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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, 2000 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 COMMISSION FILE 000-18911
GLACIER BANCORP, INC.
DELAWARE 81-0519541
49 Commons Loop, Kalispell, MT 59901
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 16, 2001, there were issued and outstanding 16,061,104 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 16, 2001, was $225,819,122.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the 2001 Annual Meeting Proxy Statement dated March 27, 2001 are
incorporated by reference into Part III of this form 10-K.
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GLACIER BANCORP, INC.
FORM 10-K ANNUAL REPORT
For the year ended December 31, 2000
TABLE OF CONTENTS
Page
----
PART I.
Item 1. Business 3
Item 2. Properties 18
Item 3. Legal Proceedings 20
Item 4. Submission of Matter to a Vote of Security Holders 20
PART II.
Item 5. Market for the Registrant's Common equity and Related Stockholder Matters 20
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 21
Item 7a. Quantitative and Qualitative Disclosure about Market Risk 28
Item 8. Financial Statements and Supplementary Data 29
PART III.
Item 9. Changes in and Disagreements with Accountants in Accounting and
Financial Disclosures 60
Item 10. Directors and Executive Officers of the Registrant 60
Item 11. Executive Compensation 60
Item 12. Security Ownership of Certain Beneficial Owners and Management 60
Item 13. Certain relationships and Related Transactions 60
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 60
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PART I.
ITEM 1. BUSINESS
GENERAL
Glacier Bancorp, Inc. headquartered in 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. On February 1, 1998, 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, 2000, 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"), Valley Bank
of Helena ("Valley"), Big Sky Western Bank ("Big Sky"), Mountain West Bank in
Idaho ("Mountain West"), and Community First, Inc. ("CFI"). The Company owns
approximately 98%, and 94% , respectively, of the outstanding stock of Eureka
and Whitefish, and 100% of Glacier, First Security, Valley, Big Sky, Mountain
West, and CFI. Whitefish and Eureka were converted from national bank charters
to State of Montana charters in December 1997.
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.
Big Sky was acquired on January 20, 1999 through an exchange of stock with Big
Sky shareholders. The pooling of interest accounting method was also used for
this merger transaction.
Mountain West was acquired on February 4, 2000 through an exchange of stock with
Mountain West shareholders. The pooling of interest accounting method was also
used for this merger transaction.
The Company formed Glacier Capital Trust I (Glacier Trust) as a financing
subsidiary on December 18, 2000. On January 25, 2001, Glacier Trust offered
1,400,000 preferred securities at $25 per preferred security. The purchase of
the securities entitles the shareholder to receive cumulative cash distributions
at an annual interest rate of 9.40% from payments on the junior subordinated
debentures of Glacier Bancorp, Inc. The subordinated debentures will mature and
the preferred securities must be redeemed by February 1, 2031. In exchange for
the Company's capital contribution, the Company will own all of the outstanding
common securities of the trust.
RECENT ACQUISITIONS
On September 14, 2000 the Company announced the acquisition of seven branches of
Wells Fargo & Company and First Security Corporation subsidiary banks located in
Idaho and Utah, the respective transactions were completed by March 15, 2001. In
total, as of the closing, the branches had approximately $187,000,000 in
deposits and $38,000,000 in loans. The purchase price of approximately
$18,500,000 was based on the total deposits, cash-equivalent assets and loans at
the branches immediately prior to the respective closing. The locations become
branch offices of Mountain West Bank of Coeur d'Alene.
On September 20, 2000, the Company entered into a merger agreement to acquire
WesterFed Financial Corporation (WesterFed). The merger was closed on February
28, 2001. Under the terms of the agreement, the Company issued 4,530,462 shares
and paid $37,274,000 cash for total consideration of $96,669,000, based on a
$13.11 per share price of the Company's common stock. The merger is being
accounted for using the purchase method of accounting. Accordingly, the assets
and liabilities of WesterFed are recorded by the Company at their respective
fair values at the time of the completion of the merger. The excess of the
Company's purchase price over the net fair value of the assets acquired and
liabilities assumed, including identifiable intangible assets, were recorded as
goodwill and will be amortized over a useful life of 20 years.
