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 September 30, 2004

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

For the transition period from to

COMMISSION FILE 0-18911

GLACIER BANCORP, INC.

(Exact name of registrant as specified in its charter)


MONTANA		81-0519541

(State or other jurisdiction of 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

Not Applicable

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

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

Indicate by checkmark whether the registrant is 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 October 20, 2004 was 24,510,568. No preferred shares are issued or outstanding.

Glacier Bancorp, Inc.

Condensed Consolidated Statements of Financial Condition


	September 30,		December 31,		September 30,
(Unaudited - dollars in thousands, except per share data)	2004		2003		2003
Assets:
Cash on hand and in banks	$	69,625		77,093		67,538
Interest bearing cash deposits		9,001		9,047		27,517

Cash and cash equivalents		78,626		86,140		95,055
Investment securities, available-for-sale		1,086,862		1,050,311		973,098
Federal Home Loan Bank stock, at cost		44,004		41,235		40,581
Federal Reserve Bank stock, at cost		5,800		5,408		5,250
Net loans receivable		1,643,984		1,413,392		1,408,667
Loans held for sale		15,630		16,973		34,533
Premises and equipment, net		54,244		53,251		53,025
Real estate and other assets owned		493		587		577
Accrued interest receivable		15,494		14,941		14,204
Core deposit intangible, net		5,204		5,865		6,171
Goodwill		37,376		36,951		36,909
Other assets		14,982		14,579		15,004

	$	3,002,699		2,739,633		2,683,074

Liabilities and stockholders’ equity:
Non-interest bearing deposits	$	438,578		369,052		392,746
Interest bearing deposits		1,249,543		1,228,573		1,225,653
Advances from Federal Home Loan Bank of Seattle		854,056		777,294		714,837
Securities sold under agreements to repurchase		73,074		56,968		53,047
Other borrowed funds		9,612		8,018		5,740
Accrued interest payable		5,439		4,353		4,779
Current income taxes		4,175		826		1,731
Deferred taxes		8,375		7,369		4,916
Subordinated debentures		80,000		35,000		35,000
Other liabilities		16,869		14,341		16,520

Total liabilities		2,739,721		2,501,794		2,454,969

Preferred shares, 1,000,000 shares authorized. None outstanding		—		—		—
Common stock, $.01 par value per share, 62,500,000 shares authorized		245		242		241
Paid-in capital		225,647		222,588		221,168
Retained earnings - substantially restricted		29,005		8,393		2,740
Accumulated other comprehensive income		8,081		6,616		3,956

Total stockholders’ equity		262,978		237,839		228,105

	$	3,002,699		2,739,633		2,683,074

Number of shares outstanding		24,507,345		24,203,338		24,167,481
Book value per share	$	10.73		9.83		9.44

See accompanying notes to condensed consolidated financial statements.

Glacier Bancorp, Inc.

Condensed Consolidated Statements of Operations


	Three months ended September 30,						Nine months ended September 30,
(Unaudited - dollars in thousands, except per share data)	2004			2003			2004			2003
Interest income:
Real estate loans	$	5,865			6,016			16,554			18,117
Commercial loans		14,744			13,137			41,682			37,116
Consumer and other loans		5,166			4,999			14,914			15,131
Investment securities and other		11,865			8,951			35,396			26,414

Total interest income		37,640			33,103			108,546			96,778

Interest expense:
Deposits		3,510			4,102			10,406			13,480
Federal Home Loan Bank of Seattle advances		4,787			4,252			13,723			12,551
Securities sold under agreements to repurchase		231			157			565			490
Subordinated debentures		1,547			903			4,064			2,711
Other borrowed funds		180			25			235			81

Total interest expense		10,255			9,439			28,993			29,313

Net interest income		27,385			23,664			79,553			67,465
Provision for loan losses		1,200			1,221			2,995			3,113

Net interest income after provision for loan losses		26,185			22,443			76,558			64,352

Non-interest income:
Service charges and other fees		5,331			4,088			14,386			11,523
Miscellaneous loan fees and charges		1,106			1,084			3,465			3,246
Gains on sale of loans		2,211			3,258			6,008			8,740
Gains on sale of investments, net of impairment charge		—			5			—			1,253
Other income		489			478			1,537			1,477

Total non-interest income		9,137			8,913			25,396			26,239

Non-interest expense:
Compensation, employee benefits and related expenses		10,067			9,448			29,724			26,477
Occupancy and equipment expense		2,662			2,536			8,026			7,266
Outsourced data processing expense		346			393			1,127			1,221
Core deposit intangibles amortization		265			308			810			937
Other expenses		4,649			4,362			13,736			12,354

Total non-interest expense		17,989			17,047			53,423			48,255

Earnings before income taxes		17,333			14,309			48,531			42,336
Federal and state income tax expense		5,653			4,612			15,478			13,859

Net earnings	$	11,680			9,697			33,053			28,477

Basic earnings per share	$	0.48			0.40			1.35			1.18
Diluted earnings per share	$	0.47			0.39			1.33			1.16
Dividends declared per share	$	0.17			0.16			0.51			0.44
Return on average assets (annualized)		1.57	%		1.49	%		1.54	%		1.58	%
Return on average equity (annualized)		18.12	%		17.10	%		17.74	%		17.00	%
Average outstanding shares – basic		24,480,327			24,138,173			24,428,437			24,056,071
Average outstanding shares - diluted		24,931,616			24,584,529			24,858,965			24,448,030

See accompanying notes to condensed consolidated financial statements.

Glacier Bancorp, Inc.

Condensed Consolidated Statements of Stockholders’ Equity
and Comprehensive Income

Year ended December 31, 2003 and Nine months ended September 30, 2004


										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, 2002		23,768,000		$	238			216,927			(15,027	)		10,111			212,249
Comprehensive income:
Net earnings		—			—			—			38,008			—			38,008
Unrealized loss on securities, net of reclassification adjustment and taxes		—			—			—			—			(3,495	)		(3,495	)

Total comprehensive income																	34,513

Cash dividends declared ($.60 per share)		—			—			—			(14,573	)		—			(14,573	)
Stock options exercised		435,338			4			4,670			—			—			4,674
Acquisition of fractional shares		—			—			—			(15	)		—			(15	)
Tax benefit from stock related compensation		—			—			991			—			—			991

Balance at December 31, 2003		24,203,338		$	242			222,588			8,393			6,616			237,839
Comprehensive income:
Net earnings		—			—			—			33,053			—			33,053
Unrealized gain on securities, net of reclassification adjustment and taxes		—			—			—			—			1,465			1,465

Total comprehensive income																	34,518

Cash dividends declared ($.51 per share)		—			—			—			(12,441	)		—			(12,441	)
Stock options exercised		375,257			4			4,872			—			—			4,876
Repurchase and retirement of stock		(71,250	)		(1	)		(1,804	)		—			—			(1,805	)
Acquisition of fractional shares		—			—			(9	)		—			—			(9	)

Balance at September 30, 2004		24,507,345		$	245			225,647			29,005			8,081			262,978

See accompanying notes to condensed consolidated financial statements.

