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 September 30, 2007
[ ] 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)
MONTANA 81-0519541
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
49 Commons Loop, Kalispell, Montana 59901
(Address of principal executive offices) (Zip Code)
(406) 756-4200
Registrant's telephone number, including area code
Not Applicable
(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 [ ]
Indicate by checkmark whether the registrant is a large accelerated filer, or an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large Accelerated Filer [X] Accelerated Filer [ ] Non-Accelerated Filer [ ]
Indicateby checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of Registrant's common stock outstanding on October 29,
2007 was 53,624,184. No preferred shares are issued or outstanding.
GLACIER BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page #
------
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Financial Condition -
Unaudited September 30, 2007, September 30, 2006 and
audited December 31, 2006................................. 3
Condensed Consolidated Statements of Operations -
Unaudited three and nine months ended September 30, 2007
and 2006.................................................. 4
Condensed Consolidated Statements of Stockholders' Equity
and Comprehensive Income - Year ended December 31, 2006
and unaudited nine months ended September 30,
2007...................................................... 5
Condensed Consolidated Statements of Cash Flows -
Unaudited nine months ended September 30, 2007 and
2006...................................................... 6
Notes to Condensed Consolidated Financial Statements -
Unaudited................................................. 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 21
Item 3 - Quantitative and Qualitative Disclosure about Market
Risk...................................................... 29
Item 4 - Controls and Procedures................................... 29
PART II. OTHER INFORMATION............................................. 29
Item 1 - Legal Proceedings......................................... 29
Item 1A - Risk Factors.............................................. 29
Item 2 - Unregistered Sales of Equity Securities and Use of
Proceeds.................................................. 29
Item 3 - Defaults Upon Senior Securities........................... 29
Item 4 - Submission of Matters to a Vote of Security Holders....... 29
Item 5 - Other Information......................................... 30
Item 6 - Exhibits.................................................. 30
Signatures.......................................................... 30
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, December 31, September 30,
(Dollars in thousands, except per share data) 2007 2006 2006
--------------------------------------------- ------------- ------------ -------------
(UNAUDITED) (unaudited)
ASSETS:
Cash on hand and in banks ........................... $ 128,230 136,591 113,268
Federal funds sold .................................. 2,735 6,125 2,882
Interest bearing cash deposits ...................... 60,704 30,301 67,672
----------- ---------- ----------
Cash and cash equivalents ........................ 191,669 173,017 183,822
Investment securities ............................... 740,406 825,637 845,304
Loans receivable, net ............................... 3,403,587 3,130,389 2,786,269
Loans held for sale ................................. 30,860 35,135 28,780
Premises and equipment, net ......................... 121,045 110,759 93,859
Real estate and other assets owned, net ............. 1,750 1,484 510
Accrued interest receivable ......................... 29,893 25,729 22,822
Deferred tax asset .................................. 1,122 -- --
Core deposit intangible, net ........................ 14,748 14,750 7,680
Goodwill ............................................ 140,288 129,716 89,814
Other assets ........................................ 24,889 24,682 71,395
----------- ---------- ----------
$ 4,700,257 4,471,298 4,130,255
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ....................... $ 819,711 829,355 751,593
Interest bearing deposits ........................... 2,547,409 2,378,178 2,099,742
Advances from Federal Home Loan Bank of Seattle ..... 251,908 307,522 377,104
Securities sold under agreements to repurchase ...... 181,301 170,216 162,400
Other borrowed funds ................................ 214,135 168,770 171,699
Accrued interest payable ............................ 18,742 11,041 10,288
Deferred tax liability .............................. -- 1,927 3,266
Subordinated debentures ............................. 118,559 118,559 118,559
Other liabilities ................................... 33,220 29,587 24,594
----------- ---------- ----------
Total liabilities ................................ 4,184,985 4,015,155 3,719,245
----------- ---------- ----------
Preferred shares, $.01 par value per share. 1,000,000
shares authorized None issued or outstanding ..... -- -- --
Common stock, $.01 par value per share. 117,187,500
shares authorized ................................ 536 523 507
Paid-in capital ..................................... 373,474 344,265 310,516
Retained earnings - substantially restricted ........ 139,023 108,286 97,533
Accumulated other comprehensive income .............. 2,239 3,069 2,454
----------- ---------- ----------
Total stockholders' equity ....................... 515,272 456,143 411,010
----------- ---------- ----------
$ 4,700,257 4,471,298 4,130,255
=========== ========== ==========
Number of shares outstanding ........................ 53,612,211 52,302,820 50,766,276
Book value per share ................................ $ 9.61 8.72 8.10
See accompanying notes to condensed consolidated financial statements.
3
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -----------------------
(UNAUDITED - dollars in thousands, except per share data) 2007 2006 2007 2006
--------------------------------------------------------- ----------- ---------- ---------- ----------
INTEREST INCOME:
Real estate loans ........................................... $ 15,617 13,708 45,259 36,939
Commercial loans ............................................ 40,379 29,687 115,201 82,691
Consumer and other loans .................................... 12,423 10,348 35,607 28,867
Investment securities and other ............................. 10,011 10,149 29,576 31,280
----------- ---------- ---------- ----------
Total interest income .................................... 78,430 63,892 225,643 179,777
----------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits .................................................... 21,449 15,351 60,786 40,403
Federal Home Loan Bank of Seattle advances .................. 5,027 5,340 14,119 14,553
Securities sold under agreements to repurchase .............. 2,012 1,804 5,623 4,565
Subordinated debentures ..................................... 2,023 1,519 5,653 4,232
Other borrowed funds ........................................ 936 873 4,192 3,085
----------- ---------- ---------- ----------
Total interest expense ................................... 31,447 24,887 90,373 66,838
----------- ---------- ---------- ----------
NET INTEREST INCOME ............................................ 46,983 39,005 135,270 112,939
Provision for loan losses ................................... 1,315 1,320 3,720 3,840
----------- ---------- ---------- ----------
Net interest income after provision for loan losses 45,668 37,685 131,550 109,099
----------- ---------- ---------- ----------
NON-INTEREST INCOME:
Service charges and other fees .............................. 10,055 7,703 27,801 21,501
Miscellaneous loan fees and charges ......................... 1,798 1,700 5,895 5,468
Gains on sale of loans ...................................... 3,203 2,992 9,953 7,952
Loss on sale of investments ................................. -- (3) (8) (3)
Other income ................................................ 1,422 1,370 4,940 2,898
----------- ---------- ---------- ----------
Total non-interest income ................................ 16,478 13,762 48,581 37,816
----------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Compensation, employee benefits and related expenses ........ 20,286 15,992 60,386 47,042
Occupancy and equipment expense ............................. 4,840 3,875 14,110 10,797
Outsourced data processing expense .......................... 553 620 2,045 2,022
Core deposit intangibles amortization ....................... 827 411 2,416 1,231
Other expenses .............................................. 8,690 6,946 24,496 19,529
----------- ---------- ---------- ----------
Total non-interest expense ............................... 35,196 27,844 103,453 80,621
----------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES ................................... 26,950 23,603 76,678 66,294
Federal and state income tax expense ........................ 9,311 7,797 26,221 22,193
----------- ---------- ---------- ----------
NET EARNINGS ................................................... $ 17,639 15,806 50,457 44,101
=========== ========== ========== ==========
Basic earnings per share ....................................... $ 0.33 0.32 0.95 0.90
Diluted earnings per share ..................................... $ 0.33 0.31 0.94 0.89
Dividends declared per share ................................... $ 0.13 0.11 0.37 0.33
Return on average assets (annualized) .......................... 1.50% 1.58% 1.48% 1.53%
Return on average equity (annualized) .......................... 13.76% 16.24% 13.85% 16.42%
Average outstanding shares - basic ............................. 53,566,477 49,702,838 53,086,380 48,879,969
Average outstanding shares - diluted ........................... 54,004,828 50,403,314 53,604,922 49,627,307
See accompanying notes to condensed consolidated financial statements.