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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 all subsidiaries, except Mountain West are
members of the Federal Reserve Bank of Minneapolis. ("FRB")
BANK LOCATIONS
Glacier's main office is located at 49 Commons Loop, Kalispell, MT 59901 and its
telephone number is (406) 756-4200. 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) 297-2521, First Security's address is
1704 Dearborn, Missoula, MT 599801 (406) 728-3115, Valley's address is 3030
North Montana Avenue, Helena, MT 59601 (406) 443-7440, Big Sky's address is
47995 Gallatin Road, Big Sky, MT, 59716 (406) 995-2321, and Mountain West's
address is 125 Ironwood Drive, Coeur d' Alene, Idaho 83816 (208) 765-0284.
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.
Through its subsidiary CFI, the Company provides full service brokerage
services through Raymond James Financial Services, an unrelated brokerage firm.
The following abbreviated organizational chart illustrates the various existing
parent/subsidiary relationships at December 31, 2000:
__________________________
| Glacier Bancorp, Inc. |
| (Parent Holding Company) |
|__________________________|
|
__________________________________________________|____________________________________________________
| Glacier Bank | | First Security Bank | | | Glacier Bank | | Glacier Bank |
| (Commercial Bank) | | of Missoula | | | of Whitefish | | of Eureka |
| | | (Commercial bank) | | | (Commercial bank) | | (Commercial bank) |
|___________________| |_____________________| | |____________________| |_______________________|
|
__________________________________________________|____________________________________________________
| Big Sky | | Valley Bank | | | Mountain West Bank | | Community First, Inc. |
| Western Bank | | of Helena | | | of Coeur d'Alene | | (Brokerage services) |
| (Commercial bank) | | (Commercial bank) | | | (Commercial bank) | | |
|___________________| |_____________________| | |____________________| |_______________________|
|
|
__________________________
| Glacier Bancorp, Inc. |
| Trust 1 |
| (Parent Holding Company) |
|__________________________|
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BUSINESS SEGMENT RESULTS
The Company evaluates segment performance internally based on individual bank
charter, and thus the operating segments are so defined. The following schedule
provides selected financial data for the Company's operating segments. Centrally
provided services to the Banks are allocated based on estimated usage of those
services. The operating segment identified as "Other" includes the Parent,
Community First Inc., and inter-company eliminations.
Operating Segments information
(Dollars in thousands)
Glacier Whitefish
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2000 1999 1998 2000 1999 1998
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Condensed Income Statements
Net interest income $ 16,361 15,266 14,572 2,406 2,044 1,820
Noninterest income 5,913 5,539 5,723 704 675 686
----------------------------------------------------------------------------
Total revenues 22,274 20,805 20,295 3,110 2,719 2,506
Provision for loan losses 460 470 670 225 66 78
Goodwill and merger expense 317 78 -- -- -- --
Other noninterest expense 11,440 10,750 10,523 1,522 1,502 1,347
Minority interest -- -- -- -- -- --
----------------------------------------------------------------------------
Pretax earnings 10,057 9,507 9,102 1,363 1,151 1,081
Income tax expense (benefit) 3,456 3,303 3,238 423 348 343
----------------------------------------------------------------------------
Net income 6,601 6,204 5,864 940 803 738
============================================================================
Average Balance Sheet Data
Total assets $464,565 407,950 366,522 54,997 45,827 41,328
Total loans 285,398 270,650 275,765 39,106 29,443 23,281
Total deposits 279,973 214,552 188,565 38,813 32,980 32,587
Stockholders' equity 38,547 37,893 37,519 4,851 4,734 4,428
End of Year Balance Sheet Data
Total assets $469,351 460,257 370,686 56,563 52,203 42,643
Net loans 282,467 272,060 272,399 40,146 35,485 22,022
Total deposits 288,556 276,880 201,211 41,475 34,261 34,179
Performance Ratios
Return on average assets 1.42% 1.52% 1.60% 1.71% 1.75% 1.79%
Return on average equity 17.12% 16.37% 15.63% 19.38% 16.96% 16.67%
