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, 2007
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _________________
COMMISSION FILE 0-18911
GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter)
MONTANA 81-0519541
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
49 Commons Loop, Kalispell, Montana 59901
(Address of principal executive offices) (Zip Code)
(406) 756-4200
Registrant's telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark whether the registrant is a large accelerated filer, or an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large Accelerated Filer [X] Accelerated Filer [ ] Non-Accelerated Filer [ ]
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 30, 2007
was 52,689,338. 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, 2007, and March
31, 2006 and December 31, 2006 ................... 3
Condensed Consolidated Statements of Operations -
Unaudited three months ended March 31, 2007 and
2006 ............................................. 4
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income - Year ended
December 31, 2006 and unaudited three months ended
March 31, 2007 .................................. 5
Condensed Consolidated Statements of Cash Flows -
Unaudited three months ended March 31, 2007 and
2006 ............................................. 6
Notes to Condensed Consolidated Financial Statements
- Unaudited ...................................... 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 21
Item 3 - Quantitative and Qualitative Disclosure about
Market Risk .................................... 27
Item 4 - Controls and Procedures ........................... 27
PART II. OTHER INFORMATION .......................................... 28
Item 1 - Legal Proceedings ................................. 28
Item 1A - Risk Factors ..................................... 28
Item 2 - Unregistered Sales of Equity Securities and Use of
Proceeds ....................................... 28
Item 3 - Defaults Upon Senior Securities ................... 28
Item 4 - Submission of Matters to a Vote of Security
Holders ........................................ 28
Item 5 - Other Information ................................. 28
Item 6 - Exhibits .......................................... 28
Signatures ................................................. 29
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31, March 31,
(Dollars in thousands, except per share data) 2007 2006 2006
--------------------------------------------- ----------- ------------ -----------
(UNAUDITED) (unaudited)
ASSETS:
Cash on hand and in banks ................ $ 123,697 136,591 105,474
Federal funds sold ....................... 2,752 6,125 9,155
Interest bearing cash deposits ........... 88,112 30,301 21,343
----------- ---------- ----------
Cash and cash equivalents ............. 214,561 173,017 135,972
Investment securities .................... 773,364 825,637 923,382
Loans receivable, net .................... 3,124,368 3,130,389 2,502,279
Loans held for sale ...................... 32,778 35,135 25,153
Premises and equipment, net .............. 115,123 110,759 86,179
Real estate and other assets owned, net .. 1,727 1,484 778
Accrued interest receivable .............. 25,340 25,729 19,317
Core deposit intangible, net ............. 13,861 14,750 7,594
Goodwill ................................. 132,303 129,716 79,099
Other assets ............................. 25,588 24,682 23,036
----------- ---------- ----------
$ 4,459,013 4,471,298 3,802,789
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ............ $ 788,426 829,355 683,201
Interest bearing deposits ................ 2,410,668 2,378,178 2,010,198
Advances from Federal Home Loan Bank of
Seattle ............................... 455,625 307,522 505,209
Securities sold under agreements to
repurchase ............................ 162,491 170,216 132,207
Other borrowed funds ..................... 5,930 168,770 2,774
Accrued interest payable ................. 12,980 11,041 8,537
Deferred tax liability ................... 94 1,927 2,098
Subordinated debentures .................. 118,559 118,559 87,631
Other liabilities ........................ 31,804 29,587 26,543
----------- ---------- ----------
Total liabilities ...................... 3,986,577 4,015,155 3,458,398
----------- ---------- ----------
Preferred shares, $.01 par value per
share. 1,000,000 shares authorized
None issued or outstanding ............ -- -- --
Common stock, $.01 par value per share
117,187,5000 shares authorized ........ 527 523 485
Paid-in capital .......................... 350,065 344,265 265,603
Retained earnings - substantially
restricted ............................ 118,054 108,286 78,171
Accumulated other comprehensive income ... 3,790 3,069 132
----------- ---------- ----------
Total stockholders' equity ............ 472,436 456,143 344,391
----------- ---------- ----------
$ 4,459,013 4,471,298 3,802,789
=========== ========== ==========
Number of shares outstanding ............. 52,656,162 52,302,820 48,471,168
Book value per share ..................... $ 8.97 8.72 7.11
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) 2007 2006
---------------------------------- ----------- -----------
INTEREST INCOME:
Real estate loans ................... $ 14,441 10,989
Commercial loans .................... 36,652 25,525
Consumer and other loans ............ 11,314 8,865
Investment securities and other ..... 9,513 10,573
----------- -----------
Total interest income ............ 71,920 55,952
----------- -----------
INTEREST EXPENSE:
Deposits ............................ 18,807 11,291
Federal Home Loan Bank of Seattle
advances ......................... 5,042 4,796
Securities sold under agreements
to repurchase .................... 1,887 1,290
Subordinated debentures ............. 1,814 1,429
Other borrowed funds ................ 1,279 838
----------- -----------
Total interest expense ........... 28,829 19,644
----------- -----------
NET INTEREST INCOME .................... 43,091 36,308
Provision for loan losses ........... 1,195 1,165
----------- -----------
Net interest income after
provision for loan losses ........ 41,896 35,143
----------- -----------
NON-INTEREST INCOME:
Service charges and other fees ...... 8,263 6,406
Miscellaneous loan fees and
charges .......................... 1,822 1,811
Gains on sale of loans .............. 3,042 2,190
Loss on sale of investments ......... (8) --
Other income ........................ 2,573 749
----------- -----------
Total non-interest income ........ 15,692 11,156
----------- -----------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses ............. 19,506 15,311
Occupancy and equipment expense ..... 4,458 3,491
Outsourced data processing
expense .......................... 812 724
Core deposit intangibles
amortization ..................... 780 420
Other expenses ...................... 7,627 5,881
----------- -----------
Total non-interest expense ....... 33,183 25,827
----------- -----------
EARNINGS BEFORE INCOME TAXES ........... 24,405 20,472
----------- -----------
Federal and state income tax
expense .......................... 8,312 6,843
----------- -----------
NET EARNINGS ........................... $ 16,093 13,629
=========== ===========
Basic earnings per share ............... $ 0.31 0.28
Diluted earnings per share ............. $ 0.30 0.28
Dividends declared per share ........... $ 0.12 0.11
Return on average assets (annualized) .. 1.48% 1.48%
Return on average equity (annualized) .. 14.02% 16.21%
Average outstanding shares - basic ..... 52,500,395 48,378,237
Average outstanding shares - diluted ... 53,239,346 49,239,701
See accompanying notes to condensed consolidated financial statements.
