GLACIER BANCORP INC - 10-Q Quarterly Report

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 June 30, 2002
[ ]		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 [ ]

The number of shares of Registrant’s common stock outstanding on July 31, 2002 was 17,209,265. No preferred shares are issued or outstanding.

TABLE OF CONTENTS


		Consolidated Statements of Financial Condition
		Consolidated Statements of Operations
		Consolidated Statements of Stockholders’ Equity and Comprehensive Income
		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
PART II — OTHER INFORMATION
	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 99

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

Index

Page #

Part I.

Financial Information

Item 1 —

Financial Statements

Consolidated Statements of Financial Condition June 30, 2002, December 31, and June 30, 2001 (unaudited)

Consolidated Statements of Operations — Three and Six months ended June 30, 2002 and 2001 (unaudited)

Consolidated Statements of Stockholders’ Equity and Comprehensive Income — Year ended December 31, 2001 and Six months ended June 30, 2002 (unaudited)

Consolidated Statements of Cash Flows — Six months ended June 30, 2002 and 2001 (unaudited)

Notes to Consolidated Financial Statements (unaudited)

Item 2 —

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3 —

Quantitative and Qualitative Disclosure about Market Risk

Part II.

Other Information

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 Security Holders

Item 5 —

Other Information

Item 6 —

Exhibits and Reports on Form 8-K

Signatures

Glacier Bancorp, Inc.
Consolidated Statements of Financial Condition


			June 30,			December 31,			June 30,
(Unaudited - dollars in thousands except per share data)			2002			2001			2001

Assets:
	Cash on hand and in banks		$	59,812			73,456			69,446
	Interest bearing cash deposits			7,410			23,970			18,938

		Cash and cash equivalents		67,222			97,426			88,384

	Investments:
		Investment securities, available-for-sale		213,752			158,036			156,525
		Mortgage backed securities, available-for-sale		403,029			350,542			352,267

		Total investments		616,781			508,578			508,792

	Net loans receivable:
		Real estate loans		372,318			421,996			484,959
		Commercial Loans		650,749			620,134			590,021
		Consumer and other loans		292,639			298,851			317,289
		Allowance for loan losses		(19,941	)		(18,654	)		(18,465	)

		Total loans, net		1,295,765			1,322,327			1,373,804

	Premises and equipment, net			47,455			50,566			52,376
	Real estate and other assets owned, net			699			593			462
	Federal Home Loan Bank of Seattle stock, at cost			37,093			32,822			31,146
	Federal Reserve stock, at cost			4,250			4,185			4,428
	Accrued interest receivable			13,047			12,409			13,896
	Core deposit intangible, net			7,541			8,261			9,013
	Goodwill, net			32,692			33,510			35,544
	Other assets			15,023			15,070			16,251

			$	2,137,568			2,085,747			2,134,096

Liabilities and stockholders’ equity:
	Deposits — non-interest bearing		$	256,519			234,318			231,007
	Deposits — interest bearing			1,175,893			1,211,746			1,212,343
	Advances from Federal Home Loan Bank of Seattle			406,603			367,295			416,222
	Securities sold under agreements to repurchase			34,744			32,585			30,741
	Other borrowed funds			8,457			1,060			11,480
	Accrued interest payable			6,452			9,179			11,211
	Current income taxes			538			95			182
	Deferred tax liability			5,083			1,780			1,244
	Trust preferred securities			35,000			35,000			35,000
	Minority interest			—			—			353
	Other liabilities			13,471			15,706			18,953

		Total liabilities		1,942,760			1,908,764			1,968,736

	Preferred shares, 1,000,000 shares authorized. None outstanding			—			—			—
	Common stock, $.01 par value per share 50,000,000 shares authorized			172			169			166
	Paid-in capital			170,894			167,371			162,572
	Retained earnings — substantially restricted			16,926			7,687			563
	Accumulated other comprehensive income			6,816			1,756			2,059

		Total stockholders’ equity		194,808			176,983			165,360

			$	2,137,568			2,085,747			2,134,096

	Number of shares outstanding			17,180,089			16,874,422			16,613,425
	Book value of equity per share		$	11.34			10.49			9.95
	Tangible book value per share		$	9.00			8.01			7.27

See accompanying notes to consolidated financial statements

Glacier Bancorp, Inc
Consolidated Statements of Operations


		Three months ended June 30,						Six months ended June 30,

(unaudited - dollars in thousands except per share data)		2002			2001			2002			2001

Interest income:
	Real estate loans	$	7,225			10,291			15,063			16,980
	Commercial loans		11,649			12,323			23,081			21,700
	Consumer and other loans		5,686			7,436			11,499			12,488
	Investments		8,947			8,723			16,942			13,980

	Total interest income		33,507			38,773			66,585			65,148

Interest expense:
	Deposits		6,673			13,064			14,115			21,798
	FHLB Advances		4,181			5,226			8,366			8,837
	Securities sold under agreements to repurchase		133			262			289			525
	Trust preferred securities		903			905			1,807			1,506
	Other borrowed funds		16			79			40			143

	Total interest expense		11,906			19,536			24,617			32,809

Net interest income			21,601			19,237			41,968			32,339
	Provision for loan losses		1,260			1,838			2,560			2,423

	Net interest income after provision for loan losses		20,341			17,399			39,408			29,916

Non-interest income:
	Service charges and other fees		3,443			3,549			6,606			5,992
	Miscellaneous loan fees and charges		1,182			1,070			2,025			1,763
	Gains on sale of loans		1,175			943			2,272			1,410
	Gains on sale of investments, net		2			—			2			64
	Other income		532			938			1,278			1,398

	Total non-interest income		6,334			6,500			12,183			10,627

Non-interest expense:
	Compensation, employee benefits and related expenses		7,533			6,908			15,315			12,165
	Occupancy and equipment expense		2,324			2,531			4,625			3,990
	Outsourced data processing expense		515			976			961			1,237
	Core deposit intangibles amortization		360			406			721			574
	Goodwill amortization		249			513			498			737
	Other expenses		3,610			3,862			7,085			6,993
	Minority interest		—			20			—			35

	Total non-interest expense		14,591			15,216			29,205			25,731

Earnings before income taxes			12,084			8,683			22,386			14,812
	Federal and state income tax expense		4,105			3,075			7,659			5,290