Efficiency ratio 51.36% 51.67% 51.85% 48.94% 55.24% 53.75%
Regulatory Capital Ratios & Other
Tier I risk-based capital ratio 13.45% 13.58% 18.05% 11.97% 13.49% 19.22%
Tier II risk-based capital ratio 14.38% 14.48% 18.98% 13.18% 14.53% 20.47%
Leverage capital ratio 8.08% 7.58% 10.56% 8.90% 9.86% 11.11%
Full time equivalent employees 152 167 161 16 15 14
Locations 13 15 13 1 1 1
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Eureka First Security
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2000 1999 1998 2000 1999 1998
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Condensed Income Statements
Net interest income 1,335 1,290 1,247 9,324 8,804 7,784
Noninterest income 332 313 372 2,000 2,260 2,801
--------------------------------------------------------------------------
Total revenues 1,667 1,603 1,619 11,324 11,064 10,585
Provision for loan losses 24 24 12 360 600 645
Goodwill and merger expense -- -- -- -- -- --
Other noninterest expense 933 986 971 4,771 4,567 4,151
Minority interest -- -- -- -- -- --
--------------------------------------------------------------------------
Pretax earnings 710 593 636 6,193 5,897 5,789
Income tax expense (benefit) 199 191 217 2,251 2,132 2,138
--------------------------------------------------------------------------
Net income 511 402 419 3,942 3,765 3,651
==========================================================================
Average Balance Sheet Data
Total assets 29,307 26,407 25,122 199,697 177,690 161,281
Total loans 19,485 17,589 16,806 171,462 146,958 130,595
Total deposits 19,223 17,998 17,527 146,439 136,968 131,273
Stockholders' equity 3,151 3,279 3,292 17,164 15,750 14,305
End of Year Balance Sheet Data
Total assets 30,562 28,879 24,471 214,231 193,548 164,546
Net loans 20,291 18,178 16,322 180,041 161,781 134,646
Total deposits 19,285 18,514 17,797 164,168 143,645 139,348
Performance Ratios
Return on average assets 1.74% 1.52% 1.67% 1.97% 2.12% 2.26%
Return on average equity 16.22% 12.26% 12.73% 22.97% 23.90% 25.52%
Efficiency ratio 55.97% 61.51% 59.98% 42.13% 41.28% 39.22%
Regulatory Capital Ratios & Other
Tier I risk-based capital ratio 16.42% 19.45% 22.47% 9.98% 9.73% 10.26%
Tier II risk-based capital ratio 17.67% 20.70% 23.73% 11.15% 10.97% 11.46%
Leverage capital ratio 10.84% 12.03% 13.32% 8.64% 8.62% 8.53%
Full time equivalent employees 10 11 11 73 76 73
Locations 1 1 1 4 3 3
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Valley Big Sky
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2000 1999 1998 2000 1999 1998
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Condensed Income Statements
Net interest income $ 4,171 3,614 3,312 2,721 2,077 1,251
Noninterest income 1,411 1,494 1,553 750 881 743
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Total revenues 5,582 5,108 4,865 3,471 2,958 1,994
Provision for loan losses 205 155 85 180 191 42
Goodwill and merger expense -- -- -- -- -- --
Other noninterest expense 3,498 2,977 3,010 2,527 2,096 1,680
Minority interest -- -- -- -- -- --
-----------------------------------------------------------------------------------
Pretax earnings 1,879 1,976 1,770 764 671 272
Income tax expense (benefit) 657 731 659 258 231 103
-----------------------------------------------------------------------------------
Net income 1,222 1,245 1,111 506 440 169
===================================================================================
Average Balance Sheet Data
Total assets $ 86,305 $ 77,370 69,335 70,806 53,392 36,110
Total loans 62,813 53,622 48,204 50,491 34,414 20,796
Total deposits 69,864 61,515 57,205 46,981 36,287 28,183
Stockholders' equity 5,254 6,940 6,323 5,584 5,197 2,692
End of Year Balance Sheet Data
Total assets $ 87,791 $ 82,587 69,924 77,111 66,255 39,376
Net loans 62,645 58,924 48,860 57,050 43,850 23,959
Total deposits 76,508 65,095 57,807 49,616 41,034 31,385
Performance Ratios
Return on average assets 1.42% 1.61% 1.60% 0.71% 0.82% 0.47%
Return on average equity 23.26% 17.94% 17.57% 9.06% 8.47% 6.28%
Efficiency ratio 62.67% 58.28% 61.87% 72.80% 70.86% 84.25%
Regulatory Capital Ratios & Other
Tier I risk-based capital ratio 12.41% 12.59% 13.49% 9.68% 11.35% 10.40%
Tier II risk-based capital ratio 13.55% 13.57% 14.55% 10.81% 12.58% 11.95%
Leverage capital ratio 8.66% 8.95% 9.34% 8.28% 9.15% 7.30%
Full time equivalent employees 34 42 43 30 24 24
Locations 3 3 3 3 3 2
