
                           terminates Executive's employment for Cause, or (ii)
                           one year after a Change of Control occurs.

         (f)      Return of Bank Property. If and when Executive ceases, for any
                  reason, to be employed by the Bank, Executive must return to
                  the Bank all keys, pass cards, identification cards and any
                  other property of the Bank. At the same time, Executive also
                  must return to the Bank all originals and copies (whether in
                  memoranda, designs, devices, diskettes, tapes, manuals, and
                  specifications) which constitute proprietary information or
                  material of the Bank. The obligations in this paragraph
                  include the return of documents and other materials which may
                  be in his desk at work, in his car, in place of residence, or
                  in any other location under his control.

         (g)      Cause. "Cause" means any one or more of the following:

                  (1)      Willful misfeasance or gross negligence in the
                           performance of Executive's duties;

                  (2)      Conviction of a crime in connection with his duties;

                  (3)      Conduct demonstrably and significantly harmful to the
                           Bank, as reasonably determined on the advice of legal
                           counsel by the Bank's board of directors; or

                  (4)      Permanent disability, meaning a physical or mental
                           impairment which renders Executive incapable of
                           substantially performing the duties required under
                           this Agreement, and which is expected to continue
                           rendering Executive so incapable for the reasonably
                           foreseeable future.

         (h)      Good Reason. "Good Reason" means only any one or more of the
                  following

                  (1)      Reduction of Executive's salary or reduction or
                           elimination of any compensation or benefit plan
                           benefiting Executive, unless the reduction or
                           elimination is generally applicable to other
                           executive officers within Bancorp (or executive
                           officers of a successor or controlling entity of the
                           Bank) formerly benefitted;

                  (2)      The assignment to Executive without his consent of
                           any authority or duties materially inconsistent with
                           Executive's position as of the date of this
                           Agreement;

                  (3)      The material breach of this Agreement by the Bank, or

                  (4)      A relocation or transfer of Executive's principal
                           place of employment outside Missoula County, Montana.

         (i)      Change in Control. "Change in Control" means a change "in the
                  ownership or effective control" or "in the ownership of a
                  substantial portion of the assets" of the Bank, within the
                  meaning of Section 280G of the Internal Revenue Code.

10.      CONFIDENTIALITY. Executive will not, after the date this Agreement was
         signed, including during and after its Term, use for his own purposes
         or disclose to any other person or entity any confidential business
         information concerning the Bank or its business operations, unless (1)
         the Bank consents to the use or disclosure of confidential information;
         (2) the use or disclosure is consistent with Executive's duties under
         this Agreement, or (3) disclosure is required by law or court order.
         For purposes of this Agreement, confidential business information
         includes, without limitation, trade secrets (as defined under the
         Montana Uniform Trade Secrets Act, Montana Code Section 30-14-402),
         various confidential information on investment management practices,
         marketing plans, pricing structure and technology of either the Bank or
         Bancorp. Executive will also treat the terms of this Agreement as
         confidential business information.

11.      NONCOMPETITION. During the Term and the terms of any extensions or
         renewals of this Agreement and for a period equal to one year after
         Executive's employment with the Bank and Bancorp has terminated,
         Executive will not, directly or indirectly, as a shareholder, director,
         officer, employee, partner, agent, consultant, lessor, creditor or
         otherwise:

         (a)      provide management, supervisory or other similar services to
                  any person or entity engaged in any business in counties in
                  which the Bank or Bancorp may have a presence which is
                  competitive with the business of the Bank or Bancorp or a
                  subsidiary as conducted during the term of this Agreement or
                  as conducted as of the date of termination of employment,
                  including any preliminary steps associated with the formation
                  of a new bank.

         (b)      persuade or entice, or attempt to persuade or entice any
                  employee of the Bank or Bancorp or a subsidiary to terminate
                  his/her employment with the Bank or a subsidiary.

         (c)      persuade or entice or attempt to persuade or entice any person
                  or entity to terminate, cancel, rescind or revoke its business
                  or contractual relationships with the Bank or Bancorp.

12.      ENFORCEMENT.

         (a)      The Bank and Executive stipulate that, in light of all of the
                  facts and circumstances of the relationship between Executive
                  and the Bank, the agreements referred to in Sections 10 and 11
                  (including without limitation their scope, duration and
                  geographic extent) are fair and reasonably necessary for the
                  protection of the Bank's and Bancorp's confidential
                  information, goodwill and other protectable interests. If a
                  court of competent jurisdiction should decline to enforce any
                  of those covenants and agreements, Executive and the Bank
                  request the court to reform these provisions to restrict
                  Executive's use of confidential information and Executive's
                  ability to compete with the Bank and Bancorp to the maximum
                  extent, in time, scope of activities and geography, the court
                  finds enforceable.