Net earnings		$	7,979			5,608			14,727			9,522

Basic earnings per share		$	0.47			0.34			0.86			0.65
Diluted earnings per share		$	0.46			0.33			0.85			0.63
Dividends declared per share		$	0.16			0.15			0.32			0.30
Return on average assets (annualized)			1.51	%		1.04	%		1.41	%		1.08	%
Return on average equity (annualized)			16.77	%		14.03	%		15.78	%		13.64	%
Return on tangible average equity (annualized)			21.40	%		17.82	%		20.31	%		16.34	%
Average outstanding shares — basic			17,139,048			16,336,932			17,076,598			14,678,575
Average outstanding shares — diluted			17,451,887			16,770,005			17,378,301			15,189,394

See accompanying notes to consolidated financial statements

Glacier Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
and Comprehensive Income
Year ended December 31, 2001 and Six months ended June 30, 2002


								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, 2000			11,447,150		114		101,828		(4,087	)		258		98,113
Comprehensive income:
	Net earnings		—		—		—		21,689			—		21,689
	Unrealized gain on securities, net of reclassification adjustment		—		—		—		—			1,498		1,498

Total comprehensive income														23,187

Cash dividends declared ($.60 per share)			—		—		—		(9,915	)		—		(9,915	)
Stock options exercised			864,571		9		6,755		—			—		6,764
Tax benefit from stock related compensation			—		—		2,778		—			—		2,778
Conversion of debentures			32,239		1		341		—			—		342
Stock issued in connection with merger of WesterFed Financial Corporation			4,530,462		45		55,669		—			—		55,714

Balance at December 31, 2001			16,874,422		169		167,371		7,687			1,756		176,983
Comprehensive income:
	Net earnings		—		—		—		14,727			—		14,727
	Unrealized gain on securities, net of reclassification adjustment		—		—		—		—			5,060		5,060

Total comprehensive income														19,787

Cash dividends declared ($.32 per share)			—		—		—		(5,488	)		—		(5,488	)
Stock options exercised			305,667		3		3,523		—			—		3,526

Balance at June 30, 2002			17,180,089	$	172		170,894		16,926			6,816		194,808

See accompanying notes to consolidated financial statements

Glacier Bancorp, Inc.
Consolidated Statements of Cash Flows


			Six months ended June 30,

(Unaudited - dollars in thousands except per share data)			2002			2001

OPERATING ACTIVITIES:
	Net cash provided by (used in) operating activities		$	29,305			(7,196	)
INVESTING ACTIVITIES:
	Proceeds from sales, maturities and prepayments of investments available-for-sale			105,754			115,613
	Purchases of investments available-for-sale			(208,096	)		(233,276	)
	Principal collected on installment and commercial loans			303,572			204,562
	Installment and commercial loans originated or acquired			(327,974	)		(231,066	)
	Principal collections on mortgage loans			134,549			131,482
	Mortgage loans originated or acquired			(99,352	)		(106,590	)
	Net purchase of FHLB and FRB stock			(3,359	)		(3,551	)
	Acquisition of WesterFed Financial Corporation and several branches			—			107,568
	Sale of branches			—			(53,131	)
	Net decrease in premises and equipment			2,148			1,167

	NET CASH USED IN INVESTING ACTIVITIES			(92,758	)		(67,222	)

FINANCING ACTIVITIES:
	Net (decrease) increase in deposits			(13,652	)		15,834
	Net increase in FHLB advances and other borrowed funds			46,704			61,223
	Net increase (decrease) in securities sold under repurchase agreements			2,159			(1,987	)
	Proceeds from issuance of trust preferred securities			—			35,000
	Cash dividends paid to stockholders			(5,488	)		(4,136	)
	Proceeds from exercise of stock options and other stock issued			3,526			5,082

	NET CASH PROVIDED BY FINANCING ACTIVITIES			33,249			111,016

	NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(30,204	)		36,598
	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			97,426			51,786

	CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	67,222			88,384

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
	Cash paid during the period for:	Interest	$	27,345			33,777
		Income taxes	$	7,219			5,970

OPERATING ACTIVITY DISCLOSURE

In addition to net earnings of $14.727 million, the 2002 increase in net cash provided by operations is primarily the result of activity in mortgage loans held for sale. Loan origination activity was strong during the first six months, however, the balance of loans held for sale declined by $13.206 million due to the timing of when loan sales were completed. During the first six months of 2001, mortgage loans held for sale increased $12.014 million and other liabilities were reduced, partially offsetting this use of cash was net operating earnings of $9.522 million.

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

1)    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 June 30, 2002, December 31, 2001, and June 30, 2001, stockholders’ equity for the six months ended June 30, 2001 and the year ended December 31, 2001, and the results of operations for the three and six months ended June 30, 2002 and 2001, and the cash flows for the six months ended June 30, 2002 and 2001.

   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, 2001. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results anticipated for the year ending December 31, 2002. Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation.

2)    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 nine wholly owned operating 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”), Community First, Inc. (“CFI”), and Glacier Capital Trust I (“Glacier Trust”), all located in Montana, and Mountain West Bank (“Mountain West”) which is located in Idaho and Utah.

   CFI provides full service brokerage services through Raymond James Financial Services, Inc.

   The following abbreviated organizational chart illustrates the various relationships:

(GLACIER BANCORP. ORGANIZATIONAL CHART)

3)    Ratios:

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

4)    Cash Dividend Declared:

   On June 26, 2002, the Board of Directors declared a $.16 per share quarterly cash dividend to stockholders of record on July 9, 2002, payable on July 18, 2002.

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 if dilutive outstanding stock options were exercised, using the treasury stock method.

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


			Three		Three		Six		Six
			months ended		months ended		months ended		months ended
			June 30, 2002		June 30, 2001		June 30, 2002		June 30, 2001

Net earnings available to common stockholders, basic			$	7,979,282		5,608,078		14,727,112		9,522,344
	After tax effect of interest on convertible subordinated debentures			—		4,000		—		8,000

Net earnings available to common stockholders, diluted			$	7,979,282		5,612,078		14,727,112		9,530,344

Average outstanding shares — basic				17,139,048		16,336,932		17,076,598		14,678,575
Add: Dilutive stock options				312,839		400,048		301,703		477,794
		Convertible subordinated debentures		—		33,025		—		33,025

Average outstanding shares — diluted				17,451,887		16,770,005		17,378,301		15,189,394

Basic earnings per share			$	0.47		0.34		0.86		0.65

Diluted earnings per share			$	0.46		0.33		0.85		0.63

6) Investments:

A comparison of the amortized cost and estimated fair value of the Company’s investments is as follows:

INVESTMENTS AS OF JUNE 30, 2002


								Gross Unrealized					Estimated
			Weighted			Amortized							Fair
(Dollars in thousands)			Yield			Cost		Gains		Losses			Value

U.S. Government and Federal Agencies
	maturing after ten years			2.85	%	$	1,141		9		(2	)		1,148

				2.85	%		1,141		9		(2	)		1,148

State and Local Governments and other issues:
	maturing within one year			5.65	%		3,654		74		—			3,728
	maturing one year through five years			5.47	%		11,173		236		(112	)		11,297
	maturing five years through ten years			5.67	%		3,143		77		—			3,220
	maturing after ten years			5.60	%		191,098		4,179		(918	)		194,359

				5.59	%		209,068		4,566		(1,030	)		212,604

Mortgage-Backed Securities				5.54	%		106,191		2,245		(57	)		108,379
Real Estate Mortgage Investment Conduits				5.83	%		289,117		5,733		(200	)		294,650

		Total Available-for-Sale Investments		5.69	%	$	605,517		12,553		(1,289	)		616,781

INVESTMENTS AS OF DECEMBER 31, 2001


								Gross Unrealized					Estimated
			Weighted			Amortized							Fair
(Dollars in thousands)			Yield			Cost		Gains		Losses			Value

U.S. Government and Federal Agencies
	maturing after ten years			2.77	%	$	1,330		12		(3	)		1,339

				2.77	%		1,330		12		(3	)		1,339

State and Local Governments and other issues:
	maturing within one year			3.25	%		4,639		28		—			4,667
	maturing one year through five years			5.36	%		13,774		291		(65	)		14,000
	maturing five years through ten years			5.50	%		2,349		57		(6	)		2,400
	maturing after ten years			5.81	%		135,789		1,563		(1,722	)		135,630

				5.67	%		156,551		1,939		(1,793	)		156,697

Mortgage-Backed Securities				6.08	%		129,322		1,868		(126	)		131,064
Real Estate Mortgage Investment Conduits				6.11	%		218,470		2,941		(1,933	)		219,478

		Total Available for Sale Investments		5.96	%	$	505,673		6,760		(3,855	)		508,578

7) Loans

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


			At						At
			06/30/02						12/31/2001
TYPE OF LOAN
(Dollars in Thousands)			Amount			Percent			Amount			Percent

Real Estate Loans:
	Residential first mortgage loans		$	358,831			27.7	%	$	395,417			29.9	%
	Loans held for sale			14,196			1.1	%		27,403			2.1	%

		Total		373,027			28.8	%		422,820			32.0	%
Commercial Loans:
	Real estate			381,333			29.4	%		379,346			28.7	%
	Other commercial loans			270,566			20.9	%		241,811			18.3	%

		Total		651,899			50.3	%		621,157			47.0	%
Installment and Other Loans:
	Consumer loans			130,855			10.1	%		142,875			10.8	%
	Home equity loans			161,932			12.5	%		156,140			11.8	%

		Total		292,787			22.6	%		299,015			22.6	%
	Net deferred loan fees, premiums and discounts			(2,007	)		-0.2	%		(2,011	)		-0.2	%
	Allowance for Losses			(19,941	)		-1.5	%		(18,654	)		-1.4	%

Net Loans			$	1,295,765			100.0	%	$	1,322,327			100.0	%

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


				At			At
(Dollars in Thousands)				6/30/2002			12/31/2001

Non-accrual loans:
		Mortgage loans		$	3,677			4,044
		Commercial loans			3,002			4,568
		Consumer loans			522			620

			Total	$	7,201			9,232
Accruing Loans 90 days or more overdue:
		Mortgage loans			537			818
		Commercial loans			640			376
		Consumer loans			137			243

			Total	$	1,314			1,437
Real estate and other assets owned, net					699			593

Total non-performing loans, and real estate and other assets owned, net				$	9,214			11,262

	As a percentage of total assets				0.43	%		0.53	%
Interest Income (1)				$	274			658

(1)

This is the amount of interest that would have been recorded on loans accounted for on a non-performing basis as of the end of each period if such loans had been current for the entire period.

The following table illustrates th eloan loss experience:


				Six months ended			Year ended
				June 30,			December 31,
(Dollars in Thousands)				2002			2001

Balance at beginning of period				$	18,654			7,799
	Charge offs:
		Residential real estate			(494	)		(677	)
		Commercial loans			(772	)		(723	)
		Consumer loans			(672	)		(2,029	)

			Total charge offs	$	(1,938	)		(3,429	)

	Recoveries:
		Residential real estate			99			33
		Commercial loans			165			266
		Consumer loans			401			567

			Total recoveries	$	665			866

	Chargeoffs, net of recoveries				(1,273	)		(2,563	)
	Purchased reserve				—			8,893
	Provision				2,560			4,525

Balance at end of period				$	19,941			18,654

Ratio of net charge offs to average loans outstanding during the period					0.19	%		0.20	%

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


		June 30, 2002					December 31, 2001

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

Residential first mortgage		$	2,517		28.3	%		2,722		31.5	%
Commercial real estate			6,319		29.0	%		5,906		28.3	%
Other commercial			7,369		20.5	%		6,225		18.0	%
Consumer			3,736		22.2	%		3,801		22.2	%

	Totals	$	19,941		100.0	%		18,654		100.0	%

8) Deposits

The following table illustrates the amounts outstanding for deposits greater than $100,000 at June 30, 2002, according to the time remaining to maturity:


		Certificates		Demand
(Dollars in thousands)		of Deposit		Deposits		Totals

Within three months		$	34,990		351,987		386,977
Three to six months			19,727		—		19,727
Seven to twelve months			13,534		—		13,534
Over twelve months			13,563		—		13,563

	Totals	$	81,814		351,987		433,801

9) Advances and Other Borrowings

The following chart illustrates the average balances and the maximum outstanding month-end balances for FHLB advances and repurchase agreements:


		June 30,			December 31,
	(Dollars in thousands)	2002				2001

FHLB Advances
	Amount outstanding at end of period	$	406,603				367,295
	Average balance	$	385,472				349,023
	Maximum outstanding at any month-end	$	433,262				416,222
	Weighted average interest rate		4.38	%			5.24	%
Repurchase Agreements:
	Amount outstanding at end of period	$	34,744				32,585
	Average balance	$	33,471				27,375
	Maximum outstanding at any month-end	$	41,113				37,814
	Weighted average interest rate		1.73	%			2.11	%

10) 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 June 30, 2002:


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

GAAP Capital		$	194,808			194,808			194,808
Less: Goodwill and intangibles			(40,233	)		(40,233	)		(40,233	)
	Accumulated other comprehensive gain on AFS securities		(6,816	)		(6,816	)		(6,816	)
Less: Net unrealized loss on AFS equity securities			(32	)		(32	)		(32	)
Plus: Allowance for loan losses			—			18,433			—
	Trust preferred securities		35,000			35,000			35,000

Regulatory capital computed		$	182,727			201,160			182,727

Risk weighted assets		$	1,473,105			1,473,105

Total average assets								$	2,092,097

Capital as % of defined assets			12.40	%		13.66	%		8.73	%
Regulatory “well capitalized” requirement			6.00	%		10.00	%		5.00	%

Excess over “well capitalized” requirement			6.40	%		3.66	%		3.73	%

11) 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 six months
			ended June 30,							ended June 30,

Dollars in thousands			2002			2001				2002			2001

Net earnings			$	7,979			5,608				14,727			9,522
Unrealized holding gain (loss) arising during the period				9,199			(1,345	)			8,365			2,867
Tax (expense) benefit				(3,634	)		560				(3,306	)		(1,105	)

	Net after tax			5,565			(785	)			5,059			1,762
Reclassification adjustment for gains included in net income				2			—				2			64
Tax expense				(1	)		—				(1	)		(25	)

	Net after tax			1			—				1			39
	Net unrealized gain (loss) on securities			5,566			(785	)			5,060			1,801

		Total comprehensive earnings	$	13,545			4,823				19,787			11,323

12) Segment Information

The Company evaluates segment performance internally based on individual bank charter, 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. During the third quarter of 2001, certain branches of Western were transferred to other Company owned banks located in the same geographic area which accounted for the change in activity for certain segments.


		Six months ended and as of June 30, 2002

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

Revenues from external customers		$	18,656		17,018		13,661		12,453		6,285
Intersegment revenues			170		49		8		—		—
Expenses			13,989		13,174		11,070		10,878		5,007
Intercompany eliminations			—		—		—		—		—

	Net income	$	4,837		3,893		2,599		1,575		1,278

	Total Assets	$	477,718		449,117		388,613		361,026		169,094


									Total
		Valley		Whitefish		Other			Consolidated

Revenues from external customers			6,417		4,183		95			78,768
Intersegment revenues			70		—		19,017			19,314
Expenses			5,327		3,168		1,428			64,041
Intercompany eliminations			—		—		(19,314	)		(19,314	)

	Net income		1,160		1,015		(1,630	)		14,727

	Total Assets		176,176		124,319		(8,495	)		2,137,568


		Six months ended and as of June 30, 2001

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

Revenues from external customers		$	19,792		10,322		23,713		9,406		3,593
Intersegment revenues			459		11		8		192		—
Expenses			16,682		8,213		20,680		9,493		3,189
Intercompany eliminations			—		—		—		—		—

	Net income	$	3,569		2,120		3,041		105		404

	Total Assets	$	487,522		229,601		807,438		301,383		88,010


									Total
		Valley		Whitefish		Other			Consolidated

Revenues from external customers			4,688		4,006		255			75,775
Intersegment revenues			66		6		12,659			13,401
Expenses			3,981		3,204		811			66,253
Intercompany eliminations			—		—		(13,401	)		(13,401	)

	Net income		773		808		(1,298	)		9,522

	Total Assets		145,945		95,859		(21,662	)		2,134,096


		Three months ended and as of June 30, 2002

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

Revenues from external customers		$	9,499		8,536		6,809		6,503		3,066
Intersegment revenues			69		42		2		—		—
Expenses			7,001		6,554		5,408		5,547		2,399
Intercompany eliminations			—		—		—		—

	Net income	$	2,567		2,024		1,403		956		667

	Total Assets	$	477,718		449,117		388,613		361,026		169,094


									Total
		Valley		Whitefish		Other			Consolidated

Revenues from external customers			3,270		2,128		30			39,841
Intersegment revenues			51		—		10,144			10,308
Expenses			2,711		1,574		668			31,862
Intercompany eliminations			—		—		(10,308	)		(10,308	)

	Net income		610		554		(802	)		7,979

	Total Assets		176,176		124,319		(8,495	)		2,137,568


		Three months ended and as of
		June 30, 2001

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

Revenues from external customers		$	10,305		5,254		17,433		5,690			1,879
Intersegment revenues			148		1		8		49			—
Expenses			8,509		4,115		15,200		5,799			1,641
Intercompany eliminations			—		—		—		—			—

	Net income	$	1,944		1,140		2,241		(60	)		238

	Total Assets	$	487,522		229,601		807,438		301,383			88,010


									Total
		Valley		Whitefish		Other			Consolidated

Revenues from external customers			2,651		2,032		29			45,273
Intersegment revenues			35		3		7,415			7,659
Expenses			2,240		1,588		573			39,665
Intercompany eliminations			—		—		(7,659	)		(7,659	)

	Net income		446		447		(788	)		5,608

	Total Assets		145,945		95,859		(21,662	)		2,134,096

13) 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.


		Six Months Ended June 30,
		2002 vs. 2001
		Increase (Decrease) due to:

(Dollars in Thousands)		Volume			Rate			Net

Interest Income
Real Estate Loans		$	(913	)		(1,004	)		(1,917	)
Commercial Loans			5,812			(4,431	)		1,381
Consumer and Other Loans			556			(1,545	)		(989	)
Investment Securities			5,280			(2,318	)		2,962

	Total Interest Income		10,735			(9,298	)		1,437
Interest Expense
NOW Accounts			238			(817	)		(579	)
Savings Accounts			274			(787	)		(513	)
Money Market Accounts			1,767			(3,186	)		(1,419	)
Certificates of Deposit			(292	)		(4,880	)		(5,172	)
FHLB Advances			1,756			(2,227	)		(471	)
Other Borrowings and Repurchase Agreements			438			(476	)		(38	)

	Total Interest Expense		4,181			(12,373	)		(8,192	)

Net Interest Income		$	6,554			3,075			9,629

14) Average Balance Sheet

The following schedule provides (i) the total dollar amount of interest and dividend income of the Company for earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest and dividend income; (iv) interest rate spread; and (v) net interest margin. Non-accrual loans are included in the average balance of the loans.


			For the Six months ended 6-30-02							For the year ended 12-31-01

					Interest		Average					Interest		Average
AVERAGE BALANCE SHEET			Average		and		Yield/			Average		and		Yield/
(Dollars in Thousands)			Balance		Dividends		Rate			Balance		Dividends		Rate

ASSETS
	Real Estate Loans		$	389,073		15,063		7.74	%	$	428,999		34,012		7.93	%
	Commercial Loans			627,319		23,081		7.42	%		556,907		48,292		8.67	%
	Consumer and Other Loans			290,026		11,499		8.00	%		292,732		25,528		8.72	%

		Total Loans		1,306,418		49,643		7.66	%		1,278,638		107,832		8.43	%
	Investment Securities			620,196		16,942		5.46	%		501,927		30,088		5.99	%

		Total Earning Assets		1,926,614		66,585		6.91	%		1,780,565		137,920		7.75	%

	Non-Earning Assets			167,809							165,687

		TOTAL ASSETS	$	2,094,423						$	1,946,252

LIABILITIES AND STOCKHOLDERS’ EQUITY
	NOW Accounts		$	204,046		399		0.39	%	$	183,399		1,758		0.96	%
	Savings Accounts			126,514		464		0.74	%		102,736		1,855		1.81	%
	Money Market Accounts			339,964		3,496		2.07	%		287,150		9,575		3.33	%
	Certificates of Deposit			511,466		9,756		3.85	%		552,469		29,504		5.34	%
	FHLB Advances			385,473		8,366		4.38	%		349,023		18,280		5.24	%
	Repurchase Agreements and Other Borrowed Funds			73,238		2,136		5.88	%		66,658		4,574		6.86	%

		Total Interest Bearing Liabilities		1,640,701		24,617		3.03	%		1,541,435		65,546		4.25	%

		Non-interest Bearing Deposits		236,299							216,238
		Other Liabilities		30,790							27,847

		Total Liabilities		1,907,790							1,785,520

	Common Stock			171							157
	Paid-In Capital			169,027							152,420
	Retained Earnings			14,178							5,929
	Accumulated Other Comprehensive Earnings			3,257							2,226

		Total Stockholders’ Equity		186,633							160,732

		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,094,423						$	1,946,252

	Net Interest Income				$	41,968						$	72,374

	Net Interest Spread							3.88	%						3.49	%
	Net Interest argin on average earning assets							4.36	%						4.06	%
	Return on Average Assets							1.41	%						1.11	%
	Return on Average Equity							15.78	%						13.49	%

15)    Recently Issued Accounting Standards

   In July 2001, the Financial Accounting Standards Board (FASB) issued Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. However, goodwill recognized in connection with a branch acquisition will continue to be subject to provisions of Statement 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company adopted the provisions of Statement 141 immediately, and Statement 142 and 144 effective January 1, 2002.

   Statement 141 required upon adoption of Statement 142 that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. The Company was required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption (March 31, 2002). In addition, to the extent an intangible asset was identified as having an indefinite useful life, the Company was required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss would be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

   In connection with the transitional goodwill impairment evaluation, Statement 142 required the Company to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. To accomplish this, the Company identified its reporting units and determined the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company had up to six months from the date of adoption (June 30, 2002) to determine the fair value of each reporting unit and compare it to the reporting unit’s carrying amount. To the extent a reporting unit’s carrying amount exceeded its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption (January 1, 2002). This second step, if necessary, is required to be completed as soon as possible, but no later than the end of the year of adoption (December 31, 2002). Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company’s consolidated statements of operations.

   As of June 30, 2002, the Company has identified its reporting units as its banking subsidiaries and has allocated goodwill accordingly. Intangibles with definite useful lives have been re-assessed and the useful lives and residual values were determined to be adequate. Intangibles with indefinite useful lives have been tested for impairment loss. The Company estimated the fair value of each reporting unit, and determined

that each unit’s fair value exceeds the carrying value of each reporting unit, and consequently no impairment is evident at this time. On an annual basis, prior to the end of the third quarter, the Company will revaluate the useful lives, residual value, and test goodwill for impairment, as required by Statement 142.

The following table sets forth information regarding the Company’s core deposit intangibles, amortizable goodwill, and mortgage servicing rights:


		As of June 30, 2002

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

	Gross carrying value	$	9,836			20,489
	Accumulated Amortization		(2,295	)		(1,491	)

	Net carrying value	$	7,541			18,998			2,188		28,727

Weighted-Average amortization period (Period in years)			10.0			23.6			24.3		20.1
Aggregate Amortization Expense
	For the three months ended June 30, 2002	$	360			249			95		704
	For the six months ended June 30, 2002	$	721			498			186		1,405
Estimated Amortization Expense
	For the year ended December 31, 2002	$	1,439			995			300		2,734
	For the year ended December 31, 2003		1,219			995			286		2,500
	For the year ended December 31, 2004		1,011			995			272		2,278
	For the year ended December 31, 2005		847			995			258		2,100
	For the year ended December 31, 2006		779			995			244		2,018

(1)

Gross carrying value and accumulated amortization are not readily available

At June 30, 2002, the Company’s goodwill totaled $32.692 million, of which $13.694 million represents goodwill that is no longer being amortized as of January 1, 2002 pursuant to Statement 142. The changes in the carrying amount of goodwill for the six months ended June 30, 2002 are as follows.


	Balance		Goodwill			Amortization			Balance
	At		Adjustments			for six months			At
(Dollars in thousands)	12/31/2001		2002(1)			ended 6/30/02			6/30/2002

Parent	$	2,151		—			—			2,151
Glacier Bank		4,074		9			(59	)		4,024
First Security		3,796		—			—			3,796
Western		4,193		(329	)		—			3,864
Mountain		16,818		—			(439	)		16,379
Big Sky		1,752		—			—			1,752
Valley		726		—			—			726
Whitefish		—		—			—			—

	$	33,510		(320	)		(498	)		32,692

(1)

Adjustments are purchase accounting adjustments related to the WesterFed Financial Corporation acquisition on February 28, 2001.

The following pro forma information presents the consolidated results of operations as if the adoption of Statement 142 had occurred on January 1, 2001. The table is for comparison purposes only:


	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,

(Dollars in thousands)	2002		2001		2002		2001

Reported net income	$	7,979		5,608		14,727		9,522
Add back goodwill amortization, net of tax		—		161		—		241

Adjusted net income	$	7,979		5,769		14,727		9,763


	For the Three Months Ended June 30,

	2002				2001

	Basic EPS		Diluted EPS		Basic EPS		Diluted EPS

Reported net income	$	0.47		0.46		0.34		0.33
Add back goodwill amortization, net of tax		—		—		0.01		0.01

Adjusted net income	$	0.47		0.46		0.35		0.34


	For the Six Months Ended June 30,

	2002				2001

	Basic EPS		Diluted EPS		Basic EPS		Diluted EPS

Reported net income	$	0.86		0.85		0.65		0.63
Add back goodwill amortization, net of tax		—		—		0.02		0.01

Adjusted net income	$	0.86		0.85		0.67		0.64

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 June 30, 2001 and December 31, 2001, to June 30, 2002.

Assets
($ in thousands)


												$ change from			$ change from
			June 30,			December 31,			June 30,			December 31,			June 30,
			2002			2001			2001			2001			2001

Cash on hand and in banks			$	59,812			73,456			69,446			(13,644	)		(9,634	)
Investment securities and interest bearing deposits				624,191			532,548			527,730			91,643			96,461
Loans:
	Real estate			372,318			421,996			484,959			(49,678	)		(112,641	)
	Commercial and Agricultural			650,749			620,134			590,021			30,615			60,728
	Consumer			292,639			298,851			317,289			(6,212	)		(24,650	)

		Total loans		1,315,706			1,340,981			1,392,269			(25,275	)		(76,563	)
	Allowance for loan losses			(19,941	)		(18,654	)		(18,465	)		(1,287	)		(1,476	)

		Total loans net of allowance for loan losses		1,295,765			1,322,327			1,373,804			(26,562	)		(78,039	)

Other assets				157,800			157,416			163,116			384			(5,316	)

	Total Assets		$	2,137,568			2,085,747			2,134,096			51,821			3,472

At June 30, 2002 total assets were $2.138 billion which is nearly the same level as June 30, 2001 assets of $2.134 billion, and is an increase of $51.821 million from December 31, 2001.

Total loans, net of the reserve for loan losses, have decreased $78 million from June 30, 2001, with $26 million of the decrease occurring during the six months in 2002. With lower interest rates during the past year a large number of real estate loans have been refinanced, which coupled with our decision to sell the majority of the real estate loan production, has resulted in a reduction in real estate loans of $113 million, of which $50 million occurred in 2002. Commercial loans have increased $61 million, with approximately $30 million of the growth in 2002, and continue to be the lending focus. Consumer loans have declined $25 million with a significant portion of the decline attributed to the runoff in the WesterFed Financial Corporation dealer originated consumer loans. We have curtailed the origination and purchase of these loan types and are focusing on home-equity loans for the consumer loan portfolio.

Investment securities, excluding interest bearing deposits in other financial institutions, have increased $108 million. Much of the cash received from the reduction in real estate loans has been redeployed in mortgage related investment securities with characteristics that result in less interest rate risk than retaining 30 year loans.

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 increases in interest rates of holding long-term, fixed rate loans in the loan portfolio. 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 June 30, 2002 was approximately $265 million.

Liabilities
($ in thousands)


								$ change from			$ change from
		June 30,		December 31,		June 30,		December 31,			June 30,
		2002		2001		2001		2001			2001

Deposits — non-interest bearing		$	256,519		234,318		231,007		22,201			25,512
Deposits — interest bearing			1,175,893		1,211,746		1,212,343		(35,853	)		(36,450	)
Advances from Federal Home Loan Bank			406,603		367,295		416,222		39,308			(9,619	)
Other borrowed funds			43,201		33,645		42,221		9,556			980
Other liabilities			25,544		26,760		31,943		(1,216	)		(6,399	)
Trust preferred securities			35,000		35,000		35,000		—			—

	Total liabilities	$	1,942,760		1,908,764		1,968,736		33,996			(25,976	)

Total deposits have decreased $11 million from the June 30, 2001 balances, and are down $14 million from December 31, 2001. Non-interest bearing deposits are up $26 million, or 11 percent, and interest-bearing deposits are down $36 million, or 3 percent from June 30, 2001. The majority of the change in deposits has occurred since December 31, 2002. Much of the decline in interest-bearing deposits is the result of pricing strategies in the low interest rate environment. Federal home loan bank advances, other borrowed funds, and repurchase agreements, have also decreased $9 million. Other liabilities is comprised of accrued interest payable, current and deferred tax liability, merger related liabilities, and other miscellaneous liabilities. The decrease of $7 million, or 20 percent, of other liabilities is primarily the result of the decrease in accrued interest payable, which occurred due to a decrease in interest-bearing liabilities outstanding and a decrease in interest rates. In addition, merger related liabilities have been paid.

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 June 30, 2002, the Company had $733 million of available FHLB line of which $407 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 2002, all seven financial institutions maintained liquidity levels in excess of regulatory requirements and operational needs.

Stockholders’ equity
($ in thousands except per share data)


											$ change from		$ change from
		June 30,			December 31,			June 30,			December 31,		June 30,
		2002			2001			2001			2001		2001

Common equity		$	187,992			175,227			163,301			12,765		24,691
Net unrealized gain on securities			6,816			1,756			2,059			5,060		4,757

	Total stockholders’ equity	$	194,808			176,983			165,360			17,825		29,448

Stockholders’ equity to total assets			9.11	%		8.49	%		7.75	%
Tangible equity to total assets			7.37	%		6.62	%		5.78	%
Book value per common share		$	11.34			10.49			9.95			0.85		1.39
Tangible book value per common share		$	9.00			8.01			7.27			0.99		1.73

Each of the equity ratios and book value per share amounts have increased substantially from the prior year and December 31, 2001, primarily the result of earnings retention, stock options exercised, and net unrealized gains on securities. Our equity to asset ratio is near historic highs for the Company. The increase in net unrealized gains on securities is a result of the overall market performance.

Credit quality information ($ in thousands)


	June 30,			March 31,			December 31,			June 30,
	2002			2002			2001			2001

Allowance for loan losses	$	19,941			19,498			18,654			18,465
Non-performing assets	$	9,214			12,766			11,262			11,918
Allowance as a percentage of non performing assets		216.42	%		152.73	%		165.64	%		154.93	%
Non-performing assets as a percentage of total assets		0.43	%		0.61	%		0.53	%		0.55	%
Allowance as a percentage of total loans		1.52	%		1.50	%		1.39	%		1.32	%

Allowance for Loan Loss and Non-Performing Assets

Non-performing assets as a percentage of total assets at June 30, 2002 were .43 percent versus .55 percent at the same time last year, which compares to the Peer Group average of .62 percent at March 31, 2002, the most recent information available. The allowance for loan losses was 216 percent of non-performing assets at June 30, 2002, up from 155 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 increased the balance in the allowance for loan losses account. The allowance balance has increased $1.476 million, or 8 percent, to $19.941 million. Allowance as a percentage of total loans is 1.52 percent, up from 1.32 percent a year ago and 1.39 percent at December 31, 2001. The provision for loan losses was $2.560 million which is an increase of $137 thousand over the first six months in 2001. Net charged off loans as a percentage of loans outstanding were .097 for the first six months of 2002 which is up from .046 during the same period in 2001. The 2002 charge off rate is about the same level as the charge off rate of .20 for the full 2001 year.

Results of Operations — The three months ended June 30, 2002 compared to the three months ended June 30, 2001.

Revenue summary
($ in thousands)


			Three months ended June 30,

			2002			2001			$ change			% change

Net interest income			$	21,601			19,237			2,364			12.3	%
Fees and other revenue:
	Service charges, loan fees, and other fees			4,625			4,619			6			0.1	%
	Gain on sale of loans			1,175			943			232			24.6	%
	Other income			534			938			(404	)		-43.1	%

		Total non-interest income		6,334			6,500			(166	)		-2.6	%

	Total revenue		$	27,935			25,737			2,198			8.5	%

Net interest margin				4.57	%		3.97	%

Net Interest Income

Net interest income for the quarter increased $2.364 million, or 12 percent, over the same period in 2001. Total interest income is $5.266 million, or 14 percent lower than the same quarter in 2001, while total interest expense is $7.630 million, or 39 percent lower. The increase in non-interest bearing deposits and the decrease in interest bearing deposits contributed to the reduced interest expense. Lower interest rates in 2002 have also reduced interest income and interest expense. The net interest margin as a percentage of earning assets, on a tax equivalent basis, increased from 4.0 percent for the 2001 quarter to 4.6 percent in the quarter ended June 30, 2002. The ratio also is an increase from the 4.4 percent for the quarter ended March 31, 2002.

Non-interest Income

Fee income from operations was approximately the same amount in the second quarter of 2002 as in 2001. Gain on sale of loans increased $232 thousand, or 25 percent, resulting from increased real estate loan originations. Included in other income in 2001 was a $511 thousand gain-on-sale of the Glacier Bank Cut Bank branch office, as a result other income was $404 thousand lower in the second quarter of 2002.

Non-interest expense summary
($ in thousands)


		Three months ended June 30,

		2002		2001		$ change			% change

Compensation and employee benefits		$	7,533		6,908		625			9.0	%
Occupancy and equipment expense			2,324		2,531		(207	)		-8.2	%
Outsourced data processing expense			515		976		(461	)		-47.2	%
Core deposit intangible amortization			360		406		(46	)		-11.3	%
Goodwill amortization(a)			249		513		(264	)		-51.5	%
Other expenses			3,610		3,882		(272	)		-7.0	%

	Total non-interest expense	$	14,591		15,216		(625	)		-4.1	%

(a)

2001 amortization would have been $254 thousand if current accounting rules for goodwill amortization had been in place. See footnote 15 for additional information.

Non-interest Expense

Non-interest expense decreased by $625 thousand, or 4 percent, from the same quarter of 2001. However, 2001 includes $480 thousand in merger and conversion expense, so non-interest expense from operations is at a similar level as last year. During the third quarter of 2001 the data processing functions for Western Security Bank were converted to our in-house system. This has reduced the outsourced data processing costs and increased compensation and benefits expense. Compensation and benefit expense has increased $625 thousand, or 9 percent from the second quarter of 2001. Intangible asset amortization in the form of core deposit and goodwill was $360 thousand and $249 thousand, respectively, which is a decrease of $310 thousand from the prior year, primarily the result of the adoption of Statement of Financial Accounting Standard 142, see footnote 15 for further information. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 52 percent for the second 2002 quarter which is an improvement over the 59 percent for the second quarter in 2001.

Results of Operations — The six months ended June 30, 2002 compared to the six months ended June 30, 2001.

Revenue summary
($ in thousands)


			Six months ended June 30,

			2002			2001			$ change			% change

Net interest income			$	41,968			32,339			9,629			29.8	%
Fees and other revenue:
	Service charges, loan fees, and other fees			8,631			7,755			876			11.3	%
	Gain on sale of loans			2,272			1,410			862			61.1	%
	Other income			1,280			1,462			(182	)		-12.4	%

		Total non-interest income		12,183			10,627			1,556			14.6	%

	Total revenue		$	54,151			42,966			11,185			26.0	%

	Net interest margin			4.48	%		4.01	%

Net Interest Income

Net interest income for the six months was $41.968 million, an increase of $9.629 million, or 30 percent over the same six months of 2001. The WesterFed acquisition on February 28, 2001, and the Idaho and Utah branch acquisitions in March 2001 are the primary reasons for the increase. Interest income has increased $1.437 million, or 2 percent, while interest expense has declined $8.192 million, or 25 percent. The increase in non-interest bearing deposits and decrease in interest bearing deposits, and significant reductions in rates paid on deposits and borrowed funds, are the primary reasons for the decreased interest expense. As a percentage of earning assets, on a tax equivalent basis, the year-to-date interest margin has improved from 4.0 percent to 4.5 percent.

Non-interest Income

Fee income increased $876 thousand, or 11 percent, primarily the result of the acquisition in the later part of the first quarter in 2001. Gain on sale of loans increased $862 thousand, or 61 percent, resulting from increased loan originations. Mortgage interest rates have been very attractive to consumers during the past year. Included in other income in 2001 was a $511 thousand gain-on-sale of the Glacier Bank Cut Bank branch office, as a result other income was $182 thousand lower this year.

Non-interest expense summary
($ in thousands)


		Six months ended June 30,

		2002		2001		$ change			% change

Compensation and employee benefits		$	15,315		12,165		3,150			25.9	%
Occupancy and equipment expense			4,625		3,990		635			15.9	%
Outsourced data processing expense			961		1,237		(276	)		-22.3	%
Core deposit intangible amortization			721		574		147			25.6	%
Goodwill amortization(a)			498		737		(239	)		-32.4	%
Other expenses			7,085		7,028		57			0.8	%

	Total non-interest expense	$	29,205		25,731		3,474			13.5	%

(a)

2001 amortization would have been $351 thousand if current accounting rules for goodwill amortization had been in place. See footnote 15 for additional information.

Non-interest Expense

Non-interest expense increased $3.474 million, or 14 percent, over 2001. However, 2001 also includes $886 thousand in merger and conversion expense, so non-interest expense from operations has increased $4.360 million over last year. The 2001 acquisitions are much of the reason for this increase. During the third quarter of 2001 the data processing functions for Western Security Bank were converted to the in-house system. This has reduced the outsourced data processing costs and increased compensation and benefits expense. Intangible asset amortization in the form of core deposit and goodwill was $721 thousand and $498 thousand, respectively, which is an increase of $147 thousand in core deposit amortization, and a decrease of $239 thousand in goodwill amortization, primarily the result of the adoption of Statement of Financial Accounting Standard 142, see footnote 15 for additional information. The efficiency ratio in 2002 is 54 percent which is an improvement over the 60 percent ratio in 2001.

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 balance sheet. 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 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. The following reflects the Company’s NII sensitivity analysis as of December 31, 2001, the most recent information available, as compared to the 10% Board approved policy limit (dollars in thousands). There have been no significant changes in operation 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 six months activity ended June 30, 2002.


Interest Rate Sensitivity	+200 bp			-200 bp

Estimated sensitivity		-3.20	%		0.77	%
Estimated increase (decrease) in net interest income	$	(2,686	)		646

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.

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

At the April 24, 2002 annual meeting of shareholders held in Kalispell, Montana, three proposals were voted on. The first proposal was for the election of directors, the second was the for the approval of an amendment to the 1995 employee stock option plan that would increase the number of shares available by 1,000,000 to an aggregate of 2,107,779 shares, and the third was for the approval of an amendment to the 1994 directors’ stock option plan that would increase the number of shares available by 500,000 to an aggregate of 690,750 shares. Following is a tabulation of the results:

Proposal One — Election of Directors


Name	For		Abstain/Against

Michael J. Blodnick		13,783,065		965,559
Allen J. Fetscher		14,341,255		407,369
Fred J. Flanders		14,391,885		356,739
Jon W. Hippler		14,507,894		240,630

Proposal Two — Amendment to the 1995 employee stock option plan


For	Against		Abstain

9,254,570		1,040,628		124,349

Proposal Three — Amendment to the 1994 director stock option plan


For	Against		Abstain

9,254,107		996,872		168,568

Item 5. Other Information

None

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

        (a)    Exhibits

           Exhibit 99 — Certification of Chief Executive Officer and Chief Financial Officer

        (b)    Current Report on Form 8-K None

SIGNATURES

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


	GLACIER BANCORP, INC.
August 12, 2002	By:	/s/ Michael J. Blodnick

		Michael J. Blodnick President/CEO
August 12, 2002	By:	/s/ James H. Strosahl

		James H. Strosahl Executive Vice President/CFO

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1)		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 June 30, 2002, December 31, 2001, and June 30, 2001, stockholders’ equity for the six months ended June 30, 2001 and the year ended December 31, 2001, and the results of operations for the three and six months ended June 30, 2002 and 2001, and the cash flows for the six months ended June 30, 2002 and 2001.

		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, 2001. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results anticipated for the year ending December 31, 2002. Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation.

2)		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 nine wholly owned operating 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”), Community First, Inc. (“CFI”), and Glacier Capital Trust I (“Glacier Trust”), all located in Montana, and Mountain West Bank (“Mountain West”) which is located in Idaho and Utah.

		CFI 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.

4)		Cash Dividend Declared:

		On June 26, 2002, the Board of Directors declared a $.16 per share quarterly cash dividend to stockholders of record on July 9, 2002, payable on July 18, 2002.

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 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.

6)		Investments:

		A comparison of the amortized cost and estimated fair value of the Company’s investments is as follows:

7)		Loans

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

8)		Deposits

		The following table illustrates the amounts outstanding for deposits greater than $100,000 at June 30, 2002, according to the time remaining to maturity:

9)		Advances and Other Borrowings

		The following chart illustrates the average balances and the maximum outstanding month-end balances for FHLB advances and repurchase agreements:

10)		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 June 30, 2002:

11)		Comprehensive Earnings:

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

12)		Segment Information

		The Company evaluates segment performance internally based on individual bank charter, 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. During the third quarter of 2001, certain branches of Western were transferred to other Company owned banks located in the same geographic area which accounted for the change in activity for certain segments.

13)		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.

14)		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.

15)		Recently Issued Accounting Standards

		In July 2001, the Financial Accounting Standards Board (FASB) issued Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. However, goodwill recognized in connection with a branch acquisition will continue to be subject to provisions of Statement 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company adopted the provisions of Statement 141 immediately, and Statement 142 and 144 effective January 1, 2002.

		Statement 141 required upon adoption of Statement 142 that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. The Company was required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption (March 31, 2002). In addition, to the extent an intangible asset was identified as having an indefinite useful life, the Company was required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss would be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

		In connection with the transitional goodwill impairment evaluation, Statement 142 required the Company to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. To accomplish this, the Company identified its reporting units and determined the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company had up to six months from the date of adoption (June 30, 2002) to determine the fair value of each reporting unit and compare it to the reporting unit’s carrying amount. To the extent a reporting unit’s carrying amount exceeded its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption (January 1, 2002). This second step, if necessary, is required to be completed as soon as possible, but no later than the end of the year of adoption (December 31, 2002). Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company’s consolidated statements of operations.

		As of June 30, 2002, the Company has identified its reporting units as its banking subsidiaries and has allocated goodwill accordingly. Intangibles with definite useful lives have been re-assessed and the useful lives and residual values were determined to be adequate. Intangibles with indefinite useful lives have been tested for impairment loss. The Company estimated the fair value of each reporting unit, and determined

	(a)		Exhibits

			Exhibit 99 — Certification of Chief Executive Officer and Chief Financial Officer

	(b)		Current Report on Form 8-K None