4
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2006 AND UNAUDITED NINE MONTHS ENDED SEPTEMBER 30, 2007
Retained Accumulated Total
Common Stock earnings Other stock-
------------------- Paid-in substantially comprehensive holders'
(Dollars in thousands, except per share data) (1) Shares Amount capital restricted income (loss) equity
------------------------------------------------- ---------- ------ ------- ------------- ------------- ---------
Balance at December 31, 2005 .................... 48,258,821 $483 262,222 69,713 821 333,239
Comprehensive income:
Net earnings ................................. -- -- -- 61,131 -- 61,131
Unrealized gain on securities, net of
reclassification adjustment and taxes ..... -- -- -- -- 2,248 2,248
-------
Total comprehensive income 63,379
-------
Cash dividends declared ($.45 per share) ........ -- -- -- (22,558) -- (22,558)
Stock options exercised ......................... 639,563 6 6,700 -- -- 6,706
Stock issued in connection with acquisitions .... 1,904,436 19 41,431 -- -- 41,450
Public offering of stock issued ................. 1,500,000 15 29,418 -- -- 29,433
Acquisition of fractional shares ................ -- -- (5) -- -- (5)
Stock based compensation and tax benefit ........ -- -- 4,499 -- -- 4,499
---------- ---- ------- ------- ----- -------
Balance at December 31, 2006 .................... 52,302,820 $523 344,265 108,286 3,069 456,143
Comprehensive income:
Net earnings ................................. -- -- -- 50,457 -- 50,457
Unrealized loss on securities, net of
reclassification adjustment and taxes ..... -- -- -- -- (830) (830)
-------
Total comprehensive income ...................... 49,627
-------
Cash dividends declared ($.37 per share) ........ -- -- -- (19,720) -- (19,720)
Stock options exercised ......................... 515,811 5 5,778 -- -- 5,783
Stock issued in connection with acquisitions .... 793,580 8 18,992 -- -- 19,000
Stock based compensation and tax benefit ........ -- -- 4,439 -- -- 4,439
---------- ---- ------- ------- ----- -------
Balance at September 30, 2007 (unaudited) ....... 53,612,211 $536 373,474 139,023 2,239 515,272
========== ==== ======= ======= ===== =======
(1) Shares and per share amounts have been adjusted to reflect the December
2006 three-for-two stock split.
See accompanying notes to condensed consolidated financial statements.
5
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
(UNAUDITED - dollars in thousands) 2007 2006
---------------------------------- ----------- ----------
OPERATING ACTIVITIES :
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................... $ 64,038 51,825
----------- ----------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of investments
available-for-sale ........................................... 230,485 170,685
Purchases of investments available-for-sale ..................... (86,938) (40,792)
Principal collected on installment and commercial loans ......... 901,555 823,031
Installment and commercial loans originated or acquired ......... (1,143,875) (1,068,141)
Principal collections on mortgage loans ......................... 365,337 266,591
Mortgage loans originated or acquired ........................... (383,393) (395,999)
Net purchase of FHLB and FRB stock .............................. (3,803) (455)
Net cash paid for sale of Western's Lewistown branch ............ (6,846) --
Net cash received (paid) from acquisitions ...................... 8,953 17,176
Funds in escrow for Citizens Development Company acquisition .... -- (47,176)
Net addition of premises and equipment .......................... (855) (16,400)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (119,380) (291,480)
----------- ----------
FINANCING ACTIVITIES:
Net increase in deposits ........................................ 85,427 249,451
Net decrease in FHLB advances and other borrowed funds .......... (10,249) (41,080)
Net increase in securities sold under repurchase agreements ..... 11,086 32,870
Proceeds from issuance of subordinated debentures ............... -- 30,000
Cash dividends paid ............................................. (19,720) (16,281)
Excess tax benefits from stock options .......................... 1,667 990
Proceeds from exercise of stock options and other stock issued .. 5,783 34,918
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................... 73,994 290,868
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................... 18,652 51,213
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................ 173,017 132,609
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 191,669 183,822
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest ....................... $ 82,462 63,724
Income taxes ................... $ 24,242 22,961
The following schedule summarizes the acquisitions of North Side State Bank
in 2007 and First National Bank of Morgan in 2006
NORTH SIDE FIRST NATIONAL
STATE BANK BANK OF MORGAN
Acquired April 30, 2007 Sept. 1, 2006
-------- -------------- --------------
Fair Value of assets acquired $127,871 88,443
Cash paid for the capital stock 8,953 10,109
Capital stock issued 19,000 9,999
Liabilities assumed 99,967 68,411
See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
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 September 30, 2007
and 2006, stockholders' equity for the nine months ended September 30,
2007, the results of operations for the three and nine months ended
September 30, 2007 and 2006, and cash flows for the nine months ended
September 30, 2007 and 2006. The condensed consolidated statement of
financial condition and statement of stockholders' equity and comprehensive
income of the Company as of December 31, 2006 have been derived from the
audited consolidated statements of the Company as of that date.
The accompanying condensed 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 condensed 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, 2006. Operating results for the nine months ended
September 30, 2007 are not necessarily indicative of the results
anticipated for the year ending December 31, 2007. Certain
reclassifications have been made to the 2006 financial statements to
conform to the 2007 presentation.
2) Organizational Structure
The Company, headquartered in Kalispell, Montana, is a Montana corporation
incorporated in 2004 as a successor corporation to the Delaware corporation
incorporated in 1990. The Company is the parent company for eleven
wholly-owned banking subsidiaries: Glacier Bank ("Glacier"), First Security
Bank of Missoula ("First Security"), Western Security Bank ("Western"), Big
Sky Western Bank ("Big Sky"), Valley Bank of Helena ("Valley"), Glacier
Bank of Whitefish ("Whitefish"), First Bank of Montana ("First Bank-MT"),
all located in Montana, Mountain West Bank ("Mountain West") which is
located in Idaho, Utah, and Washington, Citizens Community Bank
("Citizens") located in Idaho, 1st Bank ("1st Bank") located in Wyoming,
and First National Bank of Morgan ("Morgan") located in Utah.
In addition, the Company owns four trust subsidiaries, Glacier Capital
Trust II ("Glacier Trust II"), Glacier Capital Trust III ("Glacier Trust
III"), Glacier Capital Trust IV ("Glacier Trust IV"), and Citizens (ID)
Statutory Trust I ("Citizens Trust I") for the purpose of issuing trust
preferred securities and in accordance with Financial Accounting Standards
Board Interpretation ("FASB") 46(R) the subsidiaries are not consolidated
into the Company's financial statements. The Company does not have any
off-balance sheet entities.
On April 30, 2007, the Company completed the acquisition of North Side
State Bank ("North Side") of Rock Springs, Wyoming, which was merged into
1st Bank, the Company's Evanston, Wyoming subsidiary.
On October 1, 2006, the Company acquired Citizens Development Company
("CDC") and its five subsidiaries which include: Citizens State Bank, First
Citizens Bank of Billings ("FCB-Billings"), First National Bank of
Lewistown, Western Bank of Chinook, and First Citizens Bank, N.A. On
January 26, 2007, Citizens State Bank, FCB-Billings, and First Citizens
Bank, N.A. were merged into First Security, Western, and Glacier,
respectively, without name change for First Security, Western, and Glacier.
On June 22, 2007, Western Bank of Chinook was merged into First National
Bank of Lewistown and renamed First Bank of Montana.
7
The following abbreviated organizational chart illustrates the various
relationships:
----------------------------
| Glacier Bancorp, Inc. |
| (Parent Holding Company) |
----------------------------
|
----------------------------- ---------------------------|---------------------------------------------------------
| Mountain West Bank | | Glacier Bank | | | First Security Bank | | Western Security Bank |
| (ID Commercial bank) | | (MT Commercial bank) | | | of Missoula | | (MT Commercial bank) |
| | | | | | (MT Commercial bank) | | |
------------------------- ----------------------- | ---------------------- ---------------------------
|
----------------------------- ---------------------------|---------------------------------------------------------
| 1st Bank | | Big Sky | | | Valley Bank | | Glacier Bank |
| (WY Commercial bank) | | Western Bank | | | of Helena | | of Whitefish |
| | | (MT Commercial bank) | | | (MT Commercial bank) | | (MT Commercial bank) |
------------------------- ----------------------- ---------------------- ---------------------------
|
----------------------------- ---------------------------|---------------------------------------------------------
| Citizens Community Bank | | First Bank of Montana | | | First National Bank | | |
| (ID Commercial bank) | | (MT Commercial bank) | | | of Morgan | | Glacier Capital Trust II |
| | | | | | (UT Commercial bank) | | |
------------------------- ----------------------- | ---------------------- ---------------------------
|
----------------------------------------------------------------------------------------------------
| | | | | |
| Glacier Capital Trust III | | Glacier Capital Trust IV | | Citizens (ID) Statutory |
| | | | | Trust I |
------------------------------- ------------------------------ -----------------------------
3) Ratios
Returns on average assets and average equity were calculated based on daily
averages.
4) Dividends Declared
On September 26, 2007, the Board of Directors declared a $.13 per share
cash dividend payable on October 18, 2007 to stockholders of record on
October 9, 2007.
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 as if dilutive outstanding stock options were
exercised, using the treasury stock method.