         (b)      Executive acknowledges the Bank and Bancorp will suffer
                  immediate and irreparable harm that will not be compensable by
                  damages alone if Executive repudiates or breaches any of the
                  provisions of Sections 10 or 11 or threatens or attempts to do
                  so. For this reason, under these circumstances, the Bank, in
                  addition to and without limitation of any other rights,
                  remedies or damages available to it at law or in equity, will
                  be entitled to obtain temporary, preliminary and permanent
                  injunctions in order to prevent or restrain the breach, and
                  the Bank will not be required to post a bond as a condition
                  for the granting of this relief.

13.      COVENANTS. Executive specifically acknowledges the receipt of adequate
         consideration for the covenants contained in Sections 10 or 11 and that
         the Bank is entitled to require him to comply with these Sections.
         These Sections will survive termination of this Agreement. Executive
         represents that if his employment is terminated, whether voluntarily or
         involuntarily, Executive has experience and capabilities sufficient to
         enable Executive to obtain employment in areas which do not violate
         this Agreement and that the Bank's enforcement of a remedy by way of
         injunction will not prevent Executive from earning a livelihood.

14.      ARBITRATION.

         (a)      Arbitration. At either party's request, the parties must
                  submit any dispute, controversy or claim arising out of or in
                  connection with, or relating to, this Agreement or any breach
                  or alleged breach of this Agreement, to arbitration under the
                  American Arbitration Association's rules then in effect (or
                  under any other form of arbitration mutually acceptable to the
                  parties). A single arbitrator agreed on by the parties will
                  conduct the arbitration. if the parties cannot agree on a
                  single arbitrator, each party must select one arbitrator and
                  those two arbitrators will select a third arbitrator. This
                  third arbitrator will hear the dispute. The arbitrator's
                  decision is final (except as otherwise specifically provided
                  by law) and binds the parties, and either party may request
                  any court having jurisdiction to enter a judgment and to
                  enforce the arbitrator's decision. The arbitrator will provide
                  the parties with a written decision naming the substantially
                  prevailing party in the action. This prevailing party is
                  entitled to reimbursement from the other party for its costs
                  and expenses, including reasonable attorneys' fees.

         (b)      Governing Law. All proceedings will be held at a place
                  designated by the arbitrator in Missoula County, Montana. The
                  arbitrator, in rendering a decision as to any state law
                  claims, will apply Montana law.

         (c)      Exception to Arbitration. Notwithstanding the above, if
                  Executive violates Section 10 or 11, the Bank will have the
                  right to initiate the court proceedings described in Section
                  12(b), in lieu of an arbitration proceeding under this Section
                  14.

15.      MISCELLANEOUS PROVISIONS.

         (a)      Entire Agreement. This Agreement constitutes the entire
                  understanding and agreement between the parties concerning its
                  subject matter and supersedes all prior agreements,
                  correspondence, representations, or understandings between the
                  parties relating to its subject matter.

         (b)      Binding Effect. This Agreement will bind and inure to the
                  benefit of the Bank's and Executive's heirs,

                  legal representatives, successors and assigns.

         (c)      Litigation Expenses. If either party successfully seeks to
                  enforce any provision of this Agreement or to collect any
                  amount claimed to be due under it, this party will be entitled
                  to reimbursement from the other party for any and all of its
                  out-of-pocket expenses and costs including, without
                  limitation, reasonable attorneys' fees and costs incurred in
                  connection with the enforcement or collection.

         (d)      Waiver. Any waiver by a party of its rights under this
                  Agreement must be written and signed by the party waiving its
                  rights. A party's waiver of the other party's breach of any
                  provision of this Agreement will not operate as a waiver of
                  any other breach by the breaching party.

         (e)      Assignment. The services to be rendered by Executive under
                  this Agreement are unique and personal. Accordingly, Executive
                  may not assign any of his rights or duties under this
                  Agreement.

         (f)      Amendment. This Agreement may be modified only through a
                  written instrument signed by both parties and ratified by
                  Bancorp.

         (g)      Severability. The provisions of this Agreement are severable.
                  The invalidity of any provision will not affect the validity
                  of other provisions of this Agreement.

