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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20522
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE 000-18911
GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 81-0519541
(State or other jurisdiction of (IRS employer Identification No.)
incorporation or organization)
49 Commons Loop, Kalispell, MT 59901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 406-756-4200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such filing
requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 18, 1999, there were issued and outstanding 8,650,195 shares of the
Registrant's Common Stock. No preferred shares are issued or outstanding.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock as of the
close of trading on March 18, 1999, was $168,678,802.
Document Incorporated by Reference
Portions of the 1999 Annual Meeting Proxy Statement dated March 31, 1999 are
incorporated by reference into Part III of this form 10-K.
GLACIER BANCORP, INC.
FORM 10-K ANNUAL REPORT
For the year ended December 31, 1998
TABLE OF CONTENTS
Page
PART I.
Item 1. Business 3
Item 2. Properties 20
Item 3. Legal Proceedings 22
Item 4. Submission of Matter to a Vote of Security Holders 22
PART II.
Item 5. Market for the Registrant's Common equity and Related
Stockholder Matter 22
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 29
PART III
Item 9. Directors and Executive Officers of the Registrant 58
Item 10. Executive Compensation 58
Item 11. Security Ownership of Certain Beneficial Owners
And Management 58
Item 12. Certain Relationships and Related Transactions 58
PART IV.
Item 13. Exhibits, Financial Statement Schedules and Reports
On Form 8-K 59
2
PART I.
Item 1. Business
GENERAL
Glacier Bancorp, Inc. Kalispell, Montana (the "Company") a Delaware corporation
incorporated in 1998, is the successor corporation in a merger with the original
Glacier Bancorp, Inc., a Delaware corporation incorporated in 1990, pursuant to
the reorganization of Glacier Bank, FSB into a bank holding company. The
formation of the new corporation, and subsequent merger, was effected to resolve
technical deficiencies in the May 9, 1997 stock split. Glacier Bank FSB was
converted from a savings bank to a State of Montana chartered commercial bank
known as Glacier Bank ("Glacier").
Subsidiaries
In addition to Glacier, at December 31, 1998, the Company was also the parent
holding company of Glacier Bank of Eureka ("Eureka"), Glacier Bank of Whitefish
("Whitefish"), First Security Bank of Missoula ("First Security") and Valley
Bank of Helena ("Valley"). The Company owns approximately 98%, and 94%,
respectively, of the outstanding stock of Eureka and Whitefish, and 100% of
Glacier, First Security and Valley. Whitefish and Eureka were converted from
national bank charters to State of Montana charters in late December 1997.
First Security was acquired on December 31, 1996 through an exchange of stock
with Missoula Bancshares, Inc., formerly the parent company of First Security.
The pooling of interest accounting method was used for this merger transaction.
Under this method, financial information for each of the periods presented
include the combined companies as though the merger had occurred prior to the
earliest date presented.
Valley was acquired on August 31, 1998 through an exchange of stock with HUB
Financial Corporation ("HUB"), the parent company of Valley, and with the
minority shareholders of Valley. The pooling of interest accounting method was
used for the merger with HUB. Under this method, financial information for each
of the periods presented include the combined companies as though the merger had
occurred prior to the earliest date presented. The acquisition of the minority
interest in Valley was accounted for as a purchase transaction. Financial
information from August 31, 1998 forward includes the results of operations
previously attributable to the minority interest.
As of December 31, 1998, Glacier, First Security, Valley, Eureka and Whitefish
had assets of $370 million, $164 million, $69 million, $42 million and $24
million, respectively.
Recent Acquisition
On January 20, 1999, the company completed the acquisition of Big Sky Western
Bank ("Big Sky"). Under the terms of the acquisition agreement, Big Sky became a
wholly owned subsidiary of the company, whereby shareholders of Big Sky received
shares of the company in exchange for their shares of Big Sky. Big Sky operates
two offices in Gallatin County, Montana. At December 31, 1998, Big Sky had
assets of approximately $39 million.
The Federal Deposit Insurance Corporation ("FDIC") insures each subsidiary
bank's deposit accounts. Each subsidiary bank is a member of the Federal Home
Loan Bank of Seattle ("FHLB"), which is one of twelve banks which comprise the
Federal Home Loan Bank System and are members of the Federal Reserve Bank of
Minneapolis.
3
Bank Locations
Glacier's main office is located at 202 Main Street, Kalispell, MT, 59901 and
its telephone number is (406) 756-4299. See "Item 2. Properties." Whitefish's
address is 319 2nd Street, Whitefish, MT 59937 (406) 863-6300, Eureka's address
is 222 Dewey Ave., Eureka, MT 59917 (406) 296-2521, First Security's address is
1704 Dearborn, Missoula, MT 59801 (406) 728-3115 and Valley Bank's address is
3030 North Montana Avenue, Helena, MT 59601 (406) 443-7440, and Big Sky's
address is 135 Big Sky Road, Big Sky, MT, 59716 (406) 995-2321.
The business of the Company's subsidiaries (collectively referred to hereafter
as "Banks") consists primarily of attracting deposit accounts from the general
public and originating commercial, residential, installment and other loans. The
Banks' principal sources of income are interest on loans, loan origination fees,
fees on deposit accounts and interest and dividends on investment securities.
The principal expenses are interest on deposits, FHLB advances, and repurchase
agreements, as well as general and administrative expenses.
The Company provides full service brokerage services through Raymond James
Financial Services, an unrelated brokerage firm, through Community First, Inc.,
a wholly owned subsidiary, maintained for this purpose.
The following abbreviated organizational chart illustrates the various existing
parent/subsidiary relationships at December 31, 1998:
Glacier Bancorp, Inc.
(Parent Holding Company)
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Glacier Bank First Security Bank | Glacier Bank Glacier Bank
(Commercial Bank) OF Missoula | of Whitefish of Eureka
(Commercial bank) | (Commercial bank) (Commercial bank)
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Valley Bank Community First
of Helena Inc.
(Commercial bank) (Brokerage services)
MARKET AREA
The Company historically has specialized in serving the savings and mortgage
loan needs of the retail financial services market. Since 1981 the Company has
emphasized transaction accounts, including non-interest bearing checking
accounts and consumer lending. In recent years commercial loans and related
deposits have received increased attention, rounding out the mix of products
offered.
The Company's primary market area includes the four northwest Montana counties
of Flathead, Lake, Lincoln and Glacier; the west central Montana counties of
Missoula, Ravalli and Lewis & Clark, and the community of Billings in south
central Montana. Kalispell, the location of its home office, is the county seat
of Flathead County, and is the primary trade center of what is known as the
Flathead Basin. Glacier has its main office and branch offices in Kalispell,
Columbia Falls, Evergreen, Bigfork, and Polson (the county seat of Lake County),
Libby (the county seat of Lincoln County), Cut Bank (the county seat of Glacier
County), Hamilton (the county seat of Ravalli County), Billings (the county seat
of Yellowstone County), Helena (the state capital and county
4
seat of Lewis & Clark County), and Thompson Falls (the county seat of Sanders
County). First Security's main office and two branch locations are in Missoula
(the county seat of Missoula County). Valley's main office and two branch
locations are in Helena (the state capital and the county seat of Lewis & Clark
County), and Whitefish and Eureka are located in Whitefish, Montana and Eureka,
Montana, respectively. The office of the newly acquired Big Sky operates an
office in Big Sky, and a branch in the four corners area west of Bozeman, each
of which is located in Gallatin County.
This northwest Montana area has a diversified economic base, primarily comprised
of wood products, primary metal manufacturing, mining, energy exploration and
production, agriculture, high-tech related manufacturing and tourism. Tourism is
heavily influenced by the close proximity of Glacier National Park, which has in
excess of 1.5 million visitors per year. The area also contains the Big Mountain
Ski Area, and Flathead Lake, the largest natural fresh water lake west of the
Mississippi. Missoula, the home of the University of Montana, has a large
population base with a diverse economy comprised of government services,
transportation, medical services, forestry, technology, tourism, trade and
education. Missoula is located on Interstate Highway 90, and has good air
service. Helena, the county seat of Lewis and Clark County and the state
capital, is highly dependent on state and federal government, but also has
tourism, trade, transportation, and education contributing to its economy.
COMPETITION
Glacier, Whitefish and Eureka comprise the largest financial institution group
in terms of total deposits in the four county area of northwest Montana, and
have approximately 17% of the total deposits in this area. First Security has
approximately 13% of the total deposits in Missoula County. Valley has
approximately 10% of Lewis and Clark County's total deposits, and Big Sky has
approximately 4% of Gallatin County's deposits.
There are 106 depository institutions including savings banks, commercial banks,
and credit unions in the 9 counties in which the Company has offices. The
Company has approximately 9% of the total deposits of those counties.
The Banks, like other depository institutions, are operating in a rapidly
changing environment. Non-depository financial service institutions, primarily
in the securities and insurance industries, have become competitors for retail
savings and investment funds. Mortgage banking/brokerage firms are actively
competing for residential mortgage business.
In addition to offering competitive interest rates, the principal methods used
by banking institutions to attract deposits include the offering of a variety of
services and convenient office locations and business hours. The primary factors
in competing for loans are interest rates and rate adjustment provisions, loan
maturities, loan fees, and the quality of service to borrowers and brokers.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Average Balance Sheet
The following table sets forth for the periods indicated information regarding
(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.
5
-------------------------------------------------------------------
AVERAGE BALANCE SHEET For the year ended 12-31-98 For the year ended 12-31-97
-------------------------------------------------------------------
(Dollars in Thousands) Interest Average Interest Average
Average and Yield/ Average and Yield/
ASSETS: Balance Dividends Rate Balance Dividends Rate
----------- ----------- --------- ---------- ----------- ---------
Real Estate Loans $204,962 16,624 8.11% $210,335 17,190 8.17%
Commercial Loans 171,679 15,925 9.28% 128,681 12,555 9.76%
Installment and Other Loans 114,356 10,920 9.55% 109,327 10,884 9.96%
----------- ----------- --------- ---------- ----------- ---------
Total Loans 490,997 43,469 8.85% 448,343 40,629 9.06%
----------- --------- ----------- ---------
Investment Securities 124,350 7,612 6.12% 132,597 8,752 6.60%
----------- ----------- --------- ---------- ----------- ---------
Total Earning Assets 615,347 51,081 8.30% 580,940 49,381 8.50%
----------- --------- ----------- ---------
Non-Earning Assets 46,396 48,825
----------- ----------
TOTAL ASSETS $661,743 $629,765
=========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
NOW Accounts 74,665 1,065 1.43% 70,552 1,288 1.83%
Savings Acounts 42,509 1,023 2.41% 47,015 1,383 2.94%
Money Market Demand Accounts 90,744 4,365 4.81% 69,859 3,081 4.41%
Certificates of Deposit 131,668 7,230 5.49% 124,145 7,259 5.85%
FHLB Advances 135,533 7,583 5.59% 139,407 7,792 5.59%
Other Borrowings and
Repurchase
Agreements 19,673 938 4.77% 28,944 1,331 4.60%
----------- ----------- --------- ---------- ----------- ---------
Total Interest Bearing Liabilities 494,792 22,204 4.49% 479,922 22,134 4.61%
----------- --------- ----------- ---------
Non-interest Bearing Deposits 89,393 75,781
Other Liabilities 12,974 13,045
----------- ----------
Total Liabilities 597,159 568,748
----------- ----------
Common Stock 76 61
Paid-in Capital 38,982 34,366
Retained Earnings 24,328 25,989
Net unrealized gains and losses
on AFS securities 1,198 601
----------- ----------
Total Stockholders' Equity 64,584 61,017
----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $661,743 $629,765
=========== ==========
Net Interest Income $28,877 $27,247
=========== ===========
Net Interest Spread 3.81% 3.89%
Net Interest Margin
on average earning assets (1) 4.69% 4.69%
Return on Average Assets (2) 1.62% 1.60%
Return on Average Equity (3) 16.64% 16.48%
Dividend Payout Ratio (4) 43.85% 37.90%
Equity to Assets Ratio (5) 9.76% 9.69%
------------------------------------
AVERAGE BALANCE SHEET For the year ended 12-31-96
------------------------------------
(Dollars in Thousands) Interest Average
Average and Yield/
ASSETS: Balance Dividends Rate
---------- ----------- -----------
Real Estate Loans $204,067 16,785 8.23%
Commercial Loans 106,844 10,706 10.02%
Installment and Other Loans 97,028 9,590 9.88%
---------- ----------- -----------
Total Loans 407,939 37,081 9.09%
----------- -----------
Investment Securities 127,519 8,834 6.93%
---------- ----------- -----------
Total Earning Assets 535,458 45,915 8.57%
----------- -----------
Non-Earning Assets 43,486
----------
TOTAL ASSETS $578,944
==========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
NOW Accounts 66,266 1,301 1.96%
Savings Acounts 46,899 1,385 2.95%
Money Market Demand Accounts 55,807 2,354 4.22%
Certificates of Deposit 119,958 6,901 5.75%
FHLB Advances 130,294 7,486 5.75%
Other Borrowings and
Repurchase
Agreements 25,405 1,094 4.31%
---------- ----------- -----------
Total Interest Bearing Liabilities 444,629 20,521 4.62%
----------- -----------
Non-interest Bearing Deposits 66,984
Other Liabilities 13,322
----------
Total Liabilities 524,935
----------
Common Stock 47
Paid-in Capital 30,240
Retained Earnings 23,310
Net unrealized gains and losses
on AFS securities 412
----------
Total Stockholders' Equity 54,009
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $578,944
==========
Net Interest Income $25,394
===========
Net Interest Spread 3.96%
Net Interest Margin
on average earning assets (1) 4.74%
Return on Average Assets (2) 1.42%
Return on Average Equity (3) 15.20%
Dividend Payout Ratio (4) 36.89%
Equity to Assets Ratio (5) 9.33%
(1) Without tax effect of non-taxable securities income
(2) Net Income divided by Average Total Assets
(3) Net Income divided by Average Equity
(4) Dividends Declared per Share divided by Income per Share
(5) Average Equity divided by Average Total Assets
6
Rate/Volume Analysis
Net interest income can be evaluated from the perspective of relative dollars of
change in each period. Interest income and interest expense, which are the
components of net interest income, are shown in the following table on the basis
of the amount of any increases (or decreases) attributable to changes in the
dollar levels of the Company's interest-earning assets and interest-bearing
liabilities ("Volume") and the yields earned and rates paid on such assets and
liabilities ("Rate"). The change in interest income and interest expense
attributable to changes in both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
-----------------------------------------------------------------------------------------------
Years ended December 31, Years ended December 31, Years ended December 31,
(Dollars in Thousands) 1998 vs 1997 1997 vs 1996 1996 vs 1995
-----------------------------------------------------------------------------------------------
Increase (decrease) due to: Increase (decrease) due to: Increase (decrease) due to:
-----------------------------------------------------------------------------------------------
Interest Income: Volume Rate Net Volume Rate Net Volume Rate Net
-----------------------------------------------------------------------------------------------
Real Estate Loans ($ 437) ($ 129) ($ 566) $ 511 ($ 106) $ 405 $ 669 ($ 679) ($ 10)
Commercial Loans 3,953 (583) 3,370 2,122 (273) 1,849 1,652 (574) 1,078
Consumer and Other Loans 319 (283) 36 1,224 70 1,294 1,448 746 2,194
Investment Securities (526) (614) (1,140) 441 (523) (82) 1,691 (25) 1,666
-----------------------------------------------------------------------------------------------
Total Interest Income $ 3,309 ($1,609) $ 1,700 $ 4,298 ($ 832) $ 3,466 $ 5,460 ($ 532) $ 4,928
-----------------------------------------------------------------------------------------------
Interest Expense:
NOW Accounts $ 81 ($ 304) ($ 223) $ 154 ($ 167) ($ 13) $ 86 $ 33 $ 119
Savings Accounts (124) (236) (360) 3 (5) (2) (67) 18 (49)
Money Market Accounts 985 299 1,284 616 111 727 376 120 496
Certificates of Deposit 426 (455) (29) 244 114 358 1,074 178 1,252
FHLB Advances (217) 8 (209) 500 (194) 306 1,449 (124) 1,325
Other Borrowings and
Repurchase Agreements (444) 51 (393) 159 78 237 (76) (298) (374)
-----------------------------------------------------------------------------------------------
Total Interest Expense $ 707 ($ 637) $ 70 $ 1,676 ($ 63) $ 1,613 $ 2,842 ($ 73) $ 2,769
-----------------------------------------------------------------------------------------------
Net Interest Income $ 2,602 ($ 972) $ 1,630 $ 2,622 ($ 769) $ 1,853 $ 2,618 ($ 459) $ 2,159
===============================================================================================
Net interest income increased $1.630 million in 1998 over 1997. The increase was
due to increases in volumes. Interest rates have decreased during 1998, with
long-term rates slightly higher than short-term rate levels. Short-term rates (2
year treasury) are at 4.58% at December 31, 1998. Long-term rates have decreased
with the spread in basis points of approximately 53, at December 31, 1998,
between the 30 year bond and the 2 year treasury note. This relatively small
spread, and low rates, may result in a reduction in interest income as assets
mature or reprice at lower rate levels. Management's Discussion and Analysis
section for the year ended December 31, 1998 contains more information
concerning interest rate spreads.
7
INVESTMENT ACTIVITIES
It has generally been the Company's policy to maintain a liquidity portfolio
only slightly above requirements because higher yields can generally be obtained
from loan originations than from short-term deposits and investment securities.
Liquidity levels may be increased or decreased depending upon yields on
investment alternatives and upon management's judgement as to the attractiveness
of the yields then available in relation to other opportunities and its
expectation of the level of yield that will be available in the future. There
has been no active trading in the Company's investment portfolios during 1998.
