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, 2008
[ ] 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
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
49 Commons Loop, Kalispell, Montana 59901
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(Address of principal executive offices) (Zip Code)
(406) 756-4200
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Registrant's telephone number, including area code
Not Applicable
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(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, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act).
Large Accelerated Filer [X] Accelerated Filer [ ]
Non-Accelerated Filer [ ] Smaller reporting Company [ ]
Indicate by 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 April 21, 2008
was 53,950,559. 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
March 31, 2008, March 31, 2007 and audited December 31, 2007.......... 3
Condensed Consolidated Statements of Operations - Unaudited three
months ended March 31, 2008 and 2007.................................. 4
Condensed Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Year ended December 31, 2007 and unaudited
three months ended March 31, 2008..................................... 5
Condensed Consolidated Statements of Cash Flows - Unaudited three
months ended March 31, 2008 and 2007.................................. 6
Notes to Condensed Consolidated Financial Statements - Unaudited...... 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 20
Item 3 - Quantitative and Qualitative Disclosure about Market Risk ....... 30
Item 4 - Controls and Procedures.......................................... 30
PART II. OTHER INFORMATION .................................................. 31
Item 1 - Legal Proceedings............................................... 31
Item 1A - Risk Factors ................................................... 31
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds...... 32
Item 3 - Defaults Upon Senior Securities.................................. 32
Item 4 - Submission of Matters to a Vote of Security Holders.............. 33
Item 5 - Other Information................................................ 33
Item 6 - Exhibits ........................................................ 33
Signatures................................................................ 33
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, December 31, March 31,
(Dollars in thousands, except per share data) 2008 2007 2007
------------------------------------------------------------------------ ----------- ------------ -----------
(UNAUDITED) (audited) (unaudited)
ASSETS:
Cash on hand and in banks ............................................ $ 113,016 145,697 123,697
Federal funds sold ................................................... 135 135 2,752
Interest bearing cash deposits ....................................... 72,662 81,777 88,112
----------- ------------ -----------
Cash and cash equivalents ......................................... 185,813 227,609 214,561
Investment securities ................................................ 691,270 700,324 773,364
Loans receivable, net ................................................ 3,585,847 3,516,999 3,124,368
Loans held for sale .................................................. 39,341 40,123 32,778
Premises and equipment, net .......................................... 124,183 123,749 115,123
Real estate and other assets owned, net .............................. 2,098 2,043 1,727
Accrued interest receivable .......................................... 25,900 26,168 25,340
Core deposit intangible, net ......................................... 13,184 13,963 13,861
Goodwill ............................................................. 140,301 140,301 132,303
Other assets ......................................................... 26,935 26,051 25,588
----------- ------------ -----------
Total assets ...................................................... $ 4,834,872 4,817,330 4,459,013
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ........................................ $ 770,456 788,087 788,426
Interest bearing deposits ............................................ 2,388,483 2,396,391 2,410,668
Advances from Federal Home Loan Bank of Seattle ...................... 472,761 538,949 455,625
Securities sold under agreements to repurchase ....................... 191,369 178,041 162,491
Other borrowed funds ................................................. 300,820 223,580 5,930
Accrued interest payable ............................................. 11,116 13,281 12,980
Deferred tax liability ............................................... 932 481 94
Subordinated debentures .............................................. 118,559 118,559 118,559
Other liabilities .................................................... 37,428 31,385 31,804
----------- ------------ -----------
Total liabilities ................................................. 4,291,924 4,288,754 3,986,577
----------- ------------ -----------
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 ................................................... 539 536 527
Paid-in capital ...................................................... 378,547 374,728 350,065
Retained earnings - substantially restricted ......................... 159,579 150,195 118,054
Accumulated other comprehensive income ............................... 4,283 3,117 3,790
----------- ------------ -----------
Total stockholders' equity ........................................ 542,948 528,576 472,436
----------- ------------ -----------
Total liabilities and stockholders' equity ........................ $ 4,834,872 4,817,330 4,459,013
=========== ============ ===========
Number of shares outstanding ......................................... 53,918,813 53,646,480 52,656,162
Book value per share ................................................. $ 10.07 9.85 8.97
See accompanying notes to condensed consolidated financial statements.
3
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
----------------------------
(UNAUDITED - dollars in thousands, except per share data) 2008 2007
--------------------------------------------------------- ----------- ----------
INTEREST INCOME:
Real estate loans ..................................... $ 12,592 14,441
Commercial loans ...................................... 42,533 36,652
Consumer and other loans .............................. 12,107 11,314
Investment securities and other ....................... 8,784 9,513
----------- ----------
Total interest income ................................ 76,016 71,920
----------- ----------
INTEREST EXPENSE:
Deposits .............................................. 16,869 18,807
Federal Home Loan Bank of Seattle advances ............ 5,718 5,042
Securities sold under agreements to repurchase ........ 1,341 1,887
Subordinated debentures ............................... 1,873 1,814
Other borrowed funds .................................. 1,586 1,279
----------- ----------
Total interest expense ............................... 27,387 28,829
----------- ----------
NET INTEREST INCOME ..................................... 48,629 43,091
Provision for loan losses ............................. 2,500 1,195
----------- ----------
Net interest income after provision for loan
losses .............................................. 46,129 41,896
----------- ----------
NON-INTEREST INCOME:
Service charges and other fees ........................ 9,471 8,263
Miscellaneous loan fees and charges ................... 1,490 1,822
Gains on sale of loans ................................ 3,880 3,042
Gain (Loss) on sale of investments .................... 248 (8)
Other income .......................................... 1,173 2,573
----------- ----------
Total non-interest income ............................ 16,262 15,692
----------- ----------
NON-INTEREST EXPENSE:
Compensation, employee benefits and related expense.... 21,097 19,506
Occupancy and equipment expense ....................... 5,133 4,458
Advertising and promotions expense .................... 1,539 1,440
Outsourced data processing expense .................... 667 812
Core deposit intangibles amortization ................. 779 780
Other expense ......................................... 6,398 6,187
----------- ----------
Total non-interest expense ........................... 35,613 33,183
----------- ----------
EARNINGS BEFORE INCOME TAXES ............................ 26,778 24,405
Federal and state income tax expense .................. 9,379 8,312
----------- ----------
NET EARNINGS ............................................ $ 17,399 16,093
=========== ==========
Basic earnings per share ................................ $ 0.32 0.31
Diluted earnings per share .............................. $ 0.32 0.30
Dividends declared per share ............................ $ 0.13 0.12
Return on average assets (annualized) ................... 1.46% 1.48%
Return on average equity (annualized) ................... 12.98% 14.02%
Average outstanding shares - basic ...................... 53,849,608 52,500,395
Average outstanding shares - diluted .................... 54,034,186 53,239,346
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, 2007 AND UNAUDITED THREE MONTHS ENDED MARCH 31, 2008
Retained Accumulated Total
Common Stock earnings Other stock-
------------------- Paid-in substantially comprehensive holders'
(Dollars in thousands, except per share data) Shares Amount capital restricted income equity
---------------------------------------------------------- ---------- ------ ------- ------------- ------------- --------
Balance at December 31, 2006 ............................. 52,302,820 $ 523 344,265 108,286 3,069 456,143
Comprehensive income:
Net earnings ............................................ -- -- -- 68,603 -- 68,603
Unrealized gain on securities, net of reclassification
adjustment and taxes ................................... -- -- -- -- 48 48
--------
Total comprehensive income ............................... 68,651
--------
Cash dividends declared ($.50 per share) ................. -- -- -- (26,694) -- (26,694)
Stock options exercised .................................. 550,080 6 6,148 -- -- 6,154
Stock issued in connection with acquisition .............. 793,580 7 18,993 -- -- 19,000
Stock based compensation and tax benefit ................. -- -- 5,322 -- -- 5,322
---------- ------ ------- ------------- ------------- --------
Balance at December 31, 2007 ............................. 53,646,480 $ 536 374,728 150,195 3,117 528,576
Comprehensive income:
Net earnings ............................................ -- -- -- 17,399 -- 17,399
Unrealized gain on securities, net of reclassification
adjustment and taxes ................................... -- -- -- -- 1,166 1,166
--------
Total comprehensive income ............................... 18,565
--------
Cash dividends declared ($.13 per share) ................. -- -- -- (7,018) -- (7,018)
Stock options exercised .................................. 272,333 3 2,614 -- -- 2,617
Cumulative effect of a change in accounting principle .... -- -- -- (997) -- (997)
Stock based compensation and tax benefit ................. -- -- 1,205 -- -- 1,205
---------- ------ ------- ------------- ------------- --------
Balance at March 31, 2008 (unaudited) .................... 53,918,813 $ 539 378,547 159,579 4,283 542,948
========== ====== ======= ============= ============= ========
See accompanying notes to condensed consolidated financial statements.