         (h)      Governing Law and Venue. This Agreement will be governed by
                  and construed in accordance with Montana law, except to the
                  extent that certain regulatory matters may be governed by
                  federal law. The parties must bring any legal proceeding
                  arising out of this Agreement in Missoula County, Montana.

         (i)      Counterparts. This Agreement may be executed in one or more
                  counterparts, each of which shall be deemed to be an original,
                  but all of which taken together will constitute one and the
                  same instrument.

         Signed this 21st day of January, 2003.

                                                FIRST SECURITY BANK OF MISSOULA

                                                /s/ Allen J. Fetxcher
                                                --------------------------------
                                                Allen J. Fetscher, Chairman

Attest: By:

/s/ Harold Fraser
- --------------------------------
Harold Fraser, Secretary

                                                EXECUTIVE

                                                /s/ William L. Bouchee
                                                --------------------------------
                                                William L. Bouchee

Ratified December 30, 2002

GLACIER BANCORP, INC.

/s/ Michael J. Blodnick
- --------------------------------
Michael J. Blodnick
President/CEO

                                                                   EXHIBIT 10(i)

                              EMPLOYMENT AGREEMENT

         AGREEMENT between Mountain West Bank, ("Bank"), and Jon W. Hippler,
("Executive"), and ratified by Glacier Bancorp, Inc. ("Bancorp"),

                                    RECITALS

A.       Mountain West Bank, ("Bank"), is a wholly owned subsidiary of Glacier
         Bancorp, Inc., ("Bancorp").

B.       Executive is the President and Chief Executive Officer of the Bank, a
         director of the Bank, and a director of Bancorp.

C.       The Bank desires Executive to continue his employment at the Bank under
         the terms and conditions of this Agreement.

D.       Executive desires to continue his employment at the Bank under the
         terms and conditions of this Agreement.

                                    AGREEMENT

1.       EMPLOYMENT. The Bank agrees to employ Executive and Executive accepts
         employment by the Bank on the terms and conditions set forth in this
         Agreement. Executive's title will be President and Chief Executive
         Officer of the Bank. During the term of this Agreement, Executive will
         serve as a director of the Bank.

2.       TERM. The term of this Agreement is for one year beginning January 1,
         2003.

3.       DUTIES. The Bank will employ Executive as its President and Chief
         Executive Officer. Executive will faithfully and diligently perform his
         assigned duties, which are as follows:

         (a)      Bank Performance. Executive will be responsible for all
                  aspects of the Bank's performance, including without
                  limitation, directing that daily operational and managerial
                  matters are performed in a manner consistent with the Bank's
                  and Bancorp's policies.

         (b)      Development and Preservation of Business. Executive will be
                  responsible for the development and preservation of banking
                  relationships and other business development efforts
                  (including appropriate civic and community activities) in
                  Kootenai County.

         (c)      Report to Board. Executive will report directly to the Bank's
                  board of directors and to the Chief Executive Officer of
                  Bancorp. The Bank's board of directors may, from time to time,
                  modify Executive's title or add, delete, or modify Executive's
                  performance responsibilities to accommodate management
                  succession, as well as any other management objectives of the
                  Bank or of Bancorp. Executive will assume any additional
                  positions, duties and responsibilities as may reasonably be
                  requested of him with or without additional compensation, as
                  appropriate and consistent with Sections 3(a) and 3(b) of this
                  Agreement.

4.       EXTENT OF SERVICES. Executive will devote all of his working time,
         attention and skill to the duties and responsibilities set forth in
         Section 3. To the extent that such activities do not interfere with his
         duties under Section 3, Executive may participate in other businesses
         as a passive investor, but (a) Executive may not actively participate
         in the operation or management of those businesses, and (b) Executive
         may not, without the Bank's prior written consent, make or maintain any
         investment in a business with which the Bank or Bancorp has an existing
         competitive or commercial relationship.

5.       SALARY. Executive will receive an annual salary of $163,612.00 to be
         paid in accordance with the Bank's regular

         payroll schedule.

6.       INCENTIVE COMPENSATION. During the Term, the Bank's board of directors,
         subject to ratification by Bancorp's board of directors, will determine
         the amount of bonus to be paid by the Bank to Executive for that year.
         In making this determination, the Bank's board of directors will
         consider factors such as Executive's performance of his duties and the
         safety, soundness and profitability of the Bank. Executive's bonus will
         reflect Executive's contribution to the performance of the Bank during
         the year. This bonus will be paid to Executive no later than January 31
         of the year following the year in which the bonus is earned by
         Executive.

