1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _________________ COMMISSION FILE 0-18911 ------- GLACIER BANCORP, INC. --------------------- (Exact name of registrant as specified in its charter) DELAWARE 81-0519541 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 49 Commons Loop, Kalispell, Montana 59901 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (406) 756-4200 - -------------------------------------------------------------------------------- N/A - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Registrant's common stock outstanding on May 8th, 2001 was 16,272,572. No preferred shares are issued or outstanding. 1
2 GLACIER BANCORP, INC. QUARTERLY REPORT ON FORM 10-Q INDEX <TABLE> <CAPTION> Page # ------ <S> <C> <C> PART I. FINANCIAL INFORMATION Item 1 -- Financial Statements Consolidated Statements of Financial Condition -- March 31, 2001, December 31, and March 31, 2000 (unaudited) ........................... 3 Consolidated Statements of Operations -- Three months ended March 31, 2001 and 2000 (unaudited) ................ 4 Consolidated Statements of Stockholders' Equity and Comprehensive Income -- Years ended December 31, 1999 2000 and Quarter ended March 31, 2001 (unaudited) ............................................ 5 Consolidated Statements of Cash Flows -- Three months ended March 31, 2001 and 2000 (unaudited) ................................... 6 Notes to Consolidated Financial Statements ............................ 7 Item 2 -- Management's Discussion and Analysis Of Financial Condition and Results of Operations ................... 14 Item 3 -- Quantitative and Qualitative Disclosure about Market Risk .......... 17 PART II. OTHER INFORMATION ..................................................... 18 Item 1 -- Legal Proceedings .................................................. 18 Item 2 -- Changes in Securities and Use of proceeds .......................... 18 Item 3 -- Defaults Upon Senior Securities .................................... 18 Item 4 -- Submission of Matters to a Vote of Security Holders ............... 18 Item 5 -- Other Information ................................................. 18 Item 6 -- Exhibits and Reports on Form 8-K ................................... 18 Signatures ................................................................... 19 </TABLE> 2
3 GLACIER BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION <TABLE> <CAPTION> - -------------------------------------------------------------------- ------------ ------------ ------------ (Unaudited - dollars in thousands except per share data) MARCH 31, December 31, March 31, - -------------------------------------------------------------------- 2001 2000 2000 ------------ ------------ ------------ <S> <C> <C> <C> ASSETS: Cash on hand and in banks .......................................... $ 59,715 41,456 40,161 Federal funds sold ................................................. -- -- 1,450 Interest bearing cash deposits ..................................... 3,455 10,330 12,150 ------------ ------------ ------------ Cash and cash equivalents ..................................... 63,170 51,786 53,761 ------------ ------------ ------------ Investments: Investment securities, available-for-sale ..................... 164,135 71,415 64,309 Mortgage backed securities, available-for-sale ................ 354,168 140,473 142,816 ------------ ------------ ------------ Total Investments ........................................ 518,303 211,888 207,125 ------------ ------------ ------------ Net loans receivable: Real estate loans ............................................. 505,840 231,215 224,169 Commercial Loans .............................................. 563,269 340,391 295,104 Installment and other loans ................................... 339,570 169,754 160,194 Allowance for loan losses ..................................... (17,047) (7,799) (7,102) ------------ ------------ ------------ Total Loans, net ......................................... 1,391,632 733,561 672,365 ------------ ------------ ------------ Premises and equipment, net ........................................ 58,286 25,016 24,592 Real estate and other assets owned, net ............................ 451 291 460 Federal Home Loan Bank of Seattle stock, at cost ................... 30,625 16,436 15,523 Federal Reserve stock, at cost ..................................... 1,722 1,662 1,527 Accrued interest receivable ........................................ 12,973 6,637 5,577 Core deposit intangible, net ....................................... 10,343 1,547 1,697 Goodwill, net ...................................................... 37,647 4,946 5,202 Deferred tax asset ................................................. -- -- 1,380 Other assets ....................................................... 7,627 2,942 3,686 ------------ ------------ ------------ $ 2,132,779 1,056,712 992,895 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits - non-interest bearing .................................... $ 227,362 141,207 148,253 Deposits - interest bearing ........................................ 1,278,419 579,363 524,455 Advances from Federal Home Loan Bank of Seattle .................... 355,457 196,791 200,926 Securities sold under agreements to repurchase ..................... 28,270 24,877 12,979 Other borrowed funds ............................................... 12,304 4,652 9,885 Accrued interest payable ........................................... 12,121 4,591 2,186 Current income taxes ............................................... 887 17 1,581 Deferred tax liability ............................................. 3,327 578 -- Other liabilities .................................................. 20,568 6,185 4,830 Minority interest .................................................. 351 338 305 Trust preferred securities ......................................... 35,000 -- -- ------------ ------------ ------------ Total liabilities ............................................. 1,974,066 958,599 905,400 ------------ ------------ ------------ Preferred shares, 1,000,000 shares authorized. None outstanding .... -- -- -- Common stock, $.01 par value per share. 50,000,000 shares authorized .................................... 161 114 104 Paid-in capital .................................................... 158,294 101,828 87,410 Retained earnings (deficit) - substantially restricted ............. (2,586) (4,087) 4,664 Accumulated other comprehensive income (loss) ...................... 2,844 258 (4,683) ------------ ------------ ------------ Total stockholders' equity .................................... 158,713 98,113 87,495 ------------ ------------ ------------ $ 2,132,779 1,056,712 992,895 ============ ============ ============ Number of shares outstanding ....................................... 16,061,254 11,447,150 11,437,279 Book value of equity per share ..................................... 9.88 8.57 7.65 Tangible book value per share ...................................... 6.89 8.00 7.05 </TABLE> See accompanying notes to consolidated financial statements 3