5
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
----------------------------
(UNAUDITED - dollars in thousands) 2008 2007
-------------------------------------------------------------- --------- ----------
OPERATING ACTIVITIES:
NET CASH PROVIDED BY OPERATING ACTIVITIES ............... $ 26,640 25,755
--------- ----------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of
investments available-for-sale ......................... 171,558 61,768
Purchases of investments available-for-sale ............. (160,771) (7,481)
Principal collected on installment and commercial
loans .................................................. 240,504 262,076
Installment and commercial loans originated or
acquired ............................................... (316,583) (299,714)
Principal collections on mortgage loans ................. 83,509 123,188
Mortgage loans originated or acquired ................... (78,778) (103,330)
Net purchase of FHLB and FRB stock ...................... (31) (1,693)
Net cash paid for sale of Western's Lewistown branch..... - (6,846)
Net addition of premises and equipment .................. (2,685) (5,295)
--------- ----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .... (63,277) 22,673
--------- ----------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits ..................... (25,539) 16,970
Net increase (decrease) in FHLB advances and other
borrowed funds ......................................... 11,052 (14,737)
Net increase (decrease) in securities sold under
repurchase agreements .................................. 13,328 (7,724)
Cash dividends paid ..................................... (7,019) (6,325)
Excess tax benefits from stock options .................. 402 1,217
Proceeds from exercise of stock options and other stock
issued ................................................. 2,617 3,715
--------- ----------
NET CASH USED IN FINANCING ACTIVITIES .................. (5,159) (6,884)
--------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ... (41,796) 41,544
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........ 227,609 173,017
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 185,813 214,561
========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ................................................ $ 29,552 26,891
Income taxes ............................................ $ 1,295 2,400
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 March 31, 2008
and 2007, stockholders' equity for the three months ended March 31, 2008,
the results of operations for the three months ended March 31, 2008 and
2007, and cash flows for the three months ended March 31, 2008 and 2007.
The condensed consolidated statement of financial condition and statement
of stockholders' equity and comprehensive income of the Company as of
December 31, 2007 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, 2007. Operating results for the three
months ended March 31, 2008 are not necessarily indicative of the results
anticipated for the year ending December 31, 2008. Certain
reclassifications have been made to the 2007 financial statements to
conform to the 2008 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. As of March 31, 2008, the Company is the
parent holding company for eleven wholly-owned, independent community bank
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.
On April 30, 2008, Whitefish merged into Glacier with operations conducted
under the Glacier charter. Prior period activity of Whitefish will be
combined and included in Glacier's historical results. The merger was
accounted for as a combination of two wholly-owned subsidiaries without
purchase accounting.
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 ("FASB") Interpretation 46(R), the subsidiaries are not
consolidated into the Company's financial statements. The Company does not
have any other off-balance sheet entities.
See Note 12 - Segment Information for selected financial data including
net earnings and total assets for the parent company and each of the
community bank subsidiaries. Although the consolidated total assets of the
Company was $4.8 billion at March 31, 2008, ten of the eleven community
banks had total assets of less than $1 billion. Morgan, the smallest
community bank subsidiary had $95.1 million in
7
total assets, while Mountain West, the largest community bank subsidiary, had
$1.049 billion in total assets at March 31, 2008.
The following abbreviated organizational chart illustrates the various
relationships as of March 31, 2008:
----------------------------
| Glacier Bancorp, Inc. |
| (Parent Holding Company) |
----------------------------
|
----------------------------- ---------------------------|---------------------------------------------------------
| Mountain West Bank | | Glacier Bank | | | First Security Bank | | Western Security Bank |
| (ID Community Bank) | | (MT Community Bank) | | | of Missoula | | (MT Community Bank) |
| | | | | | (MT Community Bank) | | |
------------------------- ----------------------- | ---------------------- ---------------------------
|
----------------------------- ---------------------------|---------------------------------------------------------
| 1st Bank | | Big Sky | | | Valley Bank | | Glacier Bank |
| (WY Community Bank) | | Western Bank | | | of Helena | | of Whitefish |
| | | (MT Community Bank) | | | (MT Community Bank) | | (MT Community Bank) |
------------------------- ----------------------- ---------------------- ---------------------------
|
----------------------------- ---------------------------|---------------------------------------------------------
| Citizens Community Bank | | First Bank of Montana | | | First National Bank | | |
| (ID Community Bank) | | (MT Community Bank) | | | of Morgan | | Glacier Capital Trust II |
| | | | | | (UT Community Bank) | | |
------------------------- ----------------------- | ---------------------- ---------------------------
|
----------------------------------------------------------------------------------------------------
| | | | | |
| Glacier Capital Trust III | | Glacier Capital Trust IV | | Citizens (ID) Statutory |
| | | | | Trust I |
------------------------------- ------------------------------ -----------------------------
8
3) 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 MARCH 31, 2008
Estimated
Weighted Amortized Gross Unrealized Fair
(Dollars in thousands) Yield Cost Gains Losses Value
------------------------------------------------------------------ ---------- --------- -------- -------- ---------
AVAILABLE-FOR-SALE:
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year ........................................ 2.21% $ 269 1 - 270
GOVERNMENT-SPONSORED ENTERPRISES:
maturing within one year ........................................ 3.41% 698 2 - 700
maturing one year through five years ............................ 0.00% - - - -
maturing five years through ten years ........................... 6.21% 274 - (1) 273
maturing after ten years ........................................ 5.98% 82 1 - 83
--------- -------- -------- ---------
4.33% 1,054 3 (1) 1,056
--------- -------- -------- ---------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ........................................ 4.08% 1,484 8 - 1,492
maturing one year through five years ............................ 4.49% 4,289 103 - 4,392
maturing five years through ten years ........................... 5.08% 15,600 1,031 - 16,631
maturing after ten years ........................................ 5.16% 252,245 8,433 (415) 260,263
--------- -------- -------- ---------
5.14% 273,618 9,575 (415) 282,778
--------- -------- -------- ---------
MORTGAGE-BACKED SECURITIES ....................................... 4.54% 341,309 2,956 (3,546) 340,719
FHLMC AND FNMA STOCK ............................................. 5.74% 7,593 - (1,504) 6,089
--------- -------- -------- ---------
TOTAL MARKETABLE SECURITIES .................................. 4.82% 623,843 12,535 (5,466) 630,912
--------- -------- -------- ---------
OTHER INVESTMENTS:
Certificates of Deposits with over 90 day maturity, at cost ...... 5.25% 99 - - 99
FHLB and FRB stock, at cost ...................................... 1.73% 59,846 - - 59,846
Other stock, at cost ............................................. 3.09% 413 - - 413
--------- -------- -------- ---------
TOTAL INVESTMENTS ............................................ 4.54% $ 684,201 12,535 (5,466) 691,270
========= ======== ======== =========
9
INVESTMENTS AS OF DECEMBER 31, 2007
Estimated
Weighted Amortized Gross Unrealized Fair
(Dollars in thousands) Yield Cost Gains Losses Value
----------------------------------------------------------------- -------- --------- -------- -------- ---------
AVAILABLE-FOR-SALE:
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year ....................................... 3.66% $ 2,550 3 - 2,553
GOVERNMENT-SPONSORED ENTERPRISES:
maturing within one year ....................................... 4.86% 947 - (1) 946
maturing one year through five years ........................... 0.00% - - - -
maturing five years through ten years .......................... 7.06% 280 - (1) 279
maturing after ten years ....................................... 6.47% 87 1 - 88
--------- -------- -------- ---------
5.43% 1,314 1 (2) 1,313
--------- -------- -------- ---------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ....................................... 4.03% 1,328 5 (1) 1,332
maturing one year through five years ........................... 4.30% 3,928 45 (2) 3,971
maturing five years through ten years .......................... 4.96% 16,847 932 (2) 17,777
maturing after ten years ....................................... 5.09% 255,109 8,999 (319) 263,789
--------- -------- -------- ---------
5.06% 277,212 9,981 (324) 286,869
--------- -------- -------- ---------
MORTGAGE-BACKED SECURITIES ...................................... 4.55% 346,085 693 (3,405) 343,373
FHLMC AND FNMA STOCK ............................................ 5.74% 7,593 - (1,804) 5,789
--------- -------- -------- ---------
TOTAL MARKETABLE SECURITIES ................................. 4.79% 634,754 10,678 (5,535) 639,897
--------- -------- -------- ---------
OTHER INVESTMENTS:
Certificates of Deposits with over 90 day maturity, at cost ..... 5.06% 199 - - 199
FHLB and FRB stock, at cost ..................................... 1.72% 59,815 - - 59,815
Other stock, at cost ............................................ 3.09% 413 - - 413
--------- -------- -------- ---------
TOTAL INVESTMENTS ........................................... 4.52% $ 695,181 10,678 (5,535) 700,324
========= ======== ======== =========
Interest income includes tax-exempt interest for the three months ended
March 31, 2008 and 2007 of $3,174,000 and $3,452,000, respectively.