8
The following schedule contains the data used in the calculation of basic
and diluted earnings per share:
Three Three Nine Nine
months ended months ended months ended months ended
September 30, 2007 September 30, 2006 September 30, 2007 September 30, 2006
------------------ ------------------ ------------------ ------------------
Net earnings available to common
stockholders ....................... $17,639,000 15,806,000 50,457,000 44,101,000
Average outstanding shares - basic .... 53,566,477 49,702,838 53,086,380 48,879,969
Add: Dilutive stock options ........... 438,351 700,476 518,542 747,338
----------- ---------- ---------- ----------
Average outstanding shares - diluted .. 54,004,828 50,403,314 53,604,922 49,627,307
=========== ========== ========== ==========
Basic earnings per share .............. $ 0.33 0.32 0.95 0.90
=========== ========== ========== ==========
Diluted earnings per share ............ $ 0.33 0.31 0.94 0.89
=========== ========== ========== ==========
There were approximately 699,747 and 807,650 average shares excluded from the
nine months ended diluted share calculation as of September 30, 2007, and 2006,
respectively, due to the option exercise price exceeding the market price.
6) Investments
A comparison of the amortized cost and estimated fair value of the
Company's investment securities, available-for-sale and other investments,
is as follows:
INVESTMENTS AS OF SEPTEMBER 30, 2007
Gross Unrealized Estimated
Weighted Amortized ---------------- Fair
(Dollars in thousands) Yield Cost Gains Losses Value
---------------------- -------- --------- ----- ------ ---------
AVAILABLE-FOR-SALE:
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year ................. 3.78% $ 2,304 -- (2) 2,302
GOVERNMENT-SPONSORED ENTERPRISES:
maturing within one year ................. 5.26% 9,644 6 -- 9,650
maturing five years through ten years .... 7.85% 242 -- (1) 241
maturing after ten years ................. 5.75% 134 -- -- 134
-------- ----- ------ -------
5.34% 10,020 6 (1) 10,025
-------- ----- ------ -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ................. 3.83% 1,932 4 (2) 1,934
maturing one year through five years ..... 4.28% 4,129 37 (12) 4,154
maturing five years through ten years .... 4.95% 16,539 812 (4) 17,347
maturing after ten years ................. 5.08% 259,203 8,199 (233) 267,169
-------- ----- ------ -------
5.06% 281,803 9,052 (251) 290,604
-------- ----- ------ -------
MORTGAGE-BACKED SECURITIES .................. 4.55% 374,930 333 (4,988) 370,275
FHLMC AND FNMA STOCK ........................ 5.74% 7,593 -- (455) 7,138
OTHER INVESTMENTS:
CERTIFICATES OF DEPOSITS WITH OVER 90 DAY
MATURITY ................................. 4.98% 298 -- -- 298
FHLB AND FRB STOCK, AT COST ................. 1.68% 59,764 -- -- 59,764
-------- ----- ------ -------
TOTAL INVESTMENTS ..................... 4.53% $736,712 9,391 (5,697) 740,406
======== ===== ====== =======
9
INVESTMENTS AS OF DECEMBER 31, 2006
Gross Unrealized Estimated
Weighted Amortized ---------------- Fair
(Dollars in thousands) Yield Cost Gains Losses Value
---------------------- -------- --------- ------ ------- --------
AVAILABLE-FOR-SALE:
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year ................. 4.78% $ 10,982 -- (6) 10,976
GOVERNMENT-SPONSORED ENTERPRISES:
maturing within one year ................. 4.90% 8,177 -- (17) 8,160
maturing one year through five years ..... 5.15% 648 -- -- 648
maturing five years through ten years .... 7.73% 352 5 -- 357
maturing after ten years ................. 6.68% 153 1 -- 154
-------- ------ ------ -------
5.05% 9,330 6 (17) 9,319
-------- ------ ------ -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ................. 3.65% 2,190 2 (1) 2,191
maturing one year through five years ..... 4.08% 5,736 43 (21) 5,758
maturing five years through ten years .... 4.92% 15,180 818 (11) 15,987
maturing after ten years ................. 5.12% 276,756 11,794 (86) 288,464
-------- ------ ------ -------
5.08% 299,862 12,657 (119) 312,400
-------- ------ ------ -------
MORTGAGE-BACKED SECURITIES .................. 4.21% 434,224 195 (7,869) 426,550
FHLMC AND FNMA STOCK ........................ 5.74% 7,593 218 -- 7,811
OTHER INVESTMENTS:
CERTIFICATES OF DEPOSITS WITH OVER 90 DAY
MATURITY ................................. 4.83% 2,864 -- -- 2,864
FHLB AND FRB STOCK, AT COST ................. 1.26% 55,717 -- -- 55,717
-------- ------ ------ -------
TOTAL INVESTMENTS ..................... 4.36% $820,572 13,076 (8,011) 825,637
======== ====== ====== =======
Interest income includes tax-exempt interest for the nine months ended September
30, 2007 and 2006 of $10,207,000 and $10,428,000, respectively, and for the
three months ended September 30, 2007 and 2006 of $3,279,000 and $3,481,000,
respectively.
Gross proceeds from sales of investment securities for the nine months ended
September 30, 2007 and 2006 were $55,501,000 and $488,000, respectively,
resulting in gross gains of approximately $1,000 and $0, respectively, and gross
losses of approximately $9,000 and $3,000, respectively. Investment securities
of $54,346,000 from North Side were sold immediately after the acquisition was
completed. The cost of any investment sold is determined by specific
identification.
10
7) Loans
The following table summarizes the Company's loan portfolio:
At At At
9/30/2007 12/31/2006 9/30/2006
TYPE OF LOAN -------------------- -------------------- --------------------
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
---------------------- ---------- ------- ---------- ------- ---------- -------
Real Estate Loans:
Residential real estate $ 805,125 23.5% $ 758,921 24.0% $ 732,863 26.0%
Loans held for sale 30,860 0.9% 35,135 1.1% 28,780 1.0%
---------- ----- ---------- ----- ---------- -----
Total 835,985 24.4% 794,056 25.1% 761,643 27.0%
Commercial Loans:
Real estate 1,240,239 36.1% 954,290 30.2% 867,862 30.8%
Other commercial 793,889 23.1% 902,994 28.5% 696,696 24.7%
---------- ----- ---------- ----- ---------- -----
Total 2,034,128 59.2% 1,857,284 58.7% 1,564,558 55.5%
Consumer and other Loans:
Consumer 207,330 6.0% 218,640 6.9% 193,015 6.9%
Home equity 420,097 12.2% 356,477 11.3% 347,760 12.4%
---------- ----- ---------- ----- ---------- -----
Total 627,427 18.2% 575,117 18.2% 540,775 19.3%
Net deferred loan fees,
premiums and discounts (10,477) -0.3% (11,674) -0.4% (8,711) -0.3%
Allowance for loan losses (52,616) -1.5% (49,259) -1.6% (43,216) -1.5%
---------- ----- ---------- ----- ---------- -----
Loan receivable, net $3,434,447 100.0% $3,165,524 100.0% $2,815,049 100.0%
========== ===== ========== ===== ========== =====
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated:
NONPERFORMING ASSETS At At At
(Dollars in thousands) 9/30/2007 12/31/2006 9/30/2006
---------------------- --------- ---------- ---------
Non-accrual loans:
Real estate loans $ 1,286 1,806 2,121
Commercial loans 5,741 3,721 3,848
Consumer and other loans 478 538 500
------- ----- -----
Total $ 7,505 6,065 6,469
Accruing Loans 90 days or more overdue:
Real estate loans 979 554 365
Commercial loans 1,037 638 1,940
Consumer and other loans 451 153 221
------- ----- -----
Total $ 2,467 1,345 2,526
Real estate and other assets owned, net 1,750 1,484 510
------- ----- -----
Total non-performing loans and real estate
and other assets owned, net $11,722 8,894 9,505
======= ===== =====
As a percentage of total bank assets 0.24% 0.19% 0.22%
Interest Income (1) $ 447 462 363
(1) Amounts represent interest income that would have been recognized on loans
accounted for on a non-accrual basis for nine months ended September 30,
2007, year ended December 31, 2006 and nine months ended September 30,
2006, had such loans performed pursuant to contractual terms.