7.       INCOME DEFERRAL. Executive will be eligible to participate in any
         program available to the Bank's and Bancorp's senior management for
         income deferral, for the purpose of deferring receipt of any or all of
         the compensation he may become entitled to under this Agreement.

8.       VACATION AND BENEFITS.

         (a)      Vacation and Holidays. Executive will receive four weeks of
                  paid vacation each year in addition to all holidays observed
                  by the Bank. Executive may carry over, in the aggregate, up to
                  four weeks of unused vacation to a subsequent year. Any unused
                  vacation time in excess of four weeks will not accumulate or
                  carry over from one calendar year to the next. Each calendar
                  year Executive shall take not less than one (1) week vacation.

         (b)      Benefits. Executive will be entitled to participate in any
                  group life insurance, disability, health and accident
                  insurance plans, profit sharing and pension plans and in other
                  employee fringe benefit programs the Bank or Bancorp may have
                  in effect from time to time for its similarly situated
                  employees, in accordance with and subject to any policies
                  adopted by the Bank's board of directors with respect to the
                  plans or programs, including without limitation, any incentive
                  or employee stock option plan, deferred compensation plan, 40
                  1(k) plan, and Supplemental Executive Retirement Plan (SERP).
                  Neither the Bank nor Bancorp, through this Agreement, obligate
                  itself to make any particular benefits available to its
                  employees.

         (c)      Business Expenses. The Bank will reimburse Executive for
                  ordinary and necessary expenses which are consistent with past
                  practice at the Bank (including, without limitation, travel,
                  entertainment, and similar expenses) and which are incurred in
                  performing and promoting the Bank's business. Executive will
                  present from time to time itemized accounts of these expenses,
                  subject to any limits of the Bank policy or the rules and
                  regulations of the Internal Revenue Service.

9.       TERMINATION OF EMPLOYMENT.

         (a)      Termination by the Bank for Cause. If the Bank terminates
                  Executive's employment for Cause (defined below) before this
                  Agreement terminates, the Bank will pay Executive the salary
                  earned and expenses reimbursable under this Agreement incurred
                  through the date of his termination. Executive will have no
                  right to receive compensation or other benefits for any period
                  after termination under this Section 9(a).

         (b)      Other Termination by the Bank. If the Bank terminates
                  Executive's employment without Cause before this Agreement
                  terminates, or Executive terminates his employment for Good
                  Reason (defined below), the Bank will pay Executive for the
                  remainder of the Term the compensation and other benefits he
                  would have been entitled to if his employment had not
                  terminated.

         (c)      Death or Disability. This Agreement terminates (1) if
                  Executive dies or (2) if Executive is unable to perform his
                  duties and obligations under this Agreement for a period of 90
                  consecutive days as a result of a physical or mental
                  disability arising at any time during the term of this
                  Agreement, unless with reasonable accommodation Executive
                  could continue to perform his duties under this Agreement and
                  making these accommodations would not pose an undue hardship
                  on the Bank. If termination occurs under this Section 9(c),
                  Executive or his estate will be entitled to receive all
                  compensation and benefits

                  earned and expenses reimbursable through the date Executive's
                  employment terminated.

         (d)      Termination Related to a Change in Control.

                  (1)      Termination by Bank. If the Bank, or its successor in
                           interest by merger, or its transferee in the event of
                           a purchase in an assumption transaction (for reasons
                           other than Executive's death, disability, or Cause)
                           (1) terminates Executive's employment within one year
                           following a Change in Control (as defined below), or
                           (2) terminates Executive's employment before the
                           Change in Control but on or after the date that any
                           party either announces or is required by law to
                           announce any prospective Change in Control
                           transaction and a Change in Control occurs within six
                           months after the termination, the Bank will provide
                           Executive with the payment and benefits described in
                           Section 9(d)(3) below.

                  (2)      Termination by Executive. If Executive terminates
                           Executive's employment, with or without Good Reason,
                           within one year following a Change in Control, the
                           Bank will provide Executive with the payment and
                           benefits described in Section 9(d)(3).

                  (3)      Payments. If Section 9(d)(1) or (2) is triggered in
                           accordance with its terms, the Bank will: (i) pay
                           Executive in 12 monthly installments in an amount
                           equal to the Executive's annual salary (determined as
                           of the day before the date Executive's employment was
                           terminated) and (ii) maintain and provide for 1 year
                           following Executive's termination, at no cost to
                           Executive, the benefits described in Section 9(b) to
                           which Executive is entitled (determined as of the day
                           before the date of such termination); but if
                           Executive's participation in any such benefit is
                           thereafter barred or not feasible, or discontinued or
                           materially reduced, the Bank will arrange to provide
                           Executive with either benefits substantially similar
                           to those benefits or a cash payment of substantially
                           similar value in lieu of the benefits.

