Glacier Bancorp - 10-Q quarterly report FY

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


[X]		Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

		For the quarterly period ended September 30, 2003

[ ]		Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

		For the transition period from __________ to __________

COMMISSION FILE 0-18911

GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter)


DELAWARE		81-0519541

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

49 Commons Loop, Kalispell, Montana		59901

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (406) 756-4200


N/A

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YesX No ___

The number of shares of Registrant’s common stock outstanding on November 3, 2003 was 19,339,470. No preferred shares are issued or outstanding.

TABLE OF CONTENTS


Item 1 – Financial Statements
	Consolidated Statements of Financial Condition
	Consolidated Statements of Operations
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income Year ended December 31, 2002 and Nine months ended September 30, 2003
	Condensed Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
Exhibit 31.1
Exhibit 31.2
Exhibit 32

GLACIER BANCORP, INC.
Quarterly Report on Form 10-Q

Index


			Page #
Part I. Financial Information

	Item 1 – Financial Statements

		Consolidated Statements of Financial Condition – September 30, 2003, December 31, 2002 and September 30, 2002 (unaudited)		3

		Consolidated Statements of Operations – Three and nine months ended September 30, 2003 and 2002 (unaudited)		4

		Consolidated Statements of Stockholders’ Equity and Comprehensive Income – Year ended December 31, 2002 and nine months ended September 30, 2003 (unaudited)		5

		Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2003 and 2002 (unaudited)		6

		Notes to Consolidated Financial Statements (unaudited)		7

	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			19

	Item 3 – Quantitative and Qualitative Disclosure about Market Risk			25

	Item 4 – Controls and Procedures			26

Part II. Other Information				26

	Item 1 – Legal Proceedings			26

	Item 2 – Changes in Securities and Use of Proceeds			26

	Item 3 – Defaults Upon Senior Securities			26

	Item 4 – Submission of Matters to a Vote of Security Holders			26

	Item 5 – Other Information			26

	Item 6 – Exhibits and Reports on Form 8-K			26

	Signatures			27

Glacier Bancorp, Inc.
Consolidated Statements of Financial Condition



(Unaudited - dollars in thousands, except per share data)				September 30,			December 31,			September 30,
				2003			2002			2002

Assets:
	Cash on hand and in banks			$	67,538			74,624			62,723
	Interest bearing cash deposits				27,517			4,753			18,690

		Cash and cash equivalents			95,055			79,377			81,413

	Investments:
		Investment securities, available-for-sale			299,773			260,606			233,229
		Mortgage backed securities, available-for-sale			673,325			479,355			421,966
		Federal Home Loan Bank and Federal Reserve Bank stock, at cost			45,831			42,864			42,128

			Total investments		1,018,929			782,825			697,323

	Net loans receivable:
		Real estate loans			345,091			361,522			383,890
		Commercial Loans			829,513			673,256			674,139
		Consumer and other loans			292,516			286,819			291,164
		Allowance for loan losses			(23,920	)		(20,944	)		(21,342	)

			Total loans, net		1,443,200			1,300,653			1,327,851

	Premises and equipment, net				53,025			47,215			47,524
	Real estate and other assets owned, net				577			1,542			852
	Accrued interest receivable				14,204			13,421			13,447
	Core deposit intangible, net				6,171			6,822			7,181
	Goodwill, net				36,909			33,189			33,189
	Other assets				15,004			16,300			15,034

				$	2,683,074			2,281,344			2,223,814

Liabilities and stockholders’ equity:
	Non-interest bearing deposits			$	392,746			295,016			292,653
	Interest bearing deposits				1,225,653			1,164,907			1,206,000
	Advances from Federal Home Loan Bank of Seattle				714,837			483,660			402,367
	Securities sold under agreements to repurchase				53,047			46,206			33,572
	Other borrowed funds				5,740			15,087			16,799
	Accrued interest payable				4,779			6,090			6,291
	Current income taxes				1,731			815			1,642
	Deferred tax liability				4,916			8,629			8,240
	Trust preferred securities				35,000			35,000			35,000
	Other liabilities				16,520			13,685			15,058

		Total liabilities			2,454,969			2,069,095			2,017,622

	Preferred shares, 1,000,000 shares authorized. None outstanding				—			—			—
	Common stock, $.01 par value per share 50,000,000 shares authorized				193			191			190
	Paid-in capital				221,216			216,974			215,023
	Retained earnings — substantially restricted				2,740			(15,027	)		(20,672	)
	Accumulated other comprehensive income				3,956			10,111			11,651

		Total stockholders’ equity			228,105			212,249			206,192

				$	2,683,074			2,281,344			2,223,814

	Number of shares outstanding				19,333,985			19,014,400			18,945,931
	Book value per share			$	11.80			11.16			10.88
	Tangible book value per share			$	9.57			9.06			8.75

See accompanying notes to consolidated financial statements

Glacier Bancorp, Inc.
Consolidated Statements of Operations



(unaudited - dollars in thousands, except per share data)		Three months ended Sept. 30,						Nine months ended Sept. 30,

		2003			2002			2003			2002

Interest income:
	Real estate loans	$	6,016			7,190			18,117			22,253
	Commercial loans		13,137			12,007			37,116			35,088
	Consumer and other loans		4,999			5,643			15,131			17,142
	Investment securities and other		8,951			8,989			26,414			25,931

	Total interest income		33,103			33,829			96,778			100,414

Interest expense:
	Deposits		4,102			6,429			13,480			20,544
	Federal Home Loan Bank of Seattle Advances		4,252			4,189			12,551			12,555
	Securities sold under agreements to repurchase		157			144			490			433
	Trust preferred securities		903			903			2,711			2,711
	Other borrowed funds		25			32			81			72

	Total interest expense		9,439			11,697			29,313			36,315

Net interest income			23,664			22,132			67,465			64,099
	Provision for loan losses		1,221			1,665			3,113			4,225

	Net interest income after provision for loan losses		22,443			20,467			64,352			59,874

Non-interest income:
	Service charges and other fees		4,088			3,726			11,523			10,332
	Miscellaneous loan fees and charges		1,084			973			3,246			2,837
	Gains on sale of loans		3,258			1,283			8,740			3,716
	Gains on sale of investments, net of impairment charge		5			—			1,253			2
	Other income		478			475			1,477			1,753