11
The following table illustrates the loan loss experience:
ALLOWANCE FOR LOAN LOSSES
Nine months ended Year ended Nine months ended
September 30, December 31, September 30,
(Dollars in thousands) 2007 2006 2006
----------------- ------------ -----------------
Balance at beginning of period $49,259 38,655 38,655
Charge offs:
Real estate loans (103) (14) (12)
Commercial loans (1,489) (1,187) (405)
Consumer and other loans (383) (448) (304)
------- ------ ------
Total charge-offs $(1,975) (1,649) (721)
------- ------ ------
Recoveries:
Real estate loans 158 341 309
Commercial loans 520 331 135
Consumer and other loans 295 298 235
------- ------ ------
Total recoveries $ 973 970 679
------- ------ ------
Net recoveries (charge-offs) (1,002) (679) (42)
Acquisition (1) 639 6,091 763
Provision 3,720 5,192 3,840
------- ------ ------
Balance at end of period $52,616 49,259 43,216
======= ====== ======
Ratio of net charge-offs to average
loans outstanding during the period 0.030% 0.024% 0.002%
(1) Acquisition of North Side, First National Bank of Morgan and Citizen's
Development Company
The following table summarizes the allocation of the allowance for loan
losses:
September 30, 2007 December 31, 2006 September 30, 2006
-------------------- -------------------- --------------------
Percent Percent Percent
of loans of loans of loans
in in in
(Dollars in thousands) Allowance category Allowance category Allowance category
--------- -------- --------- -------- --------- --------
Real estate loans $ 5,682 23.9% 5,421 24.6% 5,328 26.6%
Commercial real estate loans 20,121 35.5% 16,741 29.6% 15,583 30.3%
Other commercial loans 17,587 22.7% 18,361 28.0% 14,090 24.3%
Consumer and other loans 9,226 17.9% 8,736 17.8% 8,215 18.8%
------- ----- ------ ----- ------ -----
Totals $52,616 100.0% 49,259 100.0% 43,216 100.0%
======= ===== ====== ===== ====== =====
12
8) Intangible Assets
The following table sets forth information regarding the Company's core
deposit intangible and mortgage servicing rights as of September 30, 2007:
Mortgage
Core Deposit Servicing
(Dollars in thousands) Intangible Rights (1) Total
------------ ---------- ------
Gross carrying value $ 25,706
Accumulated Amortization (10,958)
--------
Net carrying value $ 14,748 1,207 15,955
========
WEIGHTED-AVERAGE AMORTIZATION PERIOD
(Period in years) 10.0 9.7 10.0
AGGREGATE AMORTIZATION EXPENSE
For the three months ended September 30, 2007 $ 827 45 872
For the nine months ended September 30, 2007 $ 2,416 148 2,564
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2007 $ 3,202 168 3,370
For the year ended December 31, 2008 3,032 81 3,113
For the year ended December 31, 2009 2,738 79 2,817
For the year ended December 31, 2010 2,369 77 2,446
For the year ended December 31, 2011 1,662 75 1,737
(1) The mortgage servicing rights are included in other assets and the gross
carrying value and accumulated amortization are not readily available.
Acquisitions are accounted for using the purchase accounting method as
prescribed by Statement of Financial Accounting Standard Number 141, Business
Combinations. Purchase accounting requires the total purchase price to be
allocated to the estimated fair values of assets acquired and liabilities
assumed, including certain intangible assets. Goodwill is recorded for the
residual amount in excess of the net fair value.
Adjustment of the allocated purchase price may be related to fair value
estimates for which all information has not been obtained or required for
pre-acquisition contingencies of the acquired entity known or discovered during
the allocation period, the period of time required to identify and measure the
fair values of the assets and liabilities acquired in the business combination.
The allocation period is generally limited to one year following consummation of
a business combination.
The following is a summary of activity in goodwill for the nine months ended
September 30, 2007.
13
(Dollars in thousands) Goodwill
--------
Balance as of December 31, 2006 $129,716
Sale of Western's Lewistown branch (454)
Adjustment for FCB-Billings' building (760)
Adjustment for FCB-Billings' loan 3,605
Acquisition of North Side State Bank 8,081
Other adjustments 100
--------
Balance as of September 30, 2007 $140,288
========
As a condition of acquiring FCB - Billings, a subsidiary of CDC which was
acquired on October 1, 2006, bank regulators required Western to divest of
Western's branch in Lewistown, Montana. Western was acquired in February 2001
through the purchase of WesterFed Financial Corporation ("WesterFed"), its
parent company. The WesterFed acquisition was accounted for using the purchase
method of accounting with a portion of goodwill allocated to Western's Lewistown
branch. With the January 2007 sale of the Lewistown branch, $454,000 of goodwill
associated with such branch was removed.
In March 2007, Western adjusted its purchase price allocation for FCB - Billings
based upon new information available to management concerning the estimated fair
value of property as of the acquisition date. Accordingly, the fair value of
certain property was increased by $1,250,000 with a related $490,000 increase in
deferred tax liability, resulting in a $760,000 decrease in goodwill.
In February 2007, Western became aware of a preacquisition contingency in
regards to a loan that was impaired as of the October 1, 2006 acquisition of FCB
- Billings. After taking into consideration recoveries, the amount of impairment
determined to have occurred on or before the acquisition date is estimated to be
$5,900,000 with such amount charged off against the loan balance. No further
loss is expected as the balance of the loan, after such charge-off, has been
collected. On an after tax basis, the increase to goodwill is $3,605,000.
Management continues to pursue additional recoveries and remedies from the
guarantors and other third parties, with any recoveries occurring after
September 30, 2007 recorded in earnings in the period in which the recoveries
are received or accrued.
On April 30, 2007, the Company acquired North Side, and the purchase price
included core deposit intangible of $2,524,000 and goodwill of $8,081,000.
9) Deposits
The following table illustrates the amounts outstanding for deposits
$100,000 and greater at September 30, 2007 according to the time remaining
to maturity. Included in the CD maturities are brokered CDs in the amount
of $200,907,000.
Certificates Non-Maturity
(Dollars in thousands) of Deposit Deposits Totals
------------ ------------ ---------
Within three months ........ $305,968 1,230,658 1,536,626
Three to six months ........ 96,281 -- 96,281
Seven to twelve months ..... 104,470 -- 104,470
Over twelve months ......... 45,669 -- 45,669
-------- --------- ---------
Totals .................. $552,388 1,230,658 1,783,046
======== ========= =========
10) Advances and Other Borrowings
The following chart illustrates the average balances and the maximum
outstanding month-end balances for Federal Home Loan Bank of Seattle (FHLB)
advances and repurchase agreements:
14
As of and As of and As of and
for the nine for the for the nine
months ended year ended months ended
(Dollars in thousands) September 30, 2007 December 31, 2006 September 30, 2006
------------------ ----------------- ------------------
FHLB Advances:
Amount outstanding at end of period ..... $251,908 307,522 377,104
Average balance ......................... $376,381 487,112 484,396
Maximum outstanding at any month-end .... $509,519 655,492 572,954
Weighted average interest rate .......... 5.02% 4.20% 4.01%
Repurchase Agreements:
Amount outstanding at end of period ..... $181,301 170,216 162,400
Average balance ......................... $165,592 153,314 145,741
Maximum outstanding at any month-end .... $185,051 164,338 163,498
Weighted average interest rate .......... 4.54% 4.32% 4.19%
11) 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 September 30, 2007.
CONSOLIDATED
Tier 1 Tier 2
(Core) (Total) Leverage
(Dollars in thousands) Capital Capital Capital
---------- --------- ----------
GAAP Capital .................................. $ 515,272 515,272 515,272
Less: Goodwill and intangibles ................ (155,037) (155,037) (155,037)
Other adjustments .......................... (455) (455) (455)
Plus: Allowance for loan losses ............... -- 48,494 --
Accumulated other comprehensive
Unrealized loss on AFS securities ....... 2,239 2,239 2,239
Subordinated debentures .................... 115,000 115,000 115,000
---------- --------- ----------
Regulatory capital computed ................... $ 477,019 525,513 477,019
========== ========= ==========
Risk weighted assets .......................... $3,874,078 3,874,078
========== =========
Total average assets .......................... $4,515,591
==========
Capital as % of defined assets ................ 12.31% 13.56% 10.56%
Regulatory "well capitalized" requirement ..... 6.00% 10.00% 5.00%
---------- --------- ----------
Excess over "well capitalized" requirement .... 6.31% 3.56% 5.56%
========== ========= ==========
12) Federal and State Income Taxes
The Company and its financial institution subsidiaries join together in the
filing of consolidated income tax returns in the following jurisdictions:
federal, Montana, Idaho and Utah. Although 1st Bank has operations in Wyoming
and Mountain West has operations in Washington, neither Wyoming nor Washington
imposes a corporate level income tax. All required income tax returns have been
timely filed. Income tax returns for the years ended December 31, 2004, 2005 and
2006, remain subject to examination by federal, Montana, Idaho and Utah tax
authorities and income tax returns for the year ended December 31, 2003 remain
subject to examination by the state of Montana and Idaho.
15
On January 1, 2007, the Company adopted FASB Interpretation No. 48 ("FIN 48"),
Accounting for Uncertainty in Income Taxes. There was no cumulative effect
recognized in retained earnings as a result of adopting FIN 48. The Company
determined its unrecognized tax benefit to be $300,000 as of September 30, 2007.
In accordance with FIN 48, the Company reclassified such amount from a deferred
tax liability to a current tax liability.
If the unrecognized tax benefit amount was recognized, it would decrease the
Company's effective tax rate from 34.2 percent to 33.9 percent. Management
believes that it is unlikely that the balance of its unrecognized tax benefits
will significantly increase or decrease over the next twelve months.
The Company recognizes interest related to unrecognized income tax benefits in
interest expense and penalties are recognized in other expense. During the nine
months ended September 30, 2007 and 2006, the Company recognized $0 interest
expense and recognized $0 penalty with respect to income tax liabilities. The
Company had approximately $50,000 and $0 accrued for the payment of interest at
September 30, 2007 and 2006, respectively. The Company had accrued $0 for the
payment of penalties at September 30, 2007 and 2006.
13) Comprehensive Income
The Company's only component of comprehensive income other than net
earnings is the unrealized gains and losses on available-for-sale
securities.
For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
Dollars in thousands 2007 2006 2007 2006
------- ------ ------ ------
Net earnings ................................................ $17,639 15,806 50,457 44,101
Unrealized holding gain (loss) arising during the period .... 4,533 11,435 (1,378) 2,691
Tax (benefit) expense ....................................... (1,786) (4,505) 543 (1,060)
------- ------ ------ ------
Net after tax............................................. 2,747 6,930 (835) 1,631
Reclassification adjustment for losses included in net
earnings ................................................. -- 3 8 3
Tax benefit ................................................. -- (1) (3) (1)
------- ------ ------ ------
Net after tax............................................. -- 2 5 2
Net unrealized gain (loss) on securities ................. 2,747 6,932 (830) 1,633
------- ------ ------ ------
Total comprehensive income ............................ $20,386 22,738 49,627 45,734
======= ====== ====== ======
16
14) Segment Information
The Company evaluates segment performance internally based on individual
bank charters, and thus the operating segments are so defined. The
following schedule provides selected financial data for the Company's
operating segments. Centrally provided services to the Banks are allocated
based on estimated usage of those services. The operating segment
identified as "Other" includes the Parent, non-bank units, and elimination
of transactions between segments.
Nine months ended and as of September 30, 2007
------------------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky Valley
---------- ------- -------- ------- -------- ------- -------
Revenues from external customers $ 65,098 48,679 44,051 29,721 19,246 17,596 16,369
Intersegment revenues 42 116 1,590 1,538 1,013 15 144
Expenses (54,500) (38,245) (35,389) (25,380) (16,243) (13,826) (13,078)
Intercompany eliminations -- -- -- -- -- -- --
---------- ------- ------- ------- ------- ------- -------
Net Earnings $ 10,640 10,550 10,252 5,879 4,016 3,785 3,435
========== ======= ======= ======= ======= ======= =======
Total Assets $1,005,535 894,556 837,202 559,573 438,653 297,721 284,272
========== ======= ======= ======= ======= ======= =======
First Bank Total
Whitefish Citizens of MT Morgan Other Consolidated
--------- -------- ---------- ------ -------- ------------
Revenues from external customers $ 10,648 11,413 7,131 3,749 523 274,224
Intersegment revenues -- 105 317 920 63,070 68,870
Expenses (8,580) (9,852) (5,994) (4,009) 1,329 (223,767)
Intercompany eliminations -- -- -- -- (68,870) (68,870)
-------- -------- ------- ------ -------- ---------
Net Earnings $ 2,068 1,666 1,454 660 (3,948) 50,457
======== ======== ======= ====== ======== =========
Total Assets $196,192 189,735 140,501 96,644 (240,327) 4,700,257
======== ======== ======= ====== ======== =========
Nine months ended and as of September 30, 2006
----------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky
-------- ------- -------- -------- -------- --------
Revenues from external customers $ 53,018 39,944 38,506 21,962 13,780 15,467
Intersegment revenues 25 778 179 62 461 92
Expenses (43,609) (30,956) (29,213) (17,152) (11,608) (11,890)
Intercompany eliminations -- -- -- -- -- --
-------- ------- ------- -------- ------- -------
Net Earnings $ 9,434 9,766 9,472 4,872 2,633 3,669
======== ======= ======= ======== ======= =======
Total Assets $893,260 814,126 792,063 438,175 293,021 275,045
======== ======= ======= ======== ======= =======
Total
Valley Whitefish Citizens Morgan Other Consolidated
-------- --------- -------- ------ -------- ------------
Revenues from external customers $ 14,032 9,626 10,458 424 376 217,593
Intersegment revenues 100 8 -- 22 54,251 55,978
Expenses (11,081) (7,549) (8,863) (338) (1,233) (173,492)
Intercompany eliminations -- -- -- -- (55,978) (55,978)
-------- ------- ------- ------ -------- ---------
Net Earnings $ 3,051 2,085 1,595 108 (2,584) 44,101
======== ======= ======= ====== ======== =========
Total Assets $285,180 193,301 170,354 89,038 (113,308) 4,130,255
======== ======= ======= ====== ======== =========
17
Three months ended and as of September 30, 2007
------------------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky Valley
---------------------- ---------- ------- -------- ------- -------- ------- -------
Revenues from external customers $ 22,652 17,103 14,864 9,266 7,437 6,157 5,702
Intersegment revenues 18 38 670 825 461 -- 49
Expenses (18,979) (13,456) (11,892) (8,477) (6,277) (4,802) (4,508)
Intercompany eliminations -- -- -- -- -- -- --
---------- ------- ------- ------- ------- ------- -------
Net Earnings $ 3,691 3,685 3,642 1,614 1,621 1,355 1,243
========== ======= ======= ======= ======= ======= =======
Total Assets $1,005,535 894,556 837,202 559,573 438,653 297,721 284,272
========== ======= ======= ======= ======= ======= =======
First Bank Total
Whitefish Citizens of MT Morgan Other Consolidated
--------- -------- ---------- ------- -------- ------------
Revenues from external customers $ 3,686 3,864 2,527 1,322 328 94,908
Intersegment revenues -- 105 1 288 21,882 24,337
Expenses (2,951) (3,391) (2,025) (1,407) 896 (77,269)
Intercompany eliminations -- -- -- -- (24,337) (24,337)
-------- ------- ------- ------ -------- ---------
Net Earnings $ 735 578 503 203 (1,231) 17,639
======== ======= ======= ====== ======== =========
Total Assets $196,192 189,735 140,501 96,644 (240,327) 4,700,257
======== ======= ======= ====== ======== =========
Three months ended and as of September 30, 2006
--------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky
---------------------- ---------- ------- -------- ------- -------- -------
Revenues from external customers
$ 19,235 14,172 13,373 7,906 4,909 5,305
Intersegment revenues 10 578 83 43 107 --
Expenses (16,019) (11,483) (10,362) (6,002) (4,109) (4,147)
Intercompany eliminations -- -- -- -- -- --
-------- ------- -------- ------- ------- -------
Net Earnings $ 3,226 3,267 3,094 1,947 907 1,158
======== ======= ======== ======= ======= =======
Total Assets $893,260 814,126 792,063 438,175 293,021 275,045
======== ======= ======== ======= ======= =======
Total
Valley Whitefish Citizens Morgan Other Consolidated
-------- --------- -------- ------ ------ ------------
Revenues from external customers $ 4,953 3,428 3,803 424 146 77,654
Intersegment revenues 34 8 -- 22 18,219 19,104
Expenses (4,011) (2,716) (3,271) (338) 610 (61,848)
Intercompany eliminations -- -- -- -- (19,104) (19,104)
-------- ------- ------- ------ -------- ---------
Net Earnings $ 976 720 532 108 (129) 15,806
======== ======= ======= ====== ======== =========
Total Assets $285,180 193,301 170,354 89,038 (113,308) 4,130,255
======== ======= ======= ====== ======== =========
15) 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.
18
Nine Months Ended September 30,
(Dollars in thousands) 2007 vs. 2006
Increase (Decrease) due to:
-------------------------------
Volume Rate Net
---------- ------- ------
INTEREST INCOME
Residential real estate loans $ 6,924 1,396 8,320
Commercial loans 25,671 6,839 32,510
Consumer and other loans 5,349 1,391 6,740
Investment securities and other (3,023) 1,319 (1,704)
-------- ------- ------
Total Interest Income 34,921 10,945 45,866
INTEREST EXPENSE
NOW accounts 448 1,229 1,677
Savings accounts 236 234 470
Money market accounts 4,233 4,208 8,441
Certificates of deposit 4,336 5,459 9,795
FHLB advances (3,245) 2,811 (434)
Other borrowings and
repurchase agreements 2,878 708 3,586
-------- ------- ------
Total Interest Expense 8,886 14,649 23,535
-------- ------- ------
NET INTEREST INCOME $ 26,035 (3,704) 22,331
======== ======= ======
19
16) Average Balance Sheet
The following schedule provides (i) the total dollar amount of interest and
dividend income of the Company for earning assets and the resultant average
yield; (ii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average rate; (iii) net interest and dividend
income; (iv) interest rate spread; and (v) net interest margin. Non-accrual
loans are included in the average balance of the loans.
For the Three months ended 9-30-07 For the Nine months ended 9-30-07
---------------------------------- ---------------------------------
Interest Average Interest Average
AVERAGE BALANCE SHEET Average and Yield/ Average and Yield/
(Dollars in thousands) Balance Dividends Rate Balance Dividends Rate
--------------------- ----------- --------- ------- ----------- --------- -------
ASSETS
Residential real estate loans $ 819,617 15,617 7.62% $ 798,500 45,259 7.56%
Commercial loans 1,987,812 40,379 8.06% 1,909,361 115,201 8.07%
Consumer and other loans 614,804 12,423 8.02% 595,991 35,607 7.99%
---------- ------ ---------- -------
Total Loans 3,422,233 68,419 7.93% 3,303,852 196,067 7.93%
Tax - exempt investment securities (1) 268,145 3,279 4.89% 274,838 10,207 4.95%
Other investment securities 581,651 6,732 4.63% 578,393 19,369 4.47%
---------- ------ ---------- -------
Total Earning Assets 4,272,029 78,430 7.28% 4,157,083 225,643 7.26%
------ -------
Goodwill and core deposit intangible 154,842 148,319
Other non-earning assets 243,758 243,459
---------- ----------
TOTAL ASSETS $4,670,629 $4,548,861
========== ==========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW accounts $ 452,425 1,147 1.01% $ 455,476 3,501 1.03%
Savings accounts 269,030 678 1.00% 268,248 2,004 1.00%
Money market accounts 787,097 7,223 3.64% 743,424 20,412 3.67%
Certificates of deposit 1,039,415 12,401 4.73% 998,820 34,869 4.67%
FHLB advances 391,042 5,027 5.10% 376,381 14,119 5.02%
Repurchase agreements
and other borrowed funds 371,304 4,971 5.31% 395,891 15,468 5.22%
---------- ------ ---------- -------
Total Interest Bearing Liabilities 3,310,313 31,447 3.77% 3,238,240 90,373 3.73%
------ -------
Non-interest bearing deposits 803,511 778,071
Other liabilities 48,266 45,451
---------- ----------
Total Liabilities 4,162,090 4,061,762
---------- ----------
Common stock 536 531
Paid-in capital 372,072 356,650
Retained earnings 135,909 127,705
Accumulated other
Comprehensive income 22 2,213
---------- ----------
Total Stockholders' Equity 508,539 487,099
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $4,670,629 $4,548,861
========== ==========
Net interest income $46,983 $ 135,270
======= =========
Net interest spread 3.51% 3.53%
Net interest margin
on average earning assets (1) 4.36% 4.35%
Return on average assets (annualized) 1.50% 1.48%
Return on average equity (annualized) 13.76% 13.85%
(1) Excludes tax effect on non-taxable investment security income of $4,519 and
$1,452 for the nine and three months ended September 30, 2007.
20
17) Recent Acquisition
On April 30, 2007, the Company completed the acquisition of North Side,
which was merged into 1st Bank, the Company's Evanston, Wyoming subsidiary.
As of April 30, 2007, North Side had approximate total assets of
$118,803,000, loans of $39,541,000, and deposits of $99,568,000. A portion
of the purchase price was allocated to core deposit intangible of
$2,524,000 and goodwill of $8,081,000.
Acquisitions are accounted for under the purchase method of accounting.
Accordingly, the assets and liabilities of the acquired banks are recorded
by the Company at their respective fair values at the date of the
acquisition and the results of operations are 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, is recorded as goodwill.
Adjustment of the allocated purchase price may be related to fair value
estimates for which all information has not been obtained or required for
pre-acquisition contingencies of the acquired entity known or discovered
during the allocation period, the period of time required to identify and
measure the fair values of the assets and liabilities acquired in the
business combination. The allocation period is generally limited to one
year following consummation of a business combination.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Impact of Recently Issued Accounting Standards
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities--including an amendment of FASB
Statement No. 115" (Statement 159). Statement 159 permits entities to choose to
measure many financial instruments and certain other items at fair value and
amends Statement 115 to, among other things, require certain disclosures for
amounts for which the fair value option is applied. This standard is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2007, or January 1, 2008 for the Company. Early adoption is permitted as of
the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of Statement 157. The
Company has not completed its assessment of SFAS 159 and the impact, if any, on
the consolidated financial statements.
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, Fair Value Measurements, which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit fair value
measurements, FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating the impact of the adoption of this
standard, but does not expect it to have a material effect on the Company's
financial position or results of operations.
Financial Condition
This section discusses the changes in the Statement of Financial Condition items
from September 30, 2006 and December 31, 2006, to September 30, 2007.
Effective with its acquisition on April 30, 2007, North Side was merged into 1st
Bank, the Company's subsidiary bank in Evanston, Wyoming. On June 21, 2007, the
remaining two CDC subsidiaries, i.e., First National Bank of Lewistown and
Western Bank of Chinook, merged to become First Bank of Montana. In the second
quarter, each
21
of the combining CDC bank's operating systems and First National Bank of
Morgan's operating systems were converted to the core operating system used by
the Company's banking subsidiaries.
The results of operations and financial condition include the acquisition of
North Side from May 1, 2007 forward. Cash of $9.0 million and 793,580 shares of
the Company's common stock were issued to North Side shareholders. The following
table provides information on selected classifications of assets and liabilities
acquired:
North Side
(UNAUDITED - $ IN THOUSANDS) State Bank
----------
Total assets 118,803
Investments 61,456
Fed funds sold 10,100
Net loans 39,541
Non-interest bearing deposits 22,101
Interest bearing deposits 77,467
As reflected on the next schedule, total assets at September 30, 2007 were $4.7
billion, which is $229 million, or 5.1 percent, greater than the total assets of
$4.5 billion at December 31, 2006, and $570 million, or 13.8 percent, greater
than the total assets of $4.1 billion at September 30, 2006.
September 30, September 30 $ change from $ change from
2007 December 31, 2006 December 31, September 30,
ASSETS ($ IN THOUSANDS) (unaudited) 2006 (unaudited) 2006 2006
------------- ------------ ------------ ------------- -------------
Cash on hand and in banks $ 128,230 136,591 113,268 (8,361) 14,962
Investment securities, interest bearing deposits,
FHLB stock, FRB stock, and fed funds 803,845 862,063 915,858 (58,218) (112,013)
Loans:
Real estate 832,038 789,843 757,470 42,195 74,568
Commercial 2,029,117 1,850,417 1,560,433 178,700 468,684
Consumer and other 625,908 574,523 540,362 51,385 85,546
---------- ---------- ---------- -------- --------
Total loans 3,487,063 3,214,783 2,858,265 272,280 628,798
Allowance for loan losses (52,616) (49,259) (43,216) (3,357) (9,400)
---------- ---------- ---------- -------- --------
Total loans net of allowance for loan losses 3,434,447 3,165,524 2,815,049 268,923 619,398
---------- ---------- ---------- -------- --------
Other assets 333,735 307,120 286,080 26,615 47,655
---------- ---------- ---------- -------- --------
Total Assets $4,700,257 4,471,298 4,130,255 228,959 570,002
========== ========== ========== ======== ========
At September 30, 2007, total loans were $3.487 billion, an increase of $103
million, or 3 percent (12 percent annualized) over total loans of $3.384 billion
at June 30, 2007. Total loans increased $272 million, or 8.5 percent (11.3
percent annualized) from December 31, 2006. For the first three quarters of
2007, commercial loans have increased $179 million, or 9.7 percent, real estate
loans increased $42 million, or 5.3 percent, and consumer loans grew by $51
million, or 8.9 percent. Total loans have increased $629 million, or 22 percent,
from September 30, 2006, with all loan categories showing increases. Commercial
loans grew the most with an increase of $469 million, or 30 percent, followed by
real estate loans which increased $75 million, or 10 percent, and consumer
loans, which are primarily comprised of home equity loans, increasing by $86
million, or 16 percent.
Investment securities, including interest bearing deposits in other financial
institutions and federal funds sold, have decreased $58 million from December
31, 2006, or 6.8 percent, and have declined $112 million, or 12.2 percent, from
September 30, 2006. The investment portfolio of North Side was sold immediately
after the acquisition was completed with the sale proceeds invested in higher
yielding loans. Investment securities at September 30, 2007 represented 17
percent of total assets versus 22 percent the prior year.
22
The Company typically sells a majority of long-term mortgage loans originated,
retaining servicing only on loans sold to certain lenders. The sale of loans in
the secondary mortgage market reduces the Company's risk of holding long-term,
fixed rate loans in the loan portfolio. Mortgage loans sold for the nine months
ended September 30, 2007 and 2006 were $472 million and $329 million,
respectively, and for the three months ended September 30, 2007 and 2006 were
$163 million and $119 million, respectively. The Company has also been active in
generating commercial SBA loans. A portion of some of those loans is sold to
other investors. The amount of loans sold and serviced for others at September
30, 2007 was approximately $173 million.
September 30, September 30 $ change from $ change from
2007 December 31, 2006 December 31, September 30,
LIABILITIES ($ IN THOUSANDS) (unaudited) 2006 (unaudited) 2006 2006
------------- ------------ ------------- ------------- --------------
Non-interest bearing deposits $ 819,711 829,355 751,593 (9,644) 68,118
Interest bearing deposits 2,547,409 2,378,178 2,099,742 169,231 447,667
Advances from Federal Home Loan Bank 251,908 307,522 377,104 (55,614) (125,196)
Securities sold under agreements to
repurchase and other borrowed funds 395,436 338,986 334,099 56,450 61,337
Other liabilities 51,962 42,555 38,148 9,407 13,814
Subordinated debentures 118,559 118,559 118,559 -- --
---------- --------- --------- -------- ---------
Total liabilities $4,184,985 4,015,155 3,719,245 169,830 465,740
========== ========= ========= ======== =========
Non-interest bearing deposits decreased $10 million, or 1.16 percent, since
December 31, 2006 and decreased by $1 million since June 30, 2007. However,
non-interest bearing deposits increased by $68 million, or 9 percent, since
September 30, 2006. Increasing non-interest bearing deposits remains a primary
focus of each of our banks. Interest bearing deposits increased $169 million
from December 31, 2006, with $123 million of such growth occurring in the second
quarter, such changes attributable to growth in certificates of deposits
("CD's"). The September 30, 2007 balance of interest bearing deposits includes
$201 million in broker originated CD's. Since September 30, 2006, interest
bearing deposits increased $448 million, or 21 percent, including a decrease of
$29 million in CD's from broker sources. Federal Home Loan Bank ("FHLB")
advances decreased $56 million from year end and decreased $125 million from
September 30, 2006. Repurchase agreements and other borrowed funds increased $56
million from December 31, 2006, of which $43 million are U. S. Treasury Tax and
Loan Term Auction funds.
Liquidity and Capital Resources
The objective of liquidity management is to maintain cash flows adequate to meet
current and future needs for credit demand, deposit withdrawals, maturing
liabilities and corporate operating expenses. The principal source of the
Company's cash revenues is the dividends received from the Company's banking
subsidiaries. The payment of dividends is subject to government regulation, in
that regulatory authorities may prohibit banks and bank holding companies from
paying dividends which would constitute an unsafe or unsound banking practice.
The subsidiaries' source of funds is generated by deposits, principal and
interest payments on loans, sale of loans and securities, short and long-term
borrowings, and net earnings. In addition, all of the banking subsidiaries are
members of the FHLB. As of September, 2007, the Company had $918 million of
available FHLB credit of which $252 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.
Lending Commitments
In the normal course of business, there are various outstanding commitments to
extend credit, such as letters of credit and un-advanced loan commitments, which
are not reflected in the accompanying condensed
23
consolidated financial statements. Management does not anticipate any material
losses as a result of these transactions.
September 30, September 30 $ change from $ change from
STOCKHOLDERS' EQUITY 2007 December 31, 2006 December 31, September 30,
($ IN THOUSANDS EXCEPT PER SHARE DATA) (unaudited) 2006 (unaudited) 2006 2006
------------- ------------ ------------- ------------- -------------
Common equity $ 513,033 453,074 408,556 59,959 104,477
Accumulated other comprehensive income 2,239 3,069 2,454 (830) (215)
--------- -------- -------- ------- --------
Total stockholders' equity 515,272 456,143 411,010 59,129 104,262
Core deposit intangible, net, and goodwill (155,036) (144,466) (97,494) (10,570) (57,542)
--------- -------- -------- ------- --------
$ 360,236 311,677 313,516 48,559 46,720
========= ======== ======== ======= ========
Stockholders' equity to total assets 10.96% 10.20% 9.96%
Tangible stockholders' equity to total
tangible assets 7.93% 7.20% 7.78%
Book value per common share $ 9.61 8.72 8.09 0.89 1.52
Market price per share at end of quarter $ 22.52 24.44 22.78 (1.92) (0.26)
Total equity and book value per share amounts have increased $59 million and
$.89 per share, respectively, from December 31, 2006, the result of earnings
retention, issuance of common stock in connection with acquisitions, and stock
options exercised. Accumulated other comprehensive income, representing net
unrealized gains or losses on investment securities designated as available for
sale, decreased $830 thousand from December 31, 2006, such decrease primarily a
function of interest rate changes and the decreased balance of investment
securities.
September 30, September 30,
2007 December 31, 2006
CREDIT QUALITY INFORMATION ($ IN THOUSANDS) (unaudited) 2006 (unaudited)
------------- ------------ -------------
Allowance for loan losses $52,616 $ 49,259 $43,216
Non-performing assets $11,722 8,894 9,505
Allowance as a percentage of non performing assets 449% 554% 455%
Non-performing assets as a percentage of total bank assets 0.24% 0.19% 0.22%
Allowance as a percentage of total loans 1.51% 1.53% 1.51%
Net charge-offs as a percentage of loans 0.029% 0.021% 0.001%
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total bank assets at September 30, 2007
were at .24 percent, down from the second quarter results of .25, up slightly
from .22 percent at September 30, 2006, but increasing 5 basis points from .19
percent at December 31, 2006. These ratios compare favorably to the Federal
Reserve Bank Peer Group average of .59 percent at June 30, 2007, the most recent
information available. The allowance for loan losses was 449 percent of
non-performing assets at September 30, 2007, down from 455 percent a year ago.
The allowance, including $6.434 million from acquisitions, has increased $9.4
million, or 22 percent, from a year ago. The allowance of $52.616 million is
1.51 percent of September 30, 2007 total loans outstanding, the same as the
third quarter last year. The third quarter provision for loan losses expense was
$1.315 million, a decrease of $5 thousand from the same quarter in 2006. Charged
off loans exceeded recovery of previously charged-off loans during the quarter
by $1.1 million. Loan growth, average loan size, and credit quality
considerations will determine the level of additional provision expense.
24
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2006.
The Company reported record net earnings of $17.6 million for the third quarter,
an increase of $1.8 million, or 12 percent, over the $15.8 million for the third
quarter of 2006. Diluted earnings per share of $.33 for the quarter is an
increase of 6.5 percent over the diluted earnings per share of $.31 for the
third quarter of 2006. Net earnings for the third quarter of 2007 and 2006 were
reduced by $544 thousand, or $.01 per share, and $519 thousand, or $.01 per
share, respectively, for stock-based compensation expense. Annualized return on
average assets and return on average equity for the quarter were 1.50 percent
and 13.76 percent, respectively, which compares with prior year returns for the
third quarter of 1.58 percent and 16.24 percent.
Three months ended September 30,
---------------------------------------
(UNAUDITED - $ IN THOUSANDS) 2007 2006 $ change % change
------- ------- -------- --------
Interest income $78,430 $63,892 14,538 23%
Interest expense 31,447 24,887 6,560 26%
------- ------- ------- -----
Net interest income 46,983 39,005 7,978 20%
Non-interest income
Service charges, loan fees, and other fees 11,853 9,403 2,450 26%
Gain on sale of loans 3,203 2,992 211 7%
Loss on sale of investments -- (3) 3 -100%
Other income 1,422 1,370 52 4%
------- ------- ------- -----
Total non-interest income 16,478 13,762 2,716 20%
------- ------- ------- -----
$63,461 $52,767 $10,694 20%
======= ======= ======= =====
Tax equivalent net interest margin 4.50% 4.38%
======= =======
Net Interest Income
Net interest income for the quarter increased $7.978 million, or 20 percent,
over the same period in 2006, and increased $1.787 million, or 4 percent, from
the second quarter of 2007. Total interest income increased $14.538 million from
the prior year's quarter, or 23 percent, while total interest expense was $6.560
million, or 26 percent higher. The increase in interest expense is primarily
attributable to the volume and rate increases in interest bearing deposits. The
net interest margin as a percentage of earning assets, on a tax equivalent
basis, was 4.50 percent which is 1 basis point lower than the second quarter of
2007, and was 12 basis points higher than the 4.38 percent result for the third
quarter of 2006. The net interest margin calculation has been revised to account
for intercompany elimination entries. Previously reported net interest margins
have been adjusted to reflect the change.
Non-interest Income
Fee income increased $2.450 million, or 26 percent, over the same period last
year, driven primarily by an increased number of loan and deposit accounts from
internal growth and acquisitions. Gain on sale of loans increased $211 thousand,
or 7 percent, from the third quarter of last year.