Glacier Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows


	Nine months ended Sept. 30,
(Unaudited - dollars in thousands)	2004			2003
OPERATING ACTIVITIES :
Net cash provided by operating activities	$	55,340			64,713

INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of investments available-for-sale		185,037			294,546
Purchases of investments available-for-sale		(227,988	)		(543,874	)
Principal collected on installment and commercial loans		457,348			402,977
Installment and commercial loans originated or acquired		(632,755	)		(527,430	)
Principal collections on mortgage loans		214,558			228,299
Mortgage loans originated or acquired		(272,699	)		(217,457	)
Net purchase of FHLB and FRB stock		(1,943	)		(672	)
Acquisition of lone branch and Pend Oreille Bancorp		14,524			(200	)
Net addition of premises and equipment		(4,374	)		(6,146	)

NET CASH USED IN INVESTING ACTIVITIES		(268,292	)		(369,957	)

FINANCING ACTIVITIES:
Net increase in deposits		75,356			98,717
Net increase in FHLB advances and other borrowed funds		78,355			221,830
Net increase in securities sold under repurchase agreements		16,106			6,841
Proceeds from issuance of subordinated debentures		45,000			—
Cash dividends paid to stockholders		(12,441	)		(10,695	)
Proceeds from exercise of stock options		4,876			4,244
Repurchase and retirement of stock		(1,805	)		—
Cash paid for stock split and stock dividend		(9	)		(15	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		205,438			320,922

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(7,514	)		15,678
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		86,140			79,377

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	78,626			95,055

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest	$	27,907			30,625
Income taxes	$	12,129			11,236

See accompanying notes to condensed consolidated financial statements.

Notes to Condensed 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 September 30, 2004, December 31, 2003, and September 30, 2003, stockholders’ equity for the nine months ended September 30, 2004 and the year ended December 31, 2003, the results of operations for the three and nine months ended September 30, 2004 and 2003, and cash flows for the nine months ended September 30, 2004 and 2003.

The accompanying consolidated financial statements do not include all of the information and footnotes required by U. S. generally accepted accounting principles 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, 2003. Operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results anticipated for the year ending December 31, 2004. Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation.

2) Organizational Structure:

The Company, headquartered in Kalispell, Montana, is a Montana corporation incorporated in 2004 as a successor corporation to the Delaware corporation incorporated in 1990. The Company is the parent company for seven wholly owned banking subsidiaries: Glacier Bank (“Glacier”), First Security Bank of Missoula (“First Security”), Western Security Bank (“Western”), Big Sky Western Bank (“Big Sky”), Valley Bank of Helena (“Valley”), and Glacier Bank of Whitefish (“Whitefish”), all located in Montana, and Mountain West Bank (“Mountain West”) which is located in Idaho, Utah, and Washington. In addition, the Company formed two subsidiaries, Glacier Capital Trust I (“Glacier Trust I”), and Glacier Capital Trust II (“Glacier Trust II”), for the purpose of issuing trust preferred securities. The Company does not have any off-balance sheet entities.

On March 24, 2004, the Company formed Glacier Trust II and subordinated debentures in the form of trust preferred securities of $45 million, with an interest rate of 5.79 percent, were issued by the Company. The proceeds were used for general corporate purposes.

The following abbreviated organizational chart illustrates the various relationships:

(CHART)

3) Ratios:

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

4) Dividends Declared:

On April 28, 2004, the Board of Directors declared a five-for-four stock split payable May 20, 2004 to owners of record on May 11, 2004, and all share and per share amounts have been restated to reflect the effects of the stock split. On September 29, 2004, the Board of Directors declared a $.17 per share quarterly cash dividend to stockholders of record on October 12, 2004, payable on October 21, 2004.

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

Nine

months ended

Sept. 30, 2004

Sept. 30, 2003

Sept. 30, 2004

Sept. 30, 2003

Net earnings available to common stockholders

11,680,000

9,697,000

33,053,000

28,477,000

Average outstanding shares - basic

24,480,327

24,138,173

24,428,437

24,056,071

Add: Dilutive stock options

451,289

446,356

430,528

391,959

Average outstanding shares - diluted

24,931,616

24,584,529

24,858,965

24,448,030

Basic earnings per share

0.48

0.40

1.35

1.18

Diluted earnings per share

0.47

0.39

1.33

1.16

6) Investments:

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

INVESTMENTS AS OF SEPTEMBER 30, 2004


						Gross Unrealized					Estimated
	Weighted			Amortized							Fair
(Dollars in thousands)	Yield			Cost		Gains		Losses			Value
U.S. Government and Federal Agencies
maturing within one year		1.29	%		253		—		—			253
maturing one year through five years		3.54	%		50,219		619		(1	)		50,837
maturing five years through ten years		4.13	%		358		10		—			368
maturing after ten years		2.59	%		483		2		(1	)		484

		3.53	%		51,313		631		(2	)		51,942

State and Local Governments and other issues:
maturing within one year		5.29	%		1,017		14		—			1,031
maturing one year through five years		4.79	%		4,857		83		(7	)		4,933
maturing five years through ten years		5.33	%		4,665		343		—			5,008
maturing after ten years		5.14	%		300,026		12,652		(1,320	)		311,358

		5.14	%		310,565		13,092		(1,327	)		322,330

Mortgage-Backed Securities		4.96	%		62,961		1,094		(522	)		63,533
Real Estate Mortgage Investment Conduits		3.94	%		648,687		3,201		(2,831	)		649,057
FHLB and FRB stock, at cost		3.79	%		49,804		—		—			49,804

Total Investments		4.30	%	$	1,123,330		18,018		(4,682	)		1,136,666

INVESTMENTS AS OF DECEMBER 31, 2003


						Gross Unrealized					Estimated
	Weighted			Amortized							Fair
(Dollars in thousands)	Yield			Cost		Gains		Losses			Value
U.S. Government and Federal Agencies
maturing within one year		0.85	%	$	352		—		—			352
maturing one year through five years		1.29	%		259		—		(1	)		258
maturing after ten years		2.97	%		957		15		(1	)		971

		2.22	%		1,568		15		(2	)		1,581

State and Local Governments and other issues:
maturing within one year		5.69	%		4,346		41		—			4,387
maturing one year through five years		4.30	%		5,485		84		(102	)		5,467
maturing five years through ten years		5.35	%		4,910		197		—			5,107
maturing after ten years		5.13	%		296,237		10,170		(1,683	)		304,724

		5.13	%		310,978		10,492		(1,785	)		319,685

Mortgage-Backed Securities		4.30	%		64,123		1,465		(342	)		65,246
Real Estate Mortgage Investment Conduits		4.03	%		662,727		4,983		(3,911	)		663,799
FHLB and FRB stock, at cost		5.34	%		46,643		—		—			46,643

Total Investments		4.41	%	$	1,086,039		16,955		(6,040	)		1,096,954

Interest income includes tax-exempt interest for the nine months ended September 30, 2004 and 2003 of $10,432,000 and $8,138,000, respectively, and the three months ended September 30, 2004 and 2003 of $3,473,000 and $2,959,000, respectively.