	Total non-interest income		8,913			6,457			26,239			18,640

Non-interest expense:
	Compensation, employee benefits and related expenses		9,448			7,541			26,477			22,856
	Occupancy and equipment expense		2,536			2,340			7,266			6,965
	Outsourced data processing expense		393			547			1,221			1,508
	Core deposit intangibles amortization		308			359			937			1,080
	Other expenses		4,362			3,210			12,354			10,294

	Total non-interest expense		17,047			13,997			48,255			42,703

Earnings before income taxes			14,309			12,927			42,336			35,811

	Federal and state income tax expense		4,612			4,311			13,859			12,170

Net earnings		$	9,697			8,616			28,477			23,641

Basic earnings per share		$	0.50			0.46			1.48			1.26
Diluted earnings per share		$	0.49			0.45			1.46			1.23
Dividends declared per share		$	0.20			0.15			0.55			0.45
Return on average assets (annualized)			1.49	%		1.58	%		1.58	%		1.48	%
Return on average equity (annualized)			17.10	%		17.03	%		17.00	%		16.42	%
Return on tangible average equity (annualized)			21.11	%		21.32	%		20.78	%		20.94	%
Average outstanding shares — basic			19,310,538			18,930,436			19,244,857			18,832,983
Average outstanding shares — diluted			19,667,623			19,251,694			19,558,424			19,162,317

See accompanying notes to consolidated financial statements.

Glacier Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
and Comprehensive Income
Year ended December 31, 2002 and Nine months ended September 30, 2003



								Retained
								earnings
								(accumulated			Accumulated			Total
		Common Stock						deficit)			other comp-			stock-
						Paid-in		substantially			rehensive			holders'
(Unaudited - dollars in thousands, except per share data)		Shares		Amount		capital		restricted			income			equity

Balance at December 31, 2001			18,561,864	$	187		210,937		(35,897	)		1,756			176,983
Comprehensive income:
	Net earnings		—		—		—		32,402			—			32,402
	Unrealized gain on securities, net of reclassification adjustment		—		—		—		—			8,355			8,355

Total comprehensive income															40,757

Cash dividends declared ($.61 per share)			—		—		—		(11,532	)		—			(11,532	)
Stock options exercised			452,536		4		4,957		—			—			4,961
Tax benefit from stock related compensation			—		—		1,080		—			—			1,080

Balance at December 31, 2002			19,014,400	$	191		216,974		(15,027	)		10,111			212,249
Comprehensive income:
	Net earnings		—		—		—		28,477			—			28,477
	Unrealized loss on securities, net of reclassification adjustment		—		—		—		—			(6,155	)		(6,155	)

Total comprehensive income															22,322

Cash dividends declared ($.55 per share)			—		—		—		(10,695	)		—			(10,695	)
Stock options exercised			319,585		2		4,242		—			—			4,244
Acquisition of fractional shares (note 5)			—		—		—		(15	)		—			(15	)

Balance at September 30, 2003			19,333,985	$	193		221,216		2,740			3,956			228,105

See accompanying notes to consolidated financial statements

Glacier Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows



(Unaudited - dollars in thousands)				Nine months ended September 30,

				2003			2002

OPERATING ACTIVITIES :
	Net cash provided by operating activities			$	64,713			17,671

INVESTING ACTIVITIES:
	Proceeds from sales, maturities and prepayments of investments available-for-sale				294,546			146,080
	Purchases of investments available-for-sale				(543,874	)		(280,008	)
	Principal collected on installment and commercial loans				402,977			422,530
	Installment and commercial loans originated or acquired				(527,430	)		(468,848	)
	Principal collections on mortgage loans				228,299			186,291
	Mortgage loans originated or acquired				(217,457	)		(136,293	)
	Net purchase of FHLB and FRB stock				(672	)		(3,583	)
	Net (addition) disposal of premises and equipment				(6,146	)		91
	Acquisition of Pend Oreille Bancorp				(200	)		—

		NET CASH USED IN INVESTING ACTIVITIES			(369,957	)		(133,740	)

FINANCING ACTIVITIES:
	Net increase in deposits				98,717			52,589
	Net increase in FHLB advances and other borrowed funds				221,830			50,810
	Net increase in securities sold under repurchase agreements				6,841			987
	Cash dividends paid to stockholders				(10,695	)		(8,416	)
	Proceeds from exercise of stock options				4,244			4,086
	Cash paid for stock dividends				(15	)		—

		NET CASH PROVIDED BY FINANCING ACTIVITIES			320,922			100,056

		NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			15,678			(16,013	)
	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				79,377			97,426

	CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	95,055			81,413

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
	Cash paid during the period for: Interest			$	30,625			39,203
			Income taxes	$	11,236			10,619

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

Basis of Presentation:

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Glacier Bancorp Inc.’s (the “Company”) financial condition as of September 30, 2003, December 31, 2002, and September 30, 2002, stockholders’ equity for the nine months ended September 30, 2003 and the year ended December 31, 2002, the results of operations for the three and nine months ended September 30, 2003 and 2002, and cash flows for the nine months ended September 30, 2003 and 2002.

The accompanying consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Operating results for the nine months ended September 30, 2003 are not necessarily indicative of the results anticipated for the year ending December 31, 2003. Certain reclassifications have been made to the 2002 financial statements to conform to the 2003 presentation.

Organizational Structure:

The Company, headquartered in Kalispell, Montana, is a Delaware corporation incorporated in 1990, pursuant to the reorganization of Glacier Bank, FSB into a bank holding company. The Company is the parent company for eight wholly owned 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”), and Glacier Capital Trust I (“Glacier Trust”), all located in Montana, and Mountain West Bank (“Mountain West”) which is located in Idaho, Utah, and Washington. The Company does not have any off-balance sheet entities.

Community First, Inc. (CFI), a former subsidiary of the Company, ceased to exist as a separate subsidiary on July 1, 2003 and operations are currently performed at the parent level. The Company provides full service brokerage services through Raymond James Financial Services, Inc.

The following abbreviated organizational chart illustrates the various relationships:

3) Ratios:

Returns on average assets and average equity were calculated based on daily averages.

Dividends Declared:

On September 24, 2003, the Board of Directors declared a $.20 per share quarterly cash dividend to stockholders of record on October 7, 2003, payable on October 16, 2003.

On April 30, 2003, the Board of Directors declared a 10 percent stock dividend, payable in common stock of Glacier Bancorp, Inc. to stockholders of record on May 13, 2003. The number of shares issued was 1,751,036. The dividend resulted in a total paid in capital adjustment of $43,566,000. In connection with the stock dividend, fractional shares were reacquired by the Company for cash of $15,000. Effects of stock dividends have been retroactively reflected for all periods presented.