Gross proceeds from sale of marketable securities for the three months
ended March 31, 2008 and 2007 were $97,002,000 and $1,355,000,
respectively, resulting in gross gains of $0 and $0, respectively, and
gross losses of $0 and $8,000, respectively. The gross proceeds and gross
gains for the sale of other stock was $248,000 and $0 for the three months
ended March 31, 2008 and 2007, respectively. The Company realized a gain
of $130,000 from the extinguishment of the Company's share ownership in
Principal Financial Group and a gain of $118,000 from the mandatory
redemption of a portion of Visa, Inc. shares from its recent initial
public offering. The remaining unredeemed shares of Visa, Inc. are
restricted and have an estimated value of $140,000 as March 31, 2008. The
cost of any investment sold is determined by specific identification.
The investments in the Federal Home Loan Bank ("FHLB") of Seattle stock
are required investments related to the Company's borrowings from FHLB of
Seattle. FHLB of Seattle obtains their funding primarily through issuance
of consolidated obligations of the FHLB system. The U.S. Government does
not guarantee these obligations, and each of the 12 FHLBs are jointly and
severally liable for repayment of each other's debt.
10
4) Loans and Leases
The following table summarizes the Company's loan and lease portfolio,
TYPE OF LOAN At At At
(Dollars in thousands) 3/31/08 12/31/2007 3/31/07
----------------------- ----------------------- ------------------------
Amount Percent Amount Percent Amount Percent
------------ -------- ------------- ------- ------------ --------
Real Estate Loans:
Residential real estate $ 684,007 18.9% $ 689,238 19.4% $ 737,561 23.4%
Loans held for sale 39,341 1.1% 40,123 1.1% 32,778 1.0%
------------ -------- ------------- ------- ------------ --------
Total 723,348 20.0% 729,361 20.5% 770,339 24.4%
Commercial Loans:
Real estate 1,669,876 46.1% 1,617,076 45.4% 1,195,355 37.8%
Other commercial 648,202 17.9% 636,351 17.9% 662,069 21.0%
------------ -------- ------------- ------- ------------ --------
Total 2,318,078 64.0% 2,253,427 63.3% 1,857,424 58.8%
Consumer and other Loans:
Consumer 213,346 5.9% 206,724 5.8% 214,798 6.8%
Home equity 436,505 12.0% 432,217 12.2% 375,911 11.9%
------------ -------- ------------- ------- ------------ --------
Total 649,851 17.9% 638,941 18.0% 590,709 18.7%
Net deferred loan fees,
premiums and discounts (9,409) -0.3% (10,194) -0.3% (10,786) -0.3%
Allowance for loan and
lease losses (56,680) -1.6% (54,413) -1.5% (50,540) -1.6%
------------ -------- ------------- ------- ------------ --------
Loan receivable, net $ 3,625,188 100.0% $ 3,557,122 100.0% $ 3,157,146 100.0%
============ ======== ============= ======= ============ ========
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated:
March 31, December 31, March 31,
(Dollars in thousands) 2008 2007 2007
--------- ------------ ---------
Real estate and other assets owned $ 2,098 2,043 1,727
Accruing Loans 90 days or more overdue 4,717 2,685 3,982
Non-accrual loans 21,747 8,560 5,597
--------- ------------ ---------
Total non-performing assets $ 28,562 13,288 11,306
========= ============ =========
Non-performing assets as a percentage of total bank assets 0.57% 0.27% 0.25%
Impaired loans were $22,565,000, $12,152,000 and $5,597,000 as of March
31, 2008, December 31, 2007 and March 31, 2007, respectively. The
valuation allowance on impaired loans was $2,128,000, $2,827,000 and $0 as
of March 31, 2008, December 31, 2007, and March 31, 2007, respectively.
11
The following table illustrates the loan and lease loss experience:
March 31, December 31, March 31,
(Dollars in thousands) 2008 2007 2007
--------- ------------ ----------
Balance at the beginning of the period $ 54,413 49,259 49,259
Charge offs (408) (3,387) (350)
Recoveries 175 1,222 436
--------- ------------ ----------
Net (charge-offs) recoveries $ (233) (2,165) 86
Acquisition (1) - 639 -
Provision 2,500 6,680 1,195
--------- ------------ ----------
Balance at the end of the period $ 56,680 54,413 50,540
========= ============ ==========
Net (charge-offs) recoveries as a percentage of loans (0.006%) (0.060%) 0.003%
(1) Increase attributable to the April 30, 2007 acquisition of North Side
State Bank ("North Side") of Rock Springs, Wyoming, which was merged into
1st Bank, the Company's subsidiary bank in Evanston, Wyoming.
5) Intangible Assets
The following table sets forth information regarding the Company's core
deposit intangible and mortgage servicing rights as of March 31, 2008:
Core Deposit Mortgage
(Dollars in thousands) Intangible Servicing Rights (1) Total
------------------------------------------- ------------ -------------------- -------
Gross carrying value $ 25,706
Accumulated Amortization (12,522)
------------
Net carrying value $ 13,184 1,287 14,471
============
WEIGHTED-AVERAGE AMORTIZATION PERIOD
(Period in years) 10.0 9.8 10.0
AGGREGATE AMORTIZATION EXPENSE
For the three months ended March 31, 2008 $ 779 39 818
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2008 $ 3,032 104 3,136
For the year ended December 31, 2009 2,738 86 2,824
For the year ended December 31, 2010 2,369 83 2,452
For the year ended December 31, 2011 1,662 81 1,743
For the year ended December 31, 2012 1,300 78 1,378
(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,
12
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.
6) Deposits
The following table illustrates the amounts outstanding for deposits
$100,000 and greater at March 31, 2008 according to the time remaining to
maturity. Included in the certificates of deposit ("CD") maturities are
brokered CDs in the amount of $1,015,000.
Certificates Non-Maturity
(Dollars in thousands) of Deposit Deposits Totals
------------------------------- ------------ ------------ ---------
Within three months............ $ 107,075 1,236,008 1,343,083
Three to six months............ 95,401 - 95,401
Seven to twelve months......... 101,014 - 101,014
Over twelve months............. 54,794 - 54,794
------------ ------------ ---------
Totals $ 358,284 1,236,008 1,594,292
============ ============ =========
7) 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, repurchase agreements and treasury, tax and loan
borrowings:
As of and As of and As of and
for the three for the for the three
months ended year ended months ended
(Dollars in thousands) March 31, 2008 December 31, 2007 March 31, 2007
-------------- ----------------- --------------
FHLB advances:
Amount outstanding at end of period............ $ 472,761 538,949 455,625
Average balance ................................ $ 595,268 382,243 419,216
Maximum outstanding at any month-end ........... $ 815,860 538,949 509,519
Weighted average interest rate ................. 3.85% 4.94% 4.88%
Repurchase agreements:
Amount outstanding at end of period ............ $ 191,369 178,041 162,491
Average balance ................................ $ 190,064 171,290 166,733
Maximum outstanding at any month-end ........... $ 191,369 193,421 168,395
Weighted average interest rate... .............. 2.83% 4.35% 5.17%
Treasury, tax and loan:
Amount outstanding at end of period ............ $ 241,665 221,409 3,717
Average balance ................................ $ 172,706 120,188 105,465
Maximum outstanding at any month-end ........... $ 241,665 244,012 171,161
Weighted average interest rate ................. 3.21% 5.03% 5.27%
13
8) 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, 2008.
CONSOLIDATED
--------------------------------------------- Tier 1 (Core) Tier 2 (Total) Leverage
(Dollars in thousands) Capital Capital Capital
--------------------------------------------- ------------- ------------- -----------
Total stockholder's equity .................. $ 542,948 542,948 542,948
Less: Goodwill and intangibles .............. (153,485) (153,485) (153,485)
Other adjustments ....................... (1,503) (1,503) (1,503)
Plus: Allowance for loan losses ............. - 50,293 -
Accumulated other comprehensive
Unrealized gain on AFS securities 4,283 4,283 4,283
Subordinated debentures ................. 115,000 115,000 115,000
------------- ------------- -----------
Regulatory capital computed ................. $ 507,243 557,536 507,243
============= ============= ===========
Risk weighted assets ........................ $ 4,017,000 4,017,000
============= =============
Total average assets ........................ $ 4,655,970
===========
Capital as % of risk weighted assets ........ 12.63% 13.88% 10.89%
Regulatory "well capitalized" requirement ... 6.00% 10.00% 5.00%
------------- ------------- -----------
Excess over "well capitalized" requirement... 6.63% 3.88% 5.89%
============= ============= ===========
9) 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.