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Mountain West Other
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2000 1999 1998 2000 1999 1998
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Condensed Income Statements
Net interest income 5,037 3,755 3,187 125 234 185
Noninterest income 2,206 1,745 1,637 (22) (98) 81
----------------------------------------------------------------------------------
Total revenues 7,243 5,500 4,824 103 136 266
Provision for loan losses 410 217 203 -- -- --
Goodwill and merger expense -- 78 -- 242 361 931
Other noninterest expense 5,153 4,941 3,885 863 709 527
Minority interest -- -- -- 61 51 145
----------------------------------------------------------------------------------
Pretax earnings 1,680 264 736 (1,063) (985) (1,337)
Income tax expense (benefit) 657 91 276 (321) (305) (300)
----------------------------------------------------------------------------------
Net income 1,023 173 460 (742) (680) (1,037)
==================================================================================
Average Balance Sheet Data
Total assets 106,445 81,011 74,001 (4,327) 2,675 (1,845)
Total loans 78,602 56,865 48,231 -- -- --
Total deposits 77,334 71,060 63,409 (3,497) (5,658) 1,972
Stockholders' equity 7,650 6,555 6,142 6,267 4,519 4,197
End of Year Balance Sheet Data
Total assets 126,518 89,884 80,867 (5,415) 388 (5,711)
Net loans 90,922 61,930 52,980 -- -- --
Total deposits 86,632 67,824 70,659 (5,670) (3,147) (5,883)
Performance Ratios
Return on average assets 0.96% 0.21% 0.62%
Return on average equity 13.37% 2.65% 7.49%
Efficiency ratio 71.14% 89.84% 80.53%
Regulatory Capital Ratios & Other
Tier I risk-based capital ratio 11.12% 10.40% 12.59%
Tier II risk-based capital ratio 12.19% 11.44% 11.61%
Leverage capital ratio 8.11% 7.60% 7.86%
Full time equivalent employees 74 71 61 34 28 25
Locations 5 5 4
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Consolidated
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2000 1999 1998
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Condensed Income Statements
Net interest income 41,480 37,084 33,358
Noninterest income 13,294 12,809 13,596
----------------------------------------
Total revenues 54,774 49,893 46,954
Provision for loan losses 1,864 1,723 1,735
Goodwill and merger expense 559 517 931
Other noninterest expense 30,707 28,528 26,094
Minority interest 61 51 145
----------------------------------------
Pretax earnings 21,583 19,074 18,049
Income tax expense (benefit) 7,580 6,722 6,674
----------------------------------------
Net income 14,003 12,352 11,375
========================================
Average Balance Sheet Data
Total assets 1,007,795 872,322 771,854
Total loans 707,357 609,541 563,678
Total deposits 675,130 565,702 520,721
Stockholders' equity 88,468 84,867 78,898
End of Year Balance Sheet Data
Total assets 1,056,712 974,001 786,802
Net loans 733,561 652,208 571,188
Total deposits 720,570 644,106 546,503
Performance Ratios
Return on average assets 1.39% 1.41% 1.47%
Return on average equity 15.83% 14.60% 14.43%
Efficiency ratio 57.20% 58.30% 57.90%
Regulatory Capital Ratios & Other
Tier I risk-based capital ratio 12.31% 13.23% 15.50%
Tier II risk-based capital ratio 13.36% 14.30% 16.59%
Leverage capital ratio 8.72% 9.59% 10.41%
Full time equivalent employees 423 434 412
Locations 30 31 27
----------------------------------------
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Glacier Bank
Total assets increased $9 million, or 2 percent, over the prior year-end. Total
net loans ended the year at $282 million. Real estate loans declined $11 million
and commercial and consumer loans increased $20 million and $1 million,
respectively. Non-performing loans were .06 percent of total loans. Total
investments increased by $632 thousand. Total deposits increased $12 million, or
4 percent. Net income increased $397 thousand, or 6 percent, over the prior
year. Net interest income increased $1 million, or 7 percent over 1999.
Non-interest income increased by $374 thousand, the majority of the increase is
from the sale of two small branches in 2000. Other fee income increased over the
prior year. The efficiency ratio of 51.36 percent is an improvement from the
1999 ratio of 51.67 and 1998 ratio of 51.85, each of which are below the peer
group average. Glacier Bank operates from 13 locations.