25
NON-INTEREST EXPENSE SUMMARY
(UNAUDITED - $ IN THOUSANDS)
Three months ended September 30,
---------------------------------------
2007 2006 $ change % change
------- ------- -------- --------
Compensation and employee benefits $20,286 $15,992 $4,294 27%
Occupancy and equipment expense 4,840 3,875 965 25%
Outsourced data processing 553 620 (67) -11%
Core deposit intangibles amortization 827 411 416 101%
Other expenses 8,690 6,946 1,744 25%
------- ------- ------ ---
Total non-interest expense $35,196 $27,844 $7,352 26%
======= ======= ====== ===
Non-interest Expense
Non-interest expense increased by $7.352 million, or 26 percent, from the same
quarter of 2006. Compensation and benefit expense increased $4.294 million, or
27 percent, which is primarily attributable to increased staffing levels,
including staffing from the acquisitions of First National Bank of Morgan and
CDC during 2006 and North Side in 2007, new branches, as well as increased
compensation, including commissions tied to increased production, and benefits,
including health insurance. The number of full-time-equivalent employees has
increased from 1,200 to 1,476, a 23 percent increase, since September 30, 2006.
Occupancy and equipment expense increased $965 thousand, or 25 percent,
reflecting the bank acquisitions, cost of additional branch locations and
facility upgrades.
Other expenses increased $1.744 million, or 25 percent, primarily from
acquisitions, additional marketing expenses, and costs associated with new
branch offices. The efficiency ratio (non-interest expense/net interest income
plus non-interest income) was 55 percent for the 2007 third quarter, compared to
57 percent for the prior quarter, and 53 percent for the 2006 third quarter.
RESULTS OF OPERATIONS - THE NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 2006.
Record net earnings of $50.5 million for the first three quarters of 2007 is an
increase of $6.4 million, or 14 percent over the prior year. Diluted earnings
per share of $0.94 versus $0.89 for the same period last year is an increase of
5.6 percent. Included in net earnings for the first three quarters of 2007 is a
$1.0 million gain (pre-tax gain of $1.6 million) from the January 19, 2007 sale
of Western Security Bank's Lewistown branch, a requirement imposed by bank
regulators to complete the acquisition of Citizens Development Company ("CDC").
Also, included in the first three quarters' earnings is approximately $500
thousand of non-recurring expenses and costs associated with the January 26,
2007 merger of three of the five CDC subsidiaries into Glacier Bancorp, Inc.'s
subsidiaries. Effective with its acquisition on April 30, 2007, North Side was
merged into 1st Bank, Glacier Bancorp, Inc.'s subsidiary bank in Evanston,
Wyoming. On June 21, 2007, the remaining two CDC subsidiaries, i.e., First
National Bank of Lewistown and Western Bank of Chinook, merged to become First
Bank of Montana. During the second quarter of 2007, each of the combining CDC
bank's operating systems and First National Bank of Morgan's operating systems
were converted to the core operating system used by the Company's subsidiaries.
26
REVENUE SUMMARY
(UNAUDITED - $ IN THOUSANDS)
Nine months ended September 30,
-----------------------------------------
2007 2006 $ change % change
-------- -------- -------- --------
Interest income $225,643 $179,777 $45,866 26%
Interest expense 90,373 66,838 23,535 35%
-------- -------- ------- ---
Net interest income 135,270 112,939 22,331 20%
Non-interest income
Service charges, loan fees, and other fees 33,696 26,969 6,727 25%
Gain on sale of loans 9,953 7,952 2,001 25%
Loss on sale of investments (8) (3) (5) 167%
Other income 4,940 2,898 2,042 70%
-------- -------- ------- ---
Total non-interest income 48,581 37,816 10,765 28%
-------- -------- ------- ---
$183,851 $150,755 $33,096 22%
======== ======== ======= ===
Tax equivalent net interest margin 4.50% 4.39%
======== ========
Net Interest Income
Net interest income for the nine months increased $22.331 million, or 20
percent, over the same period in 2006. Total interest income increased $45.866
million, or 26 percent, while total interest expense increased $23.535 million,
or 35 percent. The increase in interest expense is primarily attributable to the
volume and rate increases in interest bearing deposits. The net interest margin
as a percentage of earning assets, on a tax equivalent basis, was 4.50 percent
which is an increase of 11 basis points over the 4.39 percent for 2006. The net
interest margin calculation has been revised to account for intercompany
elimination entries and previously reported net interest margins have been
adjusted to reflect the change.
Non-interest Income
Total non-interest income increased $10.765 million, or 28 percent in 2007. Fee
income for the first nine months of 2007 increased $6.727 million, or 25
percent, over the first nine months of 2006, driven primarily by an increased
number of loan and deposit accounts, acquisitions, and additional customer
product and services offered. Gain on sale of loans increased $2.001 million, or
25 percent, from the first nine months of last year. Loan origination volume in
our markets, especially in the first half of 2007, was robust versus historical
standards. Other income for the nine months increased $2.042 million, or 70
percent, over the same period in 2006. Such increase includes a gain of $1.6
million from the January 19, 2007 sale of Western Security Bank's Lewistown
branch, a regulatory requirement imposed to complete the acquisition of CDC.
NON-INTEREST EXPENSE SUMMARY
(UNAUDITED - $ IN THOUSANDS)
Nine months ended September 30,
----------------------------------------
2007 2006 $ change % change
-------- ------- -------- --------
Compensation and employee benefits $ 60,386 $47,042 $13,344 28%
Occupancy and equipment expense 14,110 10,797 3,313 31%
Outsourced data processing 2,045 2,022 23 1%
Core deposit intangibles amortization 2,416 1,231 1,185 96%
Other expenses 24,496 19,529 4,967 25%
-------- ------- ------- ---
Total non-interest expense $103,453 $80,621 $22,832 28%
======== ======= ======= ===
Non-interest Expense
Non-interest expense increased by $22.832 million, or 28 percent, from the same
nine months of 2006. Compensation and benefit expense increased $13.344 million,
or 28 percent, which is primarily attributable to increased staffing levels,
including staffing from the acquisitions of First National Bank of Morgan and
CDC
27
during 2006 and North Side in 2007, de novo branches, increased compensation,
including production based commissions, and benefits, including health
insurance, and overtime associated with the merger and operating systems
conversions in the first half of 2007. The first nine months of 2007 included
approximately $500,000 of non-recurring expenses and costs associated with the
January 26, 2007 merger of three of the five CDC subsidiaries into the Company's
subsidiaries. Occupancy and equipment expense increased $3.313 million, or 31
percent, reflecting the acquisitions, cost of additional locations and facility
upgrades. Other expenses increased $4.967 million, or 25 percent, primarily from
acquisitions, additional marketing expenses, and costs associated with new
branch offices. The efficiency ratio (non-interest expense/net interest income
plus non-interest income) increased to 56 percent from 53 percent for the first
nine months of 2006.
Allowance for Loan Loss and Non-Performing Assets
The provision for loan losses expense was $3.720 million for the first nine
months of 2007, a decrease of $120 thousand, or 3 percent, from the same period
in 2006. Charged-off loans during the nine months ended September 30, 2007
exceeded recovery of previously charged-off loans by $1 million.
Critical Accounting Policies
Companies 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 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 loss 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 and
liquidity.
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.
Forward Looking Statements
This Form 10-Q includes forward looking statements, which 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 economies in which it operates. Future
events are difficult to predict, and the expectations described above are
necessarily 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 public filings,
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 banks and/or
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.
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company believes that there have not been any material changes in
information about the Company's market risk than was provided in the Form 10-K
report for the year ended December 31, 2006.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have reviewed
and evaluated the effectiveness of our disclosure controls and procedures (as
required by Exchange Act Rules 240.13a-15(b) and 15d-14(c)) as of the date of
this quarterly report. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's current disclosure
controls and procedures are effective and timely, providing them with material
information relating to the Company required to be disclosed in the reports the
Company files or submits under the Exchange Act.
Changes in Internal Controls
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the third quarter 2007, to which this report relates that
have materially affected, or are reasonably likely to materially affect the
Company's internal control over financial reporting.
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 1A. RISK FACTORS
There have not been any material changes to the Company's risk factors
during the third quarter 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) None
(b) Not Applicable
29
(c) None
(d) None
ITEM 5. OTHER INFORMATION
(a) Not Applicable
(b) Not Applicable
ITEM 6. EXHIBITS
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes - Oxley Act of 2002
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes - Oxley Act of 2002
Exhibit 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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLACIER BANCORP, INC.
November 5, 2007 /s/ Michael J. Blodnick
----------------------------------------
Michael J. Blodnick
President/CEO
November 5, 2007 /s/ Ron J. Copher
----------------------------------------
Ron J. Copher
Senior Vice President/CFO
30