The following schedule contains the data used in the calculation of basic
and diluted earnings per share:
Three Three
months ended months ended
March 31, 2008 March 31, 2007
-------------- --------------
Net earnings available to common stockholders... $ 17,399,000 16,093,000
Average outstanding shares - basic ............. 53,849,608 52,500,395
Add: Dilutive stock options .................... 184,578 738,951
-------------- --------------
Average outstanding shares - diluted ........... 54,034,186 53,239,346
============== ==============
Basic earnings per share ....................... $ 0.32 0.31
============== ==============
Diluted earnings per share ..................... $ 0.32 0.30
============== ==============
14
There were approximately 2,021,921 and 12,750 average shares excluded from
the diluted average outstanding share calculation for the three months
ended March 31, 2008 and 2007, respectively, due to the option exercise
price exceeding the market price.
10) 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
ended March 31,
Dollars in thousands 2008 2007
--------------------------------------------------------- --------- --------
Net earnings ............................................ $ 17,399 16,093
Unrealized holding gain arising during the period ....... 2,172 1,181
Tax benefit.............................................. (855) (465)
--------- --------
Net after tax ......................................... 1,317 716
Reclassification adjustment for (gain) losses
included in net earnings ............................... (248) 8
Tax expense (benefit) ................................... 97 (3)
--------- --------
Net after tax ......................................... (151) 5
Net unrealized gain on securities ..................... 1,166 721
--------- --------
Total comprehensive income ........................... $ 18,565 16,814
========= ========
11) 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, 2005, 2006 and 2007 remain subject to
examination by federal, Montana, Idaho and Utah tax authorities and income
tax returns for the years ended December 31, 2003 and 2004 remain subject
to examination by the state of Montana and Idaho.
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 $152,000 as of March
31, 2008.
If the unrecognized tax benefit amount was recognized, it would decrease
the Company's effective tax rate from 35.0 percent to 34.5 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 three months ended March 31, 2008 and 2007, the
Company recognized $0 interest expense and recognized $0 penalty with
respect to income tax liabilities. The Company had approximately $37,000
and $50,000 accrued for the payment of interest at March 31, 2008 and
2007, respectively. The Company had accrued liabilities of $0 for the
payment of penalties at March 31, 2008 and 2007.
15
12) Segment Information
The Company defines operating segments and evaluates segment performance
internally based on individual bank charters. 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 limited partnership interests that operate residential rental
real estate properties which have been allocated low income housing tax
credits. Intersegment revenues primarily represents interest income on
intercompany borrowings, management fees, and data processing fees
received by individual banks or the parent company. Intersegment revenues,
expenses and assets are eliminated in order to report results in
accordance with accounting principles generally accepted in the United
States of America.
Three months ended and as of March 31, 2008
-------------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky Valley
-------------------------------- ---------- -------- -------- ------- -------- ------- -------
Revenues from external customers $ 21,704 17,508 14,228 9,229 7,046 6,276 5,354
Intersegment revenues - 41 466 385 410 - 89
Expenses (18,838) (13,148) (11,193) (7,656) (6,054) (4,778) (4,193)
---------- -------- -------- ------- -------- ------- -------
Net Earnings $ 2,866 4,401 3,501 1,958 1,402 1,498 1,250
---------- -------- -------- ------- -------- ------- -------
Total Assets $1,049,079 912,948 805,825 540,927 451,624 311,751 285,063
---------- -------- -------- ------- -------- ------- -------
First Bank Total
Whitefish Citizens of MT Morgan Parent Other Eliminations Consolidated
--------- -------- --------- ---------- ------- ----- ------------ ------------
Revenues from external customers $ 3,730 3,427 2,214 1,375 138 49 - 92,278
Intersegment revenues - 132 101 151 21,888 10 (23,673) -
Expenses (3,065) (3,142) (1,751) (1,389) (4,627) (64) 5,019 (74,879)
--------- -------- ------- ---------- ------- ----- ------------ ------------
Net Earnings $ 665 417 564 137 17,399 (5) (18,654) 17,399
--------- -------- ------- ---------- ------- ----- ------------ ------------
Total Assets $ 203,694 188,249 147,634 95,057 673,388 3,374 (833,741) 4,834,872
========= ======== ======= ========== ======= ===== ============ ============
Three months ended and as of March 31, 2007
-------------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky Valley
-------------------------------- ---------- -------- -------- ------- -------- ------- -------
Revenues from external customers $ 20,306 15,420 14,423 11,048 5,068 5,545 5,124
Intersegment revenues 11 39 277 164 250 1 37
Expenses from external sources $ (17,122) (12,139) (11,431) (8,542) (4,366) (4,411) (4,121)
---------- -------- -------- ------- -------- ------- -------
Net Earnings $ 3,195 3,320 3,269 2,670 952 1,135 1,040
---------- -------- -------- ------- -------- ------- -------
Total Assets $ 933,133 801,815 792,768 505,130 313,410 282,326 274,941
---------- -------- -------- ------- -------- ------- -------
First Bank Total
Whitefish Citizens of MT Morgan Parent Other Eliminations Consolidated
---------- -------- -------- ---------- ------- ----- ------------ ------------
Revenues from external customers $ 3,418 3,729 2,225 1,206 54 46 - 87,612
Intersegment revenues - - 215 305 20,231 10 (21,540) -
Expenses from external sources $ (2,764) (3,202) (1,984) (1,263) (4,192) (68) 4,086 (71,519)
---------- -------- -------- ---------- ------- ----- ------------ ------------
Net Earnings $ 654 527 456 248 16,093 (12) (17,454) 16,093
---------- -------- -------- ---------- ------- ----- ------------ ------------
Total Assets $ 186,330 170,213 140,704 94,081 601,708 3,441 (640,987) 4,459,013
========== ======== ======== ========== ======= ===== ============ ============
16
13) Fair Value Measurement
On January 1, 2008, the Company adopted Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS")
No. 157, Fair Value Measurements, which is effective for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. FASB issued Staff Position ("FSP") FAS 157-2, Effective Date of
SFAS No. 157, which delays the effective date of SFAS 157 for nonfinancial
assets and nonfinancial liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a recurring
basis (at least annually). FAS 157 has been applied prospectively as of
January 1, 2008.
SFAS 157 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. FAS 157 also establishes a
fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that
may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or
liabilities
Level 2 Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities
Level 3 Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the
assets or liabilities
The following are the assets measured at fair value on a recurring basis
at and for the period ended March 31, 2008.
Quoted prices Significant
in active markets other Significant
for identical observable Unobservable
assets inputs Inputs Total
(Dollars in thousands) (Level 1) (Level 2) (Level 3) March 31, 2008
----------------------------------- ----------------- ----------- ------------ --------------
Available-for-sale securities ..... $ - 614,921 15,991 630,912
----------------- ----------- ------------ --------------
Total assets at fair value ...... $ - 614,921 15,991 630,912
================= =========== ============ ==============
The valuation techniques for available-for-sale securities include
obtaining quoted market prices for identical assets, where available. If
such prices are not available, fair value is based on independent asset
pricing services and models, the inputs of which are market-based or
independently sourced market parameters, including, but not limited to,
yield curves, interest rates, volatilities, and prepayments. There have
been no significant changes in the valuation techniques during the period.
The following is a reconciliation of the beginning and ending balances for
assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) during the period ended March 30, 2008.
17
Significant
Unobservable
Inputs
(Dollars in thousands) (Level 3)
------------------------------------------------------------------- ------------
Balance as of January 1, 2008 ..................................... $ 17,041
Total unrealized losses included in other comprehensive income .... (1,045)
Amoritization, accretion, or principal payments ................... (5)
------------
Balance as of March 31, 2008 ...................................... $ 15,991
============
The change in unrealized losses related to available-for-sale securities
are reported in the accumulated other comprehensive income (loss).
14) 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.
Three Months Ended March 31,
2008 vs. 2007
Increase (Decrease) due to:
-------------------------------
(Dollars in thousands) Volume Rate Net
-------- ------ -------
INTEREST INCOME
Residential real estate loans $ (935) (914) (1,849)
Commercial loans 8,356 (2,475) 5,881
Consumer and other loans 1,193 (400) 793
Investment securities and other (700) (29) (729)
-------- ------ -------
Total Interest Income 7,914 (3,818) 4,096
INTEREST EXPENSE
NOW accounts 77 (256) (179)
Savings accounts 2 (113) (111)
Money market accounts 832 (1,296) (464)
Certificates of deposit (950) (234) (1,184)
FHLB advances 2,118 (1,442) 676
Other borrowings and repurchase agreements 1,443 (1,623) (180)
-------- ------ -------
Total Interest Expense 3,522 (4,964) (1,442)
-------- ------ -------
NET INTEREST INCOME $ 4,392 1,146 5,538
======== ====== =======
18
15) 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.