Gross proceeds from sales of investment securities for the nine months ended September 30, 2004 and 2003 were $0 and $19,603,000 respectively, resulting in gross gains of approximately $0 and $3,502,000, respectively. The cost of any investment sold is determined by specific identification.

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

7) Loans

The following table summarizes the Company’s loan portfolio.

TYPE OF LOAN


	At						At						At
	9/30/2004						12/31/2003						9/30/2003
(Dollars in Thousands)	Amount			Percent			Amount			Percent			Amount			Percent
Real Estate Loans:
Residential first mortgage loans	$	359,025			21.6	%	$	301,511			21.1	%	$	311,284			21.6	%
Loans held for sale		15,630			1.0	%		16,973			1.2	%		34,533			2.4	%

Total		374,655			22.6	%		318,484			22.3	%		345,817			24.0	%
Commercial Loans:
Real estate		495,617			29.9	%		483,684			33.8	%		472,515			32.7	%
Other commercial loans		480,068			28.9	%		359,030			25.1	%		358,304			24.8	%

Total		975,685			58.8	%		842,714			58.9	%		830,819			57.5	%
Consumer and Other Loans:
Consumer loans		90,771			5.5	%		95,739			6.7	%		98,415			6.8	%
Home equity loans		247,645			14.9	%		199,693			14.0	%		194,228			13.5	%

Total		338,416			20.4	%		295,432			20.7	%		292,643			20.3	%
Net deferred loan fees, premiums and discounts		(3,067	)		-0.2	%		(2,275	)		-0.2	%		(2,159	)		-0.1	%
Allowance for Losses		(26,075	)		-1.6	%		(23,990	)		-1.7	%		(23,920	)		-1.7	%

Net Loans	$	1,659,614			100.0	%	$	1,430,365			100.0	%	$	1,443,200			100.0	%

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

NONPERFORMING ASSETS



	At			At			At
(Dollars in Thousands)	9/30/2004			12/31/2003			9/30/2003
Non-accrual loans:
Real estate loans	$	685			1,129			2,549
Commercial loans		7,571			8,246			5,513
Consumer and other loans		367			687			353

Total	$	8,623			10,062			8,415
Accruing Loans 90 days or more overdue:
Real estate loans		287			379			837
Commercial loans		2,485			1,798			587
Consumer and other loans		420			242			73

Total	$	3,192			2,419			1,497
Real estate and other assets owned		493			587			577

Total non-performing loans, and real estate and other assets owned	$	12,308			13,068			10,489

As a percentage of total assets		0.41	%		0.48	%		0.39	%
Interest Income (1)	$	398			665			428

(1) This is the amount of interest that would have been recorded on loans accounted for on a non-accrual basis for the nine months ended September 30, 2004 and 2003 and the year ended December 31, 2003, if such loans had been current for the entire period.

The following table illustrates the loan loss experience:

ALLOWANCE FOR LOAN LOSS


	Nine months ended			Year ended			Nine months ended
	September 30,			December 31,			September 30,
(Dollars in Thousands)	2004			2003			2003
Balance at beginning of period	$	23,990			20,944			20,944
Charge offs:
Real estate loans		(237	)		(416	)		(223	)
Commercial loans		(497	)		(912	)		(792	)
Consumer and other loans		(594	)		(1,078	)		(738	)

Total charge offs	$	(1,328	)		(2,406	)		(1,753	)

Recoveries:
Real estate loans		53			126			149
Commercial loans		94			274			258
Consumer and other loans		271			284			250

Total recoveries	$	418			684			657

Chargeoffs, net of recoveries		(910	)		(1,722	)		(1,096	)
Acquisition (1)		—			959			959
Provision		2,995			3,809			3,113

Balance at end of period	$	26,075			23,990			23,920

Ratio of net charge offs to average loans outstanding during the period		0.05	%		0.12	%		0.08	%

(1) Acquisition of Pend Oreille Bancorp, Inc.

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


	September 30, 2004					December 31, 2003					September 30, 2003
			Percent					Percent					Percent
			of loans in					of loans in					of loans in
(Dollars in thousands)	Allowance		category			Allowance		category			Allowance		category
Real estate loans	$	2,570		22.2	%		2,147		21.8	%		2,214		23.5	%
Commercial real estate		8,738		29.4	%		7,464		33.2	%		7,057		32.2	%
Other commercial		10,136		28.4	%		9,951		24.7	%		10,275		24.4	%
Consumer and other loans		4,631		20.0	%		4,428		20.3	%		4,374		19.9	%

Totals	$	26,075		100.0	%		23,990		100.0	%		23,920		100.0	%

8) Intangible Assets

The following table sets forth information regarding the Company’s core deposit intangibles and mortgage servicing rights as of September 30, 2004:


	Core Deposit			Mortgage
(Dollars in thousands)	Intangible			Servicing Rights (1)		Total
Gross carrying value	$	10,270
Accumulated Amortization		(5,066	)

Net carrying value	$	5,204			1,243		6,447

Weighted-Average amortization period
(Period in years)		10.0			9.6		9.9
Aggregate Amortization Expense
For the three months ended September 30, 2004	$	265			82		347
For the nine months ended September 30, 2004	$	810			261		1,071
Estimated Amortization Expense
For the year ended December 31, 2004	$	1,074			282		1,356
For the year ended December 31, 2005		917			85		1,002
For the year ended December 31, 2006		841			83		924
For the year ended December 31, 2007		820			80		900
For the year ended December 31, 2008		807			78		885

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

On June 4, 2004, the Company acquired the Ione, Washington branch, which resulted in additional core deposit intangible of $148,000 and goodwill of $425,000.