Glacier Bank of Whitefish
Total assets increased $4 million, or 8 percent, over the prior year-end. Net
loans increased $5 million, or 13 percent, from December 31, 1999. All loan
classifications increased with real estate loans up $3 million, commercial loans
up $1 million and consumer loans up $1 million. Non-performing loans as a
percentage of loans was .29 percent and the allowance for loan losses was at 4.3
times non-performing loans. Total deposits increased $7 million, or 21 percent.
Net income increased $137 thousand, or 17 percent, over 1999. Net interest
income increased $362 thousand, or 18 percent, reflecting the significant loan
growth. Non-interest income and other fee income increased over the prior year.
Non-interest expense increased from prior year. The efficiency ratio of 48.94
percent is an improvement from the 1999 ratio of 55.24 and 1998 ratio of 53.75.
Glacier Bank of Eureka
Total assets increased $2 million, or 6 percent, over the prior year end.
Investment securities increased $543 thousand, or 7 percent. Net loans increased
$2 million, or 12 percent, from December 31, 1999. Real estate loans declined
$272 thousand and commercial and consumer loans increased $826 thousand and $2
million, respectively. Non-performing loans as a percentage of loans were .45
percent, and the allowance for loan losses was at 3.3 times non-performing
loans. Total deposits increased $771 thousand, or 4 percent. Net income
increased $109 thousand, or 27 percent, from 1999. Net interest income increased
$45 thousand, or 3 percent, reflecting the asset growth. Non-interest income
increased $19 thousand, or 6 percent. Non-interest expense decreased from the
prior year. The efficiency ratio of 55.97 percent is an improvement from the
1999 ratio of 61.51 and 1998 ratio of 59.98.
First Security Bank of Missoula
Total assets increased $21 million, or 11 percent, over the prior year-end. Net
loans increased $18 million, or 11 percent, from December 31, 1999. Real estate
loans declined $532 thousand, and commercial and consumer loans increased $12
million and $7 million, respectively. Non-performing loans as a percentage of
loans was .50 percent and the allowance for loan losses was at 2.4 times
non-performing loans. Total deposits increased $21 million, or 14 percent, with
borrowed funds used to support the additional asset growth. Net income increased
$177 thousand, or 5 percent from 1999. First Security is a high performing bank
with return on average assets of 1.97 percent, and return on average equity of
22.97 percent in 2000. Net interest income increased $520 thousand, or 6
percent, reflecting the asset growth. Non-interest income decreased $260
thousand, primarily resulting from reduced mortgage loan originations and sales
due to higher mortgage rates. Non-interest expense increased primarily from the
increased volume of transaction activity. The efficiency ratio increased from
41.28 in 1999 to 42.13 in 2000 with both years higher than the 39.22 in 1998.
The efficiency ratios are substantially better than peer group averages.
Valley Bank of Helena
Valley Bank was acquired by the Company in August 1998. Total assets at December
31, 2000 increased $5 million, or 6 percent, over the prior year end. Net loans
increased $4 million, or 6 percent, from December 31, 1999. Real estate loans
declined $1 million, and commercial and consumer loans increased $3 million and
$2 million, respectively. Non-performing loans as a percentage of loans was .50
percent, and the allowance for loan losses was at 2.2 times non-performing
loans. Total deposits increased $11 million, or 18 percent. Net income decreased
$23 thousand, or 2 percent, from 1999. Net interest income increased $557
thousand, or 15 percent, reflecting the asset growth. Non-interest income
decreased $83 thousand, primarily resulting from reduced mortgage loan
originations and sales due to higher mortgage rates, and other loan origination
and servicing fees. Non-interest expense increased $521 thousand, which includes
$260 thousand from a one-time data processing contract cancellation fee. The
efficiency ratio increased from 58.28 in 1999 to 62.67 in 2000 which was also
higher than the 61.87 in 1998.
Big Sky Western Bank
Big Sky Western Bank was acquired by the Company in January 1999. Total assets
at December 31, 2000 increased $11 million, or 16 percent, over the prior
year-end. Net loans increased $13 million, or 30 percent, from December 31,
1999, with the remaining asset growth in investment securities. Real estate
loans decreased $3 million, and commercial and consumer loans increased $14 and
$2 million, respectively. Non-performing loans as a percentage of loans was .28
percent and the allowance for loan losses was at 4.1 times non-performing loans.
Total deposits increased $9 million, or 21 percent, with borrowed funds used to
support the additional asset growth. Net income increased $66 thousand, or 15
percent, from 1