         (e)      Limitations on Payments Related to Change in Control. The
                  following apply notwithstanding any other provision of this
                  Agreement:

                  (1)      the total of the payments and benefits described in
                           Section 9(d)(3) will be less than the amount that
                           would cause them to be a "parachute payment" within
                           the meaning of Section 280G(b)(2)(A) of the Internal
                           Revenue Code;

                  (2)      the payment and benefits described in Section 9(d)(3)
                           will be reduced by any compensation (in the form of
                           cash or other benefits) received by Executive from
                           the Bank or its successor after the Change in
                           Control; and

                  (3)      Executive's right to receive the payments and
                           benefits described in Section 9(d)(3) terminates (i)
                           immediately if before the Change in Control
                           transaction closes, Executive terminates his
                           employment without Good Reason, or the Bank
                           terminates Executive's employment for Cause, or (ii)
                           one year after a Change of Control occurs.

         (f)      Return of Bank Property. If and when Executive ceases, for any
                  reason, to be employed by the Bank, Executive must return to
                  the Bank all keys, pass cards, identification cards and any
                  other property of the Bank. At the same time, Executive also
                  must return to the Bank all originals and copies (whether in
                  memoranda, designs, devices, diskettes, tapes, manuals, and
                  specifications) which constitute proprietary information or
                  material of the Bank. The obligations in this paragraph
                  include the return of documents and other materials which may
                  be in his desk at work, in his car, in place of residence, or
                  in any other location under his control.

         (g)      Cause. "Cause" means any one or more of the following:

                  (1)      Willful misfeasance or gross negligence in the
                           performance of Executive's duties;

                  (2)      Conviction of a crime in connection with his duties;

                  (3)      Conduct demonstrably and significantly harmful to the
                           Bank, as reasonably determined on the advice of legal
                           counsel by the Bank's board of directors; or

                  (4)      Permanent disability, meaning a physical or mental
                           impairment which renders Executive incapable of
                           substantially performing the duties required under
                           this Agreement, and which is expected to continue
                           rendering Executive so incapable for the reasonably
                           foreseeable future.

         (h)      Good Reason. "Good Reason" means only any one or more of the
                  following:

                  (1)      Reduction of Executive's salary or reduction or
                           elimination of any compensation or benefit plan
                           benefiting Executive, unless the reduction or
                           elimination is generally applicable to other
                           executive officers within Bancorp (or executive
                           officers of a successor or controlling entity of the
                           Bank) formerly benefited;

                  (2)      The assignment to Executive without his consent of
                           any authority or duties materially inconsistent with
                           Executive's position as of the date of this
                           Agreement;

                  (3)      The material breach of this Agreement by the Bank, or

                  (4)      A relocation or transfer of Executive's principal
                           place of employment that would require Executive to
                           commute on a regular basis more than 20 miles each
                           way from Coeur d'Alene, Idaho, with the exception of
                           travel to and from Boise, Idaho.

         (i)      Change in Control. "Change in Control" means a change "in the
                  ownership or effective control" or "in the ownership of a
                  substantial portion of the assets" of the Bank, within the
                  meaning of Section 280G of the Internal Revenue Code.

10.      CONFIDENTIALITY. Executive will not, after the date this Agreement was
         signed, including during and after its Term, use for his own purposes
         or disclose to any other person or entity any confidential business
         information concerning the Bank or its business operations, unless (1)
         the Bank consents to the use or disclosure of confidential information;
         (2) the use or disclosure is consistent with Executive's duties under
         this Agreement, or (3) disclosure is required by law or court order.
         For purposes of this Agreement, confidential business information
         includes, without limitation, trade secrets (as defined under the
         Montana Uniform Trade Secrets Act, Montana Code Section 30-14-402),
         various confidential information on investment management practices,
         marketing plans, pricing structure and technology of either the Bank or
         Bancorp. Executive will also treat the terms of this Agreement as
         confidential business information.