4
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2006 AND UNAUDITED THREE MONTHS ENDED MARCH 31, 2007
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, 2005............................. 48,258,821 $483 262,222 69,713 821 333,239
Comprehensive income:
Net earnings.......................................... -- -- -- 61,131 -- 61,131
Unrealized gain on securities, net of reclassification
adjustment and taxes............................... -- -- -- -- 2,248 2,248
-------
Total comprehensive income............................... 63,379
-------
Cash dividends declared ($.45 per share)................. -- -- -- (22,558) -- (22,558)
Stock options exercised.................................. 639,563 6 6,700 -- -- 6,706
Stock issued in connection with acquisitions............. 1,904,436 19 41,431 -- -- 41,450
Public offering of stock issued.......................... 1,500,000 15 29,418 -- -- 29,433
Acquisition of fractional shares......................... -- -- (5) -- -- (5)
Stock based compensation and tax benefit................. -- -- 4,499 -- -- 4,499
---------- ---- ------- ------- ----- -------
Balance at December 31, 2006............................. 52,302,820 $523 344,265 108,286 3,069 456,143
Comprehensive income:
Net earnings.......................................... -- -- -- 16,093 -- 16,093
Unrealized gain on securities, net of reclassification
adjustment and taxes............................... -- -- -- -- 721 721
-------
Total comprehensive income............................... 16,814
-------
Cash dividends declared ($.12 per share)................. -- -- -- (6,325) -- (6,325)
Stock options exercised.................................. 353,342 4 3,711 -- -- 3,715
Stock based compensation and tax benefit................. -- -- 2,089 -- -- 2,089
---------- ---- ------- ------- ----- -------
Balance at March 31, 2007 (unaudited).................... 52,656,162 $527 350,065 118,054 3,790 472,436
========== ==== ======= ======= ===== =======
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) 2007 2006
---------------------------------- --------- --------
OPERATING ACTIVITIES :
NET CASH PROVIDED BY OPERATING ACTIVITIES................................ $ 25,755 18,854
--------- --------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of
investments available-for-sale........................................ 61,768 43,209
Purchases of investments available-for-sale.............................. (7,481) (792)
Principal collected on installment and commercial loans.................. 262,076 249,640
Installment and commercial loans originated or acquired.................. (299,714) (350,179)
Principal collections on mortgage loans.................................. 123,188 89,622
Mortgage loans originated or acquired.................................... (103,330) (117,881)
Net purchase of FHLB and FRB stock....................................... (1,693) (434)
Net cash paid for sale of Western's Lewistown branch..................... (6,846) --
Net addition of premises and equipment................................... (5,295) (7,715)
--------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................... 22,673 (94,530)
--------- --------
FINANCING ACTIVITIES:
Net increase in deposits ................................................ 16,970 158,688
Net decrease in FHLB advances and other borrowed funds .................. (14,737) (81,900)
Net (decrease) increase in securities sold under repurchase agreements... (7,724) 2,677
Cash dividends paid...................................................... (6,325) (5,171)
Excess tax benefits from stock options................................... 1,217 474
Proceeds from exercise of stock options and other stock issued........... 3,715 2,186
--------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES................... (6,884) 76,954
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................. 41,544 1,278
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................... 173,017 134,694
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................... $ 214,561 135,972
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest................................ $ 26,891 18,544
Income taxes............................ $ 2,400 380
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, 2007,
and March 31, 2006, stockholders' equity for the three months ended March
31, 2007, the results of operations for the three months ended March 31,
2007 and 2006, and cash flows for the three months ended March 31, 2007 and
2006. The condensed consolidated statement of financial condition and
statement of stockholders' equity and comprehensive income of the Company
as of December 31, 2006 have been derived from the audited consolidated
statements of the Company as of that date.
The accompanying condensed consolidated financial statements do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 2006. Operating results for the three months ended March
31, 2007 are not necessarily indicative of the results anticipated for the
year ending December 31, 2007. Certain reclassifications have been made to
the 2006 financial statements to conform to the 2007 presentation.
2) Organizational Structure
The Company, headquartered in Kalispell, Montana, is a Montana corporation
incorporated in 2004 as a successor corporation to the Delaware corporation
incorporated in 1990. The Company is the parent company for twelve
wholly-owned banking subsidiaries: Glacier Bank ("Glacier"), First Security
Bank of Missoula ("First Security"), Western Security Bank ("Western"), Big
Sky Western Bank ("Big Sky"), Valley Bank of Helena ("Valley"), Glacier
Bank of Whitefish ("Whitefish"), First National Bank of Lewistown and
Western Bank of Chinook, all located in Montana, Mountain West Bank
("Mountain West") which is located in Idaho, Utah, and Washington, Citizens
Community Bank ("Citizens") located in Idaho, 1st Bank ("1st Bank") located
in Wyoming, and First National Bank of Morgan ("Morgan") located in Utah.
In addition, the Company owns four trust subsidiaries, Glacier Capital
Trust II ("Glacier Trust II"), Glacier Capital Trust III ("Glacier Trust
III"), Glacier Capital Trust IV ("Glacier Trust IV"), and Citizens (ID)
Statutory Trust I ("Citizens Trust I") for the purpose of issuing trust
preferred securities and in accordance with Financial Accounting Standards
Board Interpretation ("FASB") 46(R) the subsidiaries are not consolidated
into the Company's financial statements. The Company does not have any
off-balance sheet entities.
On October 1, 2006, the Company acquired Citizens Development Company
("CDC") and its five subsidiaries which include: Citizens State Bank, First
Citizens Bank of Billings ("FCB-Billings"), First National Bank of
Lewistown, Western Bank of Chinook, and First Citizens Bank, N.A. On
January 26, 2007, Citizens State Bank, FCB-Billings, and First Citizens
Bank, N.A. were merged into First Security, Western, and Glacier,
respectively, without name change for First Security, Western, and Glacier.
First National Bank of Lewistown and Western Bank of Chinook are one
reporting segment for purposes of financial reporting for the three months
ended March 31, 2007. It is anticipated that during June of 2007, Western
Bank of Chinook will merge into First National Bank of Lewistown.
7
The following abbreviated organizational chart illustrates the various
relationships:
------------------------
Glacier Bancorp, Inc.
(Parent Holding Company)
------------------------
----------------------- ------------------------ -------------------- ------------------------
Mountain West Bank Glacier Bank First Security Bank Western Security Bank
(ID Commercial bank) (MT Commercial bank) of Missoula (MT Commercial bank)
(MT Commercial bank)
----------------------- ------------------------ -------------------- ------------------------
----------------------- ------------------------ -------------------- ------------------------
1st Bank Big Sky Valley Bank Glacier Bank
(WY Commercial bank) Western Bank of Helena of Whitefish
(MT Commercial Bank) (MT Commercial bank) (MT Commercial bank)
----------------------- ------------------------ -------------------- ------------------------
----------------------- ------------------------ -------------------- ------------------------
Citizens Community Bank Citizens Development First National Bank Glacier Capital Trust II
(ID Commercial bank) Company - 2 Subsidiaries of Morgan
(MT Commercial Banks) (UT Commercial bank)
----------------------- ------------------------ -------------------- ------------------------
------------------------- ------------------------ -------------------------------
Glacier Capital Trust III Glacier Capital Trust IV Citizens (ID) Statutory Trust I
------------------------- ------------------------ -------------------------------
3) Ratios
Returns on average assets and average equity were calculated based on daily
averages.
4) Dividends Declared
On March 28, 2007, the Board of Directors declared a $.12 per share cash
dividend payable on April 19, 2007 to stockholders of record on April 10,
2007.
5) Computation of Earnings Per Share
Basic earnings per common share is computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the
period presented. Diluted earnings per share is computed by including the
net increase in shares as if dilutive outstanding stock options were
exercised, using the treasury stock method.