9) Deposits

The following table illustrates the amounts outstanding for deposits greater than $100,000 at September 30, 2004, according to the time remaining to maturity:


	Certificates		Non-Maturity
(Dollars in thousands)	of Deposit		Deposits		Totals
Within three months	$	26,034		578,156		604,190
Three to six months		21,067		—		21,067
Seven to twelve months		15,842		—		15,842
Over twelve months		23,922		—		23,922

Totals	$	86,865		578,156		665,021

10) Advances and Other Borrowings

The following chart illustrates the average balances and the maximum outstanding month-end balances for Federal Home Loan Bank of Seattle (FHLB) advances and repurchase agreements:


	As of and			As of and			As of and
	for the nine			for the twelve			for the nine
	months ended			months ended			months ended
(Dollars in thousands)	September 30, 2004			December 31, 2003			September 30, 2003
FHLB Advances
Amount outstanding at end of period	$	854,056			777,294			714,837
Average balance	$	818,003			601,679			556,664
Maximum outstanding at any month-end	$	862,136			777,294			714,837
Weighted average interest rate		2.23	%		2.80	%		3.01	%
Repurchase Agreements:
Amount outstanding at end of period	$	73,074			56,968			53,047
Average balance	$	67,564			61,609			60,882
Maximum outstanding at any month-end	$	73,074			74,808			74,808
Weighted average interest rate		1.11	%		1.09	%		1.08	%

11) Stockholders’ Equity:

The Federal Reserve Board has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company. The following table illustrates the Federal Reserve Board’s capital adequacy guidelines and the Company’s compliance with those guidelines as of September 30, 2004.

CONSOLIDATED


	Tier 1 (Core)			Tier 2 (Total)			Leverage
(Dollars in thousands)	Capital			Capital			Capital
GAAP Capital	$	262,978			262,978			262,978
Less: Goodwill and intangibles		(42,580	)		(42,580	)		(42,580	)
Accumulated other comprehensive Unrealized gain on AFS securities		(8,081	)		(8,081	)		(8,081	)
Plus: Allowance for loan losses		—			24,471			—
Other adjustments		—			62			—
Subordinated debentures		80,000			80,000			80,000

Regulatory capital computed	$	292,317			316,850			292,317

Risk weighted assets	$	1,957,657			1,957,657

Total average assets							$	2,939,962

Capital as % of defined assets		14.93	%		16.19	%		9.94	%
Regulatory “well capitalized” requirement		6.00	%		10.00	%		5.00	%

Excess over “well capitalized” requirement		8.93	%		6.19	%		4.94	%

12) Comprehensive Earnings:

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


	For the three months						For the nine months
	ended September 30,						ended September 30,
Dollars in thousands	2004			2003			2004			2003
Net earnings	$	11,680			9,697			33,053			28,477
Unrealized holding gain (loss) arising during the period		20,932			(14,161	)		2,421			(13,617	)
Tax (expense) benefit		(8,248	)		5,576			(956	)		5,325

Net after tax		12,684			(8,585	)		1,465			(8,292	)
Reclassification adjustment for gains included in net income		—			5			—			3,502
Tax expense		—			(1	)		—			(1,365	)

Net after tax		—			4			—			2,137
Net unrealized gain (loss) on securities		12,684			(8,581	)		1,465			(6,155	)

Total comprehensive earnings	$	24,364			1,116			34,518			22,322

13) Stock Based Compensation

The exercise price of all options granted has been equal to the fair market value of the underlying stock at the date of grant and, accordingly, no compensation cost has been recognized for stock options in the financial statements. Had the company determined compensation cost based on the fair value of the option itself at the grant date for its stock options and earnings per share under FASB Statement 123, Accounting for Stock-Based Compensation, the Company’s net income would have been reduced to the pro forma amounts indicated below:


		Three months ended Sept. 30,						Nine months ended Sept. 30,
		2004			2003			2004			2003
Net earnings (in thousands):	As reported	$	11,680			9,697			33,053			28,477
	Compensation cost		(129	)		(188	)		(374	)		(562	)

	Pro forma		11,551			9,509			32,679			27,915

Basic earnings per share:	As reported		0.48			0.40			1.35			1.18
	Compensation cost		(0.01	)		(0.01	)		(0.01	)		(0.02	)

	Pro forma		0.47			0.39			1.34			1.16

Diluted earnings per share:	As reported		0.47			0.39			1.33			1.16
	Compensation cost		(0.01	)	—				(0.02	)		(0.02	)

	Pro forma		0.46			0.39			1.31			1.14

14) Segment Information

The Company evaluates segment performance internally based on individual bank charters, and thus the operating segments are so defined. The following schedule provides selected financial data for the Company’s operating segments. Centrally provided services to the Banks are allocated based on estimated usage of those services. The operating segment identified as “Other” includes the Parent, non-bank units, and eliminations of transactions between segments.


	Nine months ended and as of September 30, 2004
				First						Mountain
(Dollars in thousands)	Glacier			Security			Western			West			Big Sky
Revenues from external customers	$	29,084			26,648			19,180			29,914			10,660
Intersegment revenues		238			20			2			—			—
Expenses		(21,032	)		(18,123	)		(13,950	)		(24,067	)		(7,970	)
Intercompany eliminations		—			—			—			—			—

Net income	$	8,290			8,545			5,232			5,847			2,690

Total Assets	$	673,084			611,465			458,333			612,608			235,058


										Total
	Valley			Whitefish			Other			Consolidated
Revenues from external customers		10,539			6,957			960			133,942
Intersegment revenues		104			—			40,986			41,350
Expenses		(7,865	)		(4,926	)		(2,956	)		(100,889	)
Intercompany eliminations		—			—			(41,350	)		(41,350	)

Net income		2,778			2,031			(2,360	)		33,053

Total Assets		233,223			164,851			14,077			3,002,699


	Nine months ended and as of September 30, 2003
				First						Mountain
(Dollars in thousands)	Glacier			Security			Western			West			Big Sky
Revenues from external customers	$	27,417			25,862			19,358			24,214			9,155
Intersegment revenues		139			16			1			9			3
Expenses		(19,815	)		(18,497	)		(14,734	)		(19,792	)		(7,068	)
Intercompany eliminations		—			—			—			—			—

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

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


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

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

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


	Three months ended and as of September 30, 2004
				First						Mountain
(Dollars in thousands)	Glacier			Security			Western			West			Big Sky
Revenues from external customers	$	10,122			9,036			6,573			10,690			3,786
Intersegment revenues		108			10			—			—			—
Expenses		(7,404	)		(6,174	)		(4,743	)		(8,455	)		(2,785	)
Intercompany eliminations		—			—			—			—			—

Net income	$	2,826			2,872			1,830			2,235			1,001

Total Assets	$	673,084			611,465			458,333			612,608			235,058


										Total
	Valley			Whitefish			Other			Consolidated
Revenues from external customers		3,676			2,446			448			46,777
Intersegment revenues		35			—			14,320			14,473
Expenses		(2,763	)		(1,716	)		(1,057	)		(35,097	)
Intercompany eliminations		—			—			(14,473	)		(14,473	)

Net income		948			730			(762	)		11,680

Total Assets		233,223			164,851			14,077			3,002,699


	Three months ended and as of September 30, 2003
				First						Mountain
(Dollars in thousands)	Glacier			Security			Western			West			Big Sky
Revenues from external customers	$	9,376			8,708			6,401			8,801			3,182
Intersegment revenues		37			4			—			6			3
Expenses		(6,762	)		(6,284	)		(4,820	)		(7,287	)		(2,397	)
Intercompany eliminations		—			—			—			—			—

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

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


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

Net income		844			581			(696	)		9,697

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

15) Rate/Volume Analysis

Net interest income can be evaluated from the perspective of relative dollars of change in each period. Interest income and interest expense, which are the components of net interest income, are shown in the following table on the basis of the amount of any increases (or decreases) attributable to changes in the dollar levels of the Company’s interest-earning assets and interest-bearing liabilities (“Volume”) and the yields earned and rates paid on such assets and liabilities (“Rate”). The change in interest income and interest expense attributable to changes in both volume and rates has been allocated proportionately to the change due to volume and the change due to rate.