Computation of Earnings Per Share:

Basic earnings per common share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares if dilutive outstanding stock options were exercised, using the treasury stock method.

The following schedule contains the data used in the calculation of basic and diluted earnings per share.

Three

Nine

months ended

Sept. 30, 2003

Sept. 30, 2002

Sept. 30, 2003

Sept. 30, 2002

Net earnings available to common stockholders

9,696,705

8,616,194

28,477,053

23,641,308

Average outstanding shares — basic

19,310,538

18,930,436

19,244,857

18,832,983

Add: Dilutive stock options

357,085

321,258

313,567

329,334

Average outstanding shares — diluted

19,667,623

19,251,694

19,558,424

19,162,317

Basic earnings per share

0.50

0.46

1.48

1.26

Diluted earnings per share

0.49

0.45

1.46

1.23

Investments:

A comparison of the amortized cost and estimated fair value of the Company’s investment securities, available for sale, is as follows.

INVESTMENTS AS OF SEPTEMBER 30, 2003



(Dollars in thousands)
													Estimated
			Weighted			Amortized		Gross Unrealized					Fair
U.S. Government and Federal Agencies			Yield			Cost		Gains		Losses			Value

	maturing within one year (1)			0.49	%		1,309		—		—			1,309
	maturing one year through five years			1.29	%		260		—		—			260
	maturing after ten years			2.96	%		968		13		(1	)		980

				1.52	%		2,537		13		(1	)		2,549

State and Local Governments and other issues:
	maturing within one year			5.59	%		4,089		69		—			4,158
	maturing one year through five years			4.41	%		6,106		109		(91	)		6,124
	maturing five years through ten years			5.45	%		5,102		126		—			5,228
	maturing after ten years			5.16	%		278,100		7,109		(3,495	)		281,714

				5.16	%		293,397		7,413		(3,586	)		297,224

Mortgage-Backed Securities				5.20	%		72,807		1,616		(395	)		74,028
Real Estate Mortgage Investment Conduits				3.96	%		597,827		4,836		(3,366	)		599,297
FHLB and FRB stock, at cost				5.34	%		45,831		—		—			45,831

		Total Investments		4.45	%	$	1,012,399		13,878		(7,348	)		1,018,929

(1) Investments acquired at fair market value through the acquisition of Pend Oreille Bancorp, Inc.

INVESTMENTS AS OF DECEMBER 31, 2002


													Estimated
(Dollars in thousands)			Weighted			Amortized		Gross Unrealized					Fair

			Yield			Cost		Gains		Losses			Value

U.S. Government and Federal Agencies
	maturing after ten years			3.45	%	$	1,086		10		(2	)		1,094

				3.45	%		1,086		10		(2	)		1,094

State and Local Governments and other issues:
	maturing within one year			5.81	%		3,144		53		—			3,197
	maturing one year through five years			5.20	%		10,037		227		(98	)		10,166
	maturing five years through ten years			5.44	%		2,457		101		—			2,558
	maturing after ten years			5.44	%		236,620		8,046		(1,075	)		243,591

				5.43	%		252,258		8,427		(1,173	)		259,512

Mortgage-Backed Securities				5.39	%		81,043		2,440		(82	)		83,401
Real Estate Mortgage Investment Conduits				4.63	%		388,927		7,208		(181	)		395,954
FHLB and FRB stock, at cost				6.17	%		42,864		—		—			42,864

		Total Investments		5.06	%	$	766,178		18,085		(1,438	)		782,825

Interest income includes tax-exempt interest for the nine months ended September 30, 2003 and 2002 of $8,138,000 and $5,557,000, respectively, and the three months ended September 30, 2003 and 2002 of $2,959,000 and $2,100,000, respectively.

Gross proceeds from sales of investment securities for the nine months ended September 30, 2003 and 2002 were $19,603,000, and $24,428,000, respectively, resulting in gross gains of approximately $3,502,000, and $215,000, and gross losses of approximately $0, and $213,000, respectively. Gross proceeds from sales of investment securities for the three months ended September 30, 2003 and 2002 were $5,000, and $0, respectively, resulting in gross gains of approximately $5,000, and $0, respectively. The cost of any investment sold is determined by specific identification.

There was an impairment charge for the three and nine months ended September 30, 2003, of $0 and $2,249,000, respectively, for the impairment of value on collateralized mortgage obligations. The impairment charge is included in the net gain on sale of investments.

Loans

The following table summarizes the Company’s loan portfolio. The loans mature or are repriced at various times.


TYPE OF LOAN			At						At
(Dollars in Thousands)			09/30/03						12/31/2002

			Amount			Percent			Amount			Percent
Real Estate Loans:
	Residential first mortgage loans		$	311,284			21.6	%	$	310,205			23.8	%
	Loans held for sale			34,533			2.4	%		51,987			4.0	%

		Total		345,817			24.0	%		362,192			27.8	%
Commercial Loans:
	Real estate			472,515			32.7	%		397,803			30.6	%
	Other commercial loans			358,304			24.8	%		276,675			21.3	%

		Total		830,819			57.5	%		674,478			51.9	%
Consumer and Other Loans:
	Consumer loans			98,415			6.8	%		112,893			8.7	%
	Home equity loans			194,228			13.5	%		174,033			13.4	%

		Total		292,643			20.3	%		286,926			22.1	%
	Net deferred loan fees, premiums and discounts			(2,159	)		-0.1	%		(1,999	)		-0.2	%
	Allowance for Losses			(23,920	)		-1.7	%		(20,944	)		-1.6	%

Net Loans			$	1,443,200			100.0	%	$	1,300,653			100.0	%

The following table sets forth information regarding the Company’s non-performing assets at the dates indicated:


(Dollars in Thousands)				At			At
				9/30/2003			12/31/2002

Non-accrual loans:
		Real estate loans		$	2,549			2,476
		Commercial loans			5,513			5,157
		Consumer and other loans			353			409

			Total	$	8,415			8,042
Accruing Loans 90 days or more overdue:
		Real estate loans			837			846
		Commercial loans			587			968
		Consumer and other loans			73			184

			Total	$	1,497			1,998
Real estate and other assets owned, net					577			1,542
Total non-performing loans, and real estate and other assets owned, net				$	10,489			11,582

	As a percentage of total assets				0.39	%		0.51	%
Interest Income (1)				$	428			596

(1)

This is the amount of interest that would have been recorded on loans accounted for on a non-accrual basis for the nine months ended September 30, 2003 and the year ended December 31, 2002, if such loans had been current for the entire period.