The following schedule contains the data used in the calculation of basic
and diluted earnings per share:
8
Three Three
months ended months ended
March 31, 2007 March 31, 2006
-------------- --------------
Net earnings available to common
stockholders........................ $16,093,000 13,629,000
Average outstanding shares - basic..... 52,500,395 48,378,237
Add: Dilutive stock options............ 738,951 861,464
----------- ----------
Average outstanding shares - diluted... 53,239,346 49,239,701
=========== ==========
Basic earnings per share............... $ 0.31 0.28
=========== ==========
Diluted earnings per share............. $ 0.30 0.28
=========== ==========
There were approximately 12,750 and 215,463 average shares excluded from the
three months ended diluted share calculation as of March 31, 2007, and 2006,
respectively, due to the option exercise price exceeding the market price.
6) Investments
A comparison of the amortized cost and estimated fair value of the
Company's investment securities, available-for-sale and other investments,
is as follows:
9
INVESTMENTS AS OF MARCH 31, 2007
Gross Unrealized Estimated
Weighted Amortized ---------------- Fair
(Dollars in thousands) Yield Cost Gains Losses Value
---------------------- -------- --------- ------ ------ ---------
AVAILABLE-FOR-SALE:
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year .......................... 4.85% $ 2,300 -- -- 2,300
GOVERNMENT-SPONSORED ENTERPRISES:
maturing within one year .......................... 5.07% 7,485 -- (11) 7,474
maturing one year through five years .............. 5.15% 149 -- -- 149
maturing five years through ten years ............. 7.88% 286 1 -- 287
maturing after ten years .......................... 6.77% 151 1 -- 152
-------- ------ ------ -------
5.20% 8,071 2 (11) 8,062
-------- ------ ------ -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .......................... 4.40% 1,444 1 1,445
maturing one year through five years .............. 4.77% 4,774 34 (20) 4,788
maturing five years through ten years ............. 5.72% 15,482 767 (8) 16,241
maturing after ten years .......................... 5.18% 273,814 11,372 (50) 285,136
-------- ------ ------ -------
5.20% 295,514 12,174 (78) 307,610
-------- ------ ------ -------
MORTGAGE-BACKED SECURITIES ........................... 4.78% 48,650 154 (1,121) 47,683
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ............. 4.18% 345,797 46 (5,094) 340,749
FHLMC AND FNMA STOCK ................................. 5.74% 7,593 182 -- 7,775
OTHER INVESTMENTS:
CERTIFICATES OF DEPOSITS WITH OVER 90 DAY MATURITY.... 4.94% 1,775 -- -- 1,775
FHLB AND FRB STOCK, AT COST .......................... 1.40% 57,410 -- -- 57,410
-------- ------ ------ -------
TOTAL INVESTMENTS ............................... 4.43% $767,110 12,558 (6,304) 773,364
======== ====== ====== =======
10
INVESTMENTS AS OF DECEMBER 31, 2006
Gross Unrealized Estimated
Weighted Amortized ---------------- Fair
(Dollars in thousands) Yield Cost Gains Losses Value
---------------------- -------- --------- ------ ------ ---------
AVAILABLE-FOR-SALE:
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year ........................... 4.78% $ 10,982 -- (6) 10,976
GOVERNMENT-SPONSORED ENTERPRISES:
maturing within one year ........................... 4.90% 8,177 -- (17) 8,160
maturing one year through five years ............... 5.15% 648 -- -- 648
maturing five years through ten years .............. 7.73% 352 5 -- 357
maturing after ten years ........................... 6.68% 153 1 -- 154
-------- ------ ------ -------
5.05% 9,330 6 (17) 9,319
-------- ------ ------ -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ........................... 3.65% 2,190 2 (1) 2,191
maturing one year through five years ............... 4.08% 5,736 43 (21) 5,758
maturing five years through ten years .............. 4.92% 15,180 818 (11) 15,987
maturing after ten years ........................... 5.12% 276,756 11,794 (86) 288,464
-------- ------ ------ -------
5.08% 299,862 12,657 (119) 312,400
-------- ------ ------ -------
MORTGAGE-BACKED SECURITIES ............................ 4.74% 51,673 150 (1,235) 50,588
REAL ESTATE MORTGAGE INVESTMENT CONDUITS .............. 4.14% 382,551 45 (6,634) 375,962
FHLMC AND FNMA STOCK .................................. 5.74% 7,593 218 -- 7,811
OTHER INVESTMENTS:
CERTIFICATES OF DEPOSITS WITH OVER 90 DAY MATURITY .... 4.83% 2,864 -- -- 2,864
FHLB AND FRB STOCK, AT COST ........................... 1.26% 55,717 -- -- 55,717
-------- ------ ------ -------
TOTAL INVESTMENTS ................................ 4.36% $820,572 13,076 (8,011) 825,637
======== ====== ====== =======
Interest income includes tax-exempt interest for the three months ended
March 31, 2007 and 2006 of $3,452,000 and $3,489,000, respectively.
Gross proceeds from sales of investment securities for the three months
ended March 31, 2007 and 2006 were $1,355,000 and $0, respectively,
resulting in gross gains of approximately $0 and $0, respectively, and
gross losses of approximately $8,000 and $0, respectively. The cost of any
investment sold is determined by specific identification.
7) Loans
The following table summarizes the Company's loan portfolio:
11
TYPE OF LOAN At At At
(Dollars in thousands) 3/31/2007 12/31/2006 3/31/2006
---------------------- -------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
Real Estate Loans:
Residential real estate $ 737,561 23.4% $ 758,921 24.0% $ 617,486 24.4%
Loans held for sale 32,778 1.0% 35,135 1.1% 25,153 1.0%
---------- ----- ---------- ----- ---------- -----
Total 770,339 24.4% 794,056 25.1% 642,639 25.4%
Commercial Loans:
Real estate 964,239 30.5% 954,290 30.2% 812,727 32.2%
Other commercial 893,185 28.3% 902,994 28.5% 626,615 24.8%
---------- ----- ---------- ----- ---------- -----
Total 1,857,424 58.8% 1,857,284 58.7% 1,439,342 57.0%
Consumer and other Loans:
Consumer 214,798 6.8% 218,640 6.9% 194,806 7.7%
Home equity 375,911 11.9% 356,477 11.3% 298,564 11.8%
---------- ----- ---------- ----- ---------- -----
Total 590,709 18.7% 575,117 18.2% 493,370 19.5%
Net deferred loan fees, premiums
and discounts (10,786) -0.3% (11,674) -0.4% (8,068) -0.3%
Allowance for loan losses (50,540) -1.6% (49,259) -1.6% (39,851) -1.6%
---------- ----- ---------- ----- ---------- -----
Loan receivable, net $3,157,146 100.0% $3,165,524 100.0% $2,527,432 100.0%
========== ===== ========== ===== ========== =====
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated:
NONPERFORMING ASSETS
(Dollars in thousands)
At At At
3/31/2007 12/31/2006 3/31/2006
--------- ---------- ---------
Non-accrual loans:
Real estate loans $ 1,134 1,806 595
Commercial loans 3,849 3,721 3,474
Consumer and other loans 614 538 247
------- ----- ------
Total $ 5,597 6,065 4,316
Accruing Loans 90 days or more overdue:
Real estate loans 697 554 1,516
Commercial loans 2,778 638 3,196
Consumer and other loans 507 153 520
------- ----- ------
Total $ 3,982 1,345 5,232
Real estate and other assets owned, net 1,727 1,484 778
------- ----- ------
Total non-performing loans and real estate
and other assets owned, net $11,306 8,894 10,326
======= ===== ======
As a percentage of total bank assets 0.25% 0.19% 0.27%
Interest Income (1) $ 109 462 78
(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,
2007, the year ended December 31, 2006 and the three months ended March 31,
2006, had such loans performed pursuant to contractual terms.
12
The following table illustrates the loan loss experience:
ALLOWANCE FOR LOAN LOSSES
Three months ended Year ended Three months ended
March 31, December 31, March 31,
(Dollars in thousands) 2007 2006 2006
---------------------- ------------------ ------------ ------------------
Balance at beginning of period $49,259 38,655 38,655
Charge offs:
Real estate loans (42) (14) (6)
Commercial loans (212) (1,187) (45)
Consumer and other loans (96) (448) (102)
------- ------ ------
Total charge-offs $ (350) (1,649) (153)
------- ------ ------
Recoveries:
Real estate loans 89 341 55
Commercial loans 245 331 20
Consumer and other loans 102 298 109
------- ------ ------
Total recoveries $ 436 970 184
------- ------ ------
Net recoveries (charge-offs) 86 (679) 31
Acquisition (1) -- 6,091 --
Provision 1,195 5,192 1,165
------- ------ ------
Balance at end of period $50,540 49,259 39,851
======= ====== ======
Ratio of net recoveries (charge-offs) to
average loans outstanding during the period 0.003% -0.025% 0.001%
(1) Acquisition of Citizen's Development Company and First National Bank of
Morgan
The following table summarizes the allocation of the allowance for loan losses:
March 31, 2007 December 31, 2006 March 31, 2006
----------------------- ----------------------- -----------------------
Percent Percent Percent
of loans in of loans in of loans in
(Dollars in thousands) Allowance category Allowance category Allowance category
---------------------- --------- ----------- --------- ----------- --------- -----------
Real estate loans $ 5,303 23.9% 5,421 24.6% 4,518 24.9%
Commercial real estate loans 17,315 30.0% 16,741 29.6% 14,374 31.6%
Other commercial loans 18,889 27.8% 18,361 28.0% 13,254 24.3%
Consumer and other loans 9,033 18.3% 8,736 17.8% 7,705 19.2%
------- ----- ------ ----- ------ -----
Totals $50,540 100.0% 49,259 100.0% 39,851 100.0%
======= ===== ====== ===== ====== =====
13
8) Intangible Assets
The following table sets forth information regarding the Company's core
deposit intangible and mortgage servicing rights as of March 31, 2007:
Core Deposit Mortgage Servicing
(Dollars in thousands) Intangible Rights (1) Total
---------------------- ------------ ------------------ ------
Gross carrying value $23,182
Accumulated Amortization (9,321)
-------
Net carrying value $13,861 1,170 15,031
=======
WEIGHTED-AVERAGE AMORTIZATION PERIOD
(Period in years) 10.0 9.6 10.0
AGGREGATE AMORTIZATION EXPENSE
For the three months ended March 31, 2007 $ 780 49 829
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2007 $ 3,034 109 3,143
For the year ended December 31, 2008 2,779 79 2,858
For the year ended December 31, 2009 2,486 77 2,563
For the year ended December 31, 2010 2,117 74 2,191
For the year ended December 31, 2011 1,410 72 1,482
(1) The mortgage servicing rights are included in other assets and the gross
carrying value and accumulated amortization are not readily available.
The following is a summary of activity in goodwill for the three months ended
March 31, 2007.
(Dollars in thousands) Goodwill
---------------------- --------
Balance as of December 31, 2006 $129,716
Sale of Western's Lewistown branch (454)
Adjustment for FCB-Billings' building (760)
Adjustment for FCB-Billings' loan 3,801
--------
Balance as of March 31, 2007 $132,303
========
Acquisitions are accounted for using the purchase accounting method as
prescribed by Statement of Financial Accounting Standard Number 141, Business
Combinations. Purchase accounting requires the total purchase price to be
allocated to the estimated fair values of assets acquired and liabilities
assumed, including certain intangible assets. Goodwill is recorded for the
residual amount in excess of the net fair value.
Adjustment of the allocated purchase price may be related to fair value
estimates for which all information has not been obtained or required for
pre-acquisition contingencies of the acquired entity known or discovered during
the allocation period, the period of time required to identify and measure the
fair values of the assets and liabilities acquired in the business combination.
The allocation period is generally limited to one year following consummation of
a business combination.
14
As a condition of acquiring FCB - Billings, a subsidiary of CDC which was
acquired on October 1, 2006, bank regulators required Western to divest of
Western's branch in Lewistown, Montana. Western was acquired in February 2001
through the purchase of WesterFed Financial Corporation ("WesterFed"), its
parent company. The WesterFed acquisition was accounted for using the purchase
method of accounting with a portion of goodwill allocated to Western's Lewistown
branch. With the January 2007 sale of the Lewistown branch, $454 thousand of
goodwill associated with such branch was removed.
In March 2007, Western adjusted its purchase price allocation for FCB - Billings
based upon new information available to management concerning the estimated fair
value of property as of the acquisition date. Accordingly, the fair value of
certain property was increased by $1.25 million with a related $490 thousand
increase in deferred tax liability, resulting in a $760 thousand decrease in
goodwill.
In February 2007, Western became aware of a preacquisition contingency in
regards to a loan that was impaired as of the October 1, 2006 acquisition of FCB
- Billings. After taking into consideration recoveries, the amount of impairment
determined to have occurred on or before the acquisition date is estimated to be
$6.3 million with such amount charged off against the loan balance. No further
loss is expected as the balance of the loan, after such charge-off, has been
collected. On an after tax basis, the increase to goodwill is $3.8 million.
Management continues to pursue additional recoveries and remedies from the
guarantors and other third parties. Additional recoveries, if any, occurring on
or before September 30, 2007, i.e., the expected end of the allocation period
will be an adjustment of goodwill, with any recoveries occurring after such date
recorded in earnings in the period in which the recoveries are received or
accrued.
9) Deposits
The following table illustrates the amounts outstanding for deposits
$100,000 and greater at March 31, 2007 according to the time remaining to
maturity. Included in the CD maturities are brokered CDs in the amount of
$205,447,000.