	Nine Months Ended September 30,
				2004 vs. 2003
	Increase (Decrease) due to:
(Dollars in Thousands)	Volume			Rate			Net
Interest Income
Real Estate Loans	$	(282	)		(1,281	)		(1,563	)
Commercial Loans		7,756			(3,190	)		4,566
Consumer and Other Loans		1,324			(1,541	)		(217	)
Investment Securities		8,193			789			8,982

Total Interest Income		16,991			(5,223	)		11,768
Interest Expense
NOW Accounts		59			(75	)		(16	)
Savings Accounts		58			(109	)		(51	)
Money Market Accounts		219			(522	)		(303	)
Certificates of Deposit		(772	)		(1,932	)		(2,704	)
FHLB Advances		5,892			(4,720	)		1,172
Other Borrowings and Repurchase Agreements		1,689			(107	)		1,582

Total Interest Expense		7,145			(7,465	)		(320	)

Net Interest Income	$	9,846			2,242			12,088

16) Average Balance Sheet

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

AVERAGE BALANCE SHEET


	For the Nine months ended 9-30-04							For the Nine months ended 9-30-03
			Interest		Average					Interest		Average
	Average		and		Yield/			Average		and		Yield/
(Dollars in Thousands)	Balance		Dividends		Rate			Balance		Dividends		Rate
ASSETS
Real Estate Loans	$	332,261		16,554		6.64	%	$	337,512		18,117		7.16	%
Commercial Loans		907,310		41,682		6.14	%		750,477		37,116		6.61	%
Consumer and Other Loans		312,015		14,914		6.38	%		286,911		15,131		7.05	%

Total Loans		1,551,586		73,150		6.30	%		1,374,900		70,364		6.84	%
Tax -Exempt Investment Securities (1)		281,614		10,432		4.94	%		215,784		8,138		5.03	%
Investment Securities		852,969		24,964		3.90	%		650,208		18,276		3.75	%

Total Earning Assets		2,686,169		108,546		5.39	%		2,240,892		96,778		5.76	%

Non-Earning Assets		177,248							171,289

TOTAL ASSETS	$	2,863,417						$	2,412,181

LIABILITIES AND STOCKHOLDERS’ EQUITY
NOW Accounts	$	255,953		347		0.18	%	$	220,183		363		0.22	%
Savings Accounts		156,829		336		0.29	%		136,469		387		0.38	%
Money Market Accounts		395,935		2,685		0.91	%		368,899		2,988		1.08	%
Certificates of Deposit		425,446		7,038		2.21	%		462,067		9,742		2.82	%
FHLB Advances		818,003		13,723		2.24	%		556,664		12,551		3.01	%
Repurchase Agreements and Other Borrowed Funds		151,856		4,864		4.28	%		100,270		3,282		4.38	%

Total Interest Bearing Liabilities		2,204,022		28,993		1.76	%		1,844,552		29,313		2.12	%

Non-interest Bearing Deposits		384,189							315,233
Other Liabilities		26,342							28,459

Total Liabilities		2,614,553							2,188,244

Common Stock		219							183
Paid-In Capital		224,792							197,524
Retained Earnings		19,063							16,665
Accumulated Other Comprehensive Earnings		4,790							9,565

Total Stockholders’ Equity		248,864							223,937

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,863,417						$	2,412,181

Net Interest Income			$	79,553						$	67,465

Net Interest Spread						3.63	%						3.64	%
Net Interest Margin on average earning assets						3.96	%						4.03	%
Return on Average Assets						1.54	%						1.58	%
Return on Average Equity						17.74	%						17.00	%

(1) Excludes tax effect on non-taxable investment security income

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

Recent acquisition

On June 4, 2004, Glacier Bancorp, Inc. completed its acquisition of the Ione branch in Ione, Washington. The branch had approximately $15 million in deposits, and became a branch of Mountain West Bank, the Company’s Idaho banking subsidiary. In consideration for the assumption of liabilities, the Company received $14.5 million in cash. A portion of the purchase price was allocated to core deposit intangible of $148,000 and goodwill of $425,000.

Financial Condition

This section discusses the changes in Statement of Financial Condition items from September 30, 2003 and December 31, 2003, to September 30, 2004.


										$ change from			$ change from
	September 30,			December 31,			September 30,			December 31,			September 30,
Assets ($ in thousands)	2004			2003			2003			2003			2003
Cash on hand and in banks	$	69,625			77,093			67,538			(7,468	)		2,087
Investment securities, interest bearing deposits, FHLB stock, and FRB stock		1,145,667			1,106,001			1,046,446			39,666			99,221
Loans:
Real estate		373,662			317,774			345,091			55,888			28,571
Commercial		973,869			841,306			829,513			132,563			144,356
Consumer		338,158			295,275			292,516			42,883			45,642

Total loans		1,685,689			1,454,355			1,467,120			231,334			218,569
Allowance for loan losses		(26,075	)		(23,990	)		(23,920	)		(2,085	)		(2,155	)

Total loans net of allowance for loan losses		1,659,614			1,430,365			1,443,200			229,249			216,414

Other assets		127,793			126,174			125,890			1,619			1,903

Total Assets	$	3,002,699			2,739,633			2,683,074			263,066			319,625

At September 30, 2004 total assets were $3.003 billion which is $320 million greater than the September 30, 2003 assets of $2.683 billion, an increase of 12 percent, and $263 million greater than the December 31, 2003 assets of $2.740 billion, a 10 percent increase.

Total loans have increased $219 million from September 30, 2003 and $231 million from December 31, 2003, an increase of 16 percent. Since year end 2003, commercial loans have increased $133 million, or 16 percent, and real estate loans gained $56 million, or 18 percent. Consumer loans have increased $43 million, or 15 percent, primarily from increases in home equity loans which continue to be the primary source of our consumer loan originations. Our banks continue to generate impressive loan volume. For the past two quarters our loan growth has far exceeded our anticipated growth.