The following table illustrates the loan loss experience:


ALLOWANCE FOR LOAN LOSS				Nine months ended			Year ended
				September 30,			December 31,
(Dollars in Thousands)				2003			2002

Balance at beginning of period				$	20,944			18,654
	Charge offs:
		Real estate loans			(223	)		(887	)
		Commercial loans			(792	)		(2,522	)
		Consumer and other loans			(738	)		(1,328	)

			Total charge offs	$	(1,753	)		(4,737	)

	Recoveries:
		Real estate loans			149			276
		Commercial loans			258			326
		Consumer and other loans			250			680

			Total recoveries	$	657			1,282

	Chargeoffs, net of recoveries				(1,096	)		(3,455	)
	Acquisition (1)				959			—
	Provision				3,113			5,745

Balance at end of period				$	23,920			20,944

Ratio of net charge offs to average loans outstanding during the period					0.08	%		0.26	%

(1)

Acquisition of Pend Oreille Bancorp, Inc.

The following table summarizes the allocation of the allowance for loan losses:


		September 30, 2003					December 31, 2002

				Percent					Percent
				of loans in					of loans in
(Dollars in thousands)		Allowance		category			Allowance		category

Real estate loans		$	2,214		23.5	%		2,334		27.4	%
Commercial real estate			7,057		32.2	%		7,088		30.1	%
Other commercial			10,275		24.4	%		7,670		20.9	%
Consumer and other loans			4,374		19.9	%		3,852		21.6	%

	Totals	$	23,920		100.0	%		20,944		100.0	%

Intangible Assets

The following table sets forth information regarding the Company’s core deposit intangibles and mortgage servicing rights as of September 30, 2003:



		Core Deposit			Mortgage
(Dollars in thousands)		Intangible			Servicing Rights (1)		Total

	Gross carrying value	$	10,122
	Accumulated Amortization		(3,951	)

	Net carrying value	$	6,171			1,419		7,590

Weighted-Average amortization period
	(Period in years)		10.0			9.7		9.9
Aggregate Amortization Expense
	For the three months ended September 30, 2003	$	308			221		529
	For the nine months ended September 30, 2003	$	937			640		1,577
Estimated Amortization Expense
	For the year ended December 31, 2003	$	1,243			664		1,907
	For the year ended December 31, 2004		1,061			93		1,154
	For the year ended December 31, 2005		891			90		981
	For the year ended December 31, 2006		818			88		906
	For the year ended December 31, 2007		800			85		885

(1)

The mortgage servicing rights are included in other assets and the gross carrying value and accumulated amortization are not readily available.

On July 15, 2003, the Company acquired Pend Oreille Bancorp, which resulted in additional core deposit intangible of $286,000 and goodwill of $3,719,000.

10)

Deposits

The following table illustrates the amounts outstanding for deposits greater than $100,000 at September 30, 2003, according to the time remaining to maturity:



		Certificates		Non-Maturity
(Dollars in thousands)		of Deposit		Deposits		Totals

Within three months		$	24,132		470,723		494,855
Three to six months			17,717		—		17,717
Seven to twelve months			17,595		—		17,595
Over twelve months			13,128		—		13,128

	Totals	$	72,572		470,723		543,295

11)

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:


		As of and			As of and
		for the nine			for the twelve
(Dollars in thousands)		months ended			months ended
		September 30, 2003			December 31, 2002

FHLB Advances
	Amount outstanding at end of period	$	714,837			483,660
	Average balance	$	556,664			409,168
	Maximum outstanding at any month-end	$	714,837			483,660
	Weighted average interest rate		3.01	%		4.15	%
Repurchase Agreements:
	Amount outstanding at end of period	$	53,047			46,206
	Average balance	$	60,882			35,480
	Maximum outstanding at any month-end	$	74,808			46,206
	Weighted average interest rate		1.08	%		1.46	%

12)

Stockholders’ Equity:

The Federal Reserve Board has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company. The following table illustrates the Federal Reserve Board’s capital adequacy guidelines and the Company’s compliance with those guidelines as of September 30, 2003.


CONSOLIDATED		Tier 1 (Core)			Tier 2 (Total)			Leverage
(Dollars in thousands)		Capital			Capital			Capital

GAAP Capital		$	228,105			228,105			228,105
Less: Goodwill and intangibles			(43,080	)		(43,080	)		(43,080	)
	Accumulated other comprehensive gain on AFS securities		(3,956	)		(3,956	)		(3,956	)
Plus: Allowance for loan losses			—			21,499			—
	Trust preferred secuirites		35,000			35,000			35,000
	Other adjustments		(248	)		(248	)		(248	)

Regulatory capital computed		$	215,821			237,320			215,821

Risk weighted assets		$	1,719,899			1,719,899

Total average assets								$	2,546,842

Capital as % of defined assets			12.55	%		13.80	%		8.47	%
Regulatory “well capitalized” requirement			6.00	%		10.00	%		5.00	%

Excess over “well capitalized” requirement			6.55	%		3.80	%		3.47	%

13)

Comprehensive Earnings:

The Company’s only component of other comprehensive earnings is the unrealized gains and losses on available-for-sale securities.


			For the three months						For the nine months
			ended September 30,						ended September 30,

Dollars in thousands			2003			2002			2003			2002

Net earnings			$	9,697			8,616			28,477			23,641
Unrealized holding (loss) gain arising during the period				(14,161	)		7,989			(13,617	)		16,354
Tax benefit (expense)				5,576			(3,153	)		5,325			(6,460	)

	Net after tax			(8,585	)		4,836			(8,292	)		9,894
Reclassification adjustment for gains included in net income				5			—			3,502			2
Tax expense				(1	)		—			(1,365	)		(1	)

	Net after tax			4			—			2,137			1
	Net unrealized (loss) gain on securities			(8,581	)		4,836			(6,155	)		9,895

		Total comprehensive earnings	$	1,116			13,452			22,322			33,536

14)

Stock Based Compensation

The exercise price of all options granted has been equal to the fair market value of the underlying stock at the date of grant and, accordingly, no compensation cost has been recognized for stock options in the

financial statements. Had the company determined compensation cost based on the fair value of the option itself at the grant date for its stock options and earnings per share under FASB Statement 123,Accounting for Stock-Based Compensation, the Company’s net income would have been reduced to the pro forma amounts indicated below:


		Three months ended Sept. 30,						Nine months ended Sept. 30,

		2003			2002			2003			2002

Net earnings (in thousands):	As reported	$	9,697			8,616			28,477			23,641
	Compensation cost		(188	)		(144	)		(562	)		(432	)

	Pro forma		9,509			8,472			27,915			23,209

Basic earnings per share:	As reported		0.50			0.46			1.48			1.26
	Compensation cost		(0.01	)		(0.01	)		(0.03	)		(0.03	)

	Pro forma		0.49			0.45			1.45			1.23

Diluted earnings per share:	As reported		0.49			0.45			1.46			1.23
	Compensation cost		(0.01	)		(0.01	)		(0.03	)		(0.02	)

	Pro forma		0.48			0.44			1.43			1.21

15)

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 eliminations of transactions between segments.