AVERAGE BALANCE SHEET
For the Three months ended 3-31-08 For the Three months ended 3-31-07
---------------------------------- -------------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
(Dollars in thousands) Balance Dividends Rate Balance Dividends Rate
---------------------------------- -------------------------------------
ASSETS
Residential real estate loans $ 719,371 12,592 7.00% $ 769,196 14,441 7.51%
Commercial loans 2,275,044 42,533 7.50% 1,852,657 36,652 8.02%
Consumer and other loans 639,091 12,107 7.60% 578,166 11,314 7.94%
---------- --------- ----------- -----------
Total Loans 3,633,506 67,232 7.42% 3,200,019 62,407 7.91%
Tax - exempt investment securities (1) 259,894 3,174 4.89% 280,205 3,452 4.90%
Other investment securities 522,511 5,610 4.29% 564,311 6,061 4.31%
---------- --------- ----------- -----------
Total Earning Assets 4,415,911 76,016 6.89% 4,044,535 71,920 7.11%
--------- -----------
Goodwill and core deposit intangible 154,018 143,827
Other non-earning assets 239,529 232,081
---------- -----------
TOTAL ASSETS $4,809,458 $ 4,420,443
---------- -----------
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW accounts $ 463,716 912 0.79% $ 433,209 1,091 1.02%
Savings accounts 267,285 547 0.82% 266,579 658 1.00%
Money market accounts 799,407 5,950 2.99% 707,579 6,414 3.68%
Certificates of deposit 860,552 9,460 4.41% 944,895 10,644 4.57%
FHLB advances 595,268 5,718 3.85% 419,216 5,042 4.88%
Repurchase agreements
and other borrowed funds 504,296 4,800 3.82% 391,044 4,980 5.17%
---------- --------- ----------- -----------
Total Interest Bearing Liabilities 3,490,524 27,387 3.15% 3,162,522 28,829 3.70%
--------- -----------
Non-interest bearing deposits 735,205 747,585
Other liabilities 44,586 44,651
---------- -----------
Total Liabilities 4,270,315 3,954,758
Common stock 538 525
Paid-in capital 376,451 345,966
Retained earnings 156,779 116,514
Accumulated other
Comprehensive income 5,375 2,680
---------- -----------
Total Stockholders' Equity 539,143 465,685
---------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $4,809,458 $ 4,420,443
---------- -----------
Net interest income $ 48,629 $ 43,091
========= ===========
Net interest spread 3.74% 3.41%
Net Interest Margin 4.42% 4.32%
Net Interest Margin (Tax Equivalent) 4.54% 4.47%
Return on average assets (annualized) 1.46% 1.48%
Return on average equity (annualized) 12.98% 14.02%
(1) Excludes tax effect on non-taxable investment security income
19
16) Change in Accounting Principle
In September 2006, FASB ratified the consensus reached by the Emerging
Issues Task Force ("EITF") for Issue 06-4, Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangement. Effective for fiscal years
beginning after December 15, 2007, the EITF requires policy holders of
split dollar life insurance arrangements to recognize a liability for
future benefits to the employee with the option to recognize the change in
accounting principle through either a cumulative-effective adjustment to
beginning retained earnings or through retrospective application to all
periods.
The Company has split-dollar life insurance policies that required
recording a liability for future benefits. The Company opted to recognize
a cumulative-effect adjustment of $997,000 to retained earnings as of
January 1, 2008 due to the impracticality of obtaining prior years
information.
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of SFAS
No. 115. SFAS 159 allows companies to report selected financial assets and
liabilities at fair value. The changes in fair value are recognized in
earnings and the assets and liabilities measured under this methodology
are required to be displayed separately in the balance sheet. While FAS
159 is effective beginning January 1, 2008, the Company has not elected
the fair value option that is offered by this statement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Performance Summary
The Company reported net earnings of $17.399 million for the first quarter, an
increase of $1.306 million, or 8 percent, over the $16.093 million for the first
quarter of 2007. Diluted earnings per share of $.32 for the quarter is an
increase of 7 percent over the diluted earnings per share of $.30 for the same
quarter of 2007. Included in first quarter 2007 earnings is a nonrecurring $1.0
million gain ($1.6 million pre-tax) from the sale of Western Security Bank's
Lewistown, Montana branch and approximately $500 thousand of nonrecurring
expenses from the merger of three of the acquired Citizens Development Company's
(CDC) five subsidiaries into Glacier Bancorp, Inc subsidiaries. Excluding such
nonrecurring items from the same quarter 2007 results, net earnings for the
first quarter increased $1.962 million, or 13 percent, and diluted earnings per
share for the first quarter increased 10 percent over the $.29 of diluted
earnings per share on an operating basis. Annualized return on average assets
and return on average equity for the first quarter were 1.46 percent and 12.98
percent, respectively, which compares with prior year returns for the first
quarter of 1.48 percent and 14.02 percent, respectively.
20
REVENUE SUMMARY
(UNAUDITED - $ IN THOUSANDS)
Three months ended
-------------------------------------------
March 31, December 31, March 31,
2008 2007 2007
(unaudited) (unaudited) (unaudited)
----------- ------------ -----------
Net interest income
Interest income $ 76,016 $ 79,117 $ 71,920
Interest expense 27,387 30,918 28,829
----------- ------------ -----------
Net interest income 48,629 48,199 43,091
Non-interest income
Service charges, loan fees, and other fees 10,961 11,790 10,085
Gain on sale of loans 3,880 3,330 3,042
Gain (Loss) on sale of investments 248 - (8)
Other income 1,173 1,117 2,573
----------- ------------ -----------
Total non-interest income 16,262 16,237 15,692
----------- ------------ -----------
$ 64,891 $ 64,436 $ 58,783
=========== ============ ===========
Tax equivalent net interest margin 4.54% 4.52% 4.47%
=========== ============ ===========
$ change from $ change from % change from % change from
December 31, March 31, December 31, March 31,
2007 2007 2007 2007
------------- ------------- ------------- -------------
Net interest income
Interest income $ (3,101) $ 4,096 -4% 6%
Interest expense $ (3,531) $ (1,442) -11% -5%
------------- ------------- ------------- -------------
Net interest income 430 5,538 1% 13%
Non-interest income
Service charges, loan fees, and other fees (829) 876 -7% 9%
Gain on sale of loans 550 838 17% 28%
Gain (Loss) on sale of investments 248 256 n/m -3200%
Other income 56 (1,400) 5% -54%
------------- ------------- ------------- -------------
Total non-interest income 25 570 0% 4%
------------- ------------- ------------- -------------
$ 455 $ 6,108 1% 10%
============= ============= ============= =============
n/m - not measurable
Net Interest Income
Net interest income for the quarter increased $5.5 million, or 13 percent, over
the same period in 2007. Total interest income increased $4.1 million, or 6
percent, from the prior year's quarter due largely to the increase in commercial
loan volume. Total interest expense has decreased by $1.4 million, or 5 percent,
from the same period last year primarily attributable to rate decreases in
interest bearing deposits. The net interest margin as a percentage of earning
assets, on a tax equivalent basis, was 4.54 percent which is 2 basis points
higher than the 4.52 percent achieved for the prior quarter and 7 basis points
higher than the 4.47 percent result for the first quarter of 2007. Loan
origination fees, net of certain direct origination costs, are deferred and
recognized as an adjustment of the related loan yield using the interest method.
Provision for Credit Losses
The Company recorded a provision for credit losses of $2.5 million, an increase
of $1.3 million from the same quarter in 2007. Such increase is primarily
attributable to growth in the commercial real estate loan portfolio,
21
higher reserves for certain commercial real estate loans in the high growth
areas of Western Montana and Idaho, most notably in the Coeur d'Alene, Sandpoint
and Boise markets, and the increase in non-performing assets at March 31, 2008
compared to March 31, 2007. Net loans and lease charge-offs were $233 thousand,
or .006 percent of average loans and leases in the first quarter of 2008,
compared to net recoveries of $86 thousand, or .003 percent of average loans and
leases in the first quarter of 2007.
The determination of the ALLL and the related provision for credit losses is a
critical accounting estimate that involves management's judgments about current
environmental factors which affect credit losses, such factors including
economic conditions, changes in collateral values, net charge-offs, and other
factors discussed in "Financial Condition Analysis" - Allowance for Loan and
Lease Losses.
Non-interest Income
Fee income increased $876 thousand, or 9 percent, over the same period last
year, driven primarily by an increase in the number of checking accounts. Gain
on sale of loans increased $838 thousand, or 28 percent, from the first quarter
of last year, a combination of a greater volume of real estate loans and SBA
loans sold. Gain from the sale of investments during the first quarter included
a mandatory redemption of a portion of Visa, Inc. shares from its recent initial
public offering, and the sale of shares in Principal Financial Group (PFG). The
remaining unredeemed shares of Visa, Inc. are restricted and have an estimated
value of $140 thousand as of quarter end. Other income decreased by $1.4
million, or 54 percent, over the same period last year primarily due to the
nonrecurring $1.6 million gain from the sale of Western Security Bank's
Lewistown, Montana branch.
NON-INTEREST EXPENSE SUMMARY
(UNAUDITED - $ IN THOUSANDS)
Three months ended
-----------------------------------------
March 31, December 31, March 31,
2008 2007 2007
(unaudited) (unaudited) (unaudited)
----------- ------------ -----------
Compensation and employee benefits $ 21,097 $ 18,684 $ 19,506
Occupancy and equipment expense 5,133 5,042 4,458
Advertising and promotion expense 1,539 1,609 1,440
Outsourced data processing 667 710 812
Core deposit intangibles amortization 779 786 780
Other expenses 6,398 7,633 6,187
----------- ------------ -----------
Total non-interest expense $ 35,613 $ 34,464 $ 33,183
=========== ============ ===========
$ change from $ change from % change from % change from
December 31, March 31, December 31, March 31,
2007 2007 2007 2007
------------- ------------- ------------- -------------
Compensation and employee benefits $ 2,413 $ 1,591 13% 8%
Occupancy and equipment expense 91 675 2% 15%
Advertising and promotion expense (70) 99 -4% 7%
Outsourced data processing (43) (145) -6% -18%
Core deposit intangibles amortization (7) (1) -1% 0%
Other expenses (1,235) 211 -16% 3%
------------- ------------- ------------- -------------
Total non-interest expense $ 1,149 $ 2,430 3% 7%
============= ============= ============= =============
22
Non-interest Expense
Non-interest expense increased by $1.1 million, or 3 percent, from the prior
quarter and increased by $2.4 million, or 7 percent, from the same quarter of
2007. Included in the first quarter of 2007 is approximately $500 thousand of
nonrecurring expenses from the merger of three of the acquired CDC's five
subsidiaries into Glacier Bancorp, Inc. subsidiaries. Compensation and benefit
expense increased $2.4 million, or 13 percent, over the prior quarter and
increased $1.6 million, or 8 percent, over the same quarter of 2007, such
increases primarily attributable to increased staffing levels, including 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 1,395 to 1,510, an 8 percent
increase since March 31, 2007. Occupancy and equipment expense increased $675
thousand, or 15 percent, reflecting the cost of additional branch locations and
facility upgrades.
Other expenses increased $211 thousand, or 3 percent, over the same period last
year, primarily from costs associated with new branch offices, and other general
and administrative costs. Other expenses decreased by $1.2 million from the
prior quarter, such decreases attributable to an enhanced focus on reducing
operating expenses.
FINANCIAL CONDITION ANALYSIS
As reflected on the following table, total assets at March 31, 2008 were $4.835
billion, which is $18 million greater than the total assets of $4.817 billion at
December 31, 2007, and $376 million, or 8 percent, greater than the March 31,
2007 assets of $4.459 billion.
March 31, December 31, March 31 $ change from $ change from
2008 2007 2007 December 31, March 31,
ASSETS ($ IN THOUSANDS) (unaudited) (audited) (unaudited) 2007 2007
----------- ------------ ---------- ------------- -------------
Cash on hand and in banks $ 113,016 145,697 123,697 (32,681) (10,681)
Investment securities, interest bearing deposits,
FHLB stock, FRB stock, and fed funds 764,067 782,236 864,228 (18,169) (100,161)
Loans:
Real estate 720,108 725,854 766,421 (5,746) (46,313)
Commercial 2,312,359 2,247,303 1,851,139 65,056 461,220
Consumer and other 649,401 638,378 590,126 11,023 59,275
----------- ------------ ---------- ------------- -------------
Total loans 3,681,868 3,611,535 3,207,686 70,333 474,182
Allowance for loan and lease losses (56,680) (54,413) (50,540) (2,267) (6,140)
----------- ------------ ---------- ------------- -------------
Total loans net of allowance for loan and lease losses 3,625,188 3,557,122 3,157,146 68,066 468,042
----------- ------------ ---------- ------------- -------------
Other assets 332,601 332,275 313,942 326 18,659
----------- ------------ ---------- ------------- -------------
Total Assets $ 4,834,872 4,817,330 4,459,013 17,542 375,859
=========== ============ ========== ============= =============
Investment securities, including interest bearing deposits in other financial
institutions and federal funds sold, have decreased $100 million, or 12 percent,
from March 31, 2007, and have declined $18 million, or 2 percent, from December
31, 2007. Investment securities at March 31, 2008 represented 16 percent of
total assets versus 19 percent at March 31, 2007.
At March 31, 2008, total loans were $3.682 billion, an increase of $70 million,
or 2 percent (8 percent annualized) over total loans of $3.612 billion at
December 31, 2007. Commercial loans grew the most with an increase of $65
million, or 3 percent, followed by consumer loans, which are primarily comprised
of home equity loans, increasing by $11 million, or 2 percent. Real estate loans
decreased $6 million, or 79 basis points from the fourth quarter of 2007. Total
loans increased $474 million, or 15 percent from March 31, 2007. During the
year, commercial loans have increased $461 million, or 25 percent, consumer
loans grew by $59 million, or 10 percent, while real estate loans decreased $46
million, or 6 percent.
23
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 with servicing
released for the three months ended March 31, 2008 and 2007 were $176 million
and $142 million, respectively. The Company has also been active in originating
commercial SBA loans, some of which are sold to investors. The amount of loans
sold and serviced for others at March 31, 2008 was approximately $175 million.
Allowance for Loan and Lease Losses
The Company is committed to a conservative management of the credit risk within
the loan and lease portfolios, including the early recognition of problem loans.
The Company's credit risk management includes stringent credit policies,
individual loan approval limits, limits on concentrations of credit, and
committee approval of larger loan requests. Management practices also include
regular internal and external credit examinations, identification and review of
individual loans and leases experiencing deterioration of credit quality,
procedures for the collection of non-performing assets, quarterly monitoring of
the loan and lease portfolios, semi-annual review of loans by industry, and
periodic interest rate shock testing.
Determining the adequacy of the ALLL involves a high degree of judgment and is
inevitably imprecise as the risk of loss is difficult to quantify. The ALLL
methodology is designed to reasonably estimate the probable loan and lease
losses within each subsidiary bank's loan and lease portfolios. Accordingly, the
ALLL is maintained within a range of estimated losses. The determination of the
ALLL and the related provision for credit losses is a critical accounting
estimate that involves management's judgments about all known relevant internal
and external environmental factors that affect loan losses, including the credit
risk inherent in the loan and lease portfolios, economic conditions nationally
and in the local markets in which the banks operate, changes in collateral
values, delinquencies, non-performing assets and net charge-offs. Relative to
national economic developments, the local market areas in which the banks
operate largely continue to have economies that foster the above-average job and
population growth achieved over the course of 2007. Although the Company and the
banks continue to actively monitor national and local economic trends, a
softening of economic conditions combined with declines in the values of real
estate that collateralize most of the Company's loan and lease portfolios may
adversely affect the credit risk and potential for loss to the Company.
The Company considers the ALLL balance of $56.680 million adequate to cover
inherent losses in the loan and lease portfolios as of March 31, 2008. However,
no assurance can be given that the Company will not, in any particular period,
sustain losses that are significant relative to the amount reserved, or that
subsequent evaluations of the loan and lease portfolios applying management's
judgment about then current factors, including regulatory developments, will not
require significant changes in the ALLL. Under such circumstances, this could
result in enhanced provisions for credit losses. See additional risk factors in
Part II - Other information, Item 1A - Risk Factors.
The Company's model of eleven wholly-owned, independent community banks, each
with it own loan committee, chief credit officer and Board of Directors,
provides substantial local oversight to the lending and credit management
function. Loan relationships exceeding a bank's loan approval limit up to $10
million are subject to approval by the Executive Loan Committee consisting of
the eleven banks' chief credit officers and the Company's Credit Administrator.
Loans exceeding $10 million are subject to approval by the Company's Board of
Directors. Unlike a traditional, single-bank holding company, the Company's
decentralized business model affords multiple reviews of larger loans before
credit is extended, a significant benefit in mitigating and managing the
Company's credit risk. The geographic dispersion of the market areas in which
the Company and the community bank subsidiaries operate further mitigates the
risk of credit loss.
At the end of each quarter, each of the subsidiary community banks analyze its
loan and lease portfolio and maintain an ALLL at a level that is appropriate and
determined in accordance with accounting principals generally accepted in the
United States of America. The ALLL balance covers estimated credit losses on
individually
24
evaluated loans, including those which are determined to be impaired, as well as
estimated credit losses inherent in the remainder of the loan and lease
portfolios.
The ALLL evaluation is well documented and approved by each subsidiary bank's
Board of Directors and reviewed by the Company's Board of Directors. In
addition, the policy and procedures for determining the balance of the ALLL are
reviewed annually by each subsidiary bank's Board of Directors and the Company's
Board of Directors.
The primary responsibility for credit risk assessment and identification of
problem loans rests with the loan officer of the account. This continuous
process, utilizing each of the bank's internal credit risk rating process, is
necessary to support management's evaluation of ALLL adequacy. An independent
loan review function verifying credit risk ratings evaluates the loan officer
and management's evaluation of the loan portfolio credit quality. The loan
review function also assesses the evaluation process and provides an independent
analysis of the adequacy of the ALLL.
The following table summarizes the allocation of the ALLL:
March 31, 2008 December 31, 2007 March 31, 2007
--------------------------- -------------------------- --------------------------
Allowance Percent Allowance Percent Allowance Percent
for loan and of loans in for loan and of loans in for loan and of loans in
(Dollars in thousands) lease Losses category lease Losses category lease Losses category
----------------------------- ------------ ----------- ------------ ----------- ------------ -----------
Real estate loans $ 4,913 19.6% 4,755 20.2% 5,303 23.9%
Commercial real estate loans 24,298 45.2% 23,010 44.6% 17,315 30.0%
Other commercial loans 17,965 17.6% 17,453 17.6% 18,889 27.8%
Consumer and other loans 9,504 17.6% 9,195 17.6% 9,033 18.3%
------------ ----------- ------------ ----------- ------------ ----------
Totals $ 56,680 100.0% 54,413 100.0% 50,540 100.0%
============ =========== ============ =========== ============ ==========
Each bank's ALLL is generally available to absorb losses from any segment of its
loan and lease portfolio.
The increase in the ALLL for commercial real estate loans was primarily due to
increases in reserves for certain commercial real estate loans in the high
growth areas of Western Montana and Idaho, most notably in the Coeur d'Alene,
Sandpoint and Boise markets, and the increase in non-performing assets since
March 31, 2007.
25
Three months ended Year ended Three months ended
March 31 December 31, March 31
(Dollars in thousands) 2008 2007 2007
------------------ ------------ ------------------
Balance at beginning of period $ 54,413 49,259 49,259
Charge offs:
Real estate loans (50) (306) (42)
Commercial loans (202) (2,367) (212)
Consumer and other loans (156) (714) (96)
------------------ ------------ ------------------
Total charge-offs $ (408) (3,387) (350)
------------------ ------------ ------------------
Recoveries:
Real estate loans 40 208 89
Commercial loans 82 656 245
Consumer and other loans 53 358 102
------------------ ------------ ------------------
Total recoveries $ 175 1,222 436
------------------ ------------ ------------------
Net (charge-offs) recoveries (233) (2,165) 86
Acquisition (1) - 639 -
Provision 2,500 6,680 1,195
------------------ ------------ ------------------
Balance at end of period $ 56,680 54,413 50,540
================== ============ ==================
Ratio of net (charge-offs) recoveries to
average loans outstanding during the period (0.006%) (0.060%) 0.003%
Allowance for loan and lease lossess as a
percentage of total loan and leases 1.54% 1.51% 1.58%
(1) Increase attributable to the April 30, 2007 acquisition of North Side State
Bank ("North Side") of Rock Springs, Wyoming, which was merged into 1st
Bank, the Company's subsidiary bank in Evanston, Wyoming.
The ALLL has increased $6.1 million, or 12 percent, from a year ago. The ALLL of
$56.680 million is 1.54 percent of March 31, 2008 total loans outstanding, up
from 1.51 percent at prior year end, and down from 1.58 percent in the first
quarter last year. The first quarter provision for loan and lease loss expense
was $2.5 million, an increase of $1.3 million from the same quarter in 2007. Net
loans and lease charge-offs were $233 thousand, or .006 percent of average loans
and leases in the first quarter of 2008, compared to net recoveries of $86
thousand, or .003 percent of average loans and leases in the first quarter of
2007.
The banks' charge-off policy is consistent with bank regulatory standards.
Consumer loans generally are charged off when the loan becomes over 120 days
delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu
of foreclosure is classified as real estate owned until such time as it is sold.
When such property is acquired, it is recorded at the lower of the unpaid
principal balance or estimated fair value, not to exceed estimated net
realizable value. Any write-down at the time of recording real estate owned is
charged to the ALLL. Any subsequent write-downs are charged to current expense.
26
Non-performing Assets At At At
(Dollars in thousands) 3/31/2008 12/31/2007 3/31/2007
--------- ---------- ----------
Non-accrual loans:
Real estate loans $ 3,356 934 1,134
Commercial loans 17,368 7,192 3,849
Consumer and other loans 1,023 434 614
--------- ---------- ----------
Total $ 21,747 8,560 5,597
Accruing Loans 90 days or more overdue:
Real estate loans 341 840 697
Commercial loans 4,129 1,216 2,778
Consumer and other loans 247 629 507
--------- ------- ----------
Total $ 4,717 2,685 3,982
Real estate and other assets owned, net 2,098 2,043 1,727
--------- ---------- ----------
Total non-performing loans and real estate
and other assets owned, net $ 28,562 13,288 11,306
========= ========== ==========
As a percentage of total bank assets 0.57% 0.27% 0.25%
Interest Income (1) $ 402 683 109
Allowance for loan and lease losses as a
percentage of non-performing assets 198% 409% 447%
(1) Amounts represent interest income that would have been recognized on loans
accounted for on a non-accrual basis for the three months ended March 31,
2008, year ended December 31, 2007 and three months ended March 31, 2007
had such loans performed pursuant to contractual terms.
Non-performing assets as a percentage of total bank assets at March 31, 2008
were at .57 percent, up from .27 percent as of December 31, 2007, and up from
..25 percent at March 31, 2007. While these ratios have increased, they compare
favorably to the Federal Reserve Bank Peer Group average of .80 percent at
December 31, 2007, the most recent information available. The ALLL was 198
percent of non-performing assets at March 31, 2008, down from 409 percent for
the prior quarter end and down from 447 percent a year ago. Each of the
subsidiary banks evaluates the level of its non-performing assets, the values of
the underlying real estate and other collateral, and related trends in net
charge-offs. Through pro-active credit administration, the banks work closely
with borrowers to seek favorable resolution to the extent possible, thereby
attempting to minimize net charge-offs or losses to the Company.
Most of the Company's non-performing assets are secured by real estate. Based on
the most current information available to management, including updated
appraisals where appropriate, the Company believes in most instances the value
of the underlying real estate collateral is adequate to minimize any significant
charge-offs or loss to the Company.
Loans are reviewed on a regular basis and are placed on a non-accrual status
when the collection of the contractual principal or interest is unlikely. The
Company typically places loans on non-accrual when principal or interest is due
and has remained unpaid for 90 days or more unless the loan is well-secured by
collateral the fair value of which is sufficient to discharge the debt in full.
When a loan is placed on non-accrual status, interest previously accrued but not
collected is generally reversed against current period interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
repayment of the loan. Interest accruals are resumed on such loans only when
they are brought fully current with respect to interest and principal and when,
in the judgment of management, the loans are estimated to be fully collectible
as to both principal and interest.
27
A loan is considered impaired when, based upon current information and events,
it is probable that the Company will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement. The amount of the impairment is measured using cash flows discounted
at the loan's effective interest rate, except when it is determined that
repayment of the loan is expected to be provided solely by the underlying
collateral. For collateral dependent loans, impairment is measured by the fair
value of the collateral. When the ultimate collectibility of the total principal
of an impaired loan is in doubt, all payments are applied to principal under the
cost recovery method. When the ultimate collectibility of the total principal on
an impaired loan is not in doubt, contractual interest is generally credited to
interest income when received under the cash basis method. Total interest income
recognized for impaired loans under the cash basis for the three-months ended
March 31, 2008 and 2007 was not significant. Impaired loans were $22.565 million
and $5.597 million as of March 31, 2008 and 2007, respectively. The valuation
allowance on impaired loans was $2.128 million and $0 as of March 31, 2008 and
2007, respectively.
March 31, December 31, March 31 $ change from $ change from
2008 2007 2007 December 31, March 31,
LIABILITIES ($ IN THOUSANDS) (unaudited) (audited) (unaudited) 2007 2007
------------ ------------ ----------- ------------- -------------
Non-interest bearing deposits $ 770,456 788,087 788,426 (17,631) (17,970)
Interest bearing deposits 2,388,483 2,396,391 2,410,668 (7,908) (22,185)
Advances from Federal Home Loan Bank 472,761 538,949 455,625 (66,188) 17,136
Securities sold under agreements to
repurchase and other borrowed funds 492,189 401,621 168,421 90,568 323,768
Other liabilities 49,476 45,147 44,878 4,329 4,598
Subordinated debentures 118,559 118,559 118,559 - -
------------ ------------ ----------- ------------- -------------
Total liabilities $ 4,291,924 4,288,754 3,986,577 3,170 305,347
============ ============ =========== ============= =============
Non-interest bearing deposits decreased $18 million, or 2 percent, since March
31, 2007 and decreased by $18 million, or 2 percent since December 31, 2007.
Interest bearing deposits decreased $8 million from December 31, 2007. The March
31, 2008 balance of interest bearing deposits includes $1 million in broker
originated CD's. Since March 31, 2007, interest bearing deposits, excluding a
decrease of $204 million in CD's from broker sources, increased $182 million, or
8 percent. Federal Home Loan Bank ("FHLB") advances increased $17 million from
March 31, 2007 and decreased $66 million from December 31, 2007. The increase in
advances is primarily the result of the decrease in CD's from broker sources to
more favorable rates at the FHLB. Repurchase agreements and other borrowed funds
were $492 million at March 31, 2008, an increase of $324 million from March 31,
2007, and an increase of $91 million from December 31, 2007. Included in this
latter category are U.S. Treasury Tax and Loan funds of $242 million at March
31, 2008, an increase of $20 million from December 31, 2007, and an increase of
$238 million from March 31, 2007.
March 31, December 31, March 31 $ change from $ change from
STOCKHOLDERS' EQUITY 2008 2007 2007 December 31, March 31,
($ IN THOUSANDS EXCEPT PER SHARE DATA) (unaudited) (audited) (unaudited) 2007 2007
----------- ------------ ----------- ------------- -------------
Common equity $ 538,665 525,459 468,646 13,206 70,019
Accumulated other comprehensive income 4,283 3,117 3,790 1,166 493
----------- ------------ ----------- ------------- -------------
Total stockholders' equity 542,948 528,576 472,436 14,372 70,512
Core deposit intangible, net, and
goodwill (153,485) (154,264) (146,164) 779 (7,321)
----------- ------------ ----------- ------------- -------------
$ 389,463 374,312 326,272 15,151 63,191
=========== ============ =========== ============= =============
Stockholders' equity to total assets 11.23% 10.97% 10.60%
Tangible stockholders' equity to total
tangible assets 8.32% 8.03% 7.57%
Book value per common share $ 10.07 9.85 8.97 0.22 1.10
Market price per share at end of quarter $ 19.17 18.74 24.04 0.43 (4.87)
28
Total equity and book value per share amounts have increased $71 million and
$1.10 per share, respectively, from March 31, 2007, the result of earnings
retention, issuance of common stock in connection with the acquisition of North
Side State Bank in Rock Springs, Wyoming, and exercised stock options.
Accumulated other comprehensive income, representing net unrealized gains or
losses on investment securities designated as available for sale, increased $493
thousand from March 31, 2007.
Cash dividend
On March 26, 2008, the board of directors declared a cash dividend of $.13
payable April 17, 2008 to shareholders of record on April 7, 2008, which is an
increase of 8 percent over the $.12 dividend declared in the first quarter of
last year.
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 are 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 March 31, 2008, the Company had $948 million of
available FHLB credit of which $473 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 consolidated financial
statements. Management does not anticipate any material losses as a result of
these transactions.
Impact of Recently Issued Accounting Standards
In December 2007, FASB issued SFAS No. 141(R), Business Combinations. The
objective of this Statement is to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
The Statement establishes principles and requirements for how the acquirer: a)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree, b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. This Statement
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. An entity may not apply it before that date. 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 with any future business combinations.
Merger of Bank Subsidiaries
Effective April 30, 2008, Whitefish merged into Glacier with the combined
operations conducted under the Glacier charter. In connection with the merger,
Russ Porter, President of Whitefish, has joined Mountain West as President and
Chief Operating Officer.
29
Effect of inflation and changing prices
Generally accepted accounting principles often 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 the Company and each subsidiary bank 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.
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, 2007.
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.
30
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 first quarter 2008, 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
The Company and the community bank subsidiaries are exposed to certain risks.
The following is a discussion of the most significant risks and uncertainties
that may affect the Company's business, financial condition and future results.
Fluctuating interest rates can adversely affect our profitability
The Company's profitability is dependent to a large extent upon net interest
income, which is the difference (or "spread") between the interest earned on
loans, securities and other interest-earning assets and interest paid on
deposits, borrowings, and other interest-bearing liabilities. Because of the
differences in maturities and repricing characteristics of our interest-earning
assets and interest-bearing liabilities, changes in interest rates do not
produce equivalent changes in interest income earned on interest-earning assets
and interest paid on interest-bearing liabilities. Accordingly, fluctuations in
interest rates could adversely affect the Company's interest rate spread, and,
in turn, the profitability. The Company cannot provide assurance that it can
minimize interest rate risk. In addition, interest rates also affect the amount
of money the Company can lend. When interest rates rise, the cost of borrowing
also increases. Accordingly, changes in levels of market interest rates could
materially and adversely affect the net interest spread, asset quality, loan
origination volume, business and prospects.
A tightening of the credit market may make it difficult to obtain available
money to fund loan growth, which could adversely affect our earnings
A tightening of the credit market and the inability to obtain adequate money to
fund continued loan growth may negatively affect asset growth and, therefore,
earnings capability. In addition to any deposit growth, maturity of investment
securities and loan payments, the Company also relies on alternative funding
sources through correspondent banking and a borrowing line with the FHLB to fund
loans. In the event of a downturn in the economy, particularly in the housing
market, these resources could be negatively affected, which would limit the
funds available to the Company.
Allowance for loan and lease losses may not be adequate to cover actual loan
losses, which could adversely affect earnings
The Company maintains an ALLL in an amount that is believed adequate to provide
for losses inherent in the portfolio. While the Company strives to carefully
monitor credit quality and to identify loans that may become non-performing, at
any time there are loans included in the portfolio that will result in losses,
but that have not been identified as non-performing or potential problem loans.
The Company cannot be sure that it will be able to identify deteriorating loans
before they become non-performing assets, or that it will be able to limit
losses on those loans that are identified. As a result, future additions to the
allowance may be necessary. Additionally, future additions to the ALLL may be
required based on changes in the composition of the loans comprising the
portfolio and changes in the financial condition of borrowers, such as may
result from changes in economic conditions or as a result of incorrect
assumptions by management in determining the allowance. Additionally, federal
banking regulators, as an integral part of their supervisory function,
periodically review
31
the Company's ALLL. These regulatory agencies may require the Company to
increase the ALLL which could have a negative effect on the Company's financial
condition and results of operation. A critical element in determining the
adequacy of the ALLL is the maintenance of the underlying collateral values,
most of which are in real estate.
Concentration in Real Estate Market
The Company has a high concentration of loans secured by real estate and a
downturn in the real estate market, for any reason, could hurt business and
prospects. Business activities and credit exposure are concentrated in loans
secured by real estate. A decline in the real estate market could negatively
affect the business because the collateral securing those loans may decrease in
value. A downturn in the economics of the markets the Company serves could have
a material adverse effect both on the borrowers' ability to repay these loans,
as well as the value of the real property held as collateral. The ability to
recover on defaulted loans by foreclosing and selling the real estate collateral
would then be diminished and the Company would more likely to suffer losses on
defaulted loans.
Loan portfolio mix could result in increased credit risk in an economic downturn
The loan portfolio contains a high percentage of commercial, commercial real
estate, real estate acquisition and development loans in relation to the total
loans and total assets. These types of loans generally are viewed as having more
risk of default than residential real estate loans or certain other types of
loans or investments. In fact, the FDIC has issued a pronouncement alerting
banks its concern about banks with a heavy concentration of commercial real
estate loans. These types of loans also typically are larger than residential
real estate loans and other commercial loans. Because the loan portfolio
contains a significant number of commercial and commercial real estate loans
with relatively large balances, the deterioration of one or a few of these loans
may cause a significant increase in non-performing loans. An increase in
non-performing loans could result in a loss of earnings from these loans, an
increase in the provision for loan losses, or an increase in loan charge-offs,
which could have an adverse impact on the results of operations and financial
condition.
Competition in our market area may limit our future success
Commercial banking is a highly competitive business. The Company competes with
other commercial banks, savings and loan associations, credit unions, finance,
insurance and other non-depository companies operating in the Company's market
area. The Company is subject to substantial competition for loans and deposits
from other financial institutions. Some of the Company's competitors are not
subject to the same degree of regulation and restriction as it is. Some of its
competitors have greater financial resources than the Company. If the Company is
unable to effectively compete in its market area, the business and results of
operations could be adversely affected.
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
32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) None
(b) Not Applicable
(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.
May 12, 2008 /S/ Michael J. Blodnick
----------------------------
Michael J. Blodnick
President/CEO
May 12, 2008 /S/ Ron J. Copher
----------------------------
Ron J. Copher
Senior Vice President/CFO
33