Investment securities, including interest bearing deposits in other financial institutions, have increased $99 million from September 30, 2003, and are $40 million more than at December 31, 2003. Additional investments were made to utilize excess funding liquidity, and to invest a portion of the proceeds from the trust preferred securities issued in March.

The Company typically sells a majority of mortgage loans originated, retaining servicing only on loans sold to certain lenders. The sale of loans in the secondary mortgage market reduces the Company’s risk of holding long-term, fixed rate loans in the loan portfolio. Mortgage loans sold for the nine months ended September 30, 2004 and 2003 were $216 million and $455 million, respectively, and for the three months ended September 30, 2004 and 2003 were $73 million and $163 million. The Company has also been active in generating commercial SBA loans. A portion of some of those loans is sold to other investors. The amount of loans sold and serviced for others at September 30, 2004 was approximately $175 million.


							$ change from		$ change from
	September 30,		December 31,		September 30,		December 31,		September 30,
Liabilities ($ in thousands)	2004		2003		2003		2003		2003
Non-interest bearing deposits	$	438,578		369,052		392,746		69,526		45,832
Interest bearing deposits		1,249,543		1,228,573		1,225,653		20,970		23,890
Advances from Federal Home Loan Bank		854,056		777,294		714,837		76,762		139,219
Securities sold under agreements to repurchase and other borrowed funds		82,686		64,986		58,787		17,700		23,899
Other liabilities		34,858		26,889		27,946		7,969		6,912
Subordinated debentures		80,000		35,000		35,000		45,000		45,000

Total liabilities	$	2,739,721		2,501,794		2,454,969		237,927		284,752

Non-interest bearing deposits have increased $70 million, or 19 percent, since December 31, 2003 and are $46 million, or 12 percent, greater than the September 30, 2003 balance. This continues to be a primary focus of our banks and the programs we have initiated this past year continue to gain momentum. Total deposits have increased $70 million from the September 30, 2003 balances and $90 million from December 31, 2003. This growth in deposits, a low cost stable funding source, gives us increased flexibility in managing our asset mix. Federal Home Loan Bank advances have also increased, $77 million from December 31, 2003, and $139 million from September 30, 2003, as we continue to take advantage of the flexibility of that funding source in this current period of low interest rates. Repurchase agreements and other borrowed funds also have increased from the prior year and from year end 2003 as we continue to use these cost effective sources of funding. On March 24, 2004, subordinated debentures in the form of trust preferred securities of $45 million, with an interest rate of 5.79 percent, were issued. The proceeds were used for general corporate purposes.

Liquidity and Capital Resources

The objective of liquidity management is to maintain cash flows adequate to meet current and future needs for credit demand, deposit withdrawals, maturing liabilities and corporate operating expenses. The principal source of the Company’s cash revenues is the dividends received from the Company’s banking subsidiaries. The payment of dividends is subject to government regulation, in that regulatory authorities may prohibit banks and bank holding companies from paying dividends which would constitute an unsafe or unsound banking practice. The subsidiaries source of funds is generated by deposits, principal and interest payments on loans, sale of loans and securities, short and long-term borrowings, and net income. In addition, all seven banking subsidiaries are members of the FHLB. As of September 30, 2004, the Company had $1.103 billion of available FHLB line of which $854 million was utilized. Accordingly, management of the Company has a wide range of versatility in managing the liquidity and asset/liability mix for each individual institution as well as the Company as a whole. During 2004, all seven financial institutions maintained liquidity and regulatory capital levels in excess of regulatory requirements and operational needs.

Commitments

In the normal course of business, there are various outstanding commitments to extend credit, such as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying consolidated financial statements. Management does not anticipate any material losses as a result of these transactions.

Stockholders’ equity


										$ change from		$ change from
	September 30,			December 31,			Setpember 30,			December 31,		September 30,
($ in thousands except per share data)	2004			2003			2003			2003		2003
Common equity	$	254,897			231,223			224,149			23,674		30,748
Net unrealized gain on securities		8,081			6,616			3,956			1,465		4,125

Total stockholders’ equity	$	262,978			237,839			228,105			25,139		34,873

Stockholders’ equity to total assets		8.76	%		8.68	%		8.50	%
Book value per common share	$	10.73			9.83			9.44			0.90		1.29
Market price per share at end of quarter	$	29.16			25.98			21.94			3.18		7.22

Total equity and book value per share amounts have increased substantially from the prior year, primarily the result of earnings retention, and stock options exercised. Net unrealized gains on securities available for sale of $8 million at September 30, 2004 is greater than the $7 million at year end 2003 and the $4 million at September 30, 2003, and is primarily a function of interest rate changes.


	September 30,			December 31,			September 30,
Credit quality information ($ in thousands)	2004			2003			2003
Allowance for loan losses	$	26,075			23,990			23,920
Non-performing assets	$	12,308			13,068			10,489
Allowance as a percentage of non performing assets		212	%		184	%		228	%
Non-performing assets as a percentage of total assets		0.41	%		0.48	%		0.39	%
Allowance as a percentage of total loans		1.55	%		1.65	%		1.63	%
Net charge-offs as a percentage of loans		0.05	%		0.12	%		0.08	%

Allowance for Loan Loss and Non-Performing Assets

Non-performing assets as a percentage of total assets at September 30, 2004 were at .41 percent, a slight increase from .37 percent at June 30, 2004, a decrease from .48 percent at December 31, 2003, and an increase from .39 percent at September 30, 2003. This compares favorably to the Federal Reserve Bank Peer Group average of .59 percent at June 30, 2004, the most recent information available. The allowance for loan losses was 212 percent of non-performing assets at September 30, 2004, compared to 228 percent a year ago. The allowance has increased $2.155 million, or 9 percent, from a year ago to $26.075 million, which is 1.55 percent of September 30, 2004 total loans outstanding, down slightly from the 1.63 percent a year ago. The third quarter provision expense for loan losses was $1.200 million, a decrease of $21 thousand from the same quarter in 2003.

Results of Operations – The three months ended September 30, 2004 compared to the three months ended
September 30, 2003.

Operating results include amounts related to the operation of the three branches acquired with the Pend Oreille Bank as of July 15, 2003 and the Ione, Washington branch as of June 4, 2004.

The Company reported net quarterly earnings of $11.680 million, an increase of $1.983 million, or 20 percent, over the $9.697 million for the third quarter of 2003. Diluted earnings per share for the quarter of $.47, is an increase of 21 percent over the per share earnings of $.39 for the same quarter of 2003. Return on average assets and return on average equity for the quarter were 1.57 percent and 18.12 percent, respectively, which compares with prior year returns of 1.49 percent and 17.10 percent.