Certificates Non-Maturity
(Dollars in thousands) of Deposit Deposits Totals
---------------------- ------------ ------------ ---------
Within three months ....... $116,930 1,141,038 1,257,968
Three to six months ....... 74,638 -- 74,638
Seven to twelve months .... 261,621 -- 261,621
Over twelve months ........ 48,229 -- 48,229
-------- --------- ---------
Totals ................. $501,418 1,141,038 1,642,456
======== ========= =========
10) Advances and Other Borrowings
The following chart illustrates the average balances and the maximum
outstanding month-end balances for Federal Home Loan Bank of Seattle (FHLB)
advances and repurchase agreements:
15
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, 2007 December 31, 2006 March 31, 2006
---------------------- -------------- ----------------- --------------
FHLB Advances:
Amount outstanding at end of period ...... $455,625 307,522 505,209
Average balance .......................... $419,216 487,112 522,376
Maximum outstanding at any month-end ..... $509,519 655,492 572,954
Weighted average interest rate ........... 4.88% 4.20% 3.72%
Repurchase Agreements:
Amount outstanding at end of period ...... $162,491 170,216 132,207
Average balance .......................... $166,733 153,314 133,020
Maximum outstanding at any month-end ..... $168,395 164,338 135,661
Weighted average interest rate ........... 5.17% 4.32% 3.93%
11) Stockholders' Equity
The Federal Reserve Board has adopted capital adequacy guidelines that are
used to assess the adequacy of capital in supervising a bank holding
company. The following table illustrates the Federal Reserve Board's
capital adequacy guidelines and the Company's compliance with those
guidelines as of March 31, 2007.
CONSOLIDATED Tier 1 (Core) Tier 2 (Total) Leverage
(Dollars in thousands) Capital Capital Capital
---------------------- ------------- -------------- ---------
GAAP Capital .................................. $ 472,436 472,436 472,436
Less: Goodwill and intangibles ................ (146,164) (146,164) (146,164)
Accumulated other comprehensive
Unrealized gain on AFS securities ....... (3,790) (3,790) (3,790)
Other adjustments .......................... 81 81 81
Plus: Allowance for loan losses ............... -- 45,632 --
Subordinated debentures .................... 118,559 118,559 118,559
---------- --------- ---------
Regulatory capital computed ................... $ 441,122 486,754 441,122
========== ========= =========
Risk weighted assets .......................... $3,554,356 3,554,356
========== =========
Total average assets .......................... $4,365,608
==========
Capital as % of defined assets ................ 12.41% 13.69% 10.10%
Regulatory "well capitalized" requirement ..... 6.00% 10.00% 5.00%
---------- --------- ---------
Excess over "well capitalized" requirement .... 6.41% 3.69% 5.10%
========== ========= =========
12) Federal and State Income Taxes
The Company and its financial institution subsidiaries join together in the
filing of consolidated income tax returns in the following jurisdictions:
federal, Montana, Idaho and Utah. Although 1st Bank has operations in Wyoming
and Mountain West has operations in Washington, neither Wyoming nor Washington
imposes a corporate level income tax. All required income tax returns have been
timely filed. Income tax returns for the years ended December 31, 2003, 2004,
2005, and 2006, remain subject to examination by federal, Montana, Idaho and
Utah tax authorities.
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
16
48. The Company determined its unrecognized tax benefit to be $300,012 as of
March 31, 2007. In accordance with FIN 48, the Company reclassified such amount
from a deferred tax liability to a current tax liability.
If the unrecognized tax benefit amount was recognized, it would decrease the
Company's effective tax rate from 34.1 percent to 33.7 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, 2007 and 2006, the Company recognized $0 interest expense
and recognized $0 penalty with respect to income tax liabilities. The Company
had approximately $50,000 and $0 accrued for the payment of interest at March
31, 2007 and 2006, respectively. The Company had accrued $0 for the payment of
penalties at March 31, 2007 and 2006.
13) Comprehensive Income
The Company's only component of comprehensive income other than net
earnings is the unrealized gains and losses on available-for-sale
securities.
For the three months
ended March 31,
--------------------
Dollars in thousands 2007 2006
-------------------- ------- -------
Net earnings ............................................... $16,093 13,629
Unrealized holding gain (loss) arising during the period ... 1,181 (1,137)
Tax benefit expense ........................................ (465) 448
------- ------
Net after tax ........................................ 716 (689)
Reclassification adjustment for losses
included in net earnings ................................ 8 --
Tax benefit ................................................ (3) --
------- ------
Net after tax ........................................ 5 --
Net unrealized gain (loss) on securities ............. 721 (689)
------- ------
Total comprehensive income ........................ $16,814 12,940
======= ======
17
14) Segment Information
The Company evaluates segment performance internally based on individual
bank charters, and thus the operating segments are so defined. The
following schedule provides selected financial data for the Company's
operating segments. Centrally provided services to the Banks are allocated
based on estimated usage of those services. The operating segment
identified as "Other" includes the Parent, non-bank units, and elimination
of transactions between segments.
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 (17,122) (12,139) (11,431) (8,542) (4,366) (4,411) (4,121)
Intercompany eliminations -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
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
======== ======= ======= ======= ======= ======= =======
Total
Whitefish Citizens CDC Morgan Other Consolidated
--------- -------- ------- ------ ------- ------------
Revenues from external customers $ 3,418 3,729 2,225 1,206 100 87,612
Intersegment revenues -- -- 215 305 20,231 21,530
Expenses (2,764) (3,202) (1,984) (1,263) (174) (71,519)
Intercompany eliminations -- -- -- -- (21,530) (21,530)
-------- ------- ------- ------ ------- ---------
Net Earnings $ 654 527 456 248 (1,373) 16,093
======== ======= ======= ====== ======= =========
Total Assets $186,330 170,213 140,704 94,081 (35,838) 4,459,013
======== ======= ======= ====== ======= =========
Three months ended and as of March 31, 2006
------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky
---------------------- -------- ------- -------- ------- -------- -------
Revenues from external customers $ 15,924 12,452 12,258 6,880 4,102 4,918
Intersegment revenues 6 52 78 17 236 --
Expenses (13,063) (9,284) (9,167) (5,404) (3,526) (3,719)
Intercompany eliminations -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Net Earnings $ 2,867 3,220 3,169 1,493 812 1,199
======== ======= ======= ======= ======= =======
Total Assets $809,759 697,266 734,092 428,263 284,398 275,158
======== ======= ======= ======= ======= =======
Total
Valley Whitefish Citizens Other Consolidated
-------- --------- -------- ------- ------------
Revenues from external customers $ 4,344 2,996 3,159 75 67,108
Intersegment revenues 33 -- -- 17,374 17,796
Expenses (3,371) (2,306) (2,611) (1,028) (53,479)
Intercompany eliminations -- -- -- (17,796) (17,796)
-------- ------- ------- ------- ---------
Net Earnings $ 1,006 690 548 (1,375) 13,629
======== ======= ======= ======= =========
Total Assets $258,165 175,912 153,204 (16,059) 3,800,158
======== ======= ======= ======= =========
18
15) Rate/Volume Analysis
Net interest income can be evaluated from the perspective of relative
dollars of change in each period. Interest income and interest expense,
which are the components of net interest income, are shown in the following
table on the basis of the amount of any increases (or decreases)
attributable to changes in the dollar levels of the Company's
interest-earning assets and interest-bearing liabilities ("Volume") and the
yields earned and rates paid on such assets and liabilities ("Rate"). The
change in interest income and interest expense attributable to changes in
both volume and rates has been allocated proportionately to the change due
to volume and the change due to rate.
Three Months Ended March 31,
2007 vs. 2006
Increase (Decrease) due to:
----------------------------
(Dollars in thousands) Volume Rate Net
---------------------- ------- ------ ------
INTEREST INCOME
Residential real estate loans $ 2,670 782 3,452
Commercial loans 8,323 2,804 11,127
Consumer and other loans 1,784 665 2,449
Investment securities and other (1,374) 314 (1,060)
------- ------ ------
Total Interest Income 11,403 4,565 15,968
INTEREST EXPENSE
NOW accounts 117 503 620
Savings accounts 48 32 80
Money market accounts 1,220 2,351 3,571
Certificates of deposit 1,031 2,213 3,244
FHLB advances (947) 1,194 247
Other borrowings and
repurchase agreements 1,168 257 1,425
------- ------ ------
Total Interest Expense 2,637 6,550 9,187
------- ------ ------
NET INTEREST INCOME $ 8,766 (1,985) 6,781
======= ====== ======
19
16) Average Balance Sheet
The following schedule provides (i) the total dollar amount of interest and
dividend income of the Company for earning assets and the resultant average
yield; (ii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average rate; (iii) net interest and dividend
income; (iv) interest rate spread; and (v) net interest margin. Non-accrual
loans are included in the average balance of the loans.
AVERAGE BALANCE SHEET
For the Three months ended 3-31-07
----------------------------------
Interest Average
Average and Yield/
(Dollars in thousands) Balance Dividends Rate
---------------------- ---------- --------- -------
ASSETS
Residential real estate loans $ 769,196 14,441 7.51%
Commercial loans 1,852,657 36,652 8.02%
Consumer and other loans 578,166 11,314 7.94%
---------- ------
Total Loans 3,200,019 62,407 7.91%
Tax - exempt investment securities (1) 280,205 3,452 4.90%
Other investment securities 564,311 6,061 4.31%
---------- ------
Total Earning Assets 4,044,535 71,920 7.11%
------
Goodwill and core deposit intangible 143,827
Other non-earning assets 232,081
----------
TOTAL ASSETS $4,420,443
==========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW accounts $ 433,209 1,091 1.02%
Savings accounts 266,579 658 1.00%
Money market accounts 707,579 6,414 3.68%
Certificates of deposit 944,895 10,644 4.57%
FHLB advances 419,216 5,042 4.88%
Repurchase agreements and other
borrowed funds 391,044 4,980 5.17%
---------- ------
Total Interest Bearing Liabilities 3,162,522 28,829 3.70%
------
Non-interest bearing deposits 747,585
Other liabilities 44,651
----------
Total Liabilities 3,954,758
----------
Common stock 525
Paid-in capital 345,966
Retained earnings 116,514
Accumulated other
Comprehensive income 2,680
----------
Total Stockholders' Equity 465,685
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $4,420,443
==========
Net interest income $43,091
=======
Net interest spread 3.41%
Net interest margin on average earning
assets 4.32%
Return on average assets (annualized) 1.48%
Return on average equity (annualized) 14.02%
(1) Excludes tax effect on non-taxable investment security income
20
17) Recent Acquisitions
On April 30, 2007, the Company completed the acquisition of North Side
State Bank of Rock Springs, Wyoming, which was merged into 1st Bank, the
Company's Evanston, Wyoming subsidiary. As of March 31, 2007, North Side
had approximate total assets of $122 million, loans of $40 million, and
deposits of $102 million.
Acquisitions are accounted for under the purchase method of accounting.
Accordingly, the assets and liabilities of the acquired banks are recorded
by the Company at their respective fair values at the date of the
acquisition and the results of operations are included with those of the
Company since the date of acquisition. The excess of the Company's purchase
price over the net fair value of the assets acquired and liabilities
assumed, including identifiable intangible assets, is recorded as goodwill.
Adjustment of the allocated purchase price may be related to fair value
estimates for which all information has not been obtained or required for
pre-acquisition contingencies of the acquired entity known or discovered
during the allocation period, the period of time required to identify and
measure the fair values of the assets and liabilities acquired in the
business combination. The allocation period is generally limited to one
year following consummation of a business combination.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Impact of Recently Issued Accounting Standards
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities--including an amendment of FASB
Statement No. 115" (Statement 159). Statement 159 permits entities to choose to
measure many financial instruments and certain other items at fair value and
amends Statement 115 to, among other things, require certain disclosures for
amounts for which the fair value option is applied. This standard is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2007, or January 1, 2008 for the Company. Early adoption is permitted as of
the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of Statement 157. The
Company has not completed its assessment of SFAS 159 and the impact, if any, on
the consolidated financial statements.
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, Fair Value Measurements, which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit fair value
measurements, FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating the impact of the adoption of this
standard, but does not expect it to have a material effect on the Company's
financial position or results of operations.
Financial Condition
This section discusses the changes in the Statement of Financial Condition items
from March 31, 2006 and December 31, 2006, to March 31, 2007.
21
March 31, March 31 $ change from $ change from
2007 December 31, 2006 December 31, March 31,
ASSETS ($ IN THOUSANDS) (unaudited) 2006 (unaudited) 2006 2006
----------------------- ------------ ------------ ----------- ------------- -------------
Cash on hand and in banks $ 123,697 136,591 105,474 (12,894) 18,223
Investment securities, interest bearing deposits,
FHLB stock, FRB stock, and fed funds 864,228 862,063 953,880 2,165 (89,652)
Loans:
Real estate 766,421 789,843 638,529 (23,422) 127,892
Commercial 1,851,139 1,850,417 1,435,731 722 415,408
Consumer and other 590,126 574,523 493,023 15,603 97,103
---------- --------- --------- ------- -------
Total loans 3,207,686 3,214,783 2,567,283 (7,097) 640,403
Allowance for loan losses (50,540) (49,259) (39,851) (1,281) (10,689)
---------- --------- --------- ------- -------
Total loans net of allowance for loan losses 3,157,146 3,165,524 2,527,432 (8,378) 629,714
---------- --------- --------- ------- -------
Other assets 313,942 307,120 216,003 6,822 97,939
---------- --------- --------- ------- -------
Total Assets $4,459,013 4,471,298 3,802,789 (12,285) 656,224
========== ========= ========= ======= =======
At March 31, 2007, total assets were $4.459 billion, which is $12 million, or
0.28 percent, lower than the December 31, 2006 assets of $4.471 billion, and
$656 million, or 17 percent, greater than the March 31, 2006 assets of $3.803
billion.
Total loans decreased $7 million from December 31, 2006. Commercial loans have
increased $722 thousand, or 0.04 percent, real estate loans decreased $23
million, or 3 percent, and consumer loans grew by $16 million, or 3 percent.
Total loans have increased $640 million, or 25 percent, from March 31, 2006,
with all loan categories showing increases. Commercial loans grew the most with
an increase of $415 million, or 29 percent, followed by real estate loans which
increased $128 million, or 20 percent, and consumer loans, which are primarily
comprised of home equity loans, increasing by $97 million, or 20 percent.
Investment securities, including interest bearing deposits in other financial
institutions and federal funds sold, have increased $2 million from December 31,
2006, or 0.25 percent, and have declined $90 million, or 9 percent, from March
31, 2006. Investment securities at March 31, 2007 represented 19% of total
assets versus 25% the prior year.
The Company typically sells a majority of long-term mortgage loans originated,
retaining servicing only on loans sold to certain lenders. The sale of loans in
the secondary mortgage market reduces the Company's risk of holding long-term,
fixed rate loans in the loan portfolio. Mortgage loans sold for the three months
ended March 31, 2007 and 2006 were $142 million and $90 million, respectively.
The Company has also been active in generating commercial SBA loans. A portion
of some of those loans is sold to other investors. The amount of loans sold and
serviced for others at March 31, 2007 was approximately $169 million.
22
March 31, March 31 $ change from $ change from
2007 December 31, 2006 December 31, March 31,
LIABILITIES ($ IN THOUSANDS) (unaudited) 2006 (unaudited) 2006 2006
---------------------------- ----------- ------------ ----------- ------------- -------------
Non-interest bearing deposits $ 788,426 829,355 683,201 (40,929) 105,225
Interest bearing deposits 2,410,668 2,378,178 2,010,198 32,490 400,470
Advances from Federal Home Loan Bank 455,625 307,522 505,209 148,103 (49,584)
Securities sold under agreements to
repurchase and other borrowed funds 168,421 338,986 134,981 (170,565) 33,440
Other liabilities 44,878 42,555 37,178 2,323 7,700
Subordinated debentures 118,559 118,559 87,631 -- 30,928
---------- --------- ---------- ------- -------
Total liabilities $3,986,577 4,015,155 3,458,398 (28,578) 528,179
========== ========= ========== ======= =======
Non-interest bearing deposits have decreased $41 million, or 5 percent, since
December 31, 2006, and increased by $105 million, or 15 percent, since March 31,
2006. Increasing non-interest bearing deposits continues to be a primary focus
of each of our banks. Interest bearing deposits increased $32 million from
December 31, 2006, with such change attributable to growth in broker originated
certificates of deposits. The March 31, 2007 balance of interest bearing
deposits includes $205 million in broker originated CD's and $2 million in
Internet generated National Market CD's. Since March 31, 2006, interest bearing
deposits increased $400 million, or 20 percent, net of a decrease of $83 million
in CD's from broker and Internet sources. Federal Home Loan Bank (FHLB) advances
increased $148 million, and repurchase agreements and other borrowed funds
decreased $171 million from December 31, 2006, primarily from the redemption of
$162 million in U. S. Treasury Tax and Loan Term Auction funds. FHLB advances
are $50 million less than the March 31, 2006 balances due primarily to the above
described increases in deposits.
Liquidity and Capital Resources
The objective of liquidity management is to maintain cash flows adequate to meet
current and future needs for credit demand, deposit withdrawals, maturing
liabilities and corporate operating expenses. The principal source of the
Company's cash revenues is the dividends received from the Company's banking
subsidiaries. The payment of dividends is subject to government regulation, in
that regulatory authorities may prohibit banks and bank holding companies from
paying dividends which would constitute an unsafe or unsound banking practice.
The subsidiaries' source of funds is generated by deposits, principal and
interest payments on loans, sale of loans and securities, short and long-term
borrowings, and net earnings. In addition, all of the banking subsidiaries,
except Western Bank of Chinook, N.A., are members of the FHLB. As of March 31,
2007, the Company had $818 million of available FHLB credit of which $456
million was utilized. Accordingly, management of the Company has a wide range of
versatility in managing the liquidity and asset/liability mix for each
individual institution as well as the Company as a whole.
Lending Commitments
In the normal course of business, there are various outstanding commitments to
extend credit, such as letters of credit and un-advanced loan commitments, which
are not reflected in the accompanying condensed consolidated financial
statements. Management does not anticipate any material losses as a result of
these transactions.
23
STOCKHOLDERS' EQUITY
($ IN THOUSANDS EXCEPT PER SHARE DATE)
March 31, March 31 $ change from $ change from
2007 December 31, 2006 December 31, March 31,
(unaudited) 2006 (unaudited) 2006 2006
------------ ------------ ----------- ------------- -------------
Common equity $ 468,646 453,074 344,259 15,572 124,387
Accumulated other comprehensive income 3,790 3,069 132 721 3,658
--------- -------- ------- ------ -------
Total stockholders' equity 472,436 456,143 344,391 16,293 128,045
Core deposit intangible, net, and goodwill (146,164) (144,466) (86,693) (1,698) (59,471)
--------- -------- ------- ------ -------
$ 326,272 311,677 257,698 14,595 68,574
========= ======== ======= ====== =======
Stockholders' equity to total assets 10.60% 10.21% 9.06%
Tangible stockholders' equity to total tangible assets 7.57% 7.21% 6.93%
Book value per common share $ 8.97 8.72 7.11 0.25 1.86
Market price per share at end of quarter $ 24.04 24.44 20.70 (0.40) 3.34
Total equity and book value per share amounts have increased $16 million and
$.25 per share, respectively, from December 31, 2006, the result of earnings
retention, and stock options exercised. Accumulated other comprehensive income,
representing net unrealized gains on securities designated as available for
sale, increased $721 thousand during the quarter, such increase primarily a
function of interest rate changes and the decreased balance of securities.
March 31, March 31,
2007 December 31, 2006
CREDIT QUALITY INFORMATION ($ IN THOUSANDS) (unaudited) 2006 (unaudited)
----------- ------------ -----------
Allowance for loan losses $50,540 $ 49,259 $39,851
Non-performing assets $11,306 8,894 10,325
Allowance as a percentage of non performing assets 447% 554% 386%
Non-performing assets as a percentage of total bank assets 0.25% 0.19% 0.27%
Allowance as a percentage of total loans 1.58% 1.53% 1.55%
Net recoveries (charge-offs) as a percentage of loans 0.003% (0.021%) 0.001%
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at March 31, 2007 were at
..25 percent, down from .27 percent at March 31, 2006, but increasing slightly
from .19 percent at December 31, 2006. The Company ratios compare favorably to
the Federal Reserve Bank Peer Group average of .43 percent at December 31, 2006,
the most recent information available. The allowance for loan losses was 447
percent of non-performing assets at March 31, 2007, up from 386 percent a year
ago. The allowance, including $6.091 million from acquisitions, has increased
$10.689 million, or 27 percent, from a year ago. The allowance of $50.540
million, is 1.58 percent of March 31, 2007 total loans outstanding, up slightly
from the 1.55 percent a year ago. The first quarter provision for loan losses
expense was $1.195 million, an increase of $30 thousand from the same quarter in
2006, and was a decrease of $157 thousand from the fourth quarter of 2006.
Recovery of previously charged-off loans exceeded amounts charged-off during the
quarter by $86 thousand. Loan growth, average loan size, and credit quality
considerations will determine the level of additional provision expense.
24
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2006.
The Company reported net earnings of $16.093 million, an increase of $2.5
million, or 18 percent, over the $13.629 million for the first quarter of 2006.
Diluted earnings per share for the quarter of $.30 is an increase of 7 percent
over the diluted earnings per share of $.28 for the first quarter of 2006. Net
earnings was reduced by $547,230, or $.01 per share, for share-based
compensation expense. Annualized return on average assets and return on average
equity for the quarter were 1.48 percent and 14.02 percent, respectively, which
compares with prior year returns for the first quarter of 1.48 percent and 16.21
percent.
Included in net earnings for the quarter is a $1.0 million gain (pre-tax gain of
$1.6 million) from the January 19, 2007 sale of Western Security Bank's
Lewistown branch as a condition imposed by bank regulators to complete the
acquisition of Citizens Development Company ("CDC"). On January 26, 2007, three
of the five CDC subsidiaries, i.e., Citizens State Bank, First Citizens Bank of
Billings, and First Citizens Bank, N.A., were merged into Company subsidiaries,
i.e., First Security Bank of Missoula, Western Security Bank and Glacier Bank,
respectively. Costs associated with merging and converting these CDC
subsidiaries, the Lewistown branch divestiture and other non-recurring expenses
during the quarter were nearly $500 thousand. During June 2007, the remaining
two CDC subsidiaries will be merged together.
REVENUE SUMMARY
(UNAUDITED - $ IN THOUSANDS)
Three months ended March 31,
---------------------------------------
2007 2006 $ change % change
------- ------- -------- --------
Net interest income $43,091 $36,308 $6,783 19%
Non-interest income
Service charges, loan fees, and other fees 10,085 8,217 1,868 23%
Gain on sale of loans 3,042 2,190 852 39%
Loss on sale of investments (8) -- (8) n/m
Other income 2,573 749 1,824 244%
------- ------- ------- ---
Total non-interest income 15,692 11,156 4,536 41%
------- ------- ------- ---
$58,783 $47,464 $11,319 24%
======= ======= ======= ===
Tax equivalent net interest margin 4.36% 4.39%
======= =======
Net Interest Income
Net interest income for the quarter increased $6.783 million, or 19 percent,
over the same period in 2006, and decreased $2.258 million, or 5 percent, from
the fourth quarter of 2006. Total interest income increased $15.968 million from
the prior year's quarter, or 29 percent, while total interest expense was $9.185
million, or 47 percent higher. The increase in interest expense is primarily
attributable to the volume increase in interest bearing liabilities, and the
inverted to flat yield curve on the short end and flat on intermediate to
long-term maturities. The net interest margin as a percentage of earning assets,
on a tax equivalent basis, was 4.36 percent which was 3 basis points lower than
the 4.39 percent result for the first quarter of 2006.
Non-interest Income
Fee income increased $1.868 million, or 23 percent, over the same period last
year, driven primarily by an increased number of loan and deposit accounts from
internal growth and acquisitions. Gain on sale of loans increased $852 thousand,
or 39 percent, from the first quarter of last year. Other income of $2.573
million includes the $1.6 million gain from the sale of the Lewistown branch.
Loan origination activity for housing construction and purchases remains strong
in our markets.
25
NON-INTEREST EXPENSE SUMMARY
(UNAUDITED - $ IN THOUSANDS)
Three months ended March 31,
----------------------------------------
2007 2006 $ change % change
------- ------- -------- --------
Compensation and employee benefits $19,506 $15,311 $4,195 27%
Occupancy and equipment expense 4,458 3,491 967 28%
Outsourced data processing 812 724 88 12%
Core deposit intangibles amortization 780 420 360 86%
Other expenses 7,627 5,881 1,746 30%
------- ------- ------ ---
Total non-interest expense $33,183 $25,827 $7,356 28%
======= ======= ====== ===
Non-interest Expense
Non-interest expense increased by $7.355 million, or 28 percent, from the same
quarter of 2006. Compensation and benefit expense increased $4.195 million, or
27 percent, which is primarily attributable to increased staffing levels,
including staffing from the acquisitions of First National Bank of Morgan and
CDC during 2006, new branches, as well as compensation and merit increases for
job performance, increased cost of benefits, and overtime associated with the
three CDC banks mergers and related conversions of their operating systems in
the first quarter of 2007. The number of full-time-equivalent employees has
increased from 1,147 to 1,395, a 22 percent increase since March 31, 2006.
Occupancy and equipment expense increased $966 thousand, or 28 percent,
reflecting the bank acquisitions, cost of additional branch locations and
facility upgrades. Other expenses increased $1.746 million, or 30 percent,
primarily from acquisitions, data conversions, additional marketing expenses,
and costs associated with new branch offices. The efficiency ratio (non-interest
expense/net interest income + non-interest income) was 56 percent for the 2007
first quarter, up from 54 percent for the 2006 first quarter.
Critical Accounting Policies
Companies apply certain critical accounting policies requiring management to
make subjective or complex judgments, often as a result of the need to estimate
the effect of matters that are inherently uncertain. The Company considers its
only critical accounting policy to be the allowance for loan losses. The
allowance for loan losses is established through a provision for loan losses
charged against earnings. The balance of allowance for loan loss is maintained
at the amount management believes will be adequate to absorb known and inherent
losses in the loan portfolio. The appropriate balance of allowance for loan
losses is determined by applying estimated loss factors to the credit exposure
from outstanding loans. Estimated loss factors are based on subjective
measurements including management's assessment of the internal risk
classifications, changes in the nature of the loan portfolio, industry
concentrations and the impact of current local, regional and national economic
factors on the quality of the loan portfolio. Changes in these estimates and
assumptions are reasonably possible and may have a material impact on the
Company's consolidated financial statements, results of operations and
liquidity.
Effect of inflation and changing prices
Generally accepted accounting principles require the measurement of financial
position and operating results in terms of historical dollars, without
consideration for change in relative purchasing power over time due to
inflation. Virtually all assets of a financial institution are monetary in
nature; therefore, interest rates generally have a more significant impact on a
company's performance than does the effect of inflation.
Forward Looking Statements
This Form 10-Q includes forward looking statements, which describe management's
expectations regarding future events and developments such as future operating
results, growth in loans and deposits, continued success of the Company's style
of banking and the strength of the local economies in which it operates. Future
events are difficult to predict, and the expectations described above are
necessarily subject to risk and uncertainty that may cause actual results to
differ materially and adversely. In addition to discussions about
26
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, 2006.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have reviewed
and evaluated the effectiveness of our disclosure controls and procedures (as
required by Exchange Act Rules 240.13a-15(b) and 15d-14(c)) as of the date of
this quarterly report. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's current disclosure
controls and procedures are effective and timely, providing them with material
information relating to the Company required to be disclosed in the reports we
file or submit under the Exchange Act.
Changes in Internal Controls
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the first quarter 2007, to which this report relates that
have materially affected, or are reasonably likely to materially affect the
Company's internal control over financial reporting.
27
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the registrant or
its subsidiaries are a party.
ITEM 1A. RISK FACTORS
There have not been any material changes to the Company's risk factors
during the first quarter 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) None
(b) Not Applicable
(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
28
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 7, 2007 /s/ Michael J. Blodnick
----------------------------------------
Michael J. Blodnick
President/CEO
May 7, 2007 /s/ Ron J. Copher
----------------------------------------
Ron J. Copher
Senior Vice President/CFO
29