		Nine months ended and as of September 30, 2003

					First						Mountain
(Dollars in thousands)		Glacier			Security			Western			West			Big Sky

Revenues from external customers		$	27,417			25,862			19,358			24,214			9,155
Intersegment revenues			139			16			1			9			3
Expenses			(19,815	)		(18,497	)		(14,734	)		(19,792	)		(7,068	)
Intercompany eliminations			—			—			—			—			—

	Net income	$	7,741			7,381			4,625			4,431			2,090

	Total Assets	$	565,347			568,339			444,270			535,385			191,780


												Total
			Valley			Whitefish			Other			Consolidated

Revenues from external customers				10,788			6,011			212			123,017
Intersegment revenues				98			8			35,578			35,852
Expenses				(8,125	)		(4,460	)		(2,049	)		(94,540	)
Intercompany eliminations				—			—			(35,852	)		(35,852	)

		Net income		2,761			1,559			(2,111	)		28,477

	Total Assets			219,342			148,299			10,312			2,683,074


		Nine months ended and as of September 30, 2002

					First						Mountain
(Dollars in thousands)		Glacier			Security			Western			West			Big Sky

Revenues from external customers		$	28,245			25,651			20,423			18,920			9,517
Intersegment revenues			247			82			8			—			—
Expenses			(20,882	)		(19,723	)		(16,338	)		(16,041	)		(7,485	)
Intercompany eliminations			—			—			—			—			—

	Net income	$	7,610			6,010			4,093			2,879			2,032

	Total Assets	$	486,924			481,290			399,316			387,089			175,368


														Total
		Valley			Whitefish			Other						Consolidated

Revenues from external customers			9,720			6,360			218						119,054
Intersegment revenues			103			—			29,867						30,307
Expenses			(8,201	)		(4,762	)		(1,981	)					(95,413	)
Intercompany eliminations			—			—			(30,307	)					(30,307	)

	Net income		1,622			1,598			(2,203	)					23,641

	Total Assets		182,356			123,551			(12,080	)					2,223,814


		Three months ended and as of September 30, 2003

					First						Mountain
(Dollars in thousands)		Glacier			Security			Western			West			Big Sky

Revenues from external customers		$	9,376			8,708			6,401			8,801			3,182
Intersegment revenues			37			4			—			6			3
Expenses			(6,762	)		(6,284	)		(4,820	)		(7,287	)		(2,397	)
Intercompany eliminations			—			—			—			—			—

	Net income	$	2,651			2,428			1,581			1,520			788

	Total Assets	$	565,347			568,339			444,270			535,385			191,780


														Total
		Valley			Whitefish			Other						Consolidated

Revenues from external customers			3,398			2,080			70						42,016
Intersegment revenues			33			7			12,136						12,226
Expenses			(2,587	)		(1,506	)		(676	)					(32,319	)
Intercompany eliminations			—			—			(12,226	)					(12,226	)

	Net income		844			581			(696	)					9,697

	Total Assets		219,342			148,299			10,312						2,683,074


		Three months ended and as of September 30, 2002

					First						Mountain
(Dollars in thousands)		Glacier			Security			Western			West			Big Sky

Revenues from external customers		$	9,589			8,633			6,762			6,467			3,232
Intersegment revenues			77			33			—			—			—
Expenses			(6,929	)		(6,549	)		(5,268	)		(5,425	)		(2,478	)
Intercompany eliminations			—			—			—			—			—

	Net income	$	2,737			2,117			1,494			1,042			754

	Total Assets	$	486,924			481,290			399,316			387,089			175,368


														Total
		Valley			Whitefish			Other						Consolidated

Revenues from external customers			3,303			2,177			123						40,286
Intersegment revenues			33			—			10,850						10,993
Expenses			(2,874	)		(1,594	)		(553	)					(31,670	)
Intercompany eliminations			—			—			(10,993	)					(10,993	)

	Net income		462			583			(573	)					8,616

	Total Assets		182,356			123,551			(12,080	)					2,223,814

16)

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.



(Dollars in Thousands)		Nine Months Ended September 30,
		2003 vs. 2002
		Increase (Decrease) due to:

Interest Income		Volume			Rate			Net

Real Estate Loans		$	(2,663	)		(1,473	)		(4,136	)
Commercial Loans			5,954			(3,926	)		2,028
Consumer and Other Loans			(160	)		(1,851	)		(2,011	)
Investment Securities			9,318			(8,835	)		483

	Total Interest Income		12,449			(16,085	)		(3,636	)
Interest Expense
NOW Accounts			43			(258	)		(215	)
Savings Accounts			49			(337	)		(288	)
Money Market Accounts			293			(2,622	)		(2,329	)
Certificates of Deposit			(1,238	)		(2,994	)		(4,232	)
FHLB Advances			5,171			(5,175	)		(4	)
Other Borrowings and Repurchase Agreements			1,130			(1,064	)		66

	Total Interest Expense		5,448			(12,450	)		(7,002	)

Net Interest Income		$	7,001			(3,635	)		3,366

17)

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 Nine months ended 9-30-03							For the Nine months ended 9-30-02

(Dollars in Thousands)						Interest		Average					Interest		Average
				Average		and		Yield/			Average		and		Yield/
ASSETS				Balance		Dividends		Rate			Balance		Dividends		Rate

		Real Estate Loans		$	337,512		18,117		7.16	%	$	383,386		22,253		7.74	%
		Commercial Loans			750,477		37,116		6.61	%		641,598		35,088		7.31	%
		Consumer and Other Loans			286,911		15,131		7.05	%		289,616		17,142		7.91	%

			Total Loans		1,374,900		70,364		6.84	%		1,314,600		74,483		7.58	%
		Tax -Exempt Investment Securities (1)			215,784		8,138		5.03	%		142,176		5,557		5.21	%
		Investment Securities			650,208		18,276		3.75	%		494,876		20,374		5.49	%

			Total Earning Assets		2,240,892		96,778		5.76	%		1,951,652		100,414		6.86	%
		Non-Earning Assets			171,289							171,838

			TOTAL ASSETS	$	2,412,181						$	2,123,490

LIABILITIES AND STOCKHOLDERS’ EQUITY
		NOW Accounts		$	220,183		363		0.22	%	$	204,993		578		0.38	%
		Savings Accounts			136,469		387		0.38	%		127,245		676		0.71	%
		Money Market Accounts			368,899		2,988		1.08	%		349,620		5,316		2.03	%
		Certificates of Deposit			462,067		9,742		2.82	%		506,989		13,974		3.69	%
		FHLB Advances			556,664		12,551		3.01	%		394,270		12,555		4.26	%
		Repurchase Agreements and Other Borrowed Funds			100,270		3,282		4.38	%		74,188		3,216		5.80	%

			Total Interest Bearing Liabilities		1,844,552		29,313		2.12	%		1,657,305		36,315		2.93	%
			Non-interest Bearing Deposits		315,233							247,358
			Other Liabilities		28,459							26,844

			Total Liabilities		2,188,244							1,931,507

		Common Stock			183							171
		Paid-In Capital			197,524							169,789
		Retained Earnings			16,665							16,921
		Accumulated Other Comprehensive Earnings			9,565							5,102

			Total Stockholders’ Equity		223,937							191,983

	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	2,412,181						$	2,123,490
		Net Interest Income				$	67,465						$	64,099

		Net Interest Spread							3.64	%						3.93	%
		Net Interest Margin on average earning assets							4.03	%						4.38	%
		Return on Average Assets							1.58	%						1.48	%
		Return on Average Equity							17.00	%						16.42	%

(1)

Excludes tax effect on non-taxable investment security income

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Recent acquisition and additional locations
On July 15, 2003, Glacier Bancorp, Inc. completed its acquisition of Pend Oreille Bancorp, and its subsidiary Pend Oreille Bank which operates from two locations in Sandpoint, Idaho and one location in Newport, Washington. The bank has approximately $66 million in total assets with deposits of $59 million. These locations became additional branches of Mountain West Bank, the Company’s Idaho based subsidiary. The transaction was all cash in the amount of $10.4 million. The results of operation of Pend Oreille Bancorp, were recognized from the date of purchase.

Mountain West Bank opened an additional location in the growing Boise market bringing the total locations in the Boise, Nampa area to five. Big Sky Western Bank opened a new branch in downtown Bozeman.

Financial Condition

This section discusses the changes in Statement of Financial Condition items from September 30, 2002 and December 31, 2002, to September 30, 2003.


												$ change from			$ change from
			September 30,			December 31,			September 30,			December 31,			September 30,
Assets ($ in thousands)			2003			2002			2002			2002			2002

Cash on hand and in banks			$	67,538			74,624			62,723			(7,086	)		4,815
Investment securities and interest bearing deposits				1,046,446			787,578			716,013			258,868			330,433
Loans:
	Real estate			345,091			361,522			383,890			(16,431	)		(38,799	)
	Commercial			829,513			673,256			674,139			156,257			155,374
	Consumer			292,516			286,819			291,164			5,697			1,352

		Total loans		1,467,120			1,321,597			1,349,193			145,523			117,927
	Allowance for loan losses			(23,920	)		(20,944	)		(21,342	)		(2,976	)		(2,578	)

		Total loans net of allowance for loan losses		1,443,200			1,300,653			1,327,851			142,547			115,349

Other assets				125,890			118,489			117,227			7,401			8,663

	Total Assets		$	2,683,074			2,281,344			2,223,814			401,730			459,260

At September 30, 2003 total assets were $2.683 billion which is $459 million greater than the September 30, 2002 assets of $2.224 billion, an increase of 21 percent, of which $402 million of the increase occurred during 2003. Internal growth was supported by the Pend Oreille Bank acquisition which added $66 million to the asset base.

Total loans, net of the allowance for loan losses, have increased $115 million from September 30, 2002 and $143 from December 31, 2003. $61 million of the increase occurred during the current quarter, of which $50 million was from the acquisition. Commercial loans have increased $155 million, or 23 percent, from a year ago and continue to be the focus of our lending. Real estate loan origination volume has been at record levels, with $655 million for the nine months ended September 30, 2003, up from $387 million for the nine months ended September 30, 2002, some of which refinanced loans previously held by our banks. The refinancing of our existing loans coupled with our decision to sell the majority of the real estate loan production has resulted in a reduction in real estate loans of $39 million from September 30, 2002. Consumer loans have increased $1 million from a year ago resulting from increases in home equity loans. Home-equity loans continue to be the primary source of our consumer loan originations and have increased approximately $25 million, or 15 percent, from a year ago. Home equity loans comprise 66 percent of consumer loans at September 30, 2003.

Investment securities, including interest bearing deposits in other financial institutions, have increased $330 million from September 30, 2002 and $259 million from December 31, 2003. The cash received from the reduction in real estate loans has been redeployed in mortgage related investment securities. These securities have characteristics

that result in less interest rate risk in an increasing interest rate environment than retaining 30 year loans. Additional investments were made to utilize funding liquidity that exceeded quality loan growth opportunities and expected principal reductions on mortgage related investments.

The Company typically sells a majority of mortgage loans originated, retaining servicing only on loans sold to certain lenders. The sale of loans in the secondary mortgage market reduces the Company’s risk of holding long-term, fixed rate loans in the loan portfolio. Mortgage loans sold for the nine months ended September 30, 2003 and 2002 were $455 million and $237 million, respectively, and for the three months ended September 30, 2003 and 2002 were $163 million and $82 million, respectively. The Company has also been active in generating commercial SBA loans. A portion of some of those loans are sold to other investors. The amount of loans sold and serviced for others on September 30, 2003 was approximately $193 million.


								$ change from			$ change from
		September 30,		December 31,		September 30,		December 31,			September 30,
Liabilities ($ in thousands)		2003		2002		2002		2002			2002

Non-interest bearing deposits		$	392,746		295,016		292,653		97,730			100,093
Interest bearing deposits			1,225,653		1,164,907		1,206,000		60,746			19,653
Advances from Federal Home Loan Bank			714,837		483,660		402,367		231,177			312,470
Securities sold under agreements to repurchase and other borrowed funds			58,787		61,293		50,371		(2,506	)		8,416
Other liabilities			27,946		29,219		31,231		(1,273	)		(3,285	)
Trust preferred securities			35,000		35,000		35,000		—			—

	Total liabilities	$	2,454,969		2,069,095		2,017,622		385,874			437,347

Total deposits have increased $120 million from the September 30, 2002 balances of which $59 million came with the acquisition. There was a large increase of $100 million, or 34 percent, in non-interest bearing deposits. This growth in low cost stable funding gives us increased flexibility in managing our asset mix. During the quarter non-interest bearing deposits increased $56 million, or 16 percent, as the High Performance Checking program (HPC) gained momentum. Based on the experience of the three banks previously using HPC, we expect over time to replicate their results, increasing our base of customers, providing additional low cost deposit balances and enhancing fee income. Interest-bearing deposits are up $20 million, or 2 percent, the result of the acquisition of deposits from Pend Oreille Bank of $49 million. Federal Home Loan Bank advances, other borrowed funds, and repurchase agreements, have also increased $321 million from a year ago as we continue to take advantage of the flexibility of these funding sources in this current period of low interest rates.

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 September 30, 2003, the Company had $965 million of available FHLB line of which $715 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 2003, 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 unadvanced 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.


											$ change from			$ change from
Stockholders' equity		September 30,			December 31,			September 30,			December 31,			September 30,
($ in thousands except per share data)		2003			2002			2002			2002			2002

Common equity		$	224,149			202,138			194,541			22,011			29,608
Net unrealized gain on securities			3,956			10,111			11,651			(6,155	)		(7,695	)

	Total stockholders’ equity	$	228,105			212,249			206,192			15,856			21,913

Stockholders’ equity to total assets			8.50	%		9.30	%		9.27	%
Tangible equity to total assets			7.02	%		7.68	%		7.59	%
Book value per common share		$	11.80			11.16			10.88			0.64			0.92
Tangible book value per common share		$	9.57			9.05			8.75			0.52			0.82
Market price per share at end of quarter		$	27.43			21.42			20.71			6.01			6.72

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 declined $8 million from a year ago the result of increasing intermediate term interest rates and gains realized on sale of securities.


	September 30,			June 30,			December 31,			September 30,

Credit quality information ($ in thousands)	2003			2003			2002			2002

Allowance for loan losses	$	23,920			22,354			20,944			21,342
Non-performing assets	$	10,489			10,675			11,582			10,960
Allowance as a percentage of non performing assets		228	%		209	%		181	%		195	%
Non-performing assets as a percentage of total assets		0.39	%		0.42	%		0.51	%		0.49	%
Allowance as a percentage of total loans		1.63	%		1.59	%		1.58	%		1.58	%
Net charge-offs as a percentage of loans		0.075	%		0.034	%		0.261	%		0.114	%

Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total assets at September 30, 2003 were at .39 percent, a decrease from .49 percent at September 30, 2002 and from the December 31, 2002 .51 percent. This compares to the Peer Group average of .63 percent at June 30, 2003, the most recent information available. The allowance for loan losses was 228 percent of non-performing assets at September 30, 2003, compared to 195 percent a year ago.

With the continuing change in loan mix from residential real estate to commercial and consumer loans, which historically have greater credit risk, the Company has continued to increase the balance in the allowance for loan losses. The allowance has increased $2.578 million, or 12 percent, from a year ago to $23.920 million, which is 1.63 percent of total loans outstanding, up from 1.58 percent a year ago. The third quarter provision expense for loan losses was $1.221 million, a decrease of $444 thousand from the same quarter in 2002.

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 operation and liquidity.

Results of Operations – The three months ended September 30, 2003 compared to the three months ended
September 30, 2002.

Operating results include amounts related to the operation of the three branches acquired with the Pend Oreille Bank as of July 15, 2003.


Revenue summary
($ in thousands)			Three months ended September 30,

			2003			2002			$ change		% change

Net interest income			$	23,664			22,132			1,532		6.9	%
Fees and other revenue:
	Service charges, loan fees, and other fees			5,172			4,699			473		10.1	%
	Gain on sale of loans			3,258			1,283			1,975		153.9	%
	Gain on sale of investments			5			—			5		100.0	%
	Other income			478			475			3		0.6	%

		Total non-interest income		8,913			6,457			2,456		38.0	%

	Total revenue		$	32,577			28,589			3,988		13.9	%

Tax equivilent net interest margin				4.12	%		4.58	%

Net Interest Income
Net interest income for the quarter increased $1.532 million, or 7 percent, over the same period in 2002. Total interest income is $726 thousand, or 2 percent lower than the same quarter in 2002, while total interest expense is $2.258 million or 19 percent lower. The increase in non-interest bearing deposits reduced the need to borrow additional funds. The net interest margin as a percentage of earning assets, on a tax equivalent basis, decreased from 4.58 percent for the 2002 quarter, 4.35 for the first quarter of 2003, 4.17 percent for the second quarter of 2003, to 4.12 percent in the current quarter. The decrease in our net interest margin slowed in the third quarter. Premium amortization on mortgage related investments was $3.976 million during the quarter, an increase of $3.059 million over last year’s quarter. Financial markets expect prepayments will slow, which would result 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. This strategy in the near term will put pressure on our net interest margin, however from a longer term perspective we are more comfortable with this approach.

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 increased $1.975 million reflecting the low level of mortgage interest rates and resulting increased home purchase and loan refinancing activity. The income from mortgage origination

activity serves as a counter-balance to net interest income reductions from low interest rates. Other income was substantially the same as the prior year’s quarter.


Non-interest expense summary
($ in thousands)		Three months ended September 30,

		2003		2002		$ change			% change

Compensation and employee benefits		$	9,448		7,541		1,907			25.3	%
Occupancy and equipment expense			2,536		2,340		196			8.4	%
Outsourced data processing expense			393		547		(154	)		-28.2	%
Core deposit intangible amortization			308		359		(51	)		-14.2	%
Other expenses			4,362		3,210		1,152			35.9	%

	Total non-interest expense	$	17,047		13,997		3,050			21.8	%

Non-interest Expense
Non-interest expense increased by $3.050 million, or 22 percent, from the same quarter of 2002 including expenses from the acquisition of the three Pend Oreille branches, 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 $1.907 million, or 25 percent from the third quarter of 2002, with commissions for loan originators, additional support staff for increased volumes, the new bank branches, and a higher accrual rate for employee profit sharing contributions, accounting for the majority of the increase. Occupancy and equipment expense increased $196 thousand, or 8 percent, the result of adding additional facilities. Outsourced data processing expense decreased by $154 thousand, or 28 percent, resulting from bringing the core processing for each subsidiary bank onto our in-house data system. Other expenses increased $1.152 million, or 36 percent, however, the 2002 quarter benefited from the reversal of a $323 thousand merger related expense accrual so the increase from operations was $829 thousand, or 26 percent. The increase was 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 new branch offices and the Pend Oreille acquisition. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 52 percent for the 2003 quarter which is up from 49 percent for the 2002 quarter but lower than the 53 percent, excluding net security gains, in the second quarter of 2003.

Results of Operations – The nine months ended September 30, 2003 compared to the nine months ended
September 30, 2002.

Operating results include amounts related to the operation of the three branches acquired with the Pend Oreille Bank as of July 15, 2003.


Revenue summary
($ in thousands)			Nine months ended September 30,

			2003			2002			$ change			% change

Net interest income			$	67,465			64,099			3,366			5.3	%
Fees and other revenue:
	Service charges, loan fees, and other fees			14,769			13,169			1,600			12.1	%
	Gain on sale of loans			8,740			3,716			5,024			135.2	%
	Gain on sale of investments, net of impairment charge			1,253			2			1,251			62550.0	%
	Other income			1,477			1,753			(276	)		-15.7	%

		Total non-interest income		26,239			18,640			7,599			40.8	%

	Total revenue		$	93,704			82,739			10,965			13.3	%

Tax equivilent net interest margin				4.21	%		4.52	%

Net Interest Income
Net interest income increased $3.366 million, or 5 percent, over the same period in 2002. Total interest income is $3.636 million, or 4 percent lower than in 2002, while total interest expense is $7.002 million or 19 percent lower. Lower interest rates were the main reason for the reduction in interest income and interest expense. Investment income is also lower because of prepayments on our mortgage related investments which increased the year-to-date premium amortization by $7.3 million over the prior year. The net interest margin as a percentage of earning assets, on a tax equivalent basis, decreased from 4.52 percent in 2002 to 4.21 percent in 2003. The additional investments add to net interest income but at a lower yield. The interest spread on the increased investments is lower than the historic spread which reduces the net interest margin.

Non-interest Income
Fee income increased $1.600 million, or 12 percent, over the same period last year, driven primarily by an increased number of loan and deposit accounts. Gain on sale of loans increased $5.024 million reflecting the low level of mortgage interest rates and resulting increased home purchase and loan refinancing activity. Other income was lower in the current year by $276 thousand primarily the result of reduced loan servicing income.

Gain on sale of investments, net of an impairment charge of $2.249 million for impairment of value of collateralized mortgage obligations, increased $1.251 million from the prior year. Market conditions provided an opportunity to realize income currently that would have taken several years to earn if the investments were held.


Non-interest expense summary
($ in thousands)		Nine months ended September 30,

		2003		2002		$ change			% change

Compensation and employee benefits		$	26,477		22,856		3,621			15.8	%
Occupancy and equipment expense			7,266		6,965		301			4.3	%
Outsourced data processing expense			1,221		1,508		(287	)		-19.0	%
Core deposit intangible amortization			937		1,080		(143	)		-13.2	%
Other expenses			12,354		10,294		2,060			20.0	%

	Total non-interest expense	$	48,255		42,703		5,552			13.0	%

Non-interest Expense
Non-interest expense increased by $5.552 million, or 13 percent, from 2002. Compensation and benefit expense increased $3.621 million, or 16 percent from 2002, with commissions for loan originators, other incentives, additional support staff for increased volumes, acquisition of the three Pend Oreille branches, three additional start-

up branches in operation in Boise and Bozeman, and increased accrual of employee profit sharing expense accounting for the majority of the increase. Occupancy and equipment expense increased $301 thousand, or 4 percent, the result of adding additional facilities. Outsourced data processing expense decreased by $287 thousand, or 19 percent, resulting from bringing the core processing for each subsidiary bank onto our in-house data system. Other expenses increased $2.060 million, or 20 percent, however, 2002 included a $323 thousand merger related expense reversal. The increase in other expenses from operations was $1.737 million, or 17 percent. Charges for data conversion of Mountain West Bank to the in-house data system, start up expenses on implementing the High Performance Checking program at the four banks not previously on the program, and volume related increases were the primary reasons for the increased expense. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 51 percent for 2003 which is down from the 52 percent for 2002.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

		Market Risk: Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company’s primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability management process which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to the Asset/Liability Committee (ALCO). In this capacity ALCO develops guidelines and strategies impacting the Company’s asset/liability management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends.

		Interest Rate Risk: Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change thereby impacting net interest income (NII), the primary component of the Company’s earnings. ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While ALCO routinely monitors simulated NII sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s statement of financial condition. This sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance level for NII exposure over a one year horizon, assuming no balance sheet growth, given a 200 or 100 basis point (bp) upward and downward shift in interest rates. A parallel and pro rata shift in rates over a 12-month period is assumed as a benchmark. Other non-parallel rate movement scenarios are also modeled to determine the potential impact on NII. The following reflects the Company’s NII sensitivity analysis as of June 30, 2003, the most recent information available, as compared to the 10% Board approved policy limit (dollars in thousands). There have been no significant changes in operations or the market that would materially affect the estimated sensitivity. The table illustrates the estimated change in net interest income over a twelve month period based on the nine months activity ended September 30, 2003.


Interest Rate Sensitivity
	+200 bp			-100 bp

Estimated sensitivity		-1.69	%		-0.22	%
Estimated decrease in net interest income	$	(1,524	)		(198	)

The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of

assets and liability cashflows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates.

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

None

Item 4. Submission of Matters to a Vote of Securities Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K.

(a) 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

(b) Current Report on Form 8-K

On July 15th, 2003, a Form 8-K was filed announcing the completion of the acquisition of Pend Oreille Bancorp

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				GLACIER BANCORP, INC.



November 12, 2003				/s/ Michael J. Blodnick Michael J. Blodnick President/CEO

November 12, 2003				/s/ James H. Strosahl James H. Strosahl Executive Vice President/CFO

Glacier Bancorp - 10-Q quarterly report FY

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