Revenue summary


	Three months ended September 30,
($ in thousands)	2004			2003			$ change			% change
Net interest income	$	27,385			23,664			3,721			15.7	%
Non-interest income
Service charges, loan fees, and other fees		6,437			5,172			1,265			24.5	%
Gain on sale of loans		2,211			3,258			(1,047	)		-32.1	%
Gain on sale of investments, net of impairment charge		—			5			(5	)		-100.0	%
Other income		489			478			11			2.3	%

Total non-interest income		9,137			8,913			224			2.5	%

	$	36,522			32,577			3,945			12.1	%

Tax equivalent net interest margin		4.11	%		4.12	%

Net Interest Income

Net interest income for the quarter increased $3.721 million, or 16 percent, over the same period in 2003. Total interest income increased $4.537 million, or 14 percent, while total interest expense was $816 thousand higher. The investment portfolio generated approximately 64 percent of the increase in interest income with the remainder coming from the increase in loans outstanding. The increase in interest expense is primarily attributed to the issuance of $45 million in subordinated debentures and the increase in FHLB advances during the current year, which was partially offset by the increase in non-interest bearing deposits and a reduction in rates on maturing fixed term interest bearing deposits. The net interest margin as a percentage of earning assets, on a tax equivalent basis, was 4.11 percent which was near the 4.12 percent result for the third quarter of 2003. The margin for the third quarter increased from the 4.04 percent experienced for the second quarter of 2004. Premium amortization on mortgage related investments for the third quarter was $2.722 million, a decrease of $745 thousand from the second quarter and a decrease of $1.254 million from the third quarter of last year.

Non-interest Income

Fee income increased $1.265 million, or 24 percent, over the same period last year, driven primarily by an increased number of loan and deposit accounts and additional customer services offered. Gain on sale of loans decreased $1.047 million from the third quarter of last year, because of greatly reduced refinance activity, but increased $185 thousand from this years’ second quarter which was $255 thousand higher than the first quarter. Loan origination activity for housing purchases remains quite strong in our markets, with $176 million in residential loans originated in the third quarter and $488 million year to date.

Non-interest expense summary


	Three months ended September 30,
($ in thousands)	2004		2003		$ change			% change
Compensation and employee benefits	$	10,067		9,448		619			6.6	%
Occupancy and equipment expense		2,662		2,536		126			5.0	%
Outsourced data processing expense		346		393		(47	)		-12.0	%
Core deposit intangible amortization		265		308		(43	)		-14.0	%
Other expenses		4,649		4,362		287			6.6	%

Total non-interest expense	$	17,989		17,047		942			5.5	%

Non-interest Expense

Non-interest expense increased by $942 thousand, or 6 percent, from the same quarter of 2003 including expenses from the Ione branch acquisition, two additional branches in Boise, Idaho, and a new branch in downtown Bozeman, Montana. Compensation and benefit expense increased $619 thousand, or 7 percent from the third

quarter of 2003, with the additional bank branches, normal compensation increases for job performance and increased cost for benefits tied to Company performance, accounting for the majority of the increase. Occupancy and equipment expense increased $126 thousand, or 5 percent, reflecting the cost of the additional locations. Outsourced data processing expense decreased by $47 thousand. Other expenses increased $287 thousand, or 7 percent, primarily from additional marketing expenses, and costs associated with new branch offices. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 49 percent for the 2004 third quarter which is a significant improvement from the 52 percent for the 2003 third quarter.

Results of Operations – The nine months ended September 30, 2004 compared to the nine months ended
September 30, 2003.

Operating results include amounts related to the operation of the three branches acquired with the Pend Oreille Bank as of July 15, 2003 and the Ione, Washington branch as of June 4, 2004.

Net earnings for the nine months ended September 30, 2004 were $33.053 million, which is an increase of $4.576 million, or 16 percent over the same period of the prior year. Without the 2003 gain on sale of securities, net year-to-date earnings increased $5.419 million, or 20 percent. Diluted earnings per share of $1.33, is an increase of 14 percent over the $1.17 earned in the first nine months of 2003. The 2004 nine month return on average assets and return on average equity were 1.54 percent and 17.74 percent, respectively, which compares with the prior year nine month returns of 1.58 percent and 17.00 percent.

Revenue summary


				Nine months ended September 30,
($ in thousands)	2004			2003			$ change			% change
Net interest income	$	79,553			67,465			12,088			17.9	%
Non-interest income
Service charges, loan fees, and other fees		17,851			14,769			3,082			20.9	%
Gain on sale of loans		6,008			8,740			(2,732	)		-31.3	%
Gain on sale of investments, net of impairment charge		—			1,253			(1,253	)		-100.0	%
Other income		1,537			1,477			60			4.1	%

Total non-interest income		25,396			26,239			(843	)		-3.2	%

	$	104,949			93,704			11,245			12.0	%

Tax equivalent net interest margin		4.15	%		4.21	%

Net Interest Income

Net interest income for the first nine months increased $12.088 million, or 18 percent, over the same period in 2003. Total interest income was $11.768 million, or 12 percent higher than the same period in 2003, while total interest expense was $320 thousand lower. The investment portfolio generated approximately 76 percent of the increase in interest income. Additional interest income from the large increase in loans outstanding was partially offset by lower rates on the loan portfolio due to refinancing, and re-pricing of existing loans. The decrease in interest expense is primarily attributed to the increase in non-interest bearing deposits and a reduction in rates on maturing fixed term interest bearing deposits and Federal Home Loan Bank borrowings. The interest expense on the subordinated debentures issued in March 2004 partially offset the above described reductions. The net interest margin as a percentage of earning assets, on a tax equivalent basis, was 4.15 percent which was a decrease from 4.21 percent for the same period in 2003.

Non-interest Income

Fee income increased $3.082 million, or 21 percent, over the same period last year, driven primarily by an increased number of loan and deposit accounts and the fee income associated with this growth in accounts. Gain on sale of loans decreased $2.732 million, or 31 percent, from last year, because of greatly reduced refinance

activity. Loan origination activity for housing purchases remains quite strong in our markets. In 2003 gains on sale of investments, net of impairment charge, of $1.253 million were recorded and zero gains were realized in 2004.

