UNITED STATESSECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
COMMISSION FILE 0-18911
GLACIER BANCORP, INC.
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 o
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
The number of shares of Registrant’s common stock outstanding on May 4, 2004 was 24,487,471. No preferred shares are issued or outstanding.
GLACIER BANCORP, INC.Quarterly Report on Form 10-Q
Index
Glacier Bancorp, Inc.
See accompanying notes to consolidated financial statements.
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Consolidated Statements of Stockholders’ Equityand Comprehensive Income
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Notes to Consolidated Financial Statements
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INVESTMENTS AS OF MARCH 31, 2004
INVESTMENTS AS OF DECEMBER 31, 2003
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The following table illustrates the loan loss experience:
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AVERAGE BALANCE SHEET(Dollars in Thousands)
(1) Excludes tax effect on non-taxable investment security income
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition
This section discusses the changes in Statement of Financial Condition items from March 31, 2003 and December 31, 2003, to March 31, 2004.
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Total deposits have increased $115 million from March 31, 2003, of which $59 million came with the POB acquisition, and there was a decrease of $6 million from December 31, 2003. There was an increase of $59 million, or 19 percent, in non-interest bearing deposits. This growth in low cost stable funding gives us increased flexibility in managing our asset mix. Interest-bearing deposits are up $57 million, or 5 percent, of which $49 million was added by the POB acquisition. Federal Home Loan Bank advances have also increased $301 million as we continue to take advantage of the flexibility of that funding source in this current period of low interest rates. On March 24, 2004 subordinated debentures in the form of trust preferred securities of $45 million, with an interest rate of 5.79 percent, were issued by the Company. The proceeds will be used for general corporate purposes.
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 income. In addition, all seven banking subsidiaries are members of the FHLB. As of March 31, 2004, the Company had $1.045 billion of available FHLB line of which $802 million was utilized. Accordingly, management of the Company has a wide range of versatility in managing the liquidity and asset/liability mix for each individual institution as well as the Company as a whole. During 2004, all seven financial institutions maintained liquidity and regulatory capital levels in excess of regulatory requirements and operational needs.
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 consolidated financial statements. Management does not anticipate any material losses as a result of these transactions.
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Total equity and book value per share amounts have increased substantially from the prior year, primarily the result of earnings retention, and stock options exercised. Net unrealized gains on securities increased $3.4 million from a year ago primarily the result of intermediate term interest rate changes. On April 28, 2004, the Board of Directors declared a five-for-four stock split payable May 20, 2004 to owners of record on May 11, 2004, and all per share amounts have been restated to reflect the effects of the stock split. On April 28, 2004, the Board of Directors also authorized the repurchase of up to five percent of the Company’s common shares. Such repurchases will be effected from time to time in the open market at prices acceptable to the Company.
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at March 31, 2004 were at ..42 percent, a decrease from .43 percent at March 31, 2003 and from .48 percent at December 31, 2003. This compares to the Peer Group average of .62 percent at December 31, 2003, the most recent information available. The allowance for loan losses was 211 percent of non-performing assets at March 31, 2004, compared to 216 percent a year ago. The allowance has increased $2.942 million, or 14 percent, from a year ago to $24.569 million, remaining at 1.65 percent of total loans outstanding. The first quarter provision expense for loan losses was $830 thousand, a decrease of $11 thousand from the same quarter in 2003.
Results of Operations – The three months ended March 31, 2004 compared to the three months ended March 31, 2003.
Operating results for the three months ended March 31, 2004 include amounts related to the operation of the three branches acquired from the POB acquisition as of July 15, 2003.
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The Company reported net quarterly earnings of $10.610 million which is an increase of $1.762 million, or 20 percent, over the $8.848 million for the first quarter of 2003. Diluted earnings per share of $.43, is an increase of 19 percent over the per share earnings of $.36 for the same quarter of 2003. Return on average assets and return on average equity for the quarter were 1.55 percent and 17.28 percent, respectively, which compares with prior year returns of 1.58 percent and 16.41 percent
Net Interest Income
Net interest income for the quarter increased $4.557 million, or 21 percent, over the same period in 2003. Total interest income was $3.403 million, or 11 percent higher than the same quarter in 2003, while total interest expense was $1.154 million or 11 percent lower. The decrease in interest expense is partly attributed to the increase in non-interest bearing deposits which reduced the need to borrow funds. The net interest margin as a percentage of earning assets, on a tax equivalent basis, decreased from 4.35 percent for the 2003 quarter to 4.29 percent for the first quarter of 2004. The net interest margin increased from the 4.17 percent for the fourth quarter of 2003 and was higher than any of the last three quarters of 2003. Premium amortization on mortgage related investments for the current quarter was $2.553 million, down from the $3.884 million during the fourth quarter of 2003, and approximately the same level as last year’s quarter. Mortgage security prepayments have slowed resulting in less amortization expense allowing our net interest margin to stabilize. We continue to deploy a strategy of investing in short term securities that carry lower current yields. We believe it is inappropriate in this rate environment to extend maturities in order to achieve higher yields.
Non-interest Income
Fee income increased 10 percent over the same period last year, driven primarily by an increased number of loan and deposit accounts. Gain on sale of loans decreased $500 thousand from the first quarter of last year and $163 thousand from the fourth quarter of 2003, reflecting the reduced mortgage loan refinancing activity. Other income, which includes a variety of activities, was $12 thousand lower than the prior year’s quarter. In the first quarter of 2003 a valuation impairment charge of $454 thousand, due to rapid prepayment of mortgage-backed securities, was netted against a $17 thousand gain on sale of investments and recorded as a net loss on sale of investments. There were no realized gains or losses on investments in the first quarter of 2004.
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Non-interest Expense
Non-interest expense increased by $2.543 million, or 17 percent, from the same quarter of 2003. Current year includes expenses of the three branches from the POB acquisition, two additional branches in Boise, Idaho, and a new branch in downtown Bozeman, one of the fastest growing cities in Montana. Compensation and benefit expense increased $1.827 million, or 23 percent from the first quarter of 2003 with the additional bank branches, and normal compensation increases for job performance, accounting for the majority of the increase. Outsourced data processing expense decreased by $149 thousand, the result of bringing the core processing for all subsidiaries onto our in-house data system. Other expenses increased $713 thousand, or 20 percent, primarily from start up expenses on implementing the High Performance Checking program at the four banks not previously on the program, additional advertising expense, and costs associated with the new branch offices. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 52 percent for the 2004 quarter the same as the 2003 quarter.
Critical Accounting Policies
Companies may apply certain critical accounting policies requiring management to make subjective or complex judgments, often as a result of the need to estimate the effect of matters that are inherently uncertain. The Company considers its only 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 may be deemed to include forward looking statements, which management believes are a benefit to shareholders. These forward looking statements describe management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of the Company’s style of banking and the strength of the local economy. The words “will,” “believe,” “expect,” “should,” and “anticipate” and words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are
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subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company’s filings with the SEC, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national, and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the Company’s ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches are lower than expected; (4) costs or difficulties related to the integration of acquisitions are greater than expected; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged; and (7) the Company’s ability to realize the efficiencies it expects to receive from its investments in personnel and infrastructure.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company believes that there has not been any material changes in information about the Company’s market risk that was provided in the Form 10-K report for the year ended December 31, 2003.
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 defined in Exchange Act Rules 240.13a-14(c) 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 significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending material legal proceedings to which the registrant or its subsidiaries are a party.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
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Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(b) Current Report on Form 8-K
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.
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