Investment securities are generally held to their maturity dates and carried at
cost plus or minus any unamortized premium or discount. Those securities
classified as available for sale are carried at estimated fair value with
unrealized gains or losses reflected as an adjustment to stockholders' equity.
During 1998, there was a small net realized gain from the sale of securities,
resulting from the disposition of less desirable investments and acquiring
investments with better total return probabilities.
The Company uses an effective tax rate of 31.28% in calculating the tax
equivalent yield. Approximately $29 million of the investment portfolio is
comprised of tax exempt investments.
For information about the Company's equity investment in the stock of the FHLB
of Seattle, see "Sources of Funds - Advances and Other Borrowings".
For additional information, see Note 3 to the Consolidated Financial Statements
for the year ended December 31, 1998.
LENDING ACTIVITY
General
The Banks focus their lending activity primarily on several types of loans: 1)
first-mortgage, conventional loans secured by residential properties,
particularly single-family, 2) installment lending for consumer purposes (e.g.,
auto, home equity, etc.), and 3) commercial lending that concentrates on
targeted businesses. Management's Discussion & Analysis and footnote 4 of the
Consolidated Financial Statements, contain more information about the lending
portfolio.
8
Loan Portfolio Composition
The following table sets forth information summarizing the composition of the
Company's loan portfolio by type of loan:
----------------------------------------------------------------------------------------------------
At 12/31/98 At 12/31/97 At 12/31/96 At 12/31/95 At 12/31/94
TYPE OF LOAN
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
----------------------------------------------------------------------------------------------------
Real Estate Loans:
Residential first mortgage
loans $188,740 38.19% $205,408 43.99% $160,116 45.48% $145,058 46.58% $144,753 52.34%
Loans held for sale 12,603 2.55% 7,778 1.67% 3,900 1.11% 5,951 1.91% 3,119 1.13%
----------------------------------------------------------------------------------------------------
Total $201,343 40.74% $213,186 45.66% $164,016 46.59% $151,009 48.49% $147,872 53.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Loans:
Loans
Real estate $ 99,897 20.21% $ 64,812 13.88% $ 49,130 13.95% $ 43,059 13.83% $ 38,595 13.95%
Other commercial loans 85,571 17.31% 77,821 16.67% 50,940 14.47% 42,557 13.67% 33,880 12.25%
----------------------------------------------------------------------------------------------------
Total $185,468 37.52% $142,633 30.55% $100,070 28.42% $ 85,616 27.50% $ 72,475 26.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Installment
and Other Loans
Consumer loans $112,265 22.71% $111,174 23.81% $ 87,523 24.86% $ 74,725 24.00% $ 56,053 20.27%
Outstanding balances
on credit cards 18 0.01% 3,951 0.84% 3,725 1.06% 3,139 1.01% 2,835 1.02%
----------------------------------------------------------------------------------------------------
Total $112,283 22.72% $115,125 24.65% $ 91,248 25.92% $ 77,864 25.01% $ 77,864 21.29%
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for Losses (4,845) -0.98% (4,027) -0.86% (3,284) -0.93% (3,077) -0.99% (2,647) -0.96%
----------------------------------------------------------------------------------------------------
NET LOANS $494,249 100.00% $466,917 100.00% $352,050 100.00% $311,412 100.00% $295,564 100.00%
====================================================================================================================================
Loan Portfolio Maturities or Repricing Term
The stated maturities or first repricing term (if applicable) for the loan
portfolio at December 31, 1998 was as follows:
LOAN MATURITIES OR REPRICING TERM
(Dollars in Thousands)
Real Estate Commercial Consumer Total
-------- -------- -------- --------
Variable rate $ 78,334 107,959 35,282 221,575
Maturing or Repricing in:
6 Months or Less 19,107 8,715 4,627 32,449
6 Months to 1 Year 5,420 4,357 3,682 13,459
1 Year to 3 Years 2,998 10,706 19,027 32,731
3 Years to 5 Years 6,804 18,337 39,798 64,939
5 Years to 10 Years 28,970 15,688 8,701 53,359
10 Years to 20 Years 34,022 19,644 1,059 54,725
Thereafter 25,688 62 107 25,857
-------- -------- -------- --------
Totals $ 201,343 185,468 112,283 499,094
======== ======== ======== ========
9
Loan Portfolio Scheduled Contractual Principal Repayments
The following table sets forth certain information at December 31, 1998
regarding the dollar amount of scheduled loan contractual repayments (demand
loans, loans having no stated scheduled repayments and no stated maturity, and
overdrafts are reported as due in one year or less):
SCHEDULED CONTRACTUAL LOAN PRINCIPAL
REPAYMENTS
(Dollars in Thousands)
After 1 year
1 year through After
Amounts due within: or less 5 years 5 years Totals
------- -------- -------- --------
Real estate loans $ 33,843 41,902 125,598 201,343
Commercial loans 50,352 68,384 66,732 185,468
Consumer loans 22,529 55,456 34,298 112,283
------- -------- -------- --------
Totals $106,724 165,742 226,628 499,094
======= ======== ======== ========
Neither scheduled maturities nor scheduled contractual amortization of loans are
expected to reflect the actual term of the Banks' loan portfolio. Based on
historical information, the average life of loans is substantially less than
their contractual terms because of prepayments and, in the case of conventional
mortgage loans (i.e., those loans which are neither insured nor partially
guaranteed by the Federal Housing Administration or the Veterans
Administration), due-on-sale clauses, which give the Company the right to
declare a loan immediately due and payable in the event, among other things, the
borrower sells the real property subject to the mortgage and the loan is not
repaid.
Real Estate Lending
The Banks' lending activities consist of the origination of both construction
and permanent loans on residential and commercial real estate. The Banks
actively solicit mortgage loan applications from real estate brokers,
contractors, existing customers, customer referrals, and walk-ins to their
offices.
The Banks lending policies generally limit the maximum loan-to-value ratio on
residential mortgage loans to 80% of the lesser of the appraised value or
purchase price or up to 90% of the loan if insured by a private mortgage
insurance company.
The Banks also provide interim construction financing for single-family
dwellings, and make land acquisition and development loans on properties
intended for residential use.
Consumer Lending
The majority of all consumer loans are secured by either real estate,
automobiles, or other assets. Presently 36.2% of the interest rates on the
Banks' consumer portfolio is variable. The Banks intend to continue lending for
such loans because of their short-term nature, generally between three months
and five years, with an average term of approximately two years. Moreover,
interest rates on consumer loans are generally higher than on mortgage loans.
10
The Banks also originate second mortgage and home equity loans, especially to
its existing customers in instances where the first and second mortgage loans
are less than 75% of the current appraised value of the property.
Commercial Loans
The Banks make commercial loans of various types including commercial real
estate, operating loans secured by various collateral, and a relatively small
amount of unsecured loans. The Company's credit risk management includes
stringent credit policies, regular credit examinations, management review of
loans experiencing deterioration of credit quality, individual loan approval
limits, and committee approval of larger loan requests. The company has focused
on increasing the mix of loans to include more commercial loans. Commercial
lenders at each of the banks are actively seeking new and expanded lending
relationships within their markets.
Loan Approval Limits
Individual loan approval limits have been established for each lender based on
the experience and technical skills of the individual. Limits for fully secured
loans range from $30,000 to $100,000, and unsecured limits range from $5,000 to
$25,000. An officers' loan committee, consisting of senior lenders and members
of senior management, has approval authority up to $500,000. Loans over $500,000
go to the Company's Board of Directors for approval. First Security Bank's
internal loan committee can approve loans up to $400,000. Loans over $400,000
must be approved by the executive loan committee which includes the First
Security's executive officers, the Chairman and an additional director.
Under Montana banking laws banks generally may not make loans to one borrower
and related entities in an amount, which exceeds 20% of its unimpaired capital
and surplus. Those limits at December 31, 1998 are approximately $4.0 million
for Glacier, $2.5 million for First Security, $1.0 million for Valley, and
$650,000 for Whitefish, and $400,000 for Eureka. Each of the banks is in
compliance with these limits.
Loan Purchases and Sales
At times, fixed-rate, long-term mortgage loans are sold in the secondary market.
The Banks have been active in the secondary market, primarily through the
origination of conventional FHA and VA residential mortgages for sale in whole
or in part to savings associations, banks and other purchasers in the secondary
market. The sale of loans in the secondary mortgage market reduces the Banks'
risk of increases in interest rates of holding long-term, fixed-rate loans in
the loan portfolio and allows the Banks to continue to make loans during periods
when deposit flows decline or funds are not otherwise available for lending
purposes. In connection with conventional loan sales, Glacier typically retains
the servicing of the loans (i.e., collection of principal and interest
payments), for which it generally receives a fee payable monthly of
approximately .375% per annum of the unpaid balance of each loan. Whitefish and
Eureka sell nearly all their residential real estate originations. First
Security and Valley sell a majority of mortgage loans originated, retaining
servicing only on loans sold to certain lenders. The Banks have also been very
active in generating commercial SBA loans, and other commercial loans, with a
portion of those loans sold to other investors. As of December 31, 1998, loans
serviced for others aggregated approximately $123 million.
Loan Origination And Other Fees
In addition to interest earned on loans, the Banks receive loan origination fees
for originating loans. Loan fees generally are a percentage of the principal
amount of the loan and are charged to the borrower for originating the loan, and
are normally deducted from the proceeds of the loan. Loan origination fees are
generally 1.0% to 1.5% on residential mortgages and .5% to 1.5% on commercial
loans. Consumer loans require a flat fee of $50 to $75 as well as a minimum
interest amount.
11
The Banks also receive other fees and charges relating to existing loans, which
include charges and fees collected in connection with loan modifications, and
tax service fees.
Non-Performing Loans and Asset Classification
Loans are reviewed on a regular basis and are placed on a non-accrual status
when, in the opinion of management, the collection of additional interest is
doubtful. Interest accrued and unpaid at the time a loan is placed on
non-accrual status is charged against interest income. Subsequent payments are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectability of the loan.
Consumer loans generally are charged off when the loan becomes over 120 days
delinquent.
Real estate acquired as a result of foreclosure or by deed-in-lieu of
foreclosure is classified as real estate owned ("REO") until such time as it is
sold. When such property is acquired, it is recorded at the lower of the unpaid
principal balance or estimated fair value, not to exceed estimated net
realizable value. Any write-down at the time of recording REO is charged to the
allowance for loan losses. Any subsequent write-downs are a charge to current
expenses.
The following table sets forth information regarding the Banks' non-performing
assets at the dates indicated:
------------------------------------------------
(Dollars in Thousands) At At At At At
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------------------------------------------------
Non-accrual loans:
Mortgage loans $ 438 $ 93 $ 157 $ 0 $ 0
Commercial loans 1,006 288 262 474 496
Consumer loans 64 156 45 16 29
------------------------------------------------
Total $1,508 $ 537 $ 464 $ 490 $ 525
------------------------------------------------
Accruing Loans 90 days or more overdue:
Mortgage loans $ 632 $ 416 $ 290 $ 8 $ 29
Commercial loans 385 268 222 364 317
Consumer loans 119 251 431 179 159
------------------------------------------------
Total $1,136 $ 935 $ 943 $ 551 $ 505
------------------------------------------------
Troubled debt restructuring: $ 0 $ 27 $ 0 $ 0 $ 0
Real estate and other assets owned, net 151 121 506 52 93
Total non-performing loans, troubled debt
restructurings, and real estate and other ------------------------------------------------
assets owned, net $2,795 $1,620 $1,913 $1,093 $1,123
------------------------------------------------
As a percentage of total assets 0.42% 0.25% 0.31% 0.20% 0.24%
------------------------------------------------
Interest Income (1) $ 102 $ 84 $ 94 $ 55 $ 51
------------------------------------------------
(1) This is the amount of interest that would have been recorded on loans
accounted for on a non-performing basis as of the end of each period if
such loans had been current for the entire period.
Allowance for Loan Losses
The Company maintains an allowance for loan losses to absorb inherent losses in
the loan portfolio. The Company is committed to the early recognition of
possible problems and to a strong, conservative allowance. The allowance
consists of three elements; (i) allowances established on specific loans, (ii)
allowances based on historical loan loss experience, and (iii) allowances based
on general economic conditions and other factors in the Company's individual
markets. The specific allowance element is based on a regular analysis of all
loans
12
and commitments where credit ratings have fallen below standards. The
historical loan loss element is determined by examining loss experience and the
related internal gradings of loans charged off.
The general economic conditions element is determined by management at the
individual subsidiary banks and is based on knowledge of specific economic
factors in their markets that might affect the collectibility of loans. It
inherently involves a higher degree of uncertainty and considers factors unique
to the markets in which the Company operates. Generally these other risk factors
have not manifested themselves in the Company's historical losses/experience to
the extent they might currently.
Other risk factors take into consideration such factors as recent loss
experience in specific portfolio segments, loan quality trends and loans volumes
including concentration, economic, and administrative risk.
The Banks' charge-off policy is generally consistent with regulatory standards.
The Banks typically place loans on nonaccrual when principal or interest is due
and has remained unpaid for 90 days or more, unless the loan is secured by
collateral having realizable value sufficient to discharge the debt in full, or
if the loan is in the legal process of collection. Once a loan has been
classified as nonaccrual, previously accrued unpaid interest is reversed.
The following table illustrates the loan loss experience:
(dollars in thousands) Years ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Balance at beginning of period $ 4,027 3,715 3,531 3,247 2,889
Charge offs:
Residential real estate (50) 0 (122) 0 (4)
Commercial loans (508) (161) (224) (238) (65)
Installment loans (474) (607) (527) (221) (174)
------- ------- ------- ------- -------
Total charge offs (1,032) (768) (873) (459) (243)
------- ------- ------- ------- -------
Recoveries:
Residential real estate 0 0 1 0 0
Commercial loans 250 153 69 56 164
Installment loans 110 120 107 106 90
------- ------- ------- ------- -------
Total recoveries 360 273 177 162 254
------- ------- ------- ------- -------
Net (charge offs) recoveries (672) (495) (696) (297) 11
------- ------- ------- ------- -------
Provision 1,490 807 880 581 347
------- ------- ------- ------- -------
Balance at end of period 4,845 4,027 3,715 3,531 3,247
======= ======= ======= ======= =======
SOURCES OF FUNDS
General
Deposits are the most important source of the Banks' funds for lending and other
business purposes. In addition, the Banks derive funds from loan repayments,
advances from the FHLB of Seattle, repurchase agreements, and loan sales. Loan
repayments are a relatively stable source of funds, while interest bearing
deposit inflows and outflows are significantly influenced by general interest
rate levels and money market conditions. Borrowings and advances may be used on
a short-term basis to compensate for reductions in normal sources of funds such
as deposit inflows at less than projected levels. They also may be used on a
long-term basis to support expanded activities and to match maturities of
longer-term assets. Deposits obtained through the Banks have traditionally been
the principal source of funds for use in lending and other business purposes.
Currently, the Banks have a number of different deposit programs designed to
attract both short-term
13
and long-term deposits from the general public by providing a wide selection of
accounts and rates. These programs include regular statement savings,
interest-bearing checking, money market deposit accounts, fixed rate
certificates of deposit with maturities ranging form three months to five years,
negotiated-rate jumbo certificates, non-interest demand accounts, and individual
retirement accounts.
Management's Discussion and Analysis section contains information relating to
changes in the overall deposit portfolio.
Deposits are obtained primarily from individual and business residents of the
Banks' market area. The Banks issue negotiated-rate certificates of deposit with
balances of $100,000, or more, and have paid a limited amount of fees to brokers
to obtain deposits. The following table illustrates the amounts outstanding for
deposits greater than $100,000, according to the time remaining to maturity:
(dollars in thousands)
----------------------------------------------------------------------------------
Certificates of Deposit Savings and Checking Totals
----------------------------------------------------------------------------------
Maturing: Amount Number Amount Number Amount Number
----------------------------------------------------------------------------------
Within three months $ 8,215 55 $106,029 432 $114,244 487
Greater than three months through six months $ 5,057 42 $ 0 0 5,057 42
Greater than six months through twelve months $ 4,842 42 $ 0 0 4,842 42
Greater than twelve months $ 11,251 51 $ 0 0 11,251 51
----------------------------------------------------------------------------------
Totals $ 29,365 190 $106,029 432 $135,394 622
----------------------------------------------------------------------------------
For additional information, see Note 6 to the Consolidated Financial Statements
for the year ended December 31, 1998.
Advances and Other Borrowings
As a member of the Federal Home Loan Bank ("FHLB"), the Banks may borrow from
the FHLB on the security of stock which it is required to own in that bank and
certain of its home mortgages and other assets (principally, securities which
are obligations of, or guaranteed by, the United States), provided certain
standards related to-credit-worthiness have been met. Advances are made pursuant
to several different credit programs, each of which has its own interest rate
and range of maturities. Depending on the program, limitations on the amount of
advances are based either on a fixed percentage of an institution's capital or
on the FHLB's assessment of the institution's credit-worthiness. FHLB advances
have been used from time to time to meet seasonal and other withdrawals of
savings accounts and to expand lending by matching a portion of the estimated
amortization and prepayments of retained fix rate mortgages. All five banks are
members in the FHLB.
From time to time, primarily as a short-term financing arrangement for
investment or liquidity purposes, Glacier has made use of reverse repurchase
agreements with various securities dealers. This process involves the "selling"
of one or more of the securities in the Glacier's portfolio and by entering into
an agreement to "repurchase" that same security at an agreed upon later date. A
rate of interest is paid to the dealer for the subject period of time. In
addition, although Glacier has offered retail repurchase agreements to its
retail customers, the Government Securities Act of 1986 imposed confirmation and
other requirements which generally made it impractical for financial
institutions to offer such investments on a broad basis. Through policies
adopted by the Board of Directors, Glacier and Valley enter into reverse
repurchase agreements with local municipalities, and large balance customers,
and has adopted procedures designed to ensure proper transfer of title and
safe-keeping of the underlying securities. The other banks have not utilized
repurchase agreements for liquidity purposes.
14
The following chart illustrates the average balances and the maximum outstanding
month-end balances for FHLB advances and repurchase agreements:
- --------------------------------------------------------------------------------
Advances and Repurchase Agreements For the For the
(dollars in thousands) year ended year ended
12/31/98 12/31/97
-------- --------
FHLB Advances:
Average balance $135,533 $139,407
Maximum outstanding at any month-end $151,165 $144,676
Repurchase Agreements:
Average balance $ 16,652 $ 20,107
Maximum outstanding at any month-end $ 19,300 $ 21,300
- --------------------------------------------------------------------------------
For additional information concerning the Company's advances and reverse
repurchase agreements, see Notes 7 and 8 to the Consolidated Financial
Statements for the year ended December 31, 1998.
SUBSIDIARIES
The Company has six direct subsidiaries, Glacier Bank (wholly owned), First
Security (wholly owned), Valley (wholly owned), Whitefish (majority owned),
Eureka (majority owned) and Community First, Inc. ("CFI") (wholly owned). For
information regarding the holding company, as separate from the subsidiaries,
see Note 14 to the Consolidated Financial Statements for the year ended December
31, 1998.
Brokerage services (selling products such as stocks, bonds, mutual funds,
limited partnerships, annuities and other insurance products), are available
through Raymond James Financial Services, a non-affiliated company. CFI shares
in the commissions generated, without devoting significant management and staff
time to this portion of the business.
See Item I "Business - Background" on pages 3 and 4 for a detailed discussion
and visual representation of the various existing parent/subsidiary
relationships.
EMPLOYEES
As of December 31, 1998, the Company employed 398 persons, 265 of who were full
time, none of whom were represented by a collective bargaining group. The
Company provides its employees with a comprehensive benefit program, including
medical insurance, dental plan, life and accident insurance, long-term
disability coverage, sick leave, and both a defined contribution pension plan
and a 401(k) savings plan. The Company considers its employee relations to be
excellent. See Note 11 in the Consolidated Financial Statements for the year
ended December 31, 1998 for detailed information regarding pension/savings plan
costs and eligibility.
SUPERVISION AND REGULATION
Introduction
The following generally refers to certain statutes and regulations affecting the
banking industry. These references provide brief summaries only and are not
intended to be complete. They are qualified in their entirety by the referenced
statutes and regulations. In addition, some statutes and regulations may exist
which apply to and regulate the banking industry, but are not referenced below.
15
The Company is a bank holding company, due to its ownership of the Banks, all of
which are Montana-state chartered commercial banks, and all of which are members
of the Federal Reserve. Prior to Glacier Bank's conversion from a federal
savings bank to a state-chartered commercial bank, the Company was also a
savings and loan holding company within the meaning of the Home Owners' Loan Act
and, as such, was registered with and subject to examination and supervision by
the Office of Thrift Supervision. The Bank Holding Company Act of 1956, as
amended ("BHCA") subjects the Company and the Banks to supervision and
examination by the Federal Reserve Bank ("FRB"), and the Company files annual
reports of operations with the FRB.
Bank Holding Company Regulation
In general, the BHCA limits bank holding company business to owning or
controlling banks and engaging in other banking-related activities. Bank holding
companies must obtain the FRB's approval before they: (1) acquire direct or
indirect ownership or control of any voting shares of any bank that results in
total ownership or control, directly or indirectly, of more than 5% of the
voting shares of such bank; (2) merge or consolidate with another bank holding
company; or (3) acquire substantially all of the assets of any additional banks.
Subject to certain state laws, such as age and contingency laws, a bank holding
company that is adequately capitalized and adequately managed may acquire the
assets of both in-state and out-of-state banks.
Control of Nonbanks. With certain exceptions, the BHCA prohibits bank holding
companies from acquiring direct or indirect ownership or control of voting
shares in any company that is not a bank or a bank holding company unless the
FRB determines that the activities of such company are incidental or closely
related to the business of banking. If a bank holding company is well
capitalized and meets certain criteria specified by the FRB, it may engage de
novo in certain permissible nonbanking activities without prior FRB approval.
Control Transactions. The Change in Bank Control Act of 1978, as amended,
requires a person (or group of persons acting in concert) acquiring "control" of
a bank holding company to provide the FRB with 60 days prior written notice of
the proposed acquisition. Following receipt of this notice, the FRB has 60 days
within which to issue a notice disapproving the proposed acquisition, but the
FRB may extend this time period for up to another 30 days. An acquisition may be
completed before expiration of the disapproval period if the FRB issues written
notice of its intent not to disapprove the transaction. In addition, any
"company" must obtain the FRB's approval before acquiring 25% (5% if the
"company" is a bank holding company) or more of the outstanding shares or
otherwise obtaining control over the Company.
Transactions with Affiliates
The Company and the Banks are deemed affiliates within the meaning of the
Federal Reserve Act, and transactions between affiliates are subject to certain
restrictions. Accordingly, the Company and the Banks must comply with Sections
23A and 23B of the Federal Reserve Act. Generally, Sections 23A and 23B: (1)
limit the extent to which the financial institution or its subsidiaries may
engage in "covered transactions" with an affiliate, as defined, to an amount
equal to 10% of such institution's capital and surplus and an aggregate limit on
all such transactions with all affiliates to an amount equal to 20% of such
capital and surplus, and (2) require all transactions with an affiliate, whether
or not "covered transactions," to be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar types of
transactions.
Regulation of Management
Federal law: (1) sets forth the circumstances under which officers or directors
of a financial institution may be removed by the institution's federal
supervisory agency; (2) places restraints on lending by an institution to its
executive officers, directors, principal stockholders, and their related
interests; and (3) prohibits management
16
personnel from serving as a director or in other management positions with
another financial institution which has assets exceeding a specified amount or
which has an office within a specified geographic area.
Tie-In Arrangements
The Company and its subsidiaries cannot engage in certain tie-in arrangements in
connection with any extension of credit, sale or lease of property or furnishing
of services. For example, with certain exceptions, neither the Company nor the
Banks may condition an extension of credit on either (1) a requirement that the
customer obtain additional services provided by it or (2) an agreement by the
customer to refrain from obtaining other services from a competitor.
The FRB has adopted significant amendments to its anti-tying rules that: (1)
removed FRB-imposed anti-tying restrictions on bank holding companies and their
non-bank subsidiaries; (2) allow banks greater flexibility to package products
with their affiliates; and (3) establish a safe harbor from the tying
restrictions for certain foreign transactions. These amendments were designed to
enhance competition in banking and nonbanking products and to allow banks and
their affiliates to provide more efficient, lower cost service to their
customers. However, the impact of the amendments on the Company and the Banks is
unclear at this time.
State Law Restrictions
As a Delaware corporation, the Company may be subject to certain limitations and
restrictions as provided under applicable Delaware corporate law. Each of the
Banks, as Montana state-chartered commercial banks, is subject to supervision
and regulation by the Montana Department of Commerce's Banking and Financial
Institutions Division.
THE BANKS
General
The Banks are subject to extensive regulation and supervision by the Montana
Department of Commerce's Banking and Financial Institutions Division, and the
Banks are also subject to regulation and examination by the FRB as a result of
their membership in the Federal Reserve System. The federal laws that apply to
the Company's banking subsidiaries regulate, among other things, the scope of
their business, their investments, their reserves against deposits, the timing
of the availability of deposited funds and the nature and amount of and
collateral for loans. The laws and regulations governing the Company's banking
subsidiaries generally have been promulgated to protect depositors and not to
protect stockholders of such institutions or their holding companies.
CRA. The Community Reinvestment Act (the "CRA") requires that, in connection
with examinations of financial institutions within their jurisdiction, the
Federal Reserve or the FDIC evaluates the record of the financial institutions
in meeting the credit needs of their local communities, including low and
moderate income neighborhoods, consistent with the safe and sound operation of
those banks. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility.
Insider Credit Transactions. Banks are also subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to executive
officers, directors, principal shareholders, or any related interests of such
persons. Extensions of credit (i) must be made on substantially the same terms,
including interest rates and collateral, and follow credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not
employees; and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. Banks are also subject to certain lending
limits and restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent, or
other person participating in the conduct of the affairs of that bank, the
imposition of a cease and desist order, and other regulatory sanctions.
17
FDICIA. Under the Federal Deposit Insurance Corporation Improvement Act (the
"FDICIA"), each federal banking agency has prescribed, by regulation, noncapital
safety and soundness standards for institutions under its authority. These
standards cover internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, such other operational and managerial standards
as the agency determines to be appropriate, and standards for asset quality,
earnings and stock valuation. An institution which fails to meet these standards
must develop a plan acceptable to the agency, specifying the steps that the
institution will take to meet the standards. Failure to submit or implement such
a plan may subject the institution to regulatory sanctions. Management of the
Company believes that the Company's subsidiary banks meet all such standards,
and therefore, does not believe that these regulatory standards materially
affect the Company's business operations.
Interstate Banking and Branching
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") permits nationwide interstate banking and branching under
certain circumstances. This legislation generally authorizes interstate
branching and relaxes federal law restrictions on interstate banking. Currently,
bank holding companies may purchase banks in any state, and states may not
prohibit such purchases. Additionally, banks are permitted to merge with banks
in other states as long as the home state of neither merging bank has opted out.
The Interstate Act requires regulators to consult with community organizations
before permitting an interstate institution to close a branch in a low-income
area.
Under recent FDIC regulations, banks are prohibited from using their interstate
branches primarily for deposit production. The FDIC has accordingly implemented
a loan-to-deposit ratio screen to ensure compliance with this prohibition.
With regard to interstate bank mergers, Montana has "opted-out" of the
Interstate Act and prohibits in-state banks from merging with out-of-state banks
if the merger would be effective on or before September 30, 2001. Montana law
generally authorizes the acquisition of an in-state bank by an out-of-state bank
holding company through the acquisition of a financial institution if the
in-state bank being acquired has been in existence for at least 5 years prior to
the acquisition. Banks, bank holding companies, and their respective
subsidiaries cannot acquire control of a bank located in Montana if, after the
acquisition, the acquiring institution, together with its affiliates, would
directly or indirectly control more than 22% of the total deposits of insured
depository institutions and credit unions located in Montana. Montana law does
not authorize the establishment of a branch bank in Montana by an out-of-state
bank. At this time, the full impact that the Interstate Act might have on the
Company and the Banks is impossible to predict.
Deposit Insurance
The deposits of the Banks are currently insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund ("BIF") administered by the FDIC. All
insured banks are required to pay semi-annual deposit insurance premium
assessments to the FDIC.
The FDICIA included provisions to reform the Federal Deposit Insurance System,
including the implementation of risk-based deposit insurance premiums. The
FDICIA also permits the FDIC to make special assessments on insured depository
institutions in amounts determined by the FDIC to be necessary to give it
adequate assessment income to repay amounts borrowed from the U.S. Treasury and
other sources, or for any other purpose the FDIC deems necessary. The FDIC has
implemented a risk-based insurance premium system under which banks are assessed
insurance premiums based on how much risk they present to the BIF. Banks with
higher levels of capital and a low degree of supervisory concern are assessed
lower premiums than banks with lower levels of capital or a higher degree of
supervisory concern.
18
Dividends
The principal source of the Company's cash revenues is dividends received from
its subsidiary banks. 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. In addition, a bank may not pay cash dividends if that payment
could reduce the amount of its capital below that necessary to meet minimum
applicable regulatory capital requirements. Other than the laws and regulations
noted above, which apply to all banks and bank holding companies, neither the
Company nor the Banks are currently subject to any regulatory restrictions on
their dividends.
Capital Adequacy
Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks. If capital falls
below minimum guideline levels, the holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open new facilities.
The FDIC and Federal Reserve use risk-based capital guidelines for banks and
bank holding companies. These are designed to make such capital requirements
more sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimum. The current guidelines
require all bank holding companies and federally-regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier I capital. Tier I capital for bank holding companies includes common
shareholders' equity, certain qualifying perpetual preferred stock and minority
interests in equity accounts of consolidated subsidiaries, less intangibles such
as goodwill.
The Federal Reserve also employs a leverage ratio, which is Tier I capital as a
percentage of total assets less intangibles, to be used as a supplement to
risk-based guidelines. The principal objective of the leverage ratio is to
constrain the maximum degree to which a bank holding company may leverage its
equity capital base. The Federal Reserve requires a minimum leverage ratio of
3%. However, for all but the most highly rated bank holding companies and for
bank holding companies seeking to expand, the Federal Reserve expects an
additional cushion of at least 1% to 2%.
FDICIA created a statutory framework of supervisory actions indexed to the
capital level of the individual institution. Under regulations adopted by the
FDIC, an institution is assigned to one of five capital categories depending on
its total risk-based capital ratio, Tier I risk-based capital ratio, and
leverage ratio, together with certain subjective factors. Institutions which are
deemed to be "undercapitalized" depending on the category to which they are
assigned are subject to certain mandatory supervisory corrective actions. The
Company does not believe that these regulations have any material effect on its
operations.
Effects of Government Monetary Policy
The earnings and growth of the Company are affected not only by general economic
conditions, but also by the fiscal and monetary policies of the federal
government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and
combating recession, but its open market operations in U.S. government
securities, control of the discount rate applicable to borrowings from the
Federal Reserve, and establishment of reserve requirements against certain
deposits, influence the growth of bank loans, investments and deposits, and also
affect interest rates charged on loans or
19
paid on deposits. The nature and impact of future changes in monetary policies
and their impact on the Company and its subsidiary banks cannot be predicted
with certainty.
Changes in Banking Laws and Regulations
The laws and regulations that affect banks and bank holding companies are
currently undergoing significant changes. In 1998, legislation was proposed in
the United States Congress, which contained proposals to alter the structure,
regulation, and competitive relationships of the nation's financial
institutions. Although the legislation was not passed in the 1998 general
session of Congress, similar legislation may be proposed in the coming years
and, if enacted into law, such bills could have the effect of increasing or
decreasing the cost of doing business, limiting or expanding permissible
activities (including activities in the insurance and securities fields), or
affecting the competitive balance among banks, savings associations, and other
financial institutions. Some of these bills may reduce the extent of federal
deposit insurance, broaden the powers or the geographical range of operations of
bank holding companies, alter the extent to which banks could engage in
securities activities, and change the structure and jurisdiction of various
financial institution regulatory agencies. Whether or in what form such
legislation may be adopted, or the extent to which the business of the Company
might be affected thereby, cannot be predicted with certainty.
TAXATION
Federal Taxation
The Company files consolidated federal and Montana income tax returns, using the
accrual method of accounting. All required tax returns have been filed.
Financial institutions are subject to the provisions of the Internal Revenue
Code of 1986, as amended in the same general manner as other corporations. See
note 10 in the Consolidated Financial Statements for additional information.
State Taxation
Under Montana law, savings institutions are subject to a corporation license
tax, which incorporates or is substantially similar to applicable provisions of
the Code. The corporation license tax is imposed on federal taxable income,
subject to certain adjustments. State taxes are incurred at the rate of 6.75%.
Item 2. Properties
At December 31, 1998, Glacier Bank owned nine of its thirteen offices, including
its headquarters and other property having an aggregate book value of
approximately $6.9 million, and leased the remaining branches.
Glacier Bank believes that all of its facilities are well maintained, adequate
and suitable for the current operations of its business, as well as fully
utilized.
The following table sets forth certain information regarding Glacier Bank's
offices at December 31, 1998:
20
Office City Services Offered Ownership
- ------ ---- ---------------- ---------
Main Kalispell, MT Full Services Owned
Administration
Branch Libby, MT Full Services Owned
Branch Polson, MT Full Services Owned
Branch Columbia Falls, MT Full Services Owned
Branch Cut Bank, MT Full Services Owned
Branch Bigfork, MT Full Services Leased
Branch Evergreen area Full Services Owned
of Kalispell, MT
Branch Billings, MT Full Services Owned
Branch Thompson Falls, MT Full Services Owned
Branch Buffalo Hill area Full Services Owned
of Kalispell, MT
Branch Billings, MT Full Services Leased
Heights area Supermarket Branch
Branch Hamilton, MT Full Services Leased
Supermarket Branch
Branch Helena, MT Full Services Leased
Supermarket Branch
First Security conducts banking activities from three locations in Missoula,
Montana. The main office has undergone extensive remodeling, and the Great
Northern Way office was new in 1996. The East Broadway facility was completed in
1992. Management believes that each facility is in excellent condition. The net
book value of the below listed facilities is $2.5 million:
Office Services Offered Ownership
- ------ ---------------- ---------
1704 Dearborn Full Services Owned
Main Office
541 East Broadway Full Services Branch Owned
3320 Great Northern Way Full Services Branch Owned
Valley conducts banking activities from three locations in Helena, MT. The main
office has undergone extensive remodeling in 1998. Management believes that each
facility is in excellent condition. The net book value of the below listed
facilities is $1.6 million:
Office Services Offered Ownership
- ------ ---------------- ---------
3030 North Montana Avenue Full Services Owned
Main Office
1900 9th Avenue Full Services Branch Owned
306 Euclid Full Services Branch Leased
Supermarket Branch
21
Whitefish and Eureka each conduct their banking activities out of one office as
listed below. Both institutions have undergone a major remodeling and have net
book values of $677,000 and $584,000 respectively. Management believes that both
facilities are currently in excellent condition:
Office City Services Offered Ownership
- ------ ---- ---------------- ---------
Main Eureka, MT Full Services Owned
Administration
Main Whitefish, MT Full Services Owned
Administration
Item 3. Legal Proceedings
The Company and its subsidiaries are parties to various claims, legal actions
and complaints in the ordinary course of their businesses. In the Company's
opinion, all such matters are adequately covered by insurance, are without merit
or are of such kind, or involve such amounts, that unfavorable disposition would
not have a material adverse effect on the consolidated financial position or
results of operations of the Company.
Item 4. Submission of Matter To A Vote of Security Holders
No matters were submitted to a vote of securities holders in the fourth quarter
of 1998.
PART II
Item 5. Market Price of and Dividends on Registrant's Common Equity & Related
Stockholder Matters
The Company's stock trades on the NASDAQ Stock Market, Inc., under the symbol:
GBCI. The primary market makers are: D.A. Davidson & Company, Inc., Piper
Jaffray Companies, Inc., Herzog, Heine, Geduld, Inc. and S.J. Wolfe and Company.
The market range of high and low bid prices for the Company's Common Stock for
the periods indicated are shown below. The sale price information has been
adjusted retroactively for all stock dividends and splits previously issued. As
of December 31, 1998, there were approximately 2,500 shareholders of Company
common stock.
Quarterly Common Stock Price Ranges
1998 1997
---- ----
Quarter High Low High Low
- ------- ---- --- ---- ---
First 26.82 21.14 15.00 14.09
Second 25.91 24.09 19.09 13.86
Third 26.36 22.79 17.73 15.91
Fourth 22.63 18.88 22.73 16.93
The Company paid cash dividends on its Common Stock of $.57 and $.47 per share
for the years ended December 31, 1998 and 1997, respectively.
22
Item 6. Selected Financial Data
The following financial data of the Company are derived from the Company's
historical audited financial statements and related footnotes. The information
set forth below should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the financial
statements and related footnotes contained elsewhere in this Registration
Statement.
Summary of Operations and Selected Financial Data
At December 31,
- --------------------------------------------------------- ----------------------------------------------------------------------
(dollars in thousands, except per share data) 1998 1997 1996 1995 1994
- --------------------------------------------------------- --------- --------- --------- --------- ----------
Summary of Financial Condition:
Total assets ......................................... $ 666,651 648,667 608,467 546,675 475,314
Investment securities ................................ 53,718 58,417 70,167 65,592 31,924
Mortgage-backed securities ........................... 44,344 57,108 47,579 39,368 51,744
Loans receivable ..................................... 499,094 470,944 433,077 390,007 350,238
Allowance for loan losses ........................... (4,845) (4,027) (3,715) (3,531) (3,247)
Deposits ............................................. 444,459 404,349 371,571 335,684 302,265
Advances ............................................. 120,586 141,860 147,216 123,365 83,930
Other borrowed money/repurchase agreements ........... 18,357 29,610 17,521 23,489 35,452
Stockholders' equity ................................. 74,937 64,775 56,467 50,816 42,837
Equity per common share* ............................. 8.95 7.98 7.79 6.97 5.93
Equity as a percentage of total assets ............... 11.24% 9.99% 9.28% 9.30% 9.01%
========= ========= ========= ========= =========
Years ended December 31,
- --------------------------------------------------------- ----------------------------------------------------------------------
(dollars in thousands, except per share data) 1998 1997 1996 1995 1994
- --------------------------------------------------------- --------- --------- --------- --------- ----------
Summary of Operations:
Interest income ...................................... $ 51,081 49,381 45,915 40,987 32,651
Interest expense ..................................... 22,204 22,134 20,521 17,752 12,893
--------- --------- --------- --------- ---------
Net interest income ................................ 28,877 27,247 25,394 23,235 19,758
Provision for loan losses ............................ 1,490 807 880 581 295
Non-interest income .................................. 11,259 9,615 9,540 8,550 7,805
Non-interest expense ................................. 21,606 20,093 20,215 17,004 15,033
--------- --------- --------- --------- ---------
Earnings before income taxes ....................... 17,040 15,962 13,839 14,200 12,235
Income taxes ......................................... 6,296 5,908 5,632 5,577 4,815
--------- --------- --------- --------- ---------
Net earnings ....................................... 10,744 10,054 8,207 8,623 7,420
========= ========= ========= ========= =========
Basic earnings per common share* ................... 1.30 1.24 1.03 1.07 0.94
Diluted earnings per common share* ................. 1.28 1.22 1.02 1.07 0.94
Dividends declared per share* ...................... 0.57 0.47 0.38 0.34 0.30
========= ========= ========= ========= =========
Years ended December 31,
- --------------------------------------------------------- ----------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------- --------- --------- --------- --------- ----------
Ratios:
Net earnings as a percent of
Average assets ....................................... 1.62% 1.60% 1.42% 1.70% 1.69%
Beginning stockholders' equity ....................... 16.59% 17.81% 16.15% 20.13% 19.69%
Net interest margin on average earning assets
(tax equivalent) ................................... 4.79% 4.76% 4.76% 4.96% 4.88%
Allowance for loan losses as a percent of loans ......... 0.97% 0.86% 0.86% 0.91% 0.93%
Allowance for loan losses as a percent of
nonperforming assets ............................ 173% 249% 173% 323% 289%
Other Data:
Loans originated and purchased ....................... $ 394,799 265,759 314,213 254,950 251,224
Loans serviced for others ............................ $ 123,741 128,250 124,619 112,024 92,008
Number of full time equivalent employees ............. 327 299 287 261 237
Number of offices .................................... 21 20 19 16 16
Number of shareholders of record ..................... 929 772 758 739 792
*revised for stock splits and dividends
23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is a Delaware corporation and at December 31, 1998 had five
commercial banks as subsidiaries, Glacier Bank, Glacier Bank of Whitefish,
Glacier Bank of Eureka, First Security Bank of Missoula, and Valley Bank of
Helena. The following discussion and analysis includes the effects of the
pooling-of-interests merger with HUB Financial Corporation, and the purchase
accounting treatment of the minority shares of Valley Bank of Helena. Prior
period information has been restated to include amounts from the HUB Financial
Corporation merger. The Company reported earnings of $10,744,000 for the year
ended December 31, 1998, or $1.30 basic earnings per share, and $1.28 diluted
earnings per share, compared to $10,054,000, or $1.24 basic earnings per share
and $1.22 diluted earnings per share, for the year ended December 31, 1997, and
$8,207.000, or $1.03 basic and $1.02 diluted earnings per share for the year
ended December 31, 1996. During 1996, the FDIC SAIF fund was recapitalized
through one-time payments from thrift institutions. Glacier Bank's after tax
cost of this payment was $583,000, or $.09 basic earnings per share, In
addition, after tax expenses related to the merger of First Security Bank were
$563,000, or $.08 basic earnings per share. Operating earnings without the SAIF
and merger expenses were $9,353,000, or $1.20 basic earnings per share. This
continued improvement in net income can be attributed to an increase in earning
assets, management of net interest margin, and strong non-interest income. The
following narrative and charts focus on the significant financial changes which
have taken place over the past years and include a discussion of the Company's
financial condition, results of operations, and capital resources.
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. This 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
five subsidiaries are members of the Federal Home Loan Bank of Seattle. This
membership provides for established lines of credit in the form of advances
which serve as a supplemental source of funds for lending and other general
business purposes. During 1998, all five financial institutions maintained
liquidity at a level deemed sufficient to meet operating cash needs. The
liquidity was in excess of regulatory requirements.
Retention of a portion of Glacier Bancorp, Inc.'s earnings results in
stockholders equity at December 31, 1998 of $74,937,000, or 11.2% of assets,
which compares with $64,775,000, or 10.0% of assets at December 31, 1997.
Earnings retention and increases resulting from the exercise of stock options
and acquisitions has outpaced the increase in assets of $17,984,000, or 2.8%,
during 1998. The stockholder's equity ratio remains well above required
regulatory levels, and above the average of the Company's peers, providing
flexibility in the management of assets.
Financial Condition
For the year ended December 31, 1998, consolidated assets increased $17,984,000,
or 2.8% over the prior year. The following table summarizes the Company's major
asset and liability components as a percentage of total assets at December 31,
1998, 1997, and 1996.
24
Major Balance Sheet Components as a
Percentage of Total Assets
December 31,
-------------------------
1998 1997 1996
----- ----- -----
Assets:
Cash, and Cash Equivalents, Investment
securities, FHLB and
Federal Reserve Stock ......................... 22.2% 24.8% 28.0%
Real Estate Loans ............................. 30.0% 32.7% 34.1%
Commercial Loans .............................. 27.4% 21.7% 19.4%
Installment and Other Loans ................... 16.7% 17.6% 17.1%
Other Assets .................................. 3.7% 3.2% 1.4%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Liabilities and Stockholder's Equity:
Deposit Accounts .............................. 66.7% 62.3% 61.1%
FHLB Advances ................................. 18.1% 21.9% 24.2%
Other Borrowings and Repurchase Agreements .... 2.8% 4.6% 2.9%
Other Liabilities ............................. 1.2% 1.2% 2.6%
Stockholders' Equity .......................... 11.2% 10.0% 9.3%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Real estate loans continue to be the largest component of the Company's assets,
although the percentage is decreasing, and commercial loans are increasing as a
result of the Company's strategy. Deposit accounts, with comparatively short
terms to maturity, represent the majority of the liabilities.
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 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.
GAP analysis
The following table gives a description of our GAP position for various time
periods. As of December 31, 1998, we had a positive GAP position at six months,
and a negative GAP position at twelve months. The cumulative GAP as a percentage
of total assets for six months is a positive 2.5% which compares to a positive
.95% at December 31, 1997 and 1.7% at December 31, 1996.
The table also shows the GAP earnings sensitivity, and earnings sensitivity
ratio, along with a brief description as to how they are calculated. The
traditional one dimensional view of GAP is not sufficient to show a bank's
ability to withstand interest rate changes. Superior earnings power is also a
key factor in reducing exposure to higher interest rates. For example, our GAP
earnings sensitivity ratio shows that a 1% change in interest rates would only
change income by .48%. Because of our GAP position, the table illustrates how a
1% increase in rates would increase the Company's income by approximately
$51,000. Using this analysis to join GAP information with earnings data, it
produces a better picture of our strength and ability to handle interest rate
change. The methodology used to compile this GAP information is based on our mix
of assets and liabilities and the historical experience accumulated regarding
their rate sensitivity.
25
Interest Rate Sensitivity and Gap Analysis as of December 31, 1998
Projected maturity or repricing
--------------------------------------------------------------------
0-6 6-12 1 - 5 More than Non-rate
(dollars in thousands) Months Months years 5 years Sensitive Total
-------- -------- -------- -------- -------- --------
Assets:
Interest bearing deposits $ 5,143 0 0 0 0 5,143
Investment securities .... 3,184 2,088 6,961 41,485 0 53,718
Mortgage-backed securities 4,611 4,770 31,302 3,661 0 44,344
Floating rate loans ...... 147,276 12,980 61,672 1,107 0 223,035
Fixed rate loans ......... 31,976 15,446 90,498 138,139 0 276,059
Other earning assets ..... 11,848 -- -- 1,219 -- 13,067
Non-earning assets ....... -- -- -- -- 51,285 51,285
------- -------- -------- -------- -------- --------
Total Assets ................. $204,038 35,284 190,433 185,611 51,285 666,651
======= ======== ======== ======== ======== ========
Liabilities and Equity:
Deposits ................. 154,326 31,893 83,980 174,260 0 444,459
FHLB advances ............ 14,632 11,745 75,098 19,110 0 120,586
Other purchased funds .... 18,357 0 0 0 0 18,357
Other liabilities ........ -- 0 0 0 8,312 8,312
Equity ................... -- -- -- -- 74,937 74,937
------- -------- -------- -------- -------- --------
Total liabilities and equity . $187,316 43,638 159,078 193,370 83,249 666,651
======= ======== ======== ======== ======== ========
Gap Earnings Sensitivity (1).. $ 51
Gap Earnings Sensitivity
Ratio (2) ................... $ 0.48%
(1) Gap Earnings Sensitivity is the estimated effect on income after taxes of
39%, of a 1% increase or decrease in Interest rates (1% X ($8,368 less tax
of $3,264).
(2) Gap Earnings Sensitivity Ratio is Gap Earnings Sensitivity divided by the
estimated yearly earnings of $10,744. A 1% increase in interest rates has
this estimated percentage increase effect on annual income.
This table estimates the repricing maturities of the Company's assets and
liabilities, based upon the Company's assessment of the repricing
characteristics of the various instruments. Non-contractual deposit liabilities
are allocated among the various maturity categories as follows: non-interest
bearing checking and interest- bearing checking are included in the more than 5
years category. Regular savings are included in the 1 - 5 years category. Money
market balances are included in the less than 6 months category. Mortgage-backed
securities are at the anticipated principal payments based on the
weighted-average-life.
Interest Rate Spread
One way to protect against interest rate volatility is to maintain a comfortable
interest spread between yields on assets and the rates paid on interest bearing
liabilities. As shown below the net interest spread decreased in 1998 from 3.93%
to 3.89%, primarily the result of lower rates on interest earning assets. The
net interest margin increased slightly in 1998 from 4.76% to 4.79%, primarily
the result of an increase in interest earning assets. Although the interest
spread is down from 1997 the increased asset levels, and the increased
interest-free funding resulted in significantly higher net interest income.
26
December 31, [1]
-----------------------------
For the year ended: 1998 1997 1996
---- ---- ----
Combined weighted average yield on loans and investments [2] ............ 8.41% 8.58% 8.54%
Combined weighted average rate paid on savings deposits and borrowings .. 4.52% 4.65% 4.63%
Net interest spread ..................................................... 3.89% 3.93% 3.91%
Net interest margin [3] ............................................... 4.79% 4.76% 4.76%
[1] Weighted averages are computed without the effect of compounding daily
interest.
[2] Includes dividends received on capital stock of the Federal Home Loan Bank
and Federal Reserve Bank.
[3] The net interest margin (net yield on average interest earning assets) is
interest income from loans and investments (tax free income adjusted for
tax effect) less interest expense from deposits, FHLB advances, and other
borrowings, divided by the total amount of earning assets.
Future Accounting Pronouncements
Please see the notes to the consolidated financial statement for information on
accounting pronouncements.
Year 2000 Issues
The century date change for the Year 2000 is a serious issue that may impact
virtually every organization including the Company. Many software programs are
not able to recognize the Year 2000, since most programs and systems were
designed to store calendar years in the 1900s by assuming and "19" and storing
only the last two digits of the year. The problem is especially important to
financial institutions since many transactions, such as interest accruals and
payments, are date sensitive, and because the Company and its subsidiary banks
interact with numerous customers, vendors and third party service providers who
must also address the Year 2000 issue. The problem is not limited to computer
systems. Year 2000 issues will also potentially affect every system that has an
embedded microchip, such as automated teller machines, elevators and vaults.
State of Readiness
The Company and its subsidiary banks are committed to addressing these Year 2000
issues in a prompt and responsible manner, and they have dedicated the resources
to do so. Management has completed an assessment of its automated systems and
has implemented a program consistent with applicable regulatory guidelines, to
complete all steps necessary to resolve identified issues. The Company's
compliance program has several phases, including (1) project management; (2)
assessment; (3) testing; and (4) remediation and implementation.
Project Management
The Company has formed a Year 2000 compliance committee consisting of senior
management and departmental representatives. The committee has met regularly
since October 1997. A Year 2000 compliance plan was developed and regular
meetings have been held to discuss the process, assign tasks, determine
priorities and monitor progress. The committee regularly reports to the
Company's Board.
Assessment
All of the Company's and its subsidiary banks' computer equipment and
mission-critical software programs have been identified. This phase is
essentially complete. Primary software vendors were also assessed during this
phase, and vendors who provide mission-critical software have been contacted.
The Year 2000 committee is in the process of obtaining written certification
from providers of material services that such providers are, or will be, Year
2000 compliant. Based upon its ongoing assessment of the readiness of its
vendors, suppliers and service providers, the committee intends to develop
contingency plans addressing the most reasonably likely
27
worst case scenarios. The committee will continue to monitor and work with these
vendors. The committee and other bank officers have also identified and began
working with, the subsidiary banks' significant borrowers and funds providers to
assess the extent to which they may be affected by Year 2000 issues.
Testing.
Updating and testing of the Company's and its subsidiary banks' automated
systems is currently underway and it is anticipated that all testing will be
complete by January 31, 1999. Upon completion, the committee will be able to
identify any internal computer systems that remain non-compliant.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates/prices such as interest rates, foreign currency exchange
rates, commodity prices, and equity prices. The Company's primary market risk
exposure is interest rate risk. The ongoing monitoring and management of this
risk is an important component of the Company's asset/liability management
process which is governed by policies established by its Board of Directors that
are reviewed and approved annually. The Board of Directors delegates
responsibility for carrying out the asset/liability management policies to the
Asset/liability committee(ALCO). In this capacity ALCO develops guidelines and
strategies impacting the Company's asset/liability management related activities
based upon estimated market risk sensitivity, policy limits and overall market
interest rate levels/trends.
Interest Rate Risk
Interest rate risk represents the sensitivity of earnings to changes in market
interest rates. As interest rates change the interest income and expense streams
associated with the Company's financial instruments also change thereby
impacting net interest income (NII), the primary component of the Company's
earnings. ALCO utilizes the results of a detailed and dynamic simulation model
to quantify the estimated exposure of NII to sustained interest rate changes.
While ALCO routinely monitors simulated NII sensitivity over a rolling two-year
horizon, it also utilizes additional tools to monitor potential longer-term
interest rate risk. The simulation model captures the impact of changing
interest rates on the interest income received and interest expense paid on all
assets and liabilities reflected on the Company's balance sheet. This
sensitivity analysis is compared to ALCO policy limits which specify a maximum
tolerance level for NII exposure over a one year horizon, assuming no balance
sheet growth, given a 200 basis point (bp) upward and downward shift in interest
rates. A parallel and pro rata shift in rates over a 12 month period is assumed.
The following reflects the Company's NII sensitivity analysis as of December 31,
1997 as compared to the 10% Board approved policy limit.
Estimated
Rate change NII Sensitivity
----------- ---------------
-200 bp -1.99%
+200 bp 1.44%
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
28
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.
Forward-looking Information
The discussion above may include certain "forward looking statements" concerning
the future operations of the Company. The Company desires to take advantage of
the "safe harbor" provisions of the Private Securities Litigation Reform act of
1995 as they apply to forward looking statements. This statement is for the
express purpose of availing the Company of the protections of such safe harbor
with respect to all "forward looking statements." Management's ability to
predict results of the effect of future plans in inherently uncertain, and is
subject to factors that may cause actual results to differ materially from those
projected.
Item 8. Financial Statements and Supplementary Data
The following audited consolidated financial statements and related documents
are set forth in this Annual Report on Form 10-K on the pages indicated:
Page
Independent Auditors' Report 30
Consolidated Statements of Financial Condition 31
Consolidated Statements of Operations 32
Consolidated Statements of Stockholders' Equity and
Comprehensive Income 33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 35-57
29
Independent Auditors' Report
The Board of Directors and Stockholders
Glacier Bancorp, Inc.
We have audited the accompanying consolidated statements of financial condition
of Glacier Bancorp, Inc. and subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Glacier Bancorp,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Billings, Montana
January 29, 1999
30
Consolidated Statements of Financial Condition
December 31,
- ------------------------------------------------------------------------------------------------ ---------------------
(dollars in thousands) 1998 1997
- ------------------------------------------------------------------------------------------------ ---------- -------
Assets:
Cash on hand and in banks ............................................................ $ 31,509 29,724
Federal funds sold.................................................................... 2,693 3,860
Interest bearing cash deposits........................................................ 2,450 595
------- -------
Cash and cash equivalents........................................................ 36,652 34,179
Investment securities, available-for-sale ............................................ 90,735 99,474
Investment securities, held-to-maturity (market value of $7,579 and
$16,358 at December 31, 1998 and 1997, respectively) ............................. 7,327 16,051
Loans receivable, net ................................................................ 494,249 466,917
Premises and equipment, net .......................................................... 16,198 13,604
Real estate and other assets owned, net .............................................. 151 121
Federal Home Loan Bank of Seattle stock, at cost ..................................... 11,848 10,956
Federal Reserve Bank stock, at cost................................................... 1,219 340
Accrued interest receivable .......................................................... 4,079 4,234
Goodwill, net of accumulated amortization of $707 and $542 at December 31,
1998, and 1997, respectively ..................................................... 2,601 1,371
Other assets.......................................................................... 1,592 1,420
------- -------
$ 666,651 648,667
======= =======
Liabilities:
Deposits - non-interest bearing ...................................................... $ 92,710 84,987
Deposits - interest bearing .......................................................... 351,749 319,362
Advances from Federal Home Loan Bank of Seattle ...................................... 120,586 141,860
Securities sold under agreements to repurchase ....................................... 17,239 21,673
Other borrowed funds.................................................................. 1,118 7,937
Accrued interest payable.............................................................. 2,278 1,816
Deferred income taxes ................................................................ 1,601 1,870
Minority interest .................................................................... 313 1,280
Other liabilities..................................................................... 4,120 3,107
------- -------
Total liabilities................................................................ 591,714 583,892
Stockholders' equity:
Preferred stock, $.01 par value per share. Authorized 1,000,000
shares; none issued.................................................................. 0 0
Common stock, $.01 par value per share. 8,372,916 and 7,384,139
shares outstanding at December 31, 1998 and 1997, respectively ...................... 84 74
Paid-in capital....................................................................... 57,555 34,771
Retained earnings - substantially restricted.......................................... 16,089 28,743
Accumulated other comprehensive income ............................................... 1,209 1,187
------- -------
Total stockholders' equity ...................................................... 74,937 64,775
------- -------
$ 666,651 648,667
======= =======
See accompanying notes to consolidated financial statements.
31
Consolidated Statements of Operations
Years ended December 31,
- --------------------------------------------------------------------------------- ----------------------------------------
(dollars in thousands except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------- ------ ------ ------
Interest Income:
Real estate loans ..................................................... $ 16,624 17,190 16,785
Commercial loans ...................................................... 15,925 12,555 10,706
Consumer and other loans .............................................. 10,920 10,884 9,590
Investment securities and other ....................................... 7,612 8,752 8,834
------ ------ ------
Total Interest Income ............................................... 51,081 49,381 45,915
------ ------ ------
Interest Expense:
Deposits .............................................................. 13,683 13,011 11,941
Advances .............................................................. 7,583 7,792 7,486
Securities sold under agreements to repurchase ........................ 772 1,072 875
Other borrowed funds .................................................. 166 259 219
------ ------ ------
Total Interest Expense .............................................. 22,204 22,134 20,521
------ ------ ------
Net Interest Income ................................................. 28,877 27,247 25,394
Provision for loan losses ............................................. 1,490 807 880
------ ------ ------
Net Interest Income After Provision
For Loan Losses .................................................... 27,387 26,440 24,514
Non-Interest Income:
Service charges and other fees ........................................ 5,298 5,183 4,827
Miscellaneous loan fees and charges ................................... 4,271 3,380 3,383
Gain on sale of investments, net ...................................... 33 197 121
Other income .......................................................... 1,657 855 1,209
------ ------ ------
Total Non-Interest Income ........................................... 11,259 9,615 9,540
Non-Interest Expense:
Compensation, employee benefits and related expenses .................. 10,903 10,578 9,848
Occupancy expense ..................................................... 2,582 2,260 2,017
Data processing expense ............................................... 901 996 880
FDIC/SAIF assessment .................................................. 0 0 947
Other expense ......................................................... 7,075 6,051 6,332
Minority interest ..................................................... 145 208 191
------ ------ ------
Total Non-Interest Expense .......................................... 21,606 20,093 20,215
------ ------ ------
Earnings before income taxes .................................................... 17,040 15,962 13,839
Federal and state income tax expense ......................................... 6,296 5,908 5,632
------ ------ ------
Net Earnings .................................................................... $ 10,744 10,054 8,207
====== ====== ======
Basic earnings per share .............................................. $ 1.30 1.24 1.03
Diluted earnings per share ............................................ $ 1.28 1.22 1.02
See accompanying notes to consolidated financial statements.
32
Consolidated Statements of Stockholders' Equity
and Comprehensive Income
Years ended December 31, 1998, 1997, and 1996
Retained Accumulated
Common Stock earnings other Total
- ------------------------------------------------ ------------------------ Paid-in substantially comprehensive stockholders'
($ in thousands except share and per share data) Shares Amount capital restricted income equity
- ------------------------------------------------ ---------- ---------- ---------- ------------- ------------- ------------
Balance at December 31, 1995 .............. 4,377,245 45 26,520 23,441 810 50,816
Comprehensive income:
Net earnings ......................... -- -- -- 8,207 -- 8,207
Unrealized loss on securities, net
of reclassification adjustment .. -- -- -- -- (795) (795)
Total comprehensive income ................ 7,412
Cash dividends declared ($.39 per share) .. -- -- -- (2,495) -- (2,495)
Stock options exercised ................... 36,697 1 548 -- -- 549
Tax benefit from stock related
compensation ........................ -- -- 81 -- -- 81
Increase in stock grant earned ............ -- -- 21 -- -- 21
Acquisition of minority interest .......... 12,951 -- 85 -- -- 85
10% stock dividend ........................ 437,346 1 6,701 (6,711) -- (9)
Stock acquired ............................ (9,000) -- (192) -- -- (192)
Additional shares issued .................. 31,306 2 197 -- -- 199
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 .............. 4,886,545 49 33,961 22,442 15 56,467
Comprehensive income:
Net earnings ......................... -- -- -- 10,054 -- 10,054
Unrealized gain on securities, net
of reclassification adjustment .. -- -- -- -- 1,172 1,172
Total comprehensive income ................ 11,226
Cash dividends declared ($.47 per share) .. -- -- -- (3,748) -- (3,748)
Stock options exercised ................... 52,160 1 557 -- -- 558
Tax benefit from stock related
compensation ........................ -- -- 257 -- -- 257
Increase in stock grant earned ............ -- -- 20 -- -- 20
Three for two stock split ................. 2,445,434 24 (24) (5) -- (5)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 .............. 7,384,139 $ 74 34,771 28,743 1,187 64,775
Comprehensive income:
Net earnings ......................... -- -- -- 10,744 -- 10,744
Unrealized gain on securities, net
of reclassification adjustment .. -- -- -- -- 22 22
Total comprehensive income ................ 10,766
Cash dividends declared ($.57 per share) .. -- -- -- (4,737) -- (4,737)
Stock options exercised ................... 149,076 1 1,531 -- -- 1,532
Tax benefit from stock related
compensation ........................ -- -- 386 -- -- 386
Increase in stock grant earned ............ -- -- 15 -- -- 15
10% stock dividend ........................ 755,940 8 18,654 (18,661) -- 1
Additional shares issued .................. 83,761 1 2,198 -- -- 2,199
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 .............. 8,372,916 $ 84 57,555 16,089 1,209 74,937
========== ========== ========== ========== ========== ==========
December 31,
--------------------------------------
Reclassification adjustment: 1998 1997 1996
Holding gains (losses) arising during the period ................. $ 72 1,976 (1,083)
Tax expense ....................................................... (28) (674) 368
---------- ---------- ----------
Net after tax ............................................... 44 1,302 (715)
Less reclassification adjustment for amounts
included in net income ...................................... (33) (197) (121)
Tax expense ...................................................... 11 67 41
---------- ---------- ----------
Net after tax ............................................... (22) (130) (80)
---------- ---------- ----------
Net unrealized gains (losses) on securities ............... $ 22 1,172 (795)
========== ========== ==========
See accompanying notes to consolidated financial statements.
33
Consolidated Statements of Cash Flows
Years ended December 31,
- --------------------------------------------------------------------------------------- ---------------------------------------
(dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------- -------- -------- --------
OPERATING ACTIVITIES :
Net earnings ................................................................ $ 10,744 10,054 8,207
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Mortgage loans held for sale originated or acquired ....................... (139,627) (77,414) (86,180)
Proceeds from sales of mortgage loans held for sale ....................... 134,802 73,566 85,140
Provision for loan losses ................................................. 1,490 807 880
Depreciation of premises and equipment .................................... 1,169 1,076 920
Amortization of goodwill .................................................. 165 155 168
Gain on sale of investments ............................................... (33) (197) (121)
Amortization of investment securities premiums and discounts, net ......... (214) (31) (14)
Net decrease in deferred income taxes ..................................... (332) (294) (68)
Net (increase) decrease in accrued interest receivable .................... 155 (292) (107)
Net increase in accrued interest payable .................................. 462 604 172
Net increase (decrease) in current income taxes ........................... (371) 687 (510)
Net increase in other assets .............................................. (172) (130) (140)
Net increase (decrease) in other liabilities and minority interest ........ 1,279 (8,330) 3,425
FHLB stock dividends ...................................................... (892) (778) (635)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .................... 8,625 (517) 11,137
-------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of investment
securities available-for-sale ........................................... 30,641 31,343 57,387
Purchases of investment securities available-for-sale ....................... 21,621) (36,636) (71,572)
Proceeds from maturities and prepayments of investment
securities held-to-maturity ............................................. 8,947 9,788 1,908
Purchases of investment securities held-to-maturity ......................... 185) (94) (1,682)
Principal collected on installment and commercial loans ..................... 147,238 87,741 121,408
Installment and commercial loans originated or acquired ..................... (196,659) (127,957) (167,870)
Proceeds from sales of commercial loans ..................................... 8,756 6,502 10,648
Principal collections on mortgage loans ..................................... 75,181 59,588 53,251
Mortgage loans originated or acquired ....................................... (58,513) (60,388) (60,163)
Net proceeds from sales (acquisition) of real estate owned .................. (30) 385 (454)
Net purchase of FHLB and FRB stock .......................................... (879) (1,056) (694)
Net addition of premises and equipment ...................................... (3,763) (1,656) (2,159)
Acquisition of minority interest ............................................ 236) (14) (171)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES .................................. (11,123) (32,454) (60,163)
-------- -------- --------
FINANCING ACTIVITIES:
Net increase in deposits .................................................... 40,110 31,791 35,756
Net increase (decrease) in FHLB advances and other borrowed funds ........... (28,093) (2,698) 27,476
Net increase (decrease) in securities sold under repurchase agreements ...... (4,434) 9,354 (9,667)
Cash dividends paid to stockholders ......................................... (4,144) (3,309) (2,258)
Proceeds from exercise of stock options and other stock issued .............. 1,532 553 748
Treasury stock purchased .................................................... -- -- (192)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................... 4,971 35,691 51,863
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................... 2,473 2,720 2,837
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 34,179 31,459 28,622
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 36,652 34,179 31,459
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest................................. $ 21,742 21,530 20,349
Income taxes............................. 6,943 5,474 6,358
See accompanying notes to consolidated financial statements.
34
Notes to Consolidated Financial Statements
Years ended December 31, 1998, 1997 and 1996
1. Summary of Significant Accounting Policies:
(a) General
Glacier Bancorp, Inc. (the "Company"), a Delaware corporation organized in 1990,
is a multi-bank, holding company which provides a full range of banking services
to individual and corporate customers in Montana through its subsidiary banks.
The subsidiary banks are subject to competition from other financial service
providers. The subsidiary banks are also subject to the regulations of certain
government agencies and undergo periodic examinations by those regulatory
authorities.
The accounting and consolidated financial statement reporting policies of the
Company conform with generally accepted accounting principles and prevailing
practices within the banking industry. In preparing the consolidated financial
statements, management is required to make estimates and assumptions that affect
the reported and disclosed amounts of assets and liabilities as of the date of
the statement of financial condition and income and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the subsidiary banks' allowance
for loan losses. Such agencies may require the subsidiary banks to recognize
additions to the allowance based on their judgements about information available
to them at the time of their examination.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its bank subsidiaries, Glacier Bank ("Glacier"), First Security Bank of Missoula
("First Security"), Glacier Bank of Whitefish, Glacier Bank of Eureka, and
Valley Bank of Helena ("Valley). All significant intercompany transactions have
been eliminated in consolidation. The Company owns 100% of the outstanding stock
of Glacier Bank, First Security, and Valley, and 94% and 93% of the Glacier
Banks of Whitefish and Eureka, respectively.
Valley was acquired on August 31, 1998 through an exchange of stock with HUB
Financial Corp. (HUB), formerly the parent company of Valley and the minority
shareholders of Valley. The transaction with minority shareholders was accounted
for as a purchase. Financial information from August 31, 1998 forward includes
the results of operations previously attributable to the minority interest. The
pooling method of interests accounting method was used for this merger
transaction with HUB. Under this method, financial information for each of the
periods presented include the combined companies as though the merger had
occurred prior to the earlierst date presented.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash held as demand deposits at
various banks and regulatory agencies, interest bearing deposits and federal
funds sold with original maturities of three months or less.
35
1. Summary of Significant Accounting Policies . . . continued
(d) Investment Securities
Debt securities for which the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity and are stated at amortized
cost. Debt and equity securities held primarily for the purpose of selling them
in the near term are classified as trading securities and are reported at fair
market value, with unrealized gains and losses included in income. Debt and
equity securities not classified as held-to-maturity or trading are classified
as available-for-sale and are reported at fair value with unrealized gains and
losses, net of income taxes, shown as a separate component of stockholders'
equity.
Premiums and discounts on investment securities are amortized or accreted into
income using a method which approximates the level-yield interest method.
The cost of any investment, if sold, is determined by specific identification.
Declines in the fair value of available-for-sale or held-to-maturity securities
below carrying value that are other than temporary are charged to expense as
realized losses and the related carrying value reduced to fair value.
(e) Loans Receivable
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balance reduced by any chargeoffs or specific valuation
accounts and net of any deferred fees or costs on originated loans or
unamortized premiums or discounts on purchased loans. Discounts and premiums on
purchased loans and net loan fees on originated loans are amortized over the
expected life of loans using methods that approximate the interest method.
(f) Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized by charges to income.
(g) Allowance for Loan Losses
Management's periodic evaluation of the adequacy of the allowance is based on
factors such as the Company's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, current
economic conditions, and independent appraisals.
The Company also provides an allowance for losses on specific loans which are
deemed to be impaired. Groups of small balance homogeneous loans (generally
consumer and residential real estate loans) are evaluated for impairment
collectively. A loan is considered impaired when, based upon current information
and events, it is probable that the Company will be unable to collect, on a
timely basis, all principal and interest according to the contractual terms of
the loan's original agreement. When a specific loan is determined to be
impaired, the allowance for loan losses is increased through a charge to expense
for the amount of the impairment. The amount of the impairment is measured using
cash flows discounted at the loan's effective interest rate, except when it is
determined that the sole source of repayment for the loan is the operations or
liquidation of the underlying collateral. In such
36
1. Summary of Significant Accounting Policies . . . continued
(g) Allowance for Loan Losses . . . continued
cases, the current value of the collateral, reduced by anticipated selling
costs, will be used in place of discounted cash flows. Generally, when a loan is
deemed impaired, current period interest previously accrued but not collected is
reversed against current period interest income. Income on such impaired loans
is then recognized only to the extent that cash in excess of any amounts charged
off to the allowance for loan losses is received and where the future collection
of principal is probable. Interest accruals are resumed on such loans only when
they are brought fully current with respect to interest and principal and when,
in the judgement of management, the loans are estimated to be fully collectible
as to both principal and interest. At December 31, 1998 and 1997 the amount of
impaired loans was not.
material.
(h) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is generally computed on a straight-line method over the estimated
useful lives, which range from five to fifty years, of the various classes of
assets from their respective dates of acquisition.
(i) Real Estate Owned
Property acquired by foreclosure or deed in lieu of foreclosure is carried at
the lower of cost or estimated fair value, not to exceed estimated net
realizable value. Costs, excluding interest, relating to the improvement of
property are capitalized, whereas those relating to holding the property are
charged to expense. Fair value is determined as the amount that could be
reasonably expected in a current sale (other than a forced or liquidation sale)
between a willing buyer and a willing seller. If the fair value of the asset
minus the estimated cost to sell is less than the cost of the property, this
deficiency is recognized as a valuation allowance and is charged to expense.
(j) Restricted Stock Investments
The Company holds stock in the Federal Home Loan Bank (FHLB) and the Federal
Reserve Bank (FRB). These investments are carried at cost.
(k) Goodwill
Goodwill is being amortized against income using the straight-line method over
15 years.
(l) Income Taxes
Deferred tax assets and liabilities are recognized for estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(m) Stock-based Compensation
Compensation cost for stock-based compensation to employees is measured at the
grant date using the intrinsic value method. Under the intrinsic value method,
compensation cost is the excess of the market price of the stock at the grant
date over the amount an employee must pay to ultimately acquire the stock and is
recognized over any related service period.
37
1. Summary of Significant Accounting Policies . . . continued
(n) Impairment and Disposal of Long-lived Assets
Long lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An asset is deemed impaired
if the sum of the expected future cash flows is less than the carrying amount of
the asset. If impaired, an impairment loss is recognized to reduce the carrying
value of the asset to fair value. At December 31, 1998 and 1997 there were no
assets that were considered impaired.
(o) Mortgage Servicing Rights
The Company recognizes mortgage servicing rights on loans originated and
subsequently sold as an asset regardless of whether the servicing rights are
acquired or retained on loans originated and subsequently sold. The mortgage
servicing rights are assessed for impairment based on the fair value of the
mortgage servicing rights. As of December 31, 1998 and 1997 the carrying value
of originated servicing rights was approximately $689,000 and $572,000,
respectively. There was no impairment of carrying value at December 31, 1998 or
1997.
(p) Comprehensive Income
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income" effective January 1,
1998. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial statements.
Comprehensive income includes net income, as well as other changes in
stockholders' equity that result from transactions and economic events other
than those with stockholders. The Company's only significant element of
comprehensive income is unrealized gains and losses on available-for-sale
securities. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
(q) Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
(r) Future Accounting Pronouncements
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Management of the
Company is currently assessing the effect, if any, on its financial statements
of implementing SFAS No. 133. The Company will adopt the standard on January 1,
1999. The held-to-maturity investment portfolio, with a December 31, 1998
approximate book and market value of $7,327,000 and and $7,579,000, respectively
will be reclassified as avaulable-for-sale as of the adoption date.
38
2. Cash on Hand and in Banks:
The subsidiary banks are required to maintain an average reserve balance with
either the Federal Reserve Bank or in the form of cash on hand. The amount of
this required reserve balance at December 31, 1998 was approximately $5,265,000.
3. Investment Securities:
A comparison of the amortized cost and estimated fair value of the Company's
investment securities is as follows at:
December 31, 1998 Gross Unrealized Estimated
- --------------------------------------------------------- Weighted Amortized ----------------------- Fair
(dollars in thousands) yield Cost Gains Losses Value
- --------------------------------------------------------- ------- ------- ------- ------- -------
Held-to-Maturity
U.S. Government and Federal Agencies:
maturing within one year .......................... 7.90% $ 3,010 63 0 3,073
maturing one year through five years .............. 7.34% 1,038 64 0 1,102
------- ------- ------- ------- -------
7.76% 4,048 127 0 4,175
------- ------- ------- ------- -------
State and Local Governments and other issues:
maturing within one year .......................... 5.31% 517 4 0 521
maturing one year through five years .............. 5.53% 766 23 0 789
maturing five years through ten years ............. 4.99% 839 31 0 870
maturing after ten years .......................... 5.69% 1,157 67 0 1,224
------- ------- ------- ------- -------
5.41% 3,279 125 0 3,404
------- ------- ------- ------- -------
Total Held-to-Maturity Securities ............. 6.71% $ 7,327 252 0 7,579
======= ======= ======= ======= =======
Available-for-Sale
U.S. Government and Federal Agencies:
maturing within one year .......................... 5.46% $ 1,495 1 (1) 1,495
maturing one year through five years .............. 5.85% 4,996 54 0 5,050
maturing after ten years .......................... 6.34% 1,270 7 0 1,277
------- ------- ------- ------- -------
5.86% 7,761 62 (1) 7,822
------- ------- ------- ------- -------
State and Local Governments and other issues:
maturing within one year .......................... 6.88% 250 0 0 250
maturing one year through five years .............. 6.00% 100 7 0 107
maturing five years through ten years ............. 5.07% 913 59 0 972
maturing after ten years .......................... 5.30% 35,934 1,590 (284) 37,240
------- ------- ------- ------- -------
5.31% 37,197 1,656 (284) 38,569
------- ------- ------- ------- -------
Mortgage-Backed Securities .............................. 7.56% 16,377 546 (29) 16,894
Real Estate Mortgage Investment Conduits ................ 6.34% 27,363 180 (93) 27,450
------- ------- ------- ------- -------
Total Available-for-Sale Securities ........... 6.09% $ 88,698 2,444 (407) 90,735
======= ======= ======= ======= =======
39
3. Investment Securities . . . continued
December 31, 1997 Gross Unrealized Estimated
- --------------------------------------------------------- Weighted Amortized ----------------------- Fair
(dollars in thousands) yield Cost Gains Losses Value
- --------------------------------------------------------- ------- ------- ------- ------- -------
Held-to-Maturity
U.S. Government and Federal Agencies:
maturing within one year .......................... 5.69% $ 3,303 9 (5) 3,307
maturing five years through ten years ............. 7.89% 6,039 160 (1) 6,198
------- ------- ------- ------- -------
7.11% 9,342 169 (6) 9,505
------- ------- ------- ------- -------
State and Local Governments and other issues:
maturing within one year .......................... 6.28% 438 1 0 439
maturing one year through five years .............. 5.43% 1,254 34 (1) 1,287
maturing five years through ten years ............. 5.12% 869 23 0 892
maturing after ten years .......................... 5.70% 1,048 60 0 1,108
------- ------- ------- ------- -------
5.54% 3,609 118 (1) 3,726
------- ------- ------- ------- -------
Mortgage-Backed Securities .............................. 7.24% 3,100 27 0 3,127
------- ------- ------- ------- -------
Total Held-to-Maturity Securities ............. 6.78% $ 16,051 314 (7) 16,358
======= ======= ======= ======= =======
Available-for-Sale
U.S. Government and Federal Agencies:
maturing within one year .......................... 5.64% $ 3,237 1 (11) 3,227
maturing one year through five years .............. 6.06% 5,491 15 (15) 5,491
maturing five years through ten years ............. 6.72% 1,001 0 (2) 999
maturing after ten years .......................... 7.28% 9,044 54 (27) 9,071
------- ------- ------- ------- -------
6.61% 18,773 70 (55) 18,788
------- ------- ------- ------- -------
State and Local Governments and other issues:
maturing within one year .......................... 4.91% 260 1 (2) 259
maturing one year through five years .............. 6.00% 100 3 0 103
maturing five years through ten years ............. 6.68% 1,021 31 (3) 1,049
maturing after ten years .......................... 5.55% 24,160 1,110 (3) 25,267
------- ------- ------- ------- -------
5.59% 25,541 1,145 (8) 26,678
------- ------- ------- ------- -------
Mortgage-Backed Securities .............................. 7.63% 20,877 678 (20) 21,535
Real Estate Mortgage Investment Conduits 6.98% 32,318 259 (104) 32,473
------- ------- ------- ------- -------
Total Available-for-Sale Securities 6.68% $ 97,509 2,152 (187) 99,474
======= ======= ======= ======= =======
Maturities of securities do not reflect repricing opportunities present in
adjustable rate securities, nor do they reflect expected shorter maturities
based upon early prepayment of principal.
The Company has not entered into any swaps, options or futures contracts.
Gross proceeds from sales of investment securities for the years ended December
31, 1998, 1997, and 1996, were approximately $4,321,000, $9,681,000, and
$23,065,000 respectively, resulting in gross gains of approximately $36,000,
$204,000, and $291,000 and gross losses of approximately $3,000, $7,000, and
$170,000 respectively.
At December 31, 1998, the Company had investment securities with par values of
approximately $45,984,000 pledged as security for deposits of several local
government units, securities sold under agreements to repurchase, and as
collateral for the treasury tax and loan borrowings.
The Real Estate Mortgage Investment Conduits are backed by the FNMA, GNMA or
FHLMC.
At December 31, 1998 and 1997 the minority interest share of the unrealized gain
was $7,000 and $12,000 respectively.
40
4. Loans Receivable:
The following is a summary of loans receivable at:
December 31,
- -------------------------------------------------- ------------------------
(dollars in thousands) 1998 1997
- -------------------------------------------------- -------- --------
Real Estate Loans and Contracts:
Residential first mortgage loans ............ $ 188,740 205,408
Loans held for sale ......................... 12,603 7,778
-------- --------
201,343 213,186
Commercial Loans:
Real estate ................................. 99,897 64,812
Other commercial loans ...................... 85,571 77,821
-------- --------
185,468 142,633
Installment and Other Loans:
Consumer loans .............................. 62,470 82,941
Home equity loans ........................... 49,795 28,233
Outstanding balances on credit cards ........ 18 3,951
-------- --------
112,283 115,125
Less:
Allowance for losses ........................ (4,845) (4,027)
-------- --------
$ 494,249 466,917
======== ========
Summary of activity in allowance for losses on loans:
Years ended December 31,
- ----------------------------------------- ---------------------------------
(dollars in thousands) 1998 1997 1996
- ----------------------------------------- ------ ------ ------
Balance, beginning of period ............ $ 4,027 3,715 3,531
Net charge offs ......................... (672) (495) (696)
Provision ............................... 1,490 807 880
------ ------ ------
Balance, end of period .................. $ 4,845 4,027 3,715
====== ====== ======
Allocation of the allowance
for loan losses:
December 31, 1998 December 31, 1997
----------------------- ----------------------
% of loans in % of loans in
Amount category Amount category
- -------------------------------- ------ ------------- ------ --------------
(dollars in thousands)
- --------------------------------
Real estate loans and contracts $ 1,027 0.51% 1,088 0.51%
Commercial real estate ........ 999 1.00% 487 0.75%
Other commercial loans ........ 1,584 1.85% 1,223 1.57%
Consumer loans and credit cards 862 1.38% 1,088 1.25%
Home equity loans ............. 373 0.75% 141 0.50%
----- ---- ----- ----
$ 4,845 0.97% 4,027 0.86%
===== ==== ===== ====
41
4. Loans Receivable . . . continued
Substantially all of the company's loans receivable are with customers within
the Company's market area
The weighted average interest rate on loans was 8.87%, and 8.95% at December 31,
1998 and 1997, respectively.
At December 31, 1998 and 1997 serviced loans sold to others were $123,741,000
and $128,250,000, respectively.
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and commitments
to extend credit and letters of credit, and involve to varying degrees, elements
of credit risk. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments
At December 31, 1998, the Company had outstanding commitments as follows
(dollars in thousands):
Letters of credit.................... $ 2,736
Loans and loans in process........... 45,035
Unused consumer lines of credit...... 9,554
---------
$ 57,325
=========
Accrued Interest Receivable:
December 31,
- --------------------------------------------------------- --------------
(dollars in thousands) 1998 1997
- --------------------------------------------------------- ----- -----
Investment securities ................................... $ 1,077 973
Mortgage-backed securities .............................. 75 381
Loans receivable ........................................ 2,927 2,880
----- -----
$ 4,079 4,234
===== =====
5. Premises and Equipment:
Premises and equipment consist of the following at:
December 31,
- ---------------------------------------------------- -----------------------
(dollars in thousands) 1998 1997
- ---------------------------------------------------- -------- --------
Land ............................................... $ 2,984 2,557
Office buildings and construction in progress ...... 12,563 11,106
Furniture, fixtures and equipment .................. 7,937 6,497
Leasehold improvements ............................. 813 794
Accumulated depreciation ........................... (8,099) (7,350)
------- -------
$ 16,198 13,604
======= =======
42
6. Deposits:
Deposits consist of the following at: December 31, 1998 December 31, 1997
- --------------------------------------------------------- ---------------------------------- --------------------
Weighted
(dollars in thousands) Average Rate Amount Percent Amount Percent
- --------------------------------------------------------- ------------ ------- ------- ------- -------
Demand accounts ......................................... 0.0% $ 92,710 20.9% 84,987 20.8%
------- ------- ------- -------
NOW accounts ............................................ 1.4% 81,549 18.3% 72,422 18.0%
Savings accounts ........................................ 2.4% 43,698 9.8% 44,276 11.0%
Money market demand accounts ............................ 4.4% 95,277 21.4% 77,717 19.3%
Certificate accounts:
4.00% and lower .................................... 542 0.1% 529 0.1%
4.01% to 5.00% ..................................... 23,439 5.3% 12,678 3.1%
5.01% to 6.00% ..................................... 79,930 18.0% 71,592 17.8%
6.01% to 7.00% ..................................... 20,539 4.6% 32,327 8.0%
7.01% to 8.00% ..................................... 6,047 1.4% 7,570 1.9%
8.01% and higher ................................... 728 0.2% 251 0.1%
------- ------- ------- -------
Total certificate accounts .................. 5.9% 131,225 29.5% 124,947 31.0%
Total interest bearing deposits ......................... 4.1% 351,749 79.1% 319,362 79.2%
------- ------- ------- -------
Total deposits .......................................... 3.2% $ 444,459 100.0% 404,349 100.0%
======= ======= ======= =======
Deposits with a balance in excess of $100,000 ........... $ 135,394 97,138
======= =======
At December 31, 1998, scheduled maturities of certificates of deposit are as
follows:
Years ending December 31,
- ------------------------------ --------------------------------------------------------------------------------------------
(dollars in thousands) Total 1999 2000 2001 2002 Thereafter
- ------------------------------ ------- ------- ------- ------- ------- ----------
4.00% and lower .............. $ 542 494 25 22 1 0
4.01% to 5.00% ............... 23,439 20,294 2,668 347 114 16
5.01% to 6.00% ............... 79,930 62,710 13,415 2,504 743 558
6.01% to 7.00% ............... 20,539 6,503 7,697 4,237 1,420 682
7.01% to 8.00% ............... 6,047 406 5,525 101 0 15
8.01% and higher ............. 728 535 134 50 9 0
------- ------- ------- ------- ------- -------
$ 131,225 90,942 29,464 7,261 2,287 1,271
======= ======= ======= ======= ======= =======
Interest expense on deposits is summarized as follows:
Years ended December 31,
- ---------------------------------------- -------------------------------------
(dollars in thousands) 1998 1997 1996
- ---------------------------------------- ------ ------ ------
NOW accounts ........................... 1,065 1,288 1,301
Money market demand accounts ........... 4,365 3,081 2,354
Certificate accounts ................... 7,230 7,259 6,901
Savings accounts ....................... 1,023 1,383 1,385
------ ------ ------
13,683 13,011 11,941
====== ====== ======
43
7. Advances From Federal Home Loan Bank of Seattle:
Advances from the Federal Home Loan Bank of Seattle consist of the following at
December 31, 1998:
Maturing in years ending December 31,
- --------------------------- -------------------------------------------------------------------------------------------------
(dollars in thousands) Total 1999 2000 2001 2002 2003 2004-2010
- --------------------------- ------- ------- ------- ------- ------- ------- ---------
4.00% to 5.00% ............ $ 590 407 159 24 0 0 0
5.01% to 6.00% ............ 111,906 25,345 2,514 1,943 46,840 16,551 18,713
6.01% to 7.00% ............ 7,640 585 6,281 175 134 117 348
6.01% to 7.00% ............ 450 40 240 40 40 40 50
------- ------- ------- ------- ------- ------- -------
$ 120,586 26,377 9,194 2,182 47,014 16,708 19,111
======= ======= ======= ======= ======= ======= =======
Advances from the Federal Home Loan Bank of Seattle consist of the following at
December 31, 1997:
Maturing in years ending December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Total 1998 1999 2000 2001 2002 2003-2009
- --------------------------- ------- ------- ------- ------- ------- ------- ---------
4.00% to 5.00% ............ $ 1,637 605 565 321 146 0 0
5.01% to 6.00% ............ 113,656 48,010 13,127 2,443 1,970 46,839 1,267
6.01% to 7.00% ............ 26,076 18,442 395 6,300 195 154 590
6.01% to 7.00% ............ 491 40 40 240 40 40 91
------- ------- ------- ------- ------- ------- -------
$ 141,860 67,097 14,127 9,304 2,351 47,033 1,948
======= ======= ======= ======= ======= ======= =======
These advances were collateralized by the Federal Home Loan Bank of Seattle
stock held by the Company, and qualifying real estate loans and investments
totaling approximately $223,910,000 and $226,976,000 at December 31, 1998 and
1997, respectively.
The weighted average interest rate on these advances was 5.44% and 5.70% at
December 31, 1998 and 1997, respectively.
Included in the above amounts are advances in which the FHLB has a call option
which may be exercised after a predetermined time, and quarterly thereafter. The
following are the amounts (in thousands) of those advances:
Weighted Contractual
Average Maturity
Year of initial call Total Interest Rate Date
-------------------- ----- ------------- -----------
1999 $ 46,100 5.39% 2002
2000 16,000 5.23% 2003
2001 3,000 5.37% 2008
2003 15,000 5.52% 2008
------ ----
$ 80,100 5.38%
====== ====
44
8. Securities Sold Under Agreements to Repurchase and Other Borrowed Funds:
Securities sold under agreements to repurchase consist of the following at:
Book Market
Weighted value of value of
- ------------------------------------------------------------------------ Repurchase average underlying underlying
(dollars in thousands) amount rate paid assets assets
- ------------------------------------------------------------------------ ------ --------- ------ ------
December 31, 1998:
Securities sold under agreements to repurchase within:
1-30 days ...................................................... $ 11,000 4.05% $ 14,706 15,099
31-90 days ....................................................... 6,126 5.18% 6,797 7,174
Greater than 90 days .............................................. 113 5.31% 120 120
------ ------ ------ ------
$ 17,239 4.46% $ 21,623 22,393
====== ====== ====== ======
December 31, 1997:
Securities sold under agreements to repurchase within:
1-30 days ...................................................... $ 14,937 4.36% $ 23,111 23,968
31-90 days ....................................................... 6,428 5.47% 7,063 7,389
Greater than 90 days .............................................. 308 5.70% 509 520
------ ------ ------ ------
$ 21,673 4.70% $ 30,683 31,877
====== ====== ====== ======
The securities underlying agreements to repurchase entered into by the Company
are for the same securities originally sold, and are held in a custody account
by a third party. For the year ended December 31, 1998, securities sold under
agreements to repurchase averaged approximately $16,700,000, and the maximum
outstanding at any month end during the year was approximately $19,300,000.
In 1996 the Company entered into the treasury tax and loan account note option
program, which provides short term funding up to $12,000,000 at federal funds
rate minus 25 basis points. The borrowings are secured with investment
securities with a par value of approximately $10,000,000. At December 31, 1998
and 1997 the outstanding balance under this program was approximately $1,100,000
and $7,700,000, respectively.
45
9. Stockholders' Equity:
The Federal Reserve Board has adopted capital adequacy guidelines pursuant to
which it assesses the adequacy of capital in supervising a bank holding company.
The following table illustrates the Federal Reserve Board's adequacy guidelines
and the Company's compliance with those guidelines as of December 31, 1998:
- -------------------------------------------------------------- Tier 1 (Core) Tier 2 (Total) Leverage
(dollars in thousands) Capital Capital Capital
- -------------------------------------------------------------- ---------- ---------- ----------
GAAP Capital .................................................. $ 74,937 $ 74,937 $ 74,937
Goodwill ...................................................... (2,601) (2,601) (2,601)
Net unrealized gains on securities
available-for-sale ....................................... (1,209) (1,209) (1,209)
Allowance for loan losses ..................................... -- 4,845 --
---------- ---------- ----------
Regulatory capital computed ................................... $ 71,127 $ 75,972 $ 71,127
========== ========== ==========
Risk weighted assets .......................................... $ 436,244 $ 436,244
========== ==========
Total average assets .......................................... $ 671,923
==========
Capital as % of defined assets ................................ 16.30% 17.42% 10.58%
Regulatory "well capitalized" requirement ..................... 6.00% 10.00% 5.00%
---------- ---------- ----------
Excess over "well capitalized" requirement .................... 10.30% 7.42% 5.58%
========== ========== ==========
The following table illustrates the Company's compliance with capital adequacy
guidelines as of December 31, 1997:
Capital as % of defined assets ................................ 15.77% 16.75% 10.05%
Regulatory "well capitalized" requirement ..................... 6.00% 10.00% 5.00%
---------- ---------- ----------
Excess over "well capitalized" requirement .................... 9.77% 6.75% 5.05%
========== ========== ==========
The Federal Deposit Insurance Corporation Improvement Act generally restricts a
depository institution from making any capital distribution (including payment
of a dividend) or paying any management fee to its holding company if the
institution would thereafter be capitalized at less than 8% of total risk-based
capital, 4% of Tier I capital, or a 4% leverage ratio. At December 31, 1998, the
subsidiary banks' capital measures exceed the highest supervisory threshold,
which requires total Tier II capital of at least 10%, Tier I capital of at least
6%, and a leverage ratio of at least 5%. Each of the subsidiaries was considered
well capitalized by the respective regulator as of December 31, 1998.
Effective February 1, 1998 Glacier Bank converted its charter from a savings
bank to a State of Montana chartered commercial bank. With that effective date,
each of the Company's subsidiaries are state chartered banks. State banks may
pay dividends up to the total of the prior two years earnings without permission
of the state regulator. The amount available for dividend distribution by the
bank subsidiaries as of December 31, 1998 was approximately $13,272,000.
46
10. Federal and State Income Taxes:
The following is a summary of consolidated income tax expense for:
Years ended December 31,
- --------------------------------------------------------------------------------- ----------------------------------------
(dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------- ------ ------ ------
Current:
Federal .................................................................... $ 5,453 5,152 4,650
State ...................................................................... 1,175 1,060 1,016
------ ------ ------
Total current tax expense ............................................ 6,628 6,212 5,666
Deferred:
Federal .................................................................... (368) (352) (52)
State ...................................................................... 36 48 18
------ ------ ------
Total deferred tax expense (benefit) ................................. (332) (304) (34)
------ ------ ------
Total income tax expense .................................. $ 6,296 5,908 5,632
====== ====== ======
Federal and state income tax expense differs from that computed at the federal
statutory corporate tax rate as follows for:
Years ended December 31,
----------------------------------------
1998 1997 1996
------ ------ ------
Federal statutory rate .......................................................... 34.0% 34.0% 34.0%
State taxes, net of federal income tax benefit .................................. 4.5% 4.5% 4.5%
Non-deductible merger expenses .................................................. 0.1% 0.2% 1.7%
Other, net ...................................................................... -1.7% -1.7% 0.5%
------ ------ ------
36.9% 37.0% 40.7%
====== ====== ======
The tax effect of temporary differences which give rise to a significant portion
of deferred tax assets and deferred tax liabilities are as follows at:
December 31,
- --------------------------------------------------------------------------------- -----------------------
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------- ------ ------
Deferred tax assets:
Allowance for losses on loans ................................................ $ 2,018 1,508
Other ........................................................................ 501 451
------ ------
Total gross deferred tax assets ....................................... 2,519 1,959
------ ------
Deferred tax liabilities:
Federal Home Loan Bank stock dividends ....................................... (1,725) (1,383)
Fixed assets, due to differences in depreciation ............................. (454) (430)
Discount on loans and investments due to prior years' sale with
concurrent purchase ...................................................... 0 (95)
Tax bad debt reserve in excess of base-year reserve .......................... (595) (615)
Available-for-sale securities fair value adjustment .......................... (828) (765)
Basis difference from acquisitions ........................................... (192) (197)
Other ........................................................................ (326) (344)
------ ------
Total gross deferred tax liabilities ................................. (4,120) (3,829)
------ ------
Net deferred tax liability ........................................... $ (1,601) (1,870)
====== ======
47
10. Federal and State Income Taxes . . . continued
There was no valuation allowance at December 31, 1998 and 1987 because
management believes that it is more likely than not that the Company's deferred
tax assets will be realized by offsetting future taxable income from reversing
taxable temporary differences and anticipated future taxable income.
Retained earnings at December 31, 1998 includes approximately $3,600,000 for
which no provision for Federal income tax has been made. This amount represents
the base year bad debt reserve which is essentially an allocation of earnings to
pre-1988 bad debt deductions for income tax purposes only. This amount is
treated as a permanent difference and deferred taxes are not recognized unless
it appears that this reserve will be reduced and thereby result in taxable
income in the foreseeable future. The Company is not currently contemplating any
changes in its business or operations which would result in a recapture of this
federal bad debt reserve into taxable income.
11. Employee Benefit Plans:
The Company has a noncontributory defined contribution retirement plan covering
substantially all employees. The Company follows the policy of funding
retirement plan contributions as accrued. The total retirement plan expense for
the years ended December 31, 1998, 1997, and 1996 was approximately $552,000,
$620,000 and $408,000 respectively.
The Company has an employees' savings plan. The plan allows eligible employees
to contribute up to 10% of their monthly salaries. The Company matches an amount
equal to 50% of the employee's contribution, up to 6% of the employee's total
pay. Participants are at all times fully vested in all contributions. The
Company's contribution to the savings plan for the years ended December 31,
1998, 1997 and 1996 was approximately $206,000, $173,000, and $119,000,
respectively.
The Company has a Supplemental Executive Retirement Plan (SERP) which provides
retirement benefits at the savings and retirement plan levels, for amounts that
are limited by IRS regulations under those plans. The Company's contribution to
the SERP for the years ended December 31, 1998, 1997 and 1996 was approximately
$26,000, $46,000, and $41,000, respectively.
The Company has a non-funded deferred compensation plan for directors and senior
officers. The plan provides for the deferral of cash payments of up to 25% of a
participants salary, and for 100% of bonuses and directors fees, at the election
of the participant. The total amount deferred was approximately $52,000,
$156,000 and $97,000, for the years ending December 31, 1998, 1997, and 1996,
respectively. The participant receives an earnings credit at a one year
certificate of deposit rate, or at the total return rate on Company stock, on
the amount deferred, as elected by the participant at the time of the deferral
election. The total earnings credit for 1998, 1997, and 1996 was approximately
$12,000, $66,000, and $5,000, respectively.
First Security had a discretionary non-contributory profit sharing plan covering
substantially all employees with funding of contributions as accrued. The total
plan expense for the year ended December 31, 1996 was approximately $262,000.
The plan was terminated as of December 31, 1996.
The Company has entered into employment contracts with eight senior officers
that provide benefits under certain conditions following a change in control of
the Company.
48
12. Earnings Per Share:
Basic earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings per share is computed by including the net increase in shares if all
outstanding stock options were exercised, using the treasury stock method.
Previous period amounts are restated for the effect of stock dividends.
The following table sets forth the computation of basic and diluted earnings per
share:
For the Years Ended December 31,
--------------------------------------------------------
1998 1997 1996
---------- ---------- ---------
Net income available to common
stockholders, basic and diluted ............................ $ 10,744,000 10,054,000 8,207,000
========== ========== =========
- ------------------------------------------------------------------------------------------------------------------------------------
Average outstanding shares - basic ............................ 8,235,567 8,077,985 7,968,341
Add: dilutive stock options .................................. 154,636 140,407 87,545
---------- ---------- ---------
Average outstanding shares - diluted .......................... 8,390,203 8,218,392 8,055,886
========== ========== =========
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share ...................................... $ 1.30 1.24 1.03
========== ========== =========
Diluted earnings per share .................................... $ 1.28 1.22 1.02
========== ========== =========
49
13. Stock Option Plans:
During fiscal year 1984, an Incentive Stock Option Plan was approved which
provided for the grant of options limited to 168,750 shares to certain full time
employees of the Company. In the year ended June 30, 1990, additional Stock
Option Plans were approved which provided for the grant of options limited to
29,445 shares to outside Directors and 166,860 shares to certain full time
employees of the Company. In the year ended December 31, 1994 a Stock Option
Plan was approved which provides for the grant of options to outside Directors
of the Company, limited to 50,000 shares. In the year ended December 31, 1995 a
Stock Option Plan was approved which provides for the grant of options limited
to 279,768 shares to key employees of the Company. The option price at which the
Company's common stock may be purchased upon exercise of options granted under
the plan must be at least equal to the per share market value of such stock at
the date the option is granted. The 1984 plan also contains provisions
permitting the optionee, with the approval of the Company, to surrender his or
her options for cancellation and receive cash or common stock equal to the
difference between the exercise price and the then fair market value of the
shares on the date of surrender. The fiscal 1990 and 1995 plans also contain
provisions authorizing the grant of limited stock rights, which permit the
optionee, upon a change in control of the Company, to surrender his or her
options for cancellation and receive cash or common stock equal to the
difference between the exercise price and the fair market value of the shares on
the date of the grant. All option shares are adjusted for stock splits and stock
dividends.
At December 31, 1998, total shares available for option grants to employees are
162,335.
Changes in shares granted for stock options for the years ended December 31,
1998, 1997, and 1996, are summarized as follows:
Options outstanding Options exercisable
------------------------------ ------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
-------- ---------- -------- ----------
Balance, December 31, 1995 ......................... 128,477 $ 16.63 86,047 $ 16.69
Canceled ........................................... (5,853) (17.43) (1,266) (15.80)
Granted ............................................ 112,880 19.06
Became exercisable ................................. 55,261 17.34
Stock dividend ..................................... 20,520 13,286
Exercised .......................................... (36,697) (14.96) (36,697) (14.96)
-------- ---------- -------- ----------
Balance, December 31, 1996 ......................... 219,327 $ 16.59 116,631 $ 15.65
======== ========== ======== ==========
Canceled ........................................... (9,715) (15.65)
Granted ............................................ 115,418 23.45
Became exercisable ................................. 11,338 17.15
Three for two stock split .......................... 161,104 57,744 0
Exercised .......................................... (52,160) (10.73) (52,160) (10.73)
-------- ---------- -------- ----------
Balance, December 31, 1997 ......................... 433,974 $ 12.98 133,553 $ 10.94
======== ========== ======== ==========
Canceled ........................................... (8,950) (15.68) (600) (10.37)
Granted ............................................ 134,377 24.37
Became exercisable ................................. 132,885 11.31
Stock dividend ..................................... 46,574 28,620
Exercised .......................................... (149,076) (10.27) (149,076) (10.27)
-------- ---------- -------- ----------
Balance, December 31, 1998 ......................... 456,899 $ 15.83 145,382 $ 11.00
======== ========== ======== ==========
50
13. Stock Option Plans . . . continued
The stock options outstanding at December 31, 1998 consist of the following:
Exercisable
----------------------------
Weighted Weighted Weighted
average average average
exercise life of exercise
Price range Shares price options Shares price
----------- ------- --------- --------- ------- ---------
$8.99 - $11.57 127,132 $ 10.54 1.6 years 127,132 $ 10.54
$13.78 - $14.93 184,278 14.48 3.0 years 18,250 14.25
$22.04 - $22.39 145,489 22.15 4.0 years -- --
------- --------- --------- ------- ---------
456,899 $ 15.83 2.9 years 145,382 $ 11.00
======= ========= ========= ======= =========
The options exercised during the year ended December 31, 1998 were at prices
from $8.99 to $16.13.
The Company applies the intristic value method in accounting for its grants of
options 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 at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
Years ended December 31,
-------------------------------------------
1998 1997 1996
-------- -------- --------
Net earnings - As reported $ 10,744 10,054 8,207
Pro forma 10,126 9,606 8,042
Basic earnings per share - As reported 1.30 1.24 1.03
Pro forma 1.23 1.19 1.01
Diluted earnings per share - As reported 1.28 1.22 1.02
Pro forma 1.21 1.17 1.00
The per share weighted-average fair value of stock options granted during 1998,
1997 and 1996 was $5.09 $5.05, and $3.88, respectively, on the date of grant
using the Black Scholes option-pricing model with the following assumptions:
1998 - expected dividend yield of 2.5%, risk-free interest rate of 4.6%,
volatility ratio .221, and expected life of 4.8 years; 1997 - expected dividend
yield of 2.9%, risk-free interest rate of 5.8%, volatility ratio of .216, and
expected life of 4.8 years; 1996 - expected dividend yield of 2.9%, risk-free
interest rate of 5.8% volatility ratio of .210, and expected life of 4.8 years.
In September 1993 Missoula Bancshares, Inc. granted 1,000 shares of its common
stock to a senior officer to be issued on or after September 1998 at the
election of the officer, with vesting over the five year period. In conjunction
with the merger of Missoula Bancshares, Inc., the Company issued 14,930 shares
which was the vested portion of the 1,000 shares at the exchange ratio, and
converted the non-vested portion to options for 8,040 Company shares (13,266
shares after adjustment for 3 for 2 stock split and 10% stock dividend) which
fully vested, and shares issued at the end of September 1998. The related
compensation expense, based on the fair value of the common stock at the date of
the grant, was charged to expense over the service period with a corresponding
credit to paid-in capital.
51
14. Parent Company Information (Condensed):
The following condensed financial information is the unconsolidated (Parent
Company Only) information for Glacier Bancorp, Inc, combined with HUB Financial
Corporation:
Statements of Financial Condition December 31,
- ------------------------------------------------------------- -----------------
(dollars in thousands) 1998 1997
- ------------------------------------------------------------- ------- -------
Assets:
Cash ...................................................... $ 598 115
Interest bearing cash deposits ............................ 2,487 1,561
------- -------
Cash and cash equivalents ........................... 3,085 1,676
Investments securities, available-for-sale, at market value 1,691 1,581
Investments securities, held-to-maturity, at cost ......... 91 94
Other assets .............................................. 1,332 1,243
Goodwill, net ............................................. 2,601 1,371
Investment in subsidiaries ................................ 68,522 60,982
------- -------
$77,322 66,947
======= =======
Liabilities and Stockholders' Equity:
Dividends payable ......................................... $ 1,757 1,164
Notes payable ............................................. 0 216
Other liabilities ......................................... 1,014 792
------- -------
Total liabilities ................................. 2,771 2,172
------- -------
Common stock .............................................. 84 74
Paid-in capital ........................................... 57,555 34,771
Retained earnings ......................................... 16,089 28,743
Accumulated other comprehensive income .................... 1,209 1,187
------- -------
Total stockholders' equity ....................... 74,937 64,775
------- -------
$77,708 66,947
======= =======
Statements of Operations Years ended December 31,
- ------------------------------------------------------------------------------ --------------------------------------------
(dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------ -------- -------- --------
Revenues
Dividends from subsidiaries ................................................ $ 5,192 3,719 4,177
Other income ............................................................... 168 344 266
Intercompany charges for services .......................................... 1,971 1,803 1,584
-------- -------- --------
Total revenues ........................................................ 7,331 5,866 6,027
-------- -------- --------
Expenses
Employee compensation and benefits ......................................... 1,880 1,974 1,971
Goodwill amortization ...................................................... 165 155 168
Other operating expenses ................................................... 1,239 323 1,010
-------- -------- --------
Total expenses ........................................................ 3,284 2,452 3,149
-------- -------- --------
Earnings before income tax benefit and equity in undistributed
earnings of subsidiaries ................................................. 4,047 3,414 2,878
Income tax benefit ........................................................... (198) (88) (209)
-------- -------- --------
Income before equity in undistributed earnings of subsidiaries ............. 4,245 3,502 3,087
Equity in undistributed earnings of subsidiaries ........................... 6,499 6,552 5,120
-------- -------- --------
Net earnings ................................................................. $ 10,744 10,054 8,207
======== ======== ========
52
14. Parent Company Information (Condensed) . . . continued
Statements of Cash Flows Years ended December 31,
- --------------------------------------------------------------------------------- ------------------------------------------
(dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------- -------- -------- --------
Operating Activities
Net earnings .............................................................. $ 10,744 10,054 8,207
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Goodwill amortization ..................................................... 165 155 168
Gain on sale of investments available-for-sale ............................ (8) (184) (127)
Equity in undistributed earnings of subsidiaries .......................... (6,499) (6,552) (5,120)
Net increase (decrease) in other assets and other liabilities ............. 207 (731) 986
-------- -------- --------
Net cash provided by operating activities ....................................... 4,609 2,742 4,114
-------- -------- --------
Investing activities
Purchases of investment securities available-for-sale ..................... (198) (176) (221)
Proceeds from sales, maturities and prepayments of securities
available-for-sale .................................................. 59 484 198
Proceeds from maturities of securities held-to-maturity ................... 3 3 3
Payment for land purchase ................................................. 0 (160) 0
Acquisition of minority interest .......................................... (236) (14) (171)
-------- -------- --------
Net cash provided in investing activities ....................................... (372) 137 (191)
-------- -------- --------
Financing activities
Proceeds from exercise of stock options and other stock issued ............ 1,532 553 748
Treasury stock purchased .................................................. 0 0 (268)
Principal reductions on notes payable ..................................... (216) (82) (1,500)
Proceeds on note payable .................................................. 0 222 0
Cash dividends paid to stockholders ....................................... (4,144) (3,309) (2,258)
-------- -------- --------
Net cash used in financing activities ........................................... (2,828) (2,616) (3,278)
-------- -------- --------
Net increase in cash and cash equivalents ....................................... 1,409 263 645
Cash and cash equivalents at beginning of period ................................ 1,676 1,413 768
-------- -------- --------
Cash and cash equivalents at end of period ...................................... $ 3,085 1,676 1,413
======== ======== ========
53
15. Unaudited Quarterly Financial Data:
Summarized unaudited quarterly financial data is as follows (in thousands except
per share amounts):
Quarters Ended
-----------------------------------------------------------------------------
March 31, 1998 June 30, 1998 Sept. 30, 1998 Dec. 31, 1998
-------------- ------------- -------------- ---------------
Interest income ................................ $ 12,635 12,839 12,914 12,693
Interest expense ............................... 5,625 5,687 5,583 5,309
Net earnings ................................... 2,635 2,665 2,656 2,788
Basic earnings per share [1] ................... 0.32 0.33 0.32 0.33
Diluted earnings per share [1] ................. 0.31 0.32 0.32 0.33
Dividends per share [1] ........................ 0.11 0.12 0.13 0.21[3]
Market range high-low [1] ...................... $26.82-$21.14 $25.91-$24.09 $26.36-$22.79 $22.63-$18.88
Quarters Ended
-----------------------------------------------------------------------------
March 31, 1997 June 30, 1997 Sept. 30, 1997 Dec. 31, 1997
-------------- ------------- -------------- ---------------
Interest income ................................ $ 11,765 12,299 12,618 12,699
Interest expense ............................... 5,357 5,518 5,648 5,611
Net earnings ................................... 2,186 2,514 2,549 2,805
Basic earnings per share [1] ................... 0.27 0.31 0.32 0.34
Diluted earnings per share [1] ................. 0.27 0.31 0.31 0.33
Dividends per share [1] ........................ 0.10 0.11 0.11 0.15[2]
Market range high-low [1] ...................... $15.00-$14.09 $19.09-$13.86 $17.73-$15.91 $22.73-$16.93
Quarters Ended
-----------------------------------------------------------------------------
March 31, 1996 June 30, 1996 Sept. 30, 1996 Dec. 31, 1996
-------------- ------------- -------------- ---------------
Interest income ................................ $ 10,989 11,303 11,668 11,955
Interest expense ............................... 4,941 5,012 5,204 5,364
Net earnings ................................... 2,222 2,396 1,694 1,895
Basic earnings per share [1] ................... 0.27 0.30 0.22 0.24
Diluted earnings per share [1] ................. 0.27 0.29 0.22 0.24
Dividends per share [1] ........................ 0.09 0.10 0.10 0.10
Market range high-low [1] ...................... $12.39-$10.75 $13.56-$11.57 $15.30-$12.27 $15.30-$14.09
[1] Per share amounts adjusted to reflect effect of 10% stock dividend
[2] Special dividend was paid at $.05 per share.
[3] Special dividend was paid at $.08 per share.
54
16. Fair Value of Financial Instruments:
Financial instruments have been defined to generally mean cash or a contract
that implies an obligation to deliver cash or another financial instrument to
another entity. For purposes of the Company's Consolidated Statement of
Financial Condition, this includes the following items:
1998 1997
- ---------------------------------------------------------------- -------------------------- -------------------------
(dollars in thousands) Amount Fair Value Amount Fair Value
- ---------------------------------------------------------------- -------- ---------- ------- ----------
Financial Assets:
Cash ........................................................... $ 31,509 31,509 29,724 29,724
Federal funds sold ............................................. 2,693 2,693 3,860 3,860
Interest bearing cash deposits ................................. 2,450 2,450 595 595
Investment securities .......................................... 53,718 53,970 58,417 58,697
Mortgage-backed securities ..................................... 44,344 44,344 57,108 57,135
Loans .......................................................... 494,249 501,506 466,917 472,876
FHLB and Federal Reserve Bank stock ............................ 13,067 13,067 11,296 11,296
Financial Liabilities:
Deposits ....................................................... $444,459 445,507 404,349 404,068
Advances from the FHLB of Seattle .............................. 120,586 121,011 141,860 141,702
Repurchase agreements and other borrowed funds ................. 18,357 18,357 29,610 29,610
Financial assets and financial liabilities other than securities are not traded
in active markets. The above estimates of fair value require subjective
judgments and are approximate. Changes in the following methodologies and
assumptions could significantly affect the estimates. These estimates may also
vary significantly from the amounts that could be realized in actual
transactions.
Financial Assets - The estimated fair value approximates the book value of cash,
federal funds sold and interest bearing cash accounts. For securities, the fair
value is based on quoted market prices. The fair value of loans is estimated by
discounting future cash flows using current rates at which similar loans would
be made. The fair value of FHLB and Federal Reserve Bank stock approximates the
book value.
Financial Liabilities - The estimated fair value of demand and savings deposits
approximates the book value since rates are periodically adjusted to market
rates. Certificates of deposit fair value is estimated by discounting the future
cash flows using current rates for similar deposits. Repurchase agreements and
other borrowed funds have variable interest rates, or are short term, so fair
value approximates book value. Advances from the FHLB of Seattle fair value is
estimated by discounting future cash flows using current rates for advances with
similar weighted average maturities.
Off-balance sheet financial instruments - Commitments to extend credit and
letters of credit represent the principal categories of off-balance sheet
financial instruments. Rates for these commitments are set at time of loan
closing, so no adjustment is necessary to reflect these commitments at market
value. See Note 4 to consolidated financial statements.
55
17. Contingencies and commitments:
The Company is a defendant in legal proceedings arising in the normal course of
business. In the opinion of management, the disposition of pending litigation
will not have a material effect on the Company's consolidated financial position
or results of operations.
18. Business combinations:
On December 31, 1996, the Company issued 1,145,599 shares of common stock in
exchange for all of the outstanding stock of Missoula Bancshares, Inc., parent
company of First Security Bank of Missoula. This business combination has been
accounted for as a pooling-of-interests combination and, accordingly the
consolidated financial statements for periods prior to the combination have been
restated to include the accounts and results of operations of Missoula
Bancshares, Inc.
On August 31, 1998, the Company issued 536,154 shares of common stock in
exchange for all of the outstanding stock of HUB Financial Corporation (HUB),
parent company of Valley Bank of Helena (Valley). As a result of this
transaction, the Company acquired the majority interest, 86.5%, of Valley. This
business combination has been accounted for as a pooling-of-interests
combination and, accordingly the consolidated financial statements for periods
prior to the combination have been restated to include the accounts and results
of operations of HUB.
The results of operations previously reported by the separate companies and the
combined amounts presented in the accompanying consolidated financial statements
are summarized below:
Six months
ended Years ended
June 30, 1998 December 31,
(unaudited) 1997 1998
------------- ------ ------
Net earnings of:
Glacier Bancorp, Inc. .................... $4,892 9,180 7,425
HUB Financial Corporation ................ 408 874 782
------ ------ ------
Combined .......... $5,300 10,054 8,207
====== ====== ======
There were no transactions between the companies prior to the combination.
Also on August 31, 1998, the Company issued 83,761 shares of common stock in
exchange for the minority interest of 13.5% of Valley. This business combination
has been accounted for as a purchase and, accordingly, the consolidated
statement of operations for the year ended December 31, 1998 includes the
results of operations related to this minority interest commencing August 31,
1998 and the proportional interest of the net assets acquired have been restated
to estimated fair value.
The premium paid over the historical carrying value of the net assets of the
minority interest of Valley at the date of purchase was as follows (dollars in
thousands):
Issuance of common shares .................................... $2,199
Historical net assets acquired ............................... (857)
------
Premium paid over historical carrying value - goodwill ....... $1,342
======
56
19. Agreement to merge:
On October 20, 1998, the Company entered into a definitive agreement to acquire
through an exchange of stock, Big Sky Western Bank, Big Sky, Montana (Big Sky).
On January 20, 1999 the transaction was completed with 227,707 shares of Company
stock issued for 100 percent of the outstanding stock of Big Sky. Big Sky will
operate as an independent, wholly-owned subsidiary of the Company. The
acquisition is being accounted for using the pooling-of-interests method.
Transactions accounted for as a pooling-of-interests reflect the assets,
liabilities, stockholders' equity, and results of operations of the separate
entities as though the entities had been combined as of the earliest date
reported.
The following unaudited pro forma data summarizes the combined results of
operations of Glacier and Big Sky as if the combination had been consummated on
December 31, 1998:
Years ended December 31,
- -------------------------------------- ------------------------------------
dollars in thousands 1998 1997 1996
- -------------------------------------- ------- ------- -------
Interest income ...................... $53,678 51,686 47,697
Interest expense ..................... 23,550 23,296 21,426
------- ------- -------
Net interest income ................ 30,128 28,390 26,271
======= ======= =======
Net earnings ......................... $10,914 10,236 8,329
======= ======= =======
Basic earnings per share ............. $ 1.29 1.24 1.03
Diluted earnings per share ........... $ 1.26 1.22 1.01
57
PART III
Item 9. Directors and Executive Officers of the Registrant
Information regarding "Directors and Executive Officers of the Registrant" is
set forth under the headings "Proposal No. 1 - Election of Directors -
Information with Respect to Nominees for Director and Continuing
Directors" - "Background of Directors" and "Security Ownership of Certain
Beneficial Owners and Management - Executive Officers who are not Directors" of
the Company's 1999 Annual Meeting Proxy Statement ("Proxy Statement") and is
incorporated herein by reference.
Information regarding "Compliance with Section 16(a) of the Exchange Act" is set
forth under the section "Compliance with Section 16(a) Filing Requirements" of
the Company's Proxy Statement and is incorporated herein by reference.
Item 10. Executive Compensation
Information regarding "Executive Compensation" is set forth under the headings
"Proposal No. 1 - Election of Directors - Compensation of Directors" and
"Executive Compensation" of the Company's Proxy Statement and is incorporated
herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information regarding "Security Ownership of Certain Beneficial Owners and
Management" is set forth under the headings "Proposal No. 1 - Election of
Directors--Information with Respect to Nominees for Director and Continuing
Directors," "Security Ownership of Certain Beneficial Owners and Management
Executive Officers who are not Directors" and "Beneficial Owners" of the
Company's Proxy Statement and is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
Information regarding "Certain Relationships and Related Transactions" is set
forth under the heading "Transactions with Management" of the Company's Proxy
Statement and is incorporated herein by reference.
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
List of Financial Statements and Financial Statement Schedules
(a) (1) and (2) Financial Statement Schedules
The financial statements and related documents listed in the index set forth in
Item 8 of this report are filed as part of this report.
All other schedules to the consolidated financial statements required by
Regulation S-X are omitted because they are not applicable, not material or
because the information is included in the consolidated financial statements or
related notes.
58
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) 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, on March 24, 1999.
GLACIER BANCORP, INC.
By: /s/ Michael J. Blodnick
------------------------
Michael J. Blodnick
President/CEO
PURSUANT to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 24, 1999, by the following persons in the
capacities indicated.
/s/ Michael J. Blodnick President and Chief Executive
- ------------------------------ Officer
Michael J. Blodnick
/s/ James H. Strosahl Executive Vice President and CFO
- ------------------------------ (Principal Financial/Accounting
James H. Strosahl Officer)
Majority of the Board of Directors
/s/ Michael J. Blodnick President/CEO, and Director
- ------------------------------
Michael J. Blodnick
/s/ L. Peter Larson Director
- ------------------------------
L. Peter Larson
/s/ Darrel R. Martin Director
- ------------------------------
Darrel R. (Bill) Martin
/s/ F. Charles Mercord Director
- ------------------------------
F. Charles Mercord
/s/ Everit A. Sliter Director
- ------------------------------
Everit A. Sliter
/s/ Harold A. Tutvedt Director
- ------------------------------
Harold A. Tutvedt
/s/ William L. Bouchee Director
- ------------------------------
William L. Bouchee
/s/ Fred J. Flanders Director
- ------------------------------
Fred J. Flanders
(1) The following exhibits are included as part of this Form 10-K:
Exhibit No. Exhibit
----------- -------
3(a) Amended and Restated Certificate of Incorporation
3(b) Amended and Restated Bylaws
3(c) Amendment to Bylaws dated November 25, 1998
10(a) 1989 Incentive Stock Option Plan (2)
10(b) Employment Agreement dated August 31, 1996 between the Company,
Glacier Bank and Michael J. Blodnick (3)
10(c) Employment Agreement dated August 31, 1996 between the Company,
Glacier Bank and Stephen J. Van Helden (3)
10(d) Employment Agreement dated August 31, 1996 between the Company,
Glacier Bank and James H. Strosahl (3)
10(f) Employment Agreement dated August 9, 1996 between First Security
Bank and William L. Bouchee (4)
10(g) Employment Agreement dated December 30, 1997 between Valley Bank
of Helena and Fred J. Flanders(1)
10(h) 1994 Director Stock Option Plan (5)
10(i) 1995 Employee Stock Option Plan (6)
10(j) Deferred Compensation Plan (5)
10(k) Supplemental Executive Retirement Agreement (5)
21 Subsidiaries of the Company -- See item 1, "Subsidiaries"
23 Consent of KPMG LLP
27 Financial Data Schedule
(1) Incorporated by reference to exhibit 3.1 included in the
Company's Registration Statement on Form S-4 (333-58503)
declared effective July 16, 1998
(2) Incorporated by reference to exhibit 10(a) included in the
Company's Registration Statement on Form S-4 (No. 33-37025),
declared effective on October 4, 1990.
(3) Incorporated by reference to exhibits 10(c), 10(d) and 10(f)
included in the Company's Form 10-K for the fiscal year ended
December 31, 1996.
(4) Incorporated by reference to Exhibit 10.2 of the Company's
Registration Statement on Form S-4 (No. 333-13595) declared
effective on October 16, 1996.
(5) Incorporated by reference to Exhibits 10(i), 10(k) and 10(h),
included in the Company's Form 10-K for the fiscal year ended
December 31, 1995.
(6) Incorporated by reference to Exhibit 99.1 of the Company's S-8
Registration Statement (No. 33-94648).
59