Non-interest expense summary


	Nine months ended September 30,
($ in thousands)	2004		2003		$ change			% change
Compensation and employee benefits	$	29,724		26,477		3,247			12.3	%
Occupancy and equipment expense		8,026		7,266		760			10.5	%
Outsourced data processing expense		1,127		1,221		(94	)		-7.7	%
Core deposit intangible amortization		810		937		(127	)		-13.6	%
Other expenses		13,736		12,354		1,382			11.2	%

Total non-interest expense	$	53,423		48,255		5,168			10.7	%

Non-interest Expense

Non-interest expense increased by $5.168 million, or 11 percent, from 2003 including expenses from the acquisitions, two additional branches in Boise, Idaho, and a new branch in downtown Bozeman, one of the fastest growing cities in Montana. Compensation and benefit expense increased $3.247 million, or 12 percent, with the additional bank branches, normal compensation increases for job performance and increased cost for benefits tied to Company performance, accounting for the majority of the increase. Occupancy and equipment expense increased $760 thousand, or 10 percent, reflecting the cost of the additional locations. Outsourced data processing expense decreased by $94 thousand, the result of bringing all core processing onto our in-house data systems, offset somewhat by increased item capture expenses for Mountain West Bank resulting from increased volumes. Other expenses increased $1.382 million, or 11 percent, primarily from start up expenses on implementing the High Performance Checking program at the four banks not previously on the program, additional advertising expense, and costs associated with new branch offices and the acquisitions. The efficiency ratio (non-interest expense/net interest income + non-interest income) was 51 percent, improving slightly from the 52 percent in 2003, excluding the gain on sale of securities.

Critical Accounting Policies

Companies may apply certain critical accounting policies requiring management to make subjective or complex judgments, often as a result of the need to estimate the effect of matters that are inherently uncertain. The Company considers its only critical accounting policy to be the allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged against earnings. The balance of allowance for loan loss is maintained at the amount management believes will be adequate to absorb known and inherent losses in the loan portfolio. The appropriate balance of allowance for loan losses is determined by applying estimated loss factors to the credit exposure from outstanding loans. Estimated loss factors are based on subjective measurements including management’s assessment of the internal risk classifications, changes in the nature of the loan portfolio, industry concentrations and the impact of current local, regional and national economic factors on the quality of the loan portfolio. Changes in these estimates and assumptions are reasonably possible and may have a material impact on the Company’s consolidated financial statements, results of operations and liquidity.

Effect of inflation and changing prices

Generally accepted accounting principles require the measurement of financial position and operating results in terms of historical dollars, without consideration for change in relative purchasing power over time due to inflation. Virtually all assets of a financial institution are monetary in nature; therefore, interest rates generally have a more significant impact on a company’s performance than does the effect of inflation.

Forward Looking Statements

This Form 10-Q may be deemed to include forward looking statements, which management believes are a benefit to shareholders. These forward looking statements describe management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of the Company’s style of banking and the strength of the local economy. The words “will,” “believe,” “expect,” “should,” and “anticipate” and words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company’s filings with the SEC, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national, and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the Company’s ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches are lower than expected; (4) costs or difficulties related to the integration of acquisitions are greater than expected; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged; and (7) the Company’s ability to realize the efficiencies it expects to receive from its investments in personnel and infrastructure.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

The Company believes that there have not been any material changes in information about the Company’s market risk that was provided in the Form 10-K report for the year ended December 31, 2003.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(c)) as of the date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely, providing them with material information relating to the Company required to be disclosed in the reports we file or submit under the Exchange Act.

Changes in Internal Controls

There have not been any 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. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not Applicable

(b) Not Applicable

Item 3. Defaults upon Senior Securities

(a) Not Applicable

(b) Not Applicable

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

(a) Not Applicable

(b) Not Applicable

(d) Not Applicable

Item 5. Other Information

(a) Not Applicable

(b) Not Applicable

Item 6. Exhibits


		Exhibit 31.1 –		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

		Exhibit 31.2 –		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

		Exhibit 32 –		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002


	Page #
Part I. Financial Information
Item 1 – Financial Statements
Condensed Consolidated Statements of Financial Condition – September 30, 2004, December 31, 2003 and September 30, 2003 (unaudited)		3
Condensed Consolidated Statements of Operations – Three and nine months ended September 30, 2004 and 2003 (unaudited)		4
Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income – Year ended December 31, 2003 and nine months ended September 30, 2004 (unaudited)		5
Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2004 and 2003 (unaudited)		6
Notes to Condensed Consolidated Financial Statements (unaudited)		7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3 – Quantitative and Qualitative Disclosure about Market Risk		25
Item 4 – Controls and Procedures		25
Part II. Other Information		25
Item 1 – Legal Proceedings		25
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		25
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		26
Signatures		26
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32


		GLACIER BANCORP, INC.

November 5, 2004		/s/ Michael J. Blodnick

		Michael J. Blodnick
		President/CEO

November 5, 2004		/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 September 30, 2004, December 31, 2003, and September 30, 2003, stockholders’ equity for the nine months ended September 30, 2004 and the year ended December 31, 2003, the results of operations for the three and nine months ended September 30, 2004 and 2003, and cash flows for the nine months ended September 30, 2004 and 2003.

		The accompanying consolidated financial statements do not include all of the information and footnotes required by U. S. generally accepted accounting principles 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, 2003. Operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results anticipated for the year ending December 31, 2004. Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation.

2)		Organizational Structure:

		The Company, headquartered in Kalispell, Montana, is a Montana corporation incorporated in 2004 as a successor corporation to the Delaware corporation incorporated in 1990. The Company is the parent company for seven wholly owned banking subsidiaries: Glacier Bank (“Glacier”), First Security Bank of Missoula (“First Security”), Western Security Bank (“Western”), Big Sky Western Bank (“Big Sky”), Valley Bank of Helena (“Valley”), and Glacier Bank of Whitefish (“Whitefish”), all located in Montana, and Mountain West Bank (“Mountain West”) which is located in Idaho, Utah, and Washington. In addition, the Company formed two subsidiaries, Glacier Capital Trust I (“Glacier Trust I”), and Glacier Capital Trust II (“Glacier Trust II”), for the purpose of issuing trust preferred securities. The Company does not have any off-balance sheet entities.

		On March 24, 2004, the Company formed Glacier Trust II and subordinated debentures in the form of trust preferred securities of $45 million, with an interest rate of 5.79 percent, were issued by the Company. The proceeds were used for general corporate purposes.

		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)		Dividends Declared:

		On April 28, 2004, the Board of Directors declared a five-for-four stock split payable May 20, 2004 to owners of record on May 11, 2004, and all share and per share amounts have been restated to reflect the effects of the stock split. On September 29, 2004, the Board of Directors declared a $.17 per share quarterly cash dividend to stockholders of record on October 12, 2004, payable on October 21, 2004.

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 investment securities, available for sale, is as follows.

		Gross proceeds from sales of investment securities for the nine months ended September 30, 2004 and 2003 were $0 and $19,603,000 respectively, resulting in gross gains of approximately $0 and $3,502,000, respectively. The cost of any investment sold is determined by specific identification.

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

(1)		This is the amount of interest that would have been recorded on loans accounted for on a non-accrual basis for the nine months ended September 30, 2004 and 2003 and the year ended December 31, 2003, if such loans had been current for the entire period.

		The following table illustrates the loan loss experience: