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, 2003


o		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). Yes X No

The number of shares of Registrant’s common stock outstanding on August 6, 2003 was 19,300,141. 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
	Item 4. Controls and Procedures
		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 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 - June 30, 2003, December 31, 2002 and June 30, 2002 (unaudited)		3
	Consolidated Statements of Operations - Three and six months ended June 30, 2003 and 2002 (unaudited)		4
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income — Year ended December 31, 2002 and six months ended June 30, 2003 (unaudited)		5
	Consolidated Statements of Cash Flows - Six months ended June 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		24
Item 4 -	Controls and Procedures		25
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		27
Signatures			27

Glacier Bancorp, Inc.
Consolidated Statements of Financial Condition


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

			2003			2002			2002

									(Restated - See note 2)
Assets:
	Cash on hand and in banks		$	71,738			74,624			59,812
	Interest bearing cash deposits			11,387			4,753			7,410

		Cash and cash equivalents		83,125			79,377			67,222

	Investments:
		Investment securities, available-for-sale		254,114			260,606			213,752
		Mortgage backed securities, available-for-sale		630,337			479,355			403,029
		Federal Home Loan Bank and Federal Reserve Bank stock, at cost		44,681			42,864			41,343

		Total investments		929,132			782,825			658,124

	Net loans receivable:
		Real estate loans		339,057			361,522			372,318
		Commercial Loans		780,321			673,256			650,749
		Consumer and other loans		285,411			286,819			292,639
		Allowance for loan losses		(22,354	)		(20,944	)		(19,941	)

		Total loans, net		1,382,435			1,300,653			1,295,765

	Premises and equipment, net			48,658			47,215			47,455
	Real estate and other assets owned, net			682			1,542			699
	Accrued interest receivable			13,213			13,421			13,047
	Core deposit intangible, net			6,193			6,822			7,541
	Goodwill, net			33,189			33,189			33,189
	Other assets			14,734			16,300			15,023

			$	2,511,361			2,281,344			2,138,065

Liabilities and stockholders’ equity:
	Non-interest bearing deposits		$	337,193			295,016			256,519
	Interest bearing deposits			1,165,386			1,164,907			1,175,893
	Advances from Federal Home Loan Bank of Seattle			625,670			483,660			406,603
	Securities sold under agreements to repurchase			74,808			46,206			34,744
	Other borrowed funds			12,383			15,087			8,457
	Accrued interest payable			5,092			6,090			6,452
	Current income taxes			1,314			815			737
	Deferred tax liability			10,244			8,629			5,083
	Trust preferred securities			35,000			35,000			35,000
	Other liabilities			14,006			13,685			13,471

		Total liabilities		2,281,096			2,069,095			1,942,959

	Preferred shares, 1,000,000 shares authorized. None outstanding			—			—			—
	Common stock, $.01 par value per share 50,000,000 shares authorized			193			173			172
	Paid-in capital			220,624			173,408			170,894
	(Accumulated deficit) retained earnings — substantially restricted			(3,089	)		28,557			17,224
	Accumulated other comprehensive income			12,537			10,111			6,816

		Total stockholders’ equity		230,265			212,249			195,106

			$	2,511,361			2,281,344			2,138,065

	Number of shares outstanding			19,280,059			19,014,400			18,898,098
	Book value per share		$	11.94			11.16			10.32
	Tangible book value per share		$	9.90			9.06			8.17

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 June 30,						Six months ended June 30,

		2003			2002			2003			2002

					(Restated - See note 2)						(Restated - See note 2)

Interest income:
	Real estate loans	$	5,849			7,225			12,101			15,063
	Commercial loans		12,362			11,649			23,979			23,081
	Consumer and other loans		5,030			5,686			10,132			11,499
	Investment securities and other		8,372			8,947			17,463			16,942

	Total interest income		31,613			33,507			63,675			66,585

Interest expense:
	Deposits		4,431			6,673			9,378			14,115
	Federal Home Loan Bank of Seattle Advances		4,087			4,181			8,299			8,366
	Securities sold under agreements to repurchase		175			133			333			289
	Trust preferred securities		909			903			1,813			1,807
	Other borrowed funds		47			16			56			40

	Total interest expense		9,649			11,906			19,879			24,617

Net interest income			21,964			21,601			43,796			41,968
	Provision for loan losses		1,051			1,260			1,892			2,560

	Net interest income after provision for loan losses		20,913			20,341			41,904			39,408

Non-interest income:
	Service charges and other fees		3,846			3,443			7,435			6,606
	Miscellaneous loan fees and charges		1,132			1,099			2,162			1,864
	Gains on sale of loans		3,211			1,258			5,482			2,433
	Gains on sale of investments, net of impairment charge		1,685			2			1,248			2
	Other income		439			532			999			1,278

	Total non-interest income		10,313			6,334			17,326			12,183

Non-interest expense:
	Compensation, employee benefits and related expenses		9,050			7,533			17,029			15,315
	Occupancy and equipment expense		2,295			2,324			4,730			4,625
	Outsourced data processing expense		266			515			828			961
	Core deposit intangibles amortization		291			360			629			721
	Other expenses		4,418			3,610			7,987			7,085

	Total non-interest expense		16,320			14,342			31,203			28,707

Earnings before income taxes			14,906			12,333			28,027			22,884
	Federal and state income tax expense		4,974			4,205			9,247			7,859

Net earnings		$	9,932			8,128			18,780			15,025

Basic earnings per share '		$	0.52			0.43			0.98			0.80
Diluted earnings per share		$	0.51			0.42			0.96			0.79
Dividends declared per share		$	0.19			0.15			0.35			0.29
Return on average assets (annualized)			1.67	%		1.51	%		1.63	%		1.41	%
Return on average equity (annualized)			17.51	%		16.77	%		16.95	%		15.78	%
Return on tangible average equity (annualized)			21.20	%		21.40	%		20.62	%		20.31	%
Average outstanding shares — basic			19,267,556			18,852,953			19,211,468			18,784,258
Average outstanding shares — diluted			19,569,414			19,197,076			19,495,418			19,116,131

See accompanying notes to consolidated financial statements.

Glacier Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
and Comprehensive Income
Year ended December 31, 2002 and Six months ended June 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			16,874,422		169		167,371		7,687			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			411,396		4		4,957		—			—		4,961
Tax benefit from stock related compensation			—		—		1,080		—			—		1,080

Balance at December 31, 2002			17,285,818		173		173,408		28,557			10,111		212,249
Comprehensive income:
	Net earnings		—		—		—		18,780			—		18,780
	Unrealized gain on securities, net of reclassification adjustment		—		—		—		—			2,426		2,426

Total comprehensive income														21,206

Cash dividends declared ($.35 per share)			—		—		—		(6,827	)		—		(6,827	)
Stock options exercised			243,205		2		3,650		—			—		3,652
10% stock dividend			1,751,036		18		43,566		(43,599	)		—		(15	)

Balance at June 30, 2003			19,280,059	$	193		220,624		(3,089	)		12,537		230,265

See accompanying notes to consolidated financial statements

Glacier Bancorp, Inc.
Consolidated Statements of Cash Flows


(Unaudited - dollars in thousands)			Six months ended June 30,

			2003			2002

						(Restated - See note 2)
OPERATING ACTIVITIES :
	Net cash provided by operating activities		$	33,038			29,305

INVESTING ACTIVITIES:
	Proceeds from sales, maturities and prepayments of investments available-for-sale			162,984			105,754
	Purchases of investments available-for-sale			(308,689	)		(208,096	)
	Principal collected on installment and commercial loans			307,486			303,572
	Installment and commercial loans originated or acquired			(413,141	)		(327,974	)
	Principal collections on mortgage loans			143,767			134,549
	Mortgage loans originated or acquired			(124,939	)		(99,352	)
	Net purchase of FHLB and FRB stock			(672	)		(3,359	)
	Net (addition) disposal of premises and equipment			(3,459	)		2,148

	NET CASH USED IN INVESTING ACTIVITIES			(236,663	)		(92,758	)

FINANCING ACTIVITIES:
	Net increase (decrease) in deposits			42,656			(13,652	)
	Net increase in FHLB advances and other borrowed funds			139,305			46,704
	Net increase in securities sold under repurchase agreements			28,602			2,159
	Cash dividends paid to stockholders			(6,827	)		(5,488	)
	Proceeds from exercise of stock options and other stock issued			3,637			3,526

	NET CASH PROVIDED BY FINANCING ACTIVITIES			207,373			33,249

	NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			3,748			(30,204	)
	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			79,377			97,426

	CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	83,125			67,222

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
	Cash paid during the period for: Interest		$	20,879			27,345
		Income taxes	$	5,908			7,219

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, 2003, December 31, 2002, and June 30, 2002, stockholders’ equity for the six months ended June 30, 2003 and the year ended December 31, 2002, the results of operations for the three and six months ended June 30, 2003 and 2002, and cash flows for the six months ended June 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 six months ended June 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.

2) Restatement of Prior Period Earnings

In October 2002, the Financial Accounting Standards Board (“FASB”) issued Statement 147, Acquisitions of Certain Other Intangible Assets, an amendment of Statement 72 and 144 and FASB Interpretations 9. Under the provisions of Statement 147, the acquisition of all or part of a financial institution that meets the definition of a business combination will be accounted for by the purchase method in accordance with FASB Statement 141, Business Combinations. Statement 147 provides that long-term customer relationships intangible assets, except for servicing assets, recognized in the acquisition of financial institution, be evaluated for impairment under provisions of Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

The Company has evaluated the goodwill recognized in connection with its branch acquisitions and determined that it meets the criteria of Statement 147, and therefore the unidentifiable intangible asset has been reclassified to goodwill and is subject to Statement 142, Goodwill and Other Intangible Assets. The reclassification was retroactively applied to January 1, 2002, which resulted in the restatement of previously filed financial statements. The impact for the three and six months ended June 30, 2002, was to increase net earnings by $149,000 and $298,000, increase basic earnings per share by $.01 and .02, and increase diluted earnings per share by $.00 and .02, respectively.

3) 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 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. The Company does not have any off-balance sheet entities.

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

The following abbreviated organizational chart illustrates the various relationships:

(ORGANIZATION FLOW CHART)

4) Ratios:

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

5) Dividends Declared:

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, payable on May 22, 2003, and all prior period amounts have been restated to reflect the stock dividend. On June 25, 2003, the Board of Directors declared a $.19 per share quarterly cash dividend to stockholders of record on July 8, 2003, payable on July 17, 2003.

6) 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

Six

months ended

June 30, 2003

June 30, 2002

June 30, 2003

June 30, 2002

Net earnings available to common stockholders

9,932,250

8,128,283

18,780,348

15,025,115

Average outstanding shares — basic

19,267,556

18,852,953

19,211,472

18,784,258

Add: Dilutive stock options

301,858

344,123

283,946

331,873

Average outstanding shares — diluted

19,569,414

19,197,076

19,495,418

19,116,131

Basic earnings per share

0.52

0.43

0.98

0.80

Diluted earnings per share

0.51

0.42

0.96

0.79

7) 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 JUNE 30, 2003


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

U.S. Government and Federal Agencies
	maturing after ten years			3.05	%		1,007		12		(1	)		1,018

				3.05	%		1,007		12		(1	)		1,018

State and Local Governments and other issues:
	maturing within one year			5.96	%		3,218		92		—			3,310
	maturing one year through five years			4.42	%		5,838		110		(90	)		5,858
	maturing five years through ten years			5.43	%		3,089		192		—			3,281
	maturing after ten years			5.31	%		226,523		14,190		(66	)		240,647

				5.30	%		238,668		14,584		(156	)		253,096

Mortgage-Backed Securities				5.23	%		74,951		2,027		(2	)		76,976
Real Estate Mortgage Investment Conduits				3.58	%		549,141		4,220		—			553,361
FHLB and FRB stock, at cost				6.17	%		44,681		—		—			44,681

		Total Investments		4.30	%	$	908,448		20,843		(159	)		929,132

INVESTMENTS AS OF DECEMBER 31, 2002


(Dollars in thousands)			Weighted			Amortized		Gross Unrealized					Estimated 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 six months ended June 30, 2003 and 2002 of $5,179,000 and $3,457,000, respectively, and the three months ended June 30, 2003 and 2002 of $2,589,000 and $1,968,000, respectively.

Gross proceeds from sales of investment securities for the six months ended June 30, 2003 and 2002 were $19,597,000, and $24,428,000, respectively, resulting in gross gains of

approximately $3,497,000, and $2,000, respectively. Gross proceeds from sales of investment securities for the three months ended June 30, 2003 and 2002 were $17,566,000, and $24,428,000, respectively, resulting in gross gains of approximately $3,480,000, and $2,000, respectively. The cost of any investment sold is determined by specific identification.

There was an impairment charge for the three and six months ended June 30, 2003, of $1,795,000 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.

8) 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)		06/30/03						12/31/2002

		Amount			Percent			Amount			Percent

Real Estate Loans:
	Residential first mortgage loans	$	290,844			21.0	%	$	310,205			23.8	%
	Loans held for sale		48,831			3.5	%		51,987			4.0	%

	Total		339,675			24.5	%		362,192			27.8	%
Commercial Loans:
	Real estate		447,315			32.3	%		397,803			30.6	%
	Other commercial loans		334,236			24.2	%		276,675			21.3	%

	Total		781,551			56.5	%		674,478			51.9	%
Consumer and Other Loans:
	Consumer loans		97,627			7.1	%		112,893			8.7	%
	Home equity loans		187,885			13.6	%		174,033			13.4	%

	Total		285,512			20.7	%		286,926			22.1	%
	Net deferred loan fees, premiums and discounts		(1,949	)		-0.1	%		(1,999	)		-0.2	%
	Allowance for Losses		(22,354	)		-1.6	%		(20,944	)		-1.6	%

Net Loans		$	1,382,435			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
				6/30/2003			12/31/2002

Non-accrual loans:
		Real estate loans		$	2,035			2,476
		Commercial loans			6,189			5,157
		Consumer and other loans			317			409

			Total	$	8,541			8,042
Accruing Loans 90 days or more overdue:
		Real estate loans			351			846
		Commercial loans			1,014			968
		Consumer and other loans			87			184

			Total	$	1,452			1,998
Real estate and other assets owned, net					682			1,542

Total non-performing loans, and real estate and other assets owned, net				$	10,675			11,582

	As a percentage of total assets				0.42	%		0.51	%
Interest Income (1)				$	292			596

(1)

This is the amount of interest that would have been recorded on loans accounted for on a non-accrual basis for the six months ended June 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				Six months ended June 30,			Year ended December 31,
(Dollars in Thousands)				2003			2002

Balance at beginning of period				$	20,944			18,654
	Charge offs:
		Real estate loans			(184	)		(887	)
		Commercial loans			(293	)		(2,522	)
		Consumer and other loans			(429	)		(1,328	)

			Total charge offs	$	(906	)		(4,737	)

	Recoveries:
		Real estate loans			137			276
		Commercial loans			118			326
		Consumer and other loans			169			680

			Total recoveries	$	424			1,282

	Chargeoffs, net of recoveries				(482	)		(3,455	)
	Provision				1,892			5,745

Balance at end of period				$	22,354			20,944

Ratio of net charge offs to average loans outstanding during the period					0.03	%		0.26	%

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


		June 30, 2003					December 31, 2002

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

Real estate loans		$	2,085		24.1	%		2,334		27.4	%
Commercial real estate			6,686		31.8	%		7,088		30.1	%
Other commercial			9,242		23.8	%		7,670		20.9	%
Consumer and other loans			4,341		20.3	%		3,852		21.6	%

	Totals	$	22,354		100.0	%		20,944		100.0	%

9) Intangible Assets

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


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

	Gross carrying value	$	9,836
	Accumulated Amortization		(3,643	)

	Net carrying value	$	6,193			1,596		7,789

Weighted-Average amortization period
	(Period in years)		10.0			8.8		9.8
Aggregate Amortization Expense
	For the three months ended June 30, 2003	$	291			252		543
	For the six months ended June 30, 2003	$	629			419		1,048
Estimated Amortization Expense
	For the year ended December 31, 2003	$	1,219			692		1,911
	For the year ended December 31, 2004		1,011			259		1,270
	For the year ended December 31, 2005		847			246		1,093
	For the year ended December 31, 2006		779			233		1,012
	For the year ended December 31, 2007		766			221		987

(1)

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

10) Deposits

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


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

Within three months		$	29,034		452,169		481,203
Three to six months			16,728		—		16,728
Seven to twelve months			15,562		—		15,562
Over twelve months			13,969		—		13,969

	Totals	$	75,293		452,169		527,462

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 six			for the twelve
(Dollars in thousands)		months ended			months ended
		June 30, 2003			December 31, 2002

FHLB Advances
	Amount outstanding at end of period	$	625,670			483,660
	Average balance	$	515,349			409,168
	Maximum outstanding at any month-end	$	625,670			483,660
	Weighted average interest rate		3.25	%		4.15	%
Repurchase Agreements:
	Amount outstanding at end of period	$	74,808			46,206
	Average balance	$	59,710			35,479
	Maximum outstanding at any month-end	$	74,808			46,206
	Weighted average interest rate		1.12	%		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 June 30, 2003:


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

GAAP Capital		$	230,265			230,265			230,265
Less: Goodwill and intangibles			(39,382	)		(39,382	)		(39,382	)
	Accumulated other comprehensive gain on AFS securities		(12,537	)		(12,537	)		(12,537	)
Plus: Allowance for loan losses			—			20,419			—
	Trust preferred securities		35,000			35,000			35,000
	Other adjustments		—			266			—

Regulatory capital computed		$	213,346			234,031			213,346

Risk weighted assets		$	1,633,522			1,633,522

Total average assets								$	2,330,151

Capital as % of defined assets			13.06	%		14.33	%		9.16	%
Regulatory “well capitalized” requirement			6.00	%		10.00	%		5.00	%

Excess over “well capitalized” requirement			7.06	%		4.33	%		4.16	%

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 six months
			ended June 30,						ended June 30,

Dollars in thousands			2003			2002			2003			2002

Net earnings			$	9,932			8,128			18,780			15,025
Unrealized holding gain arising during the period				2,663			9,199			544			8,365
Tax expense				(1,048	)		(3,634	)		(251	)		(3,306	)

	Net after tax			1,615			5,565			293			5,059
Reclassification adjustment for gains included in net income				3,480			2			3,497			2
Tax expense				(1,357	)		(1	)		(1,364	)		(1	)

	Net after tax			2,123			1			2,133			1
	Net unrealized gain on securities			3,738			5,566			2,426			5,060

		Total comprehensive earnings	$	13,670			13,694			21,206			20,085

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 its 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 June 30,						Six months ended June 30,

		2003			2002			2003			2002

Net earnings (in thousands):	As reported	$	9,932			8,128			18,780			15,025
	Compensation cost		(187	)		(144	)		(374	)		(288	)

	Pro forma		9,745			7,984			18,406			14,737

Basic earnings per share:	As reported		0.52			0.43			0.98			0.80
	Compensation cost		(0.01	)		(0.01	)		(0.02	)		(0.02	)

	Pro forma		0.51			0.42			0.96			0.78

Diluted earnings per share:	As reported		0.51			0.42			0.96			0.79
	Compensation cost		(0.01	)		—			(0.02	)		(0.02	)

	Pro forma		0.50			0.42			0.94			0.77

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.


			Six months ended and as of June 30, 2003

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

Revenues from external customers			$	18,041			17,154			12,957			15,413			5,973
Intersegment revenues				102			12			1			3			—
Expenses				(13,053	)		(12,213	)		(9,914	)		(12,505	)		(4,671	)
Intercompany eliminations				—			—			—			—			—

		Net income	$	5,090			4,953			3,044			2,911			1,302

	Total Assets		$	551,650			539,435			439,631			450,821			192,697


												Total
			Valley			Whitefish			Other			Consolidated

Revenues from external customers				7,390			3,931			141			81,000
Intersegment revenues				65			1			23,442			23,626
Expenses				(5,538	)		(2,954	)		(1,372	)		(62,220	)
Intercompany eliminations				—			—			(23,626	)		(23,626	)

		Net income		1,917			978			(1,415	)		18,780

	Total Assets			200,035			141,915			(4,823	)		2,511,361


			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				(13,953	)		(13,174	)		(11,070	)		(10,616	)		(5,007	)
Intercompany eliminations				—			—			—			—			—

		Net income	$	4,873			3,893			2,599			1,837			1,278

	Total Assets		$	477,777			449,117			388,613			361,464			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	)		(63,743	)
Intercompany eliminations				—			—			(19,314	)		(19,314	)

		Net income		1,160			1,015			(1,630	)		15,025

	Total Assets			176,176			124,319			(8,495	)		2,138,065


			Three months ended and as of June 30, 2003

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

Revenues from external customers			$	8,961			8,794			6,795			8,357			2,879
Intersegment revenues				51			12			1			3			—
Expenses				(6,514	)		(6,252	)		(5,068	)		(6,775	)		(2,297	)
Intercompany eliminations				—			—			—			—			—

		Net income	$	2,498			2,554			1,728			1,585			582

	Total Assets		$	551,650			539,435			439,631			450,821			192,697


												Total
			Valley			Whitefish			Other			Consolidated

Revenues from external customers				4,144			1,914			81			41,925
Intersegment revenues				32			1			12,284			12,384
Expenses				(2,972	)		(1,452	)		(663	)		(31,993	)
Intercompany eliminations				—			—			(12,384	)		(12,384	)

		Net income		1,204			463			(682	)		9,932

	Total Assets			200,035			141,915			(4,823	)		2,511,361


			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				(6,984	)		(6,554	)		(5,408	)		(5,416	)		(2,399	)
Intercompany eliminations				—			—			—			—			—

		Net income	$	2,584			2,024			1,403			1,087			667

	Total Assets		$	477,777			449,117			388,613			361,464			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	)		(667	)		(31,713	)
Intercompany eliminations				—			—			(10,308	)		(10,308	)

		Net income		610			554			(801	)		8,128

	Total Assets			176,176			124,319			(8,495	)		2,138,065

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.


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

Interest Income		Volume			Rate			Net

Real Estate Loans		$	(2,226	)		(736	)		(2,962	)
Commercial Loans			3,226			(2,328	)		898
Consumer and Other Loans			(222	)		(1,145	)		(1,367	)
Investment Securities			5,556			(5,035	)		521

	Total Interest Income		6,334			(9,244	)		(2,910	)
Interest Expense
NOW Accounts			13			(185	)		(172	)
Savings Accounts			22			(213	)		(191	)
Money Market Accounts			217			(1,565	)		(1,348	)
Certificates of Deposit			(903	)		(2,123	)		(3,026	)
FHLB Advances			2,820			(2,887	)		(67	)
Other Borrowings and Repurchase Agreements			757			(691	)		66

	Total Interest Expense		2,926			(7,664	)		(4,738	)

Net Interest Income		$	3,408			(1,580	)		1,828

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 Six months ended 6-30-03							For the Six months ended 6-30-02

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

	Real Estate Loans		$	331,572		12,101		7.30	%	$	389,073		15,063		7.74	%
	Commercial Loans			714,976		23,979		6.76	%		627,319		23,081		7.42	%
	Consumer and Other Loans			284,430		10,132		7.18	%		290,026		11,499		8.00	%

		Total Loans		1,330,978		46,212		7.00	%		1,306,418		49,643		7.66	%
	Tax -Exempt Investment Securities (1)			203,138		5,179		5.10	%		132,547		3,457		5.22	%
	Investment Securities			620,453		12,284		3.96	%		487,649		13,485		5.53	%

		Total Earning Assets		2,154,569		63,675		5.91	%		1,926,614		66,585		6.91	%

	Non-Earning Assets			171,235							167,809

		TOTAL ASSETS	$	2,325,804						$	2,094,423

LIABILITIES
AND STOCKHOLDERS’ EQUITY
	NOW Accounts		$	210,461		226		0.22	%	$	204,046		399		0.39	%
	Savings Accounts			132,485		273		0.42	%		126,514		464		0.74	%
	Money Market Accounts			361,092		2,149		1.20	%		339,964		3,496		2.07	%
	Certificates of Deposit			464,141		6,730		2.92	%		511,466		9,756		3.85	%
	FHLB Advances			515,349		8,299		3.25	%		385,473		8,366		4.38	%
	Repurchase Agreements and Other Borrowed Funds			99,202		2,202		4.48	%		73,238		2,136		5.88	%

		Total Interest Bearing Liabilities		1,782,730		19,879		2.25	%		1,640,701		24,617		3.03	%

		Non-interest Bearing Deposits		292,322							236,299
		Other Liabilities		27,347							30,790

		Total Liabilities		2,102,399							1,907,790

	Common Stock			179							171
	Paid-In Capital			185,616							169,027
	Retained Earnings			26,229							14,178
	Accumulated Other Comprehensive Earnings			11,381							3,257

		Total Stockholders’ Equity		223,405							186,633

		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,325,804						$	2,094,423

	Net Interest Income				$	43,796						$	41,968

	Net Interest Spread							3.66	%						3.88	%
	Net Interest Margin on average earning assets							4.10	%						4.36	%
	Return on Average Assets							1.63	%						1.41	%
	Return on Average Equity							16.95	%						15.78	%

(1)

Excludes tax effect on non-taxable investment security income

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, 2002 and December 31, 2002, to June 30, 2003.


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

Cash on hand and in banks			$	71,738			74,624			59,812			(2,886	)		11,926
Investment securities and interest bearing deposits				940,519			787,578			665,534			152,941			274,985
Loans:
	Real estate			339,057			361,522			372,318			(22,465	)		(33,261	)
	Commercial			780,321			673,256			650,749			107,065			129,572
	Consumer			285,411			286,819			292,639			(1,408	)		(7,228	)

		Total loans		1,404,789			1,321,597			1,315,706			83,192			89,083
	Allowance for loan losses			(22,354	)		(20,944	)		(19,941	)		(1,410	)		(2,413	)

		Total loans net of allowance for loan losses		1,382,435			1,300,653			1,295,765			81,782			86,670

Other assets				116,669			118,489			116,954			(1,820	)		(285	)

	Total Assets		$	2,511,361			2,281,344			2,138,065			230,017			373,296

At June 30, 2003 total assets were $2.511 billion which is $373 million greater than the June 30, 2002 assets of $2.138 billion, an increase of 17 percent, of which $230 million of the increase occurred during 2003.

Total loans, net of the allowance for loan losses, have increased $87 million from June 30, 2002, with an increase of $91 million occurring during the current quarter. Commercial loans have increased $130 million, or 20 percent, and continue to be the focus of our lending. Approximately 83 percent, or $107 million of the increase in commercial loans has occurred since December 31, 2002. Our real estate loan origination volume has been at record levels, some of which refinanced loans previously held by our banks. The refinancing of 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 $22 million from December 31, 2002 and $33 million from June 30, 2002. Consumer loans have declined $7 million with a significant portion of the decline attributed to the low rate or zero interest financing of auto loans by auto manufacturers. Home-equity loans continue to be the primary source of our consumer loan originations and have increased approximately $26 million, or 16 percent, from a year ago. Home equity loans comprise 66 percent of consumer loans at June 30, 2003.

Investment securities, including interest bearing deposits in other financial institutions, have increased $153 million since December 31, 2002 and $275 million from June 30, 2002. 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, in increasing interest rate environments, than retaining 30 year loans. Additional investments were made to utilize funding liquidity that exceeds loan growth opportunities, and to pre-invest 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 six months ended June 30, 2003 and 2002 were $293 million and $156 million, respectively, and for the three months ended June 30, 2003 and 2002 were $148 million and $65 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 June 30, 2003 was approximately $212 million.


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

Deposits — non-interest bearing		$	337,193		295,016		256,519		42,177		80,674
Deposits — interest bearing			1,165,386		1,164,907		1,175,893		479		(10,507	)
Advances from Federal Home Loan Bank			625,670		483,660		406,603		142,010		219,067
Other borrowed funds			87,191		61,293		43,201		25,898		43,990
Other liabilities			30,656		29,219		25,743		1,437		4,913
Trust preferred securities			35,000		35,000		35,000		—		—

	Total liabilities	$	2,281,096		2,069,095		1,942,959		212,001		338,137

Total deposits have increased $43 million from December 31, 2002 and $70 million from the June 30, 2002 balances. There was a significant increase of $81 million, or 31 percent, in non-interest bearing deposits, of which approximately 52 percent, or $42 million of the increase occurred since December 31, 2002. This growth in low cost stable funding gives us increased flexibility in managing our asset mix. During the quarter the High Performance Checking program was started in the four banks not previously enrolled in the program. This is expected to increase our base of customers, provide additional low cost deposit balances and enhance fee income. Interest-bearing deposits are down $11 million, or 1 percent, most of which was a reduction in certificates of deposit. Federal Home Loan Bank advances, other borrowed funds, and repurchase agreements, have also increased $168 from December 31, 2002 and $263 million from June 31, 2002 as we continue to take advantage of the flexibility of these funding sources in this current period of low interest rates.

Acquisition and additional location

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 will become additional branches of Mountain West Bank, the Company’s Idaho based subsidiary. The transaction is all cash in the amount of $10.4 million. Since this acquisition was completed on July 15th, the results of operation will be reflected in future earnings and is expected to be immediately accretive to earnings.

Mountain West Bank opened an additional location in the growing Boise market bringing the total locations in the Boise, Nampa area to five.

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, 2003, the Company had $802 million of available FHLB line of which $626 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		June 30,		December 31,		June 30,			December 31,			June 30,
($ in thousands except per share data)		2003		2002		2002			2002			2002

Common equity		$	217,728		202,138		188,290			15,590			29,438
Net unrealized gain on securities			12,537		10,111		6,816			2,426			5,721

	Total stockholders’ equity	$	230,265		212,249		195,106			18,016			35,159

Stockholders’ equity to total assets							9.17	%		9.30	%		9.13	%
Tangible equity to total assets							7.72	%		7.68	%		7.36	%
Book value per common share		$	11.94		11.16		10.32			0.78			1.62
Tangible book value per common share		$	9.90		9.05		8.17			0.85			1.73
Market price per share at end of quarter		$	24.62		21.42		22.27			3.20			2.35

Each of the equity ratios and book value per share amounts have increased substantially from the prior year, 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 providing flexibility for dividend increases, expansion opportunities, and stock repurchase.


	June 30,			March 31,			December 31,			June 30,

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

Allowance for loan losses	$	22,354			21,627			20,944			19,941
Non-performing assets	$	10,675			10,026			11,582			9,214
Allowance as a percentage of non performing assets		209.41	%		215.71	%		180.83	%		216.42	%
Non-performing assets as a percentage of total assets		0.42	%		0.43	%		0.51	%		0.43	%
Allowance as a percentage of total loans		1.59	%		1.65	%		1.58	%		1.52	%
Net charge-offs as a percentage of loans		0.034	%		0.012	%		0.261	%		0.097	%

Allowance for Loan Loss and Non-Performing Assets

Non-performing assets as a percentage of total assets at June 30, 2003 were at .42 percent, a slight decrease from .43 percent at June 30, 2002 and from the December 31, 2002 .51 percent. This compares to the Peer Group average of .65 percent at March 31, 2003, the most recent information available. The reserve for loan losses was 209 percent of non-performing assets at June 30, 2003, compared to 216 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 reserve for loan losses account. The reserve balance has increased $2.413 million, or 12 percent, to $22.354 million, which is 1.59 percent of total loans outstanding, up from 1.52 percent a year ago. The provision expense for loan losses was $1.892 million which is a decrease of $668 thousand from the prior years’ six month provision. Net charge off loans as a percentage of loans outstanding were .034 percent for the first six months of 2003 which is down from .097 percent for the same period 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 losses are 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 or liquidity.

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


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

			2003			2002			$ change			% change

Net interest income			$	21,964			21,601			363			1.7	%
Fees and other revenue:
	Service charges, loan fees, and other fees			4,978			4,542			436			9.6	%
	Gain on sale of loans			3,211			1,258			1,953			155.2	%
	Gain on sale of investments, net of impairment charge			1,685			2			1,683			84150.0	%
	Other income			439			532			(93	)		-17.5	%

		Total non-interest income		10,313			6,334			3,979			62.8	%

	Total revenue		$	32,277			27,935			4,342			15.5	%

Tax equivilent net interest margin				4.17	%		4.57	%

Net Interest Income
Net interest income for the quarter increased $363 thousand, or 2 percent, over the same period in 2002. Total interest income is $1.894 million, or 6 percent lower than the same quarter in 2002, while total interest expense is $2.257 million or 19 percent lower. The increase in non-interest bearing deposits reduced the need to borrow additional funds and helped reduce interest expense. The net interest margin as a percentage of earning assets, on a tax equivalent basis, decreased from 4.57 percent for the 2002 quarter, 4.35 for the first quarter of 2003, to 4.17 percent in the current quarter. 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 increased account activity. Gain on sale of loans increased $1.953 million reflecting the low level of mortgage interest rates and resulting purchase and 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 lower in the current years’ quarter by $93 thousand primarily the result of reduced loan servicing income.

Gains on sale of investments of $3.480 million were realized during the quarter from the sale of approximately $14 million of long term corporate bonds. These bonds were acquired two years ago with the intent of exercising put options available in the bond structures. Market conditions provided an opportunity to sell the bonds, record a

significant gain, reinvest the principal and gain proceeds into similar maturity municipal bonds, and retain the investment yield. There was an impairment charge in the current quarter of $1.795 million for impairment of value on collateralized mortgage obligations.


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

		2003		2002		$ change			% change

Compensation and employee benefits		$	9,050		7,533		1,517			20.1	%
Occupancy and equipment expense			2,295		2,324		(29	)		-1.2	%
Outsourced data processing expense			266		515		(249	)		-48.3	%
Core deposit intangible amortization			291		360		(69	)		-19.2	%
Other expenses			4,417		3,610		807			22.4	%

	Total non-interest expense	$	16,319		14,342		1,977			13.8	%

Non-interest Expense
Non-interest expense increased by $1.977 million, or 14 percent, from the same quarter of 2002. Compensation and benefit expense increased $1.517 million, or 20 percent from the second quarter of 2002, with commissions for loan originators, other incentives, additional support staff for increased volumes, and two additional branches in operation in Boise accounting for the majority of the increase. Occupancy and equipment expense decreased $29 thousand, or 1 percent, the net result of adding additional facilities and fully depreciating an investment in computer systems in prior periods. Outsourced data processing expense decreased by $249 thousand, or 48 percent, resulting from bringing the core processing for each subsidiary bank onto our in-house data system. Other expenses increased $807 thousand, or 22 percent, resulting primarily from charges for data conversion of Mountain West Bank to the in-house data system, and start up expenses on implementing the High Performance Checking program at the four banks not previously on the program. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 51 percent for the 2003 quarter which is comparable to the 51 percent for the 2002 quarter.

Results of Operations – The six months ended June 30, 2003 compared to the six months ended June 30, 2002.


Revenue summary
($ in thousands)			Six months ended June 30,

			2003			2002			$ change			% change

Net interest income			$	43,796			41,968			1,828			4.4	%
Fees and other revenue:
	Service charges, loan fees, and other fees			9,597			8,470			1,127			13.3	%
	Gain on sale of loans			5,482			2,433			3,049			125.3	%
	Gain on sale of investments, net of impairment charge			1,248			2			1,246			62300.0	%
	Other income			999			1,278			(279	)		-21.8	%

		Total non-interest income		17,326			12,183			5,143			42.2	%

	Total revenue		$	61,122			54,151			6,971			12.9	%

Tax equivilent net interest margin				4.26	%		4.48	%

Net Interest Income
Net interest income increased $1.828 thousand, or 4 percent, over the same period in 2002. Total interest income is $2.910 million, or 4 percent lower than in 2002, while total interest expense is $4.738 million or 19 percent lower. Lower interest rates were the main reason for the reduction in interest income and interest

expense. The net interest margin as a percentage of earning assets, on a tax equivalent basis, decreased from 4.48 percent in 2002 to 4.26 percent in 2003.

Non-interest Income
Fee income increased $1.127 million, or 13 percent, over the same period last year, driven primarily by increased account activity. Gain on sale of loans increased $3.049 million reflecting the low level of mortgage interest rates and resulting purchase and refinancing activity. Other income was lower in the current year by $279 thousand primarily the result of reduced loan servicing income.

Gain on sale of investments of $3.497 million were realized from the sale of approximately $16 million of long term corporate bonds. Market conditions provided an opportunity to realize currently the interest income that would have been generated over several years. The proceeds of the sale were reinvested in municipal securities of like maturity with similar future interest income. There was an impairment charge in the first six months of 2003 of $2.249 million for impairment of value on collateralized mortgage obligations.


Non-interest expense summary
($ in thousands)		Six months ended June 30,

		2002		2001		$ change			% change

Compensation and employee benefits		$	17,029		15,315		1,714			11.2	%
Occupancy and equipment expense			4,730		4,625		105			2.3	%
Outsourced data processing expense			828		961		(133	)		-13.8	%
Core deposit intangible amortization			629		721		(92	)		-12.8	%
Other expenses			7,986		7,085		901			12.7	%

	Total non-interest expense	$	31,202		28,707		2,495			8.7	%

Non-interest Expense
Non-interest expense increased by $2.495 million, or 9 percent, from 2002. Compensation and benefit expense increased $1.714 million, or 11 percent from 2002, with commissions for loan originators, other incentives, additional support staff for increased volumes, and two additional branches in operation in Boise accounting for the majority of the increase. Occupancy and equipment expense increased $105 thousand, or 2 percent, the net result of adding additional facilities and fully depreciating an investment in computer systems in prior periods. Outsourced data processing expense decreased by $133 thousand, or 14 percent, resulting from bringing the core processing for each subsidiary bank onto our in-house data system. Other expenses increased $901 thousand, or 13 percent, resulting from 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, loan collection expenses, operations losses on deposit accounts, losses on other real estate sales, and volume related increases. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 51 percent for 2003 which is down from the 53 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 net interest income. The following reflects the Company’s NII sensitivity analysis as of December 31, 2002, 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, 2003.


Interest Rate Sensitivity
	+200 bp			-100 bp

Estimated sensitivity		-1.37	%		0.46	%
Estimated increase (decrease) in net interest income	$	(1,210	)		406

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 a 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

(a) The Company’s Annual Shareholders’ Meeting was held on April 30, 2003

(b) Not Applicable

(c) A brief description of each matter voted upon at the Annual Meeting and number of votes cast for, against or withheld, including a separate tabulation with respect to each nominee to serve on the Board is presented below:

(1) Election of three Directors for three year terms expiring in 2006 or until their successors have been elected and qualified.

Directors:


William L. Bouchee – Votes Cast For:		13,959,690
	Votes Cast Against/Witheld:	480,809
L. Peter Larson – Votes Cast For:		14,009,204
	Votes Cast Against/Witheld:	431,296
Everit A. Sliter – Votes Cast For:		13,687,472
	Votes Cast Against/Witheld:	753,027

(d) 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 May 5, 2003, a Form 8-K was filed announcing first quarter financial results for 2003.

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

August 12, 2003		/s/ Michael J. Blodnick

		Michael J. Blodnick President/CEO

August 12, 2003		/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, 2003, December 31, 2002, and June 30, 2002, stockholders’ equity for the six months ended June 30, 2003 and the year ended December 31, 2002, the results of operations for the three and six months ended June 30, 2003 and 2002, and cash flows for the six months ended June 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 six months ended June 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.

2)		Restatement of Prior Period Earnings

		In October 2002, the Financial Accounting Standards Board (“FASB”) issued Statement 147, Acquisitions of Certain Other Intangible Assets, an amendment of Statement 72 and 144 and FASB Interpretations 9. Under the provisions of Statement 147, the acquisition of all or part of a financial institution that meets the definition of a business combination will be accounted for by the purchase method in accordance with FASB Statement 141, Business Combinations. Statement 147 provides that long-term customer relationships intangible assets, except for servicing assets, recognized in the acquisition of financial institution, be evaluated for impairment under provisions of Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

		The Company has evaluated the goodwill recognized in connection with its branch acquisitions and determined that it meets the criteria of Statement 147, and therefore the unidentifiable intangible asset has been reclassified to goodwill and is subject to Statement 142, Goodwill and Other Intangible Assets. The reclassification was retroactively applied to January 1, 2002, which resulted in the restatement of previously filed financial statements. The impact for the three and six months ended June 30, 2002, was to increase net earnings by $149,000 and $298,000, increase basic earnings per share by $.01 and .02, and increase diluted earnings per share by $.00 and .02, respectively.

3)		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 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. The Company does not have any off-balance sheet entities.

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

4)		Ratios:

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

5)		Dividends Declared:

		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, payable on May 22, 2003, and all prior period amounts have been restated to reflect the stock dividend. On June 25, 2003, the Board of Directors declared a $.19 per share quarterly cash dividend to stockholders of record on July 8, 2003, payable on July 17, 2003.

6)		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.

7)		Investments:

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

		Interest income includes tax-exempt interest for the six months ended June 30, 2003 and 2002 of $5,179,000 and $3,457,000, respectively, and the three months ended June 30, 2003 and 2002 of $2,589,000 and $1,968,000, respectively.

		Gross proceeds from sales of investment securities for the six months ended June 30, 2003 and 2002 were $19,597,000, and $24,428,000, respectively, resulting in gross gains of

		approximately $3,497,000, and $2,000, respectively. Gross proceeds from sales of investment securities for the three months ended June 30, 2003 and 2002 were $17,566,000, and $24,428,000, respectively, resulting in gross gains of approximately $3,480,000, and $2,000, respectively. The cost of any investment sold is determined by specific identification.

		There was an impairment charge for the three and six months ended June 30, 2003, of $1,795,000 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.

8)		Loans

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

			Financial Condition

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

			At June 30, 2003 total assets were $2.511 billion which is $373 million greater than the June 30, 2002 assets of $2.138 billion, an increase of 17 percent, of which $230 million of the increase occurred during 2003.

			Total loans, net of the allowance for loan losses, have increased $87 million from June 30, 2002, with an increase of $91 million occurring during the current quarter. Commercial loans have increased $130 million, or 20 percent, and continue to be the focus of our lending. Approximately 83 percent, or $107 million of the increase in commercial loans has occurred since December 31, 2002. Our real estate loan origination volume has been at record levels, some of which refinanced loans previously held by our banks. The refinancing of 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 $22 million from December 31, 2002 and $33 million from June 30, 2002. Consumer loans have declined $7 million with a significant portion of the decline attributed to the low rate or zero interest financing of auto loans by auto manufacturers. Home-equity loans continue to be the primary source of our consumer loan originations and have increased approximately $26 million, or 16 percent, from a year ago. Home equity loans comprise 66 percent of consumer loans at June 30, 2003.

			Investment securities, including interest bearing deposits in other financial institutions, have increased $153 million since December 31, 2002 and $275 million from June 30, 2002. 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, in increasing interest rate environments, than retaining 30 year loans. Additional investments were made to utilize funding liquidity that exceeds loan growth opportunities, and to pre-invest 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 six months ended June 30, 2003 and 2002 were $293 million and $156 million, respectively, and for the three months ended June 30, 2003 and 2002 were $148 million and $65 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 June 30, 2003 was approximately $212 million.

			Total deposits have increased $43 million from December 31, 2002 and $70 million from the June 30, 2002 balances. There was a significant increase of $81 million, or 31 percent, in non-interest bearing deposits, of which approximately 52 percent, or $42 million of the increase occurred since December 31, 2002. This growth in low cost stable funding gives us increased flexibility in managing our asset mix. During the quarter the High Performance Checking program was started in the four banks not previously enrolled in the program. This is expected to increase our base of customers, provide additional low cost deposit balances and enhance fee income. Interest-bearing deposits are down $11 million, or 1 percent, most of which was a reduction in certificates of deposit. Federal Home Loan Bank advances, other borrowed funds, and repurchase agreements, have also increased $168 from December 31, 2002 and $263 million from June 31, 2002 as we continue to take advantage of the flexibility of these funding sources in this current period of low interest rates.

			Acquisition and additional location

			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 will become additional branches of Mountain West Bank, the Company’s Idaho based subsidiary. The transaction is all cash in the amount of $10.4 million. Since this acquisition was completed on July 15th, the results of operation will be reflected in future earnings and is expected to be immediately accretive to earnings.

			Mountain West Bank opened an additional location in the growing Boise market bringing the total locations in the Boise, Nampa area to five.

			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, 2003, the Company had $802 million of available FHLB line of which $626 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.

			Allowance for Loan Loss and Non-Performing Assets

			Non-performing assets as a percentage of total assets at June 30, 2003 were at .42 percent, a slight decrease from .43 percent at June 30, 2002 and from the December 31, 2002 .51 percent. This compares to the Peer Group average of .65 percent at March 31, 2003, the most recent information available. The reserve for loan losses was 209 percent of non-performing assets at June 30, 2003, compared to 216 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 reserve for loan losses account. The reserve balance has increased $2.413 million, or 12 percent, to $22.354 million, which is 1.59 percent of total loans outstanding, up from 1.52 percent a year ago. The provision expense for loan losses was $1.892 million which is a decrease of $668 thousand from the prior years’ six month provision. Net charge off loans as a percentage of loans outstanding were .034 percent for the first six months of 2003 which is down from .097 percent for the same period in 2002.

	(a)		The Company’s Annual Shareholders’ Meeting was held on April 30, 2003

	(b)		Not Applicable

	(c)		A brief description of each matter voted upon at the Annual Meeting and number of votes cast for, against or withheld, including a separate tabulation with respect to each nominee to serve on the Board is presented below:

			(1) Election of three Directors for three year terms expiring in 2006 or until their successors have been elected and qualified.

			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