11.      NONCOMPETITION. During the Term and the terms of any extensions or
         renewals of this Agreement and for a period equal to one year after
         Executive's employment with the Bank and Bancorp has terminated,
         Executive will not, directly or indirectly, as a shareholder, director,
         officer, employee, partner, agent, consultant, lessor, creditor or
         otherwise:

         (a)      provide management, supervisory or other similar services to
                  any person or entity engaged in any business in counties in
                  which the Bank or Bancorp may have a presence which is
                  competitive with the business of the Bank or Bancorp or a
                  subsidiary as conducted during the term of this Agreement or
                  as conducted as of the date of termination of employment,
                  including any preliminary steps associated with the formation
                  of a new bank.

         (b)      persuade or entice, or attempt to persuade or entice any
                  employee of the Bank or Bancorp or a subsidiary to terminate
                  his/her employment with the Bank or a subsidiary.

         (c)      persuade or entice or attempt to persuade or entice any person
                  or entity to terminate, cancel, rescind or revoke its business
                  or contractual relationships with the Bank or Bancorp.

12.      ENFORCEMENT.

         (a)      The Bank and Executive stipulate that, in light of all of the
                  facts and circumstances of the relationship between Executive
                  and the Bank, the agreements referred to in Sections 10 and 11
                  (including without limitation their scope, duration and
                  geographic extent) are fair and reasonably necessary for the
                  protection of the Bank's and Bancorp's confidential
                  information, goodwill and other protectable interests. If a
                  court of competent jurisdiction should decline to enforce any
                  of those covenants and agreements, Executive and the Bank
                  request the court to reform these provisions to restrict
                  Executive's use of confidential information and Executive's
                  ability to compete with the Bank and Bancorp to the maximum
                  extent, in time, scope of activities and geography, the court
                  finds enforceable.

         (b)      Executive acknowledges the Bank and Bancorp will suffer
                  immediate and irreparable harm that will not be compensable by
                  damages alone if Executive repudiates or breaches any of the
                  provisions of Sections 10 or 11 or threatens or attempts to do
                  so. For this reason, under these circumstances, the Bank, in
                  addition to and without limitation of any other rights,
                  remedies or damages available to it at law or in equity, will
                  be entitled to obtain temporary, preliminary and permanent
                  injunctions in order to prevent or restrain the breach, and
                  the Bank will not be required to post a bond as a condition
                  for the granting of this relief.

13.      COVENANTS. Executive specifically acknowledges the receipt of adequate
         consideration for the covenants contained in Sections 10 or 11 and that
         the Bank is entitled to require him to comply with these Sections.
         These Sections will survive termination of this Agreement. Executive
         represents that if his employment is terminated, whether voluntarily or
         involuntarily, Executive has experience and capabilities sufficient to
         enable Executive to obtain employment in areas which do not violate
         this Agreement and that the Bank's enforcement of a remedy by way of
         injunction will not prevent Executive from earning a livelihood.

14.      ARBITRATION.

         (a)      Arbitration. At either party's request, the parties must
                  submit any dispute, controversy or claim arising out of or in
                  connection with, or relating to, this Agreement or any breach
                  or alleged breach of this Agreement, to arbitration under the
                  American Arbitration Association's rules then in effect (or
                  under any other form of arbitration mutually acceptable to the
                  parties). A single arbitrator agreed on by the parties will
                  conduct the arbitration. if the parties cannot agree on a
                  single arbitrator, each party must select one arbitrator and
                  those two arbitrators will select a third arbitrator. This
                  third arbitrator will hear the dispute. The arbitrator's
                  decision is final (except as otherwise specifically provided
                  by law) and binds the parties, and either party may request
                  any court having jurisdiction to enter a judgment and to
                  enforce the arbitrator's decision. The arbitrator will provide
                  the parties with a written decision naming the substantially
                  prevailing party in the action. This prevailing party is
                  entitled to reimbursement from the other party for its costs
                  and expenses, including reasonable attorneys' fees.

         (b)      Governing Law. All proceedings will be held at a place
                  designated by the arbitrator in Kootenai County, Idaho. The
                  arbitrator, in rendering a decision as to any state law
                  claims, will apply Idaho law.

         (c)      Exception to Arbitration. Notwithstanding the above, if
                  Executive violates Section 10 or 11, the Bank will have the
                  right to initiate the court proceedings described in Section
                  12(b), in lieu of an arbitration proceeding under this Section
                  14.

15.      MISCELLANEOUS PROVISIONS.

         (a)      Entire Agreement. This Agreement constitutes the entire
                  understanding and agreement between the parties concerning its
                  subject matter and supersedes all prior agreements,
                  correspondence, representations, or understandings between the
                  parties relating to its subject matter.

         (b)      Binding Effect. This Agreement will bind and inure to the
                  benefit of the Bank's and Executive's heirs, legal
                  representatives, successors and assigns.

         (c)      Litigation Expenses. If either party successfully seeks to
                  enforce any provision of this Agreement or to collect any
                  amount claimed to be due under it, this party will be entitled
                  to reimbursement from the other party for any and all of its
                  out-of-pocket expenses and costs including, without
                  limitation, reasonable attorneys' fees and costs incurred in
                  connection with the enforcement or collection.

         (d)      Waiver. Any waiver by a party of its rights under this
                  Agreement must be written and signed by the party waiving its
                  rights. A party's waiver of the other party's breach of any
                  provision of this Agreement will not operate as a waiver of
                  any other breach by the breaching party.

         (e)      Assignment. The services to be rendered by Executive under
                  this Agreement are unique and personal. Accordingly, Executive
                  may not assign any of his rights or duties under this
                  Agreement.

         (f)      Amendment. This Agreement may be modified only through a
                  written instrument signed by both parties and ratified by
                  Bancorp.

         (g)      Severability. The provisions of this Agreement are severable.
                  The invalidity of any provision will not affect the validity
                  of other provisions of this Agreement.

         (h)      Governing Law and Venue. This Agreement will be governed by
                  and construed in accordance with Montana law, except to the
                  extent that certain regulatory matters may be governed by
                  federal law. The parties must bring any legal proceeding
                  arising out of this Agreement in Kootenai County, Idaho.

         (i)      Counterparts. This Agreement may be executed in one or more
                  counterparts, each of which shall be deemed to be an original,
                  but all of which taken together will constitute one and the
                  same instrument.

         Signed this 16th day of January, 2003.

                                                  MOUNTAIN WEST BANK

                                                  /s/ Charles R. Nipp
                                                  ------------------------------
                                                  Charles R. Nipp, Chairman

Attest: By:

/s/ Kim Jacklin
- -------------------------------
Kim Jacklin, Secretary

                                                  EXECUTIVE

                                                  /s/ Jon W. Hippler
                                                  ------------------------------
                                                  Jon W. Hippler

Ratified December 30, 2002

GLACIER BANCORP, INC.

/s/ Michael J. Blodnick
- -------------------------------
Michael J. Blodnick
President/CEO

                                                                      EXHIBIT 14

                                 CODE OF ETHICS
                        FOR SENIOR FINANCIAL OFFICERS OF
                              GLACIER BANCORP, INC.

PREFACE

Glacier Bancorp, Inc. (the "Company") has an existing Code of Ethics and Conduct
governing professional and ethical conduct of executive officers, including
senior financial officers, employees and directors, of the Company and its
subsidiary banks.

Section 406 of the Sarbanes-Oxley Act of 2002 requires the adoption of a code of
ethics for senior financial officers (including the principal executive officer)
of public companies. The Company desires to supplement the existing Code of
Ethics and Conduct by adopting this Code of Ethics that is specifically
applicable to the Company's Senior Financial Officers (as defined below).

This Code of Ethics ("Code") is intended to serve as a source of guiding
principles. Senior Financial Officers are encouraged to raise questions about
particular circumstances that may involve one or more provisions of this Code to
the attention of the Board of Directors, the Audit Committee, or other properly
authorized committee (or in the absence thereof, to the independent directors on
the Board of Directors), who may consult with legal counsel.

A.       ETHICAL CONDUCT, COMPLIANCE AND REPORTING

It is the policy of the Company that the persons set forth on Exhibit A hereto
("Senior Financial Officers") of the Company adhere to and advocate the
following principles governing their professional and ethical conduct in the
fulfillment of their responsibilities:

1.       Act with honesty and integrity, avoiding actual or apparent conflicts
         between his or her personal, private interests and the interests of the
         Company, including receiving improper personal benefits as a result of
         his or her position.

2.       Perform responsibilities with a view to causing both periodic reports
         filed or submitted by the Company with the Securities and Exchange
         Commission, other federal and state regulatory agencies, and other
         public communications made by the Company, to contain information that
         is full, fair, accurate, timely and understandable.

3.       Comply with federal, state and local laws applicable to the Company,
         and the rules and regulations of private and public regulatory agencies
         having jurisdiction over the Company.

4.       Act in good faith, responsibly, with due care and diligence, without
         misrepresenting or omitting material facts or allowing independent
         judgment to be compromised.

5.       Respect the confidentiality of information acquired in the course of
         the performance of his or her responsibilities except when authorized
         or otherwise legally obligated to disclose. Do not use confidential
         information acquired in the course of the performance of his or her
         responsibilities for personal advantage.

6.       Proactively promote and reinforce ethical behavior among subordinates
         and peers.

7.       Use corporate assets and resources employed or entrusted in a
         responsible manner.

8.       Do not use corporate information, corporate assets, corporate
         opportunities or one's position with the Company for personal gain. Do
         not compete directly or indirectly with the Company.

9.       Promptly report to the Board of Directors, the Audit Committee, or
         other properly authorized committee (or in the absence thereof, to the
         independent directors on the Board of Directors) (a) material
         transactions or relationships that reasonably could be expected to give
         rise to a conflict of interest and (b) actual and

         apparent violations of this Code.

         .
B.       MONITORING AND ENFORCEMENT

         It is also the policy of the Company that:

10.      The Audit Committee, or other properly authorized committee (or in the
         absence thereof, the independent directors on the Board of Directors)
         shall have the power to monitor, make determinations, and recommend to
         the Board of Directors action with respect to violations of this Code.
         The Board of Directors shall determine, or designate an appropriate
         person to determine, appropriate actions to be taken in the event of
         violations of this Code, except for paragraph A.2, with respect to
         which the Audit Committee shall have such power.

11.      Violations of this Code may result in disciplinary action, up to and
         including termination of employment.

12.      This Code shall be supplemental to other codes of conduct and
         ethics/confidentiality policies that are generally applicable to all
         employees, officers and/or directors of the Company.

                                    Exhibit A

                            Senior Financial Officers

Persons holding the following offices shall be considered "Senior Financial
Officers" under the Code as of February 25, 2004:

                      President and Chief Executive Officer

              Executive Vice President and Chief Financial Officer

                  Assistant Vice President/Corporate Accountant

                                                                      EXHIBIT 23

                          Independent Auditors' Consent

The Board of Directors
Glacier Bancorp, Inc.:

We consent to incorporation by reference in the registration statements on Forms
S-8 (No. 33-94648, No. 333-36514, and No. 333-105995) of our report dated
February 4, 2004 relating to the consolidated statements of financial condition
of Glacier Bancorp, Inc. and subsidiaries as of December 31, 2003 and 2002 and
the related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2003, which report appears in the December 31, 2003
annual report on Form 10-K of Glacier Bancorp, Inc. Our report indicates that
Glacier Bancorp, Inc. changed its accounting for goodwill and other intangibles
effective January 1, 2002.

/s/ KPMG

Billings, Montana
March 12, 2004

                                                                    EXHIBIT 31.1

I, Michael J. Blodnick, certify that:

1.       I have reviewed this annual report on Form 10-K of Glacier Bancorp,
         Inc.;

2.       Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

4.       The registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

         (a)      Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

         (b)      Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

         (c)      Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of the
         registrant's board of directors (or persons performing the equivalent
         functions):

         (a)      All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

         (b)      Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

                                                  March 10, 2004

                                                  /s/ Michael J. Blodnick
                                                  ------------------------------
                                                  Michael J. Blodnick
                                                  President/CEO

                                                                    EXHIBIT 31.2

I, James H. Strosahl, certify that:

1.       I have reviewed this annual report on Form 10-K of Glacier Bancorp,
         Inc.;

2.       Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

4.       The registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

         (a)      Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

         (b)      Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

         (c)      Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of the
         registrant's board of directors (or persons performing the equivalent
         functions):

         (a)      All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

         (b)      Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

                                                  March 10, 2004

                                                  /s/ James H. Strosahl
                                                  ------------------------------
                                                  James H. Strosahl
                                                  Executive Vice President/CFO

                                                                      EXHIBIT 32

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

In connection with the Annual Report of Glacier Bancorp, Inc. (the "Company") on
form 10-K for the period ended December 31, 2003, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), we, Michael J.
Blodnick, President and Chief Executive Officer, and James H. Strosahl,
Executive Vice President and Chief Financial Officer, of Glacier Bancorp, Inc.,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:

         (1)      The Report fully complies with the requirements of Section
                  13(a) or 15(d) of the Securities Exchange Act of 1934 (15
                  U.S.C. 78m or 78o(d)); and

         (2)      The information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.

                                                  March 10, 2004

                                                  /s/ Michael J. Blodnick
                                                  ------------------------------
                                                  Michael J. Blodnick
                                                  President/CEO

                                                  /s/ James H. Strosahl
                                                  ------------------------------
                                                  James H. Strosahl
                                                  Executive Vice President/CFO