4 GLACIER BANCORP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> - ----------------------------------------------------------------- ----------------------------- (unaudited - dollars in thousands except per share data) THREE MONTHS ENDED MARCH 31, - ----------------------------------------------------------------- ----------------------------- 2001 2000 ----------- ----------- <S> <C> <C> INTEREST INCOME: Real estate loans ........................................... $ 6,689 4,560 Commercial loans ............................................ 9,377 6,330 Consumer and other loans .................................... 5,052 3,499 Investments ................................................. 5,257 3,857 ----------- ----------- Total interest income ................................. 26,375 18,246 ----------- ----------- INTEREST EXPENSE: Deposits .................................................... 8,734 4,947 FHLB Advances ............................................... 3,611 3,144 Repurchase agreements ....................................... 263 187 Trust preferred securities .................................. 601 -- Other borrowed funds ........................................ 64 67 ----------- ----------- Total interest expense ................................ 13,273 8,345 ----------- ----------- NET INTEREST INCOME ............................................. 13,102 9,901 Provision for loan losses ................................... 585 487 ----------- ----------- Net interest income after provision for loan losses .... 12,517 9,414 ----------- ----------- NON-INTEREST INCOME: Service charges and other fees .............................. 2,443 1,855 Miscellaneous loan fees and charges ......................... 693 568 Gains on sale of loans ...................................... 467 370 Gains (losses) on sale of investments, net .................. 64 (30) Other income ................................................ 460 452 ----------- ----------- Total non-interest income .............................. 4,127 3,215 ----------- ----------- NON-INTEREST EXPENSE: Compensation, employee benefits and related expenses ................................. 5,257 3,957 Occupancy expense ........................................... 1,459 1,115 Data processing expense ..................................... 261 276 Core deposit intangibles amortization ....................... 168 50 Goodwill amortization ....................................... 224 86 Other expenses .............................................. 3,131 2,151 Minority interest ........................................... 15 15 ----------- ----------- Total non-interest expense ............................. 10,515 7,650 ----------- ----------- EARNINGS BEFORE INCOME TAXES .................................... 6,129 4,979 Federal and state income tax expense ........................ 2,215 1,751 ----------- ----------- NET EARNINGS .................................................... $ 3,914 3,228 =========== =========== Basic earnings per share (1)..................................... 0.30 0.28 Diluted earnings per share (1) .................................. 0.29 0.28 Dividends declared per share (1) ............................... 0.15 0.14 Return on average assets (annualized) .......................... 1.14% 1.33% Return on average equity (annualized) ........................... 13.14% 15.06% Return on tangible average equity (annualized) .................. 14.64% 16.33% Average outstanding shares - basic (1) ......................... 13,020,217 11,436,633 Average outstanding shares - diluted (1) ....................... 13,569,827 11,585,464 </TABLE> (1) Adjusted for stock dividends on May 25, 2000 See accompanying notes to consolidated financial statements. 4
5 GLACIER BANCORP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years ended December 31, 2000, 1999, and Quarter ended March 31, 2001 <TABLE> <CAPTION> Retained earnings Accumulated (accumulated other comp- Total - ------------------------------------------- Common Stock deficit) rehensive stock- (Unaudited - dollars in thousands except -------------------------- Paid-in substantially income holders' per share data) Shares Amount capital restricted (loss) equity - ------------------------------------------- ----------- ----------- ----------- ------------ ----------- ----------- <S> <C> <C> <C> <C> <C> <C> Balance at December 31, 1998 ............. 9,344,093 $ 93 66,180 16,700 1,173 84,146 Comprehensive income: Net earnings ......................... -- -- -- 12,352 -- 12,352 Unrealized loss on securities, net of reclassification adjustment ..... -- -- -- -- (6,604) (6,604) ----------- Total comprehensive income ................ 5,748 ----------- Cash dividends declared ($.64 per share) .. -- -- -- (6,076) -- (6,076) Stock options exercised ................... 113,049 1 1,091 -- -- 1,092 Tax benefit from stock related compensation ............................ -- -- 240 -- -- 240 10% stock dividend ........................ 936,899 10 19,876 (19,905) -- (19) Fiscal year conforming adjustment ......... -- -- -- (75) -- (75) ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1999 ............. 10,394,041 $ 104 87,387 2,996 (5,431) 85,056 Comprehensive income: Net earnings ......................... -- -- -- 14,003 -- 14,003 Unrealized gain on securities, net of reclassification adjustment ..... -- -- -- -- 5,689 5,689 ----------- Total comprehensive income ................ 19,692 ----------- Cash dividends declared ($.59 per share) .. -- -- -- (6,752) -- (6,752) Stock options exercised ................... 14,161 -- 134 -- -- 134 Tax benefit from stock related compensation ............................ -- -- 16 -- -- 16 10% stock dividend ........................ 1,039,608 10 14,302 (14,334) -- (22) Dissenting Mountain West shareholders ..... (660) -- (11) -- -- (11) ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2000 .............. 11,447,150 $ 114 101,828 (4,087) 258 98,113 Comprehensive income: Net earnings ......................... -- -- -- 3,914 -- 3,914 Unrealized gain on securities, net of reclassification adjustment ..... -- -- -- -- 2,586 2,586 ----------- Total comprehensive income ................ 6,500 ----------- Cash dividends declared ($.15 per share) .. -- -- -- (2,413) -- (2,413) Stock options exercised ................... 83,642 1 798 -- -- 799 Stock issued in connection with merger of WesterFed Financial Corporation ...... 4,530,462 46 55,668 -- -- 55,714 ----------- ----------- ----------- ----------- ----------- ----------- Balance at March 31, 2001 ................. 16,061,254 $ 161 158,294 (2,586) 2,844 158,713 =========== =========== =========== =========== =========== =========== </TABLE> See accompanying notes to consolidated financial statements 5
6 GLACIER BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> - -------------------------------------------------------------------------------- ---------------------------- (Unaudited - dollars in thousands) THREE MONTHS ENDED MARCH 31, - -------------------------------------------------------------------------------- ---------------------------- 2001 2000 --------- --------- <S> <C> <C> OPERATING ACTIVITIES: Net earnings ............................................................... $ 3,914 3,228 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Mortgage loans held for sale originated or acquired ...................... (43,098) (20,171) Proceeds from sales of mortgage loans held for sale ...................... 27,583 15,909 Proceeds from sales of commercial loans .................................. 7,314 3,139 Provision for loan losses ................................................ 585 487 Depreciation of premises and equipment ................................... 716 599 Amortization of goodwill and deposit premium ............................. 392 136 Net (gain) loss on sale of investments ................................... (64) 30 Gain on sale of loans .................................................... (467) (370) Amortization of investments premiums and discounts, net .................. 146 38 FHLB stock dividends ..................................................... (343) (236) Deferred tax expense (benefit) ........................................... (1,859) 771 Net (increase) decrease in accrued interest receivable ................... (79) 34 Net decrease in accrued interest payable ................................. (511) (531) Net decrease (increase) in other assets .................................. 288 (589) Net decrease in other liabilities and minority interest .................. (2,766) (142) --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... (8,249) 2,332 --------- --------- INVESTING ACTIVITIES: Proceeds from sales, maturities and prepayments of investments available-for-sale ......................................... 81,243 10,932 Purchases of investments available-for-sale ................................ (197,529) (7,574) Principal collected on installment and commercial loans .................... 74,874 57,190 Installment and commercial loans originated or acquired .................... (83,012) (81,738) Principal collections on mortgage loans .................................... 44,102 32,117 Mortgage loans originated or acquired ...................................... (35,702) (26,720) Net purchase of FHLB and FRB stock ......................................... (845) (213) Acquisition of WesterFed Financial Corporation and several branches, net of cash and cash equivalents acquired of $162,254 ................ 109,905 -- Net addition of premises and equipment ..................................... (1,990) (521) --------- --------- NET CASH USED IN INVESTING ACTIVITIES ................................. (8,954) (16,527) --------- --------- FINANCING ACTIVITIES: Net increase (decrease) in deposits ........................................ (2,312) 28,602 Net decrease in FHLB advances and other borrowed funds ..................... 1,282 (4,687) Net increase (decrease) in securities sold under repurchase agreements ..... (4,459) (6,787) Proceeds from issuance of trust preferred securities ....................... 35,000 -- Cash dividends paid to stockholders ........................................ (1,723) (1,561) Proceeds from exercise of stock options and other stock issued ............. 799 24 --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES .............................. 28,587 15,591 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS .............................. 11,384 1,396 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................... 51,786 52,365 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................. $ 63,170 53,761 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest ................................ $ 5,743 8,876 Income taxes ............................ 85 278 NON-CASH INVESTING AND FINANCING ACTIVITY During the first quarter ended March 31, 2001, the Company purchased a bank and seven branches with net loans of $650,248 and deposits of $787,523. At March 31, 2001 and 2000, the Company had declared dividends, but not yet paid of $2,413 and $1,560. Dividends payable are included in other liabilities. </TABLE> See accompanying notes to consolidated condensed financial statements. 6
7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1) Basis of Presentation: In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Glacier Bancorp Inc.'s (the "Company") financial condition as of March 31, 2001, December 31, 2000, and March 31, 2000 and the results of operations and cash flows for the three months ended March 31, 2001 and 2000. The accompanying consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results anticipated for the year ending December 31, 2001. Certain reclassifications have been made to the 2000 financial statements to conform to the 2001 presentation. 2) Organizational Structure: The Company, headquartered in Kalispell, Montana, a Delaware corporation incorporated in 1998, is the successor corporation in a merger with the original Glacier Bancorp, Inc., a Delaware corporation incorporated in 1990, pursuant to the reorganization of Glacier Bank, FSB into a bank holding company. The formation of the new corporation, and subsequent merger, was effected to resolve technical deficiencies in the May 9, 1997 stock split. The Company is the parent company for ten subsidiaries: Glacier Bank ("Glacier"); Glacier Bank of Whitefish ("Whitefish"); Glacier Bank of Eureka ("Eureka"); First Security Bank of Missoula ("Missoula"); Valley Bank of Helena ("Helena"), Big Sky Western Bank ("Big Sky"), Western Security Bank ("Western"), Glacier Capital Trust I ("Glacier Trust"), and Community First, Inc. ("CFI"), all located in Montana, and Mountain West Bank ("Mountain West") which is located in Idaho and Utah. CFI provides full service brokerage services through Raymond James Financial Services, Inc. At March 31, 2001, the Company owned 100% of Glacier, Missoula, Helena, Big Sky, Mountain West, Western, Glacier Trust and CFI; 94% of Whitefish, and 98% of Eureka. The Company formed Glacier Capital Trust I (Glacier Trust) as a financing subsidiary on December 18, 2000. On January 25, 2001, Glacier Trust offered 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 obtained all of the outstanding common securities of the trust. 7
8 The following abbreviated organizational chart illustrates the various relationships: <TABLE> <S> <C> <C> <C> Glacier Bancorp, Inc. (Parent Holding Company) Glacier Bank First Security Bank Glacier Bank Glacier Bank (Commercial bank) of Missoula of Whitefish of Eureka (Commercial bank) (Commercial bank) (Commercial bank) Big Sky Valley Bank Mountain West Bank Western Security Bank Western Bank of Helena of Coeur d'Alene (Savings bank) (Commercial bank) (Commercial bank) (Commercial bank) Glacier Capital Community First, Inc. Trust I (Brokerage services) (Financing services) </TABLE> 3) Ratios: Returns on average assets and average equity were calculated based on daily averages. 4) Cash Dividend Declared: On March 28, 2001, the Board of Directors declared a $.15 per share quarterly cash dividend to stockholders of record on April 10, 2001, payable on April 19, 2001. 5) Computation of Earnings Per Share: Basic earnings per common share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares if dilutive outstanding stock options were exercised, using the treasury stock method. Previous period amounts are restated for the effect of the 2000 stock dividend. 8
9 The following schedule contains the data used in the calculation of basic and diluted earnings per share. <TABLE> <CAPTION> Three Three months months ended ended March 31, March 31, 2001 2000 ---------- ---------- <S> <C> <C> Net earnings available to common stockholders, basic ......................... 3,914,266 3,227,733 After tax effect of interest on convertible subordinated debentures ...... 4,000 4,000 ---------- ---------- Net earnings available to common stockholders, diluted ....................... 3,918,266 3,231,733 ========== ========== Average outstanding shares - basic ............. 13,020,217 11,436,633 Add: Dilutive stock options ................... 516,585 115,806 Convertible subordinated debentures ...... 33,025 33,025 ---------- ---------- Average outstanding shares - diluted ........... 13,569,827 11,585,464 ========== ========== Basic earnings per share ....................... 0.30 0.28 ========== ========== Diluted earnings per share ..................... 0.29 0.28 ========== ========== </TABLE> 6) Investments: A comparison of the amortized cost and estimated fair value of the Company's investments is as follows: INVESTMENTS AS OF MARCH 31, 2001 <TABLE> <CAPTION> - --------------------------------------------------- (Dollars in thousands) - --------------------------------------------------- Estimated Weighted Amortized Gross Unrealized Fair U.S. GOVERNMENT AND FEDERAL AGENCIES Yield Cost Gains Losses Value -------- --------- ---------- -------- --------- <S> <C> <C> <C> <C> <C> maturing within one year ........................ 4.99% 500 -- -- 500 maturing after ten years ........................ 8.02% 1,685 14 (6) 1,693 -------- -------- -------- -------- 7.33% 2,185 14 (6) 2,193 -------- -------- -------- -------- STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES: maturing within one year ........................ 5.37% 12,395 1 (7) 12,389 maturing one year through five years ............ 5.68% 12,314 140 (4) 12,450 maturing five years through ten years ........... 5.37% 5,158 55 (36) 5,177 maturing after ten years ........................ 5.67% 129,900 2,486 (460) 131,926 -------- -------- -------- -------- 5.67% 159,767 2,682 (507) 161,942 -------- -------- -------- -------- MORTGAGE-BACKED SECURITIES ........................ 7.14% 149,444 990 (151) 150,283 REAL ESTATE MORTGAGE INVESTMENT CONDUITS .......... 6.49% 202,241 1,676 (32) 203,885 -------- -------- -------- -------- TOTAL AVAILABLE-FOR-SALE INVESTMENTS ....... 6.42% 513,637 5,362 (696) 518,303 ======== ======== ======== ======== </TABLE> 9
10 INVESTMENTS AS OF DECEMBER 31, 2000 <TABLE> <CAPTION> - --------------------------------------------------- Estimated (Dollars in thousands) Weighted Amortized Gross Unrealized Fair - --------------------------------------------------- Yield Cost Gains Losses Value -------- --------- -------- -------- --------- <S> <C> <C> <C> <C> <C> U.S. GOVERNMENT AND FEDERAL AGENCIES maturing within one year ........................ 5.05% 500 -- (3) 497 maturing one year through five years ............ 6.33% 4,975 5 (25) 4,955 maturing five years though ten years ............ 6.92% 3,050 24 (11) 3,063 maturing after ten years ........................ 7.20% 1,070 -- (12) 1,058 -------- -------- -------- -------- 6.55% 9,595 29 (51) 9,573 -------- -------- -------- -------- STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES: maturing within one year ........................ 5.47% 600 1 (19) 582 maturing one year through five years ............ 5.17% 1,635 41 (1) 1,675 maturing five years through ten years ........... 7.53% 4,047 34 (99) 3,982 maturing after ten years ........................ 5.50% 54,561 1,612 (570) 55,603 -------- -------- -------- -------- 5.63% 60,843 1,688 (689) 61,842 -------- -------- -------- -------- MORTGAGE-BACKED SECURITIES ........................ 6.79% 39,374 268 (157) 39,485 REAL ESTATE MORTGAGE INVESTMENT CONDUITS .......... 6.94% 101,635 396 (1,043) 100,988 -------- -------- -------- -------- TOTAL AVAILABLE FOR SALE INVESTMENTS ......... 6.52% $211,447 2,381 (1,940) 211,888 ======== ======== ======== ======== </TABLE> 7) Stockholders' Equity: The Federal Reserve Board has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company. The following table illustrates the Federal Reserve Board's capital adequacy guidelines and the Company's compliance with those guidelines as of March 31, 2001: <TABLE> <CAPTION> CONSOLIDATED Tier 1 Tier 2 - ------------------------------------------------ (Core) (Total) Leverage (Dollars in thousands) Capital Capital Capital - ------------------------------------------------ ----------- ----------- ----------- <S> <C> <C> <C> GAAP Capital ................................... $ 158,713 158,713 158,713 Less: Goodwill ................................ (47,990) (47,990) (47,990) Accumulated other comprehensive gain on AFS securities ..................... (2,844) (2,844) (2,844) Plus: Minority interest ....................... 351 351 351 Allowance for loan losses .................. -- 16,496 -- Trust preferred secuirities ................ 35,000 35,000 35,000 Other regulatory adjustments ................... (3,707) (5,271) (3,707) ----------- ----------- ----------- Regulatory capital computed .................... $ 139,523 154,455 139,523 =========== =========== =========== Risk weighted assets ........................... $ 1,439,705 1,439,705 =========== =========== Total average assets ........................... 1,966,065 =========== Capital as % of defined assets ................. 9.69% 10.73% 7.10% Regulatory "well capitalized" requirement ...... 6.00% 10.00% 5.00% ----------- ----------- ----------- Excess over "well capitalized" requirement ..... 3.69% 0.73% 2.10% =========== =========== =========== </TABLE> 10
11 8) Comprehensive Earnings: The Company's only component of other comprehensive earnings is the unrealized gains and losses on available-for-sale securities. <TABLE> <CAPTION> For the three months ended March 31, - -------------------------------------------------------- ---------------------- Dollars in thousands 2001 2000 - -------------------------------------------------------- -------- -------- <S> <C> <C> Net earnings ........................................... $ 3,914 3,228 Unrealized holding gains arising during the period ..... 4,212 1,309 Transfer from held-to-maturity ......................... -- (11) Tax expense ............................................ (1,665) (532) -------- -------- Net after tax .............................. 2,547 766 Reclassification adjustment for gains (losses) included in net income .............................. 64 (30) Tax expense (benefit) .................................. (25) 12 -------- -------- Net after tax .............................. 39 (18) Net unrealized gains on securities ........ 2,586 748 -------- -------- Total comprehensive earnings ........... $ 6,500 3,976 ======== ======== </TABLE> 9) Segment Information The Company evaluates segment performance internally based on individual bank charter, and thus the operating segments are so defined. The following schedule provides selected financial data for the Company's operating segments. Centrally provided services to the Banks are allocated based on estimated usage of those services. The operating segment identified as "Other" includes the Parent, Community First, Inc., Glacier Trust, and intercompany eliminations. <TABLE> <CAPTION> Three months ended and as of March 31, 2001 - --------------------------------------- ---------------------------------------------------------------------- (Dollars in thousands) Glacier Whitefish Eureka Missoula Helena - --------------------------------------- ---------- --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Revenues from external customers ...... 9,487 1,298 676 5,068 2,037 Intersegment revenues ................. 311 -- 3 10 31 Expenses .............................. 8,173 1,059 557 4,098 1,741 Intercompany eliminations ............. -- -- -- -- -- ---------- --------- ---------- ---------- ---------- Net income ..... 1,625 239 122 980 327 ========== ========= ========== ========== ========== Total Assets ..... 462,992 59,315 31,909 212,027 86,992 ========== ========= ========== ========== ========== </TABLE> <TABLE> <CAPTION> Mountain Total Big Sky West Western Other Consolidated ---------- --------- ---------- ---------- ------------ <S> <C> <C> <C> <C> <C> Revenues from external customers ...... 1,714 3,716 6,280 226 30,502 Intersegment revenues ................. -- 143 -- 5,244 5,742 Expenses .............................. 1,548 3,694 5,480 238 26,588 Intercompany eliminations ............. -- -- -- (5,742) (5,742) ---------- --------- ---------- ---------- ---------- Net income ..... 166 165 800 (510) 3,914 ========== ========= ========== ========== ========== Total Assets ..... 77,955 308,467 916,113 (22,991) 2,132,779 ========== ========= ========== ========== ========== </TABLE> 11
12 <TABLE> <CAPTION> Three months ended and as of March 31, 2000 - ------------------------------------------------ ------------------------------------------------------------- (Dollars in thousands) Glacier Whitefish Eureka Missoula Helena -------- --------- -------- -------- -------- <S> <C> <C> <C> <C> <C> Revenues from external customers ............... 9,315 1,178 626 4,604 1,873 Intersegment revenues .......................... 373 2 -- -- 54 Expenses ....................................... 8,120 949 507 3,668 1,611 Intercompany eliminations ...................... -- -- -- -- -- -------- -------- -------- -------- -------- Net income ...... 1,568 231 119 936 316 ======== ======== ======== ======== ======== Total Assets ...... 461,303 54,380 27,734 196,223 83,609 ======== ======== ======== ======== ======== </TABLE> <TABLE> <CAPTION> Mountain Total Big Sky West Other Consolidated -------- -------- -------- ------------ <S> <C> <C> <C> <C> Revenues from external customers ............... 1,436 2,303 126 21,461 Intersegment revenues .......................... -- -- 4,007 4,436 Expenses ....................................... 1,300 2,144 (66) 18,233 Intercompany eliminations ...................... -- -- (4,436) (4,436) -------- -------- -------- -------- Net income ...... 136 159 (237) 3,228 ======== ======== ======== ======== Total Assets ...... 68,437 97,938 3,271 992,895 ======== ======== ======== ======== </TABLE> 10) Recent Acquisitions On February 28, 2001 the Company completed the acquisition of WesterFed Financial Corporation. The Company issued 4,530,462 shares and $37,274,000 cash to shareholders in consideration of the merger. The acquisition is being accounted for, using the purchase method of accounting. Accordingly, the assets and liabilities of WesterFed were recorded by the Company at their respective fair values at the time of the completion of the merger and the results of WesterFed have been included with those of the Company since the date of the 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, is recorded as goodwill and will be amortized over a useful life of 20 years. The estimated fair values of net assets acquired at the acquisition date are summarized as follows: <TABLE> <CAPTION> - ------------------------------------------------- (Dollars in thousands) - ------------------------------------------------- <S> <C> Cash and due from banks .......................... $ 24,891 Investments available-for-sale ................... 185,984 FHLB stock ....................................... 13,062 Loans ............................................ 613,676 Premises and equipment ........................... 25,546 Goodwill ......................................... 15,609 Core deposit intangible .......................... 7,449 Other assets ..................................... 11,034 -------- 897,251 -------- Deposits ......................................... $603,555 FHLB advances .................................... 165,386 Repurchase agreements ............................ 7,851 Other liabilities ................................ 26,747 -------- 803,539 -------- Total consideration paid ....................... $ 93,712 ======== </TABLE> 12
13 On March 15, 2001, the Company completed the acquisition, subject to certain adjustments, of seven Wells Fargo & Company and First Security Corporation subsidiary banks located in Idaho and Utah. The acquisition is being accounted for using the purchase method of accounting. Accordingly, the assets and liabilities of the acquired banks were recorded by the Company at there respective fair values at the date of the acquisition and the results of the banks operations have been included with those of the Company since the date of the 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, is recorded as goodwill and will be amortized over a useful life of 20 years. The estimated fair values of the branches net assets acquired at the acquisition date are summarized as follows: <TABLE> <CAPTION> - ------------------------------------------------- (Dollars in thousands) - ------------------------------------------------- <S> <C> Cash and due from banks .......................... $122,288 Loans ............................................ 36,573 Premises and equipment ........................... 6,449 Core deposit intangible .......................... 1,514 Other assets ..................................... 196 -------- 167,020 -------- Deposits ......................................... $183,968 Other liabilities ................................ 454 -------- 184,422 -------- Net liabilities assumed in excess of identifiable net assets acquired ............. $ 17,402 ======== </TABLE> The following pro forma information presents the consolidated results of operations as if the acquisitions had occurred at the beginning of each of the periods presented below. <TABLE> <CAPTION> For the three months - --------------------------------------------------------- ended March 31, (unaudited - dollars in thousands except per share data) 2001 2000 - --------------------------------------------------------- --------- --------- <S> <C> <C> Total interest and non-interest income .................. $ 47,629 38,588 ========= ========= Net earnings ............................................. $ 4,676 3,991 ========= ========= Net earnings per common share - basic(1) ................ 0.29 0.25 Net earnings per common share - diluted(1) .............. 0.28 0.24 (1) Adjusted for stock dividends on May 25, 2000 </TABLE> The pro forma information does not purport to be indicative of the results of operations that would have occurred had the transactions taken place at the beginning of the periods presented or of future results of operations. 13
14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent Developments Completed Acquisitions The acquisition of Missoula, Montana based WesterFed with December 31, 2000 assets of $929 million, loans of $623 million, and deposits of $606 million was completed on February 28, 2001. WesterFed shareholders received 4,530,462 shares of Glacier Bancorp stock and $37,274,000 in cash as compensation for the acquisition. WesterFed was the holding company for Western Security Bank, Montana's largest savings bank with twenty-seven offices in fourteen Montana communities. Western Security Bank is a separate banking subsidiary of the Company. It is intended that by the end of the fiscal year, several of the branch offices will become branches of other Glacier Bank subsidiaries, based on their geographic location. The remaining branches will continue as a separate subsidiary under the Western Security Bank name, with the main office located in Billings, Montana. The acquisition of seven Wells Fargo & Company and First Security Corporation branches located in Boise, Nampa, Hailey, and Ketchum, Idaho and Brigham City and Park City, Utah by Mountain West Bank of Coeur d'Alene, Idaho was completed on March 15, 2001. The purchase included approximately $184 million in deposits, $37 million in loans, and real estate and equipment of the branches. Both acquisitions were accounted for using the purchase method of accounting. Accordingly, the assets and liabilities were recorded by the Company at their respective fair values at the time of the completion of the acquisitions and the results of operations include the results of the acquired operations since the dates of acquisitions. As a result of these acquisitions, the Company is now the largest publicly traded bank holding company headquartered in the inland northwest, with assets exceeding $2 billion. Sale of Six Branch Offices On March 23, 2001 the sale of six branch locations with assets of $79 million to Stockman Bank was announced. Stockman Bank will acquire five Western Security Bank offices located in Conrad, Havre, and three branches in Great Falls and one Glacier Bank office located in Cutbank. The proposed acquisition is subject to the approval of federal banking regulators, and the parties expect to receive such approval by early June. It is anticipated the transaction will close by the end of June 2001. Financial Condition This section discusses the changes in Statement of Financial Condition items from December 31, 2000 to March 31, 2001. Since December 31, 2000 total assets have increased $1.076 billion, or 102 percent, to $2.133 billion, the result of completion of the WesterFed Financial Corporation acquisition, and branch purchases in Idaho and Utah from Wells Fargo and First Security Corporation. Total loans, net of the reserve for loan losses, have increased $658 million, or 90 percent, of which $650 million came from the acquisitions. The loan growth has occurred in all loan classifications. Commercial loans increased $222.9 million, or 65 percent, consumer loans increased $169.8 million, or 100 percent, and residential real estate loans increased $274.6 million or 119 percent. Internal growth in loans since March 31, 2000 was $69 million, a 10 percent increase. 14
15 Loans sold to the secondary market amounted to $34.430 million and $18.678 million during the first three months of 2001 and 2000, respectively. The amount of loans serviced for others on March 31, 2001 was approximately $352 million. Total deposits have increased $785 million, or 109 percent, over the December 31, 2000 balances. Total deposits acquired were $787 million, leaving a decrease of $2 million from internal activity. Total deposits are also up $833 million from March 31, 2000, of which $48 million is from internal growth. Non-interest bearing deposits are up $86 million, or 61 percent from December 31, 2000, and interest-bearing deposits have increased $699 million, or 121 percent from December 31, 2000. Borrowed funds, including the subordinated debentures issued with the trust preferred security, and repurchase agreements, have increased $205 million, or 90 percent. All eight banking subsidiaries are members of the FHLB. Accordingly, management of the Company has a wide range of versatility in managing the liquidity and asset/liability mix for each individual institution as well as the Company as a whole. As of March 31, 2001, the Company had $710,113,000 of available FHLB line of which $355,457,000 was utilized. Loan Loss Provision and Non-Performing Assets Asset quality continued to be very strong during the quarter. Non-performing assets as a percentage of total assets at March 31, 2001 were .37 percent versus .23 at the same time last year, but still well below the Peer Group average of .53 percent at December 31, 2000, the most recent information available. The reserve for loan losses was 216 percent of non-performing assets at March 31, 2001, down from 310 percent a year ago. With the growth in loan balances, and 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 $9.248 million, or 119 percent, to $17.047 million, of which $8.893 million is from acquisitions. The reserve balance is 1.21 percent of total loans outstanding, up from 1.05 percent of loans at December 31, 2000. The first quarter provision expense for loan losses was $585 thousand, up from $487 thousand during the same quarter in 2000. Changes in the information related to the allowance for loan loss account are shown in the following table: <TABLE> <CAPTION> March 31, 2001 December 31, 2000 -------------- ----------------- <S> <C> <C> Total Allowance for Loan and Real Estate Owned Losses: $17.047 million $7.799 million Allowance as a percentage of Total Loans: 1.21% 1.05% Allowance as a percentage of Non-performing Assets: 216% 372% </TABLE> Impaired Loans As of March 31, 2001, there was $5.885 million in impaired loans. Interest income on impaired loans and interest recoveries on loans that have been charged off, is recognized on a cash basis after principal has been fully paid, or at the time a loan becomes fully performing based on the terms of the loan. Minority Interest The minority interest on the consolidated statement of financial condition represents the minority stockholders' share in the retained earnings of the Company. These are shares of Eureka and Whitefish that are still outstanding. As of March 31, 2001, the Company owns 47,280 shares of Whitefish and 49,084 shares of Eureka. The Company's ownership of Whitefish and Eureka is 94% and 98%, respectively. Glacier has a plan in place to purchase the minority interest in the two subsidiaries and subsequently merge the two subsidiaries. It is anticipated that the transactions will occur in the second quarter of 2001. 15
16 Stockholders' Equity Total stockholders' equity increased $61 million, or 62 percent, primarily the result of the stock issued in connection with the recent acquisition of WesterFed Financial Corporation. Results of Operations -- The three months ended March 31, 2001 compared to the three months ended March 31, 2000. The Company reported quarterly earnings of $3.9 million, or fully diluted earnings per share of $.29 compared to $3.2 million, and diluted earnings of $.28 last year, an increase of 21 percent. Return on average assets and return on average equity, were 1.14 percent and 13.14 percent compared to 1.33 percent and 15.06 percent for the same quarter last year. The Company's results of operations comparability has been affected by the acquisitions completed during the first quarter of 2001 as described under recent developments and in footnote 10 to the consolidated financial statements. Net Interest Income Top line revenue growth continues to accelerate as a result of the Company's growth both internally and from acquisitions. Net interest income for the quarter was $13.102 million, an increase of $3.201 million, or 32 percent, over the same period in 2000. The growth in earning assets and the increase in non-interest bearing deposits resulted in a significant increase in net interest income. The net interest margin continues to be a challenge as the spread on assets acquired is less than the spread on the previous asset base. As a percentage of earning assets, on a tax equivalent basis, the margin has declined from 4.4 percent for the quarter ending March 31, 2000 to 4.0 percent this year. Non-interest Income Fee income from loans was $125 thousand, or 22 percent higher in the first quarter of 2001 than the same quarter in 2000. There also was an increase in service charge and other fee income of $588 thousand, or 32 percent. Gain on sale of loans increased $97 thousand, or 26 percent. Net gains on securities sales of $64 thousand in 2001, compared to a net loss of $30 thousand in 2000, were recorded. Non-interest Expense Non-interest expense increased by $2.865 million, or 37 percent, over the first quarter of 2000. Included in the 2001 total is $406 thousand in merger and conversion expense. Without those non-recurring expenses non-interest expense increased by $2.459 million, or 32 percent. Compensation and employee benefits increased $1.300 million or 33 percent. Occupancy and equipment expense was up $334 thousand, or 31 percent, and other expenses, which include the merger and conversion expenses, were up $984 thousand, or 46 percent. Amortization of core deposits and goodwill was $168 thousand and $224 thousand, respectively, which is an increase of $252 thousand over the prior year due primarily to the acquisitions. Forward-Looking Statements When used in this press release, the words or phrases `will likely result in', `are expected to', `will continue', `is anticipated', `estimate', or `project' or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected including general economic conditions, business conditions in the banking industry, the regulatory environment, new legislation, vendor quality and efficiency, employee retention factors, rapidly changing technology and evolving banking industry standards, competitive standards, competitive factors including increased competition among financial institutions and fluctuating interest rate environments. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Readers should also carefully review the risk factors described in the company's most recent Annual Report on Form 10-K for the period ending December 31, 2000 and other documents the company files from time to time with the Securities and Exchange Commission. 16
17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company's primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company's asset/liability management process which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to the Asset/Liability committee (ALCO). In this capacity ALCO develops guidelines and strategies impacting the Company's asset/liability management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends. Interest Rate Risk: Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change the interest income and expense streams associated with the Company's financial instruments also change thereby impacting net interest income (NII), the primary component of the Company's earnings. ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While ALCO routinely monitors simulated NII sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company's balance sheet. This sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance level for NII exposure over a one year horizon, assuming no balance sheet growth, given a 200 basis point (bp) upward and downward shift in interest rates. A parallel and pro rata shift in rates over a 12 month period is assumed. The following reflects the Company's NII sensitivity analysis as of December 31, 2000, the most recent information available, as compared to the 10% Board approved policy limit (dollars in thousands). There have been no material changes in the analysis from December 31, 2000 to March 31, 2001. <TABLE> <CAPTION> Interest Rate Sensitivity +200 bp -200 bp ------- ------- <S> <C> <C> Estimated sensitivity -2.75% 1.73% Estimated increase (decrease) in net interest income $ (2,007) 1,262 </TABLE> The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of assets and liability cashflows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates. 17
18 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no pending material legal proceedings to which the registrant or its subsidiaries are a party. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS A special meeting was held on February 26, 2001 to vote upon the proposal to adopt the Amended and Restated Plan and Agreement of Merger, dated as of September 20, 2000, between Glacier Bancorp, Inc. and WesterFed Financial Corporation, under the terms of which WesterFed Financial corporation will merge with Glacier Bancorp, Inc. The merger was approved at the meeting. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits None (b) Current Report on Form 8-K On January 30, 2001, a Form 8-K was filed disclosing that Glacier Bancorp, Inc. had completed the sale of $35 million in 9.40% capital securities representing preferred beneficial interest in Glacier Capital Trust I, a business trust formed by the Company for the purpose of facilitation the offering. The net proceeds to the Company from the offering were to be used to finance, in part, the acquisition of WesterFed Financial Corporation and the acquisition of seven branches from Wells Fargo & Company, and for other general corporate purposes. On February 28, 2001, a Form 8-K was filed disclosing that Glacier Bancorp, Inc. had completed its pending acquisition of WesterFed Financial Corporation and its subsidiary, Western Security Bank. The acquisition was accomplished pursuant to an Amended and Restated Plan and Agreement of Merger dated as of September 20, 2000. On May 4th, 2001 a Form 8-Ka was filed disclosing the consolidated balance sheets of WesterFed Financial Corporation and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for the year ended December 31, 2000, the six months ended December 31,1999 and the years ended June 30, 1999 and 1998. In addition, the pro forma financial information Unaudited Combined Condensed Pro Forma 18
19 Statement of Financial Condition as of December 31, 2000 and Unaudited Combined Condensed Pro Forma Statement of Operations for the year ended December 31, 2000 were filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly cause this report to be signed on its behalf by the undersigned thereunto duly authorized. GLACIER BANCORP, INC. May 15, 2001 /s/ Michael J. Blodnick President/CEO May 15, 2001 /s/ James H. Strosahl Executive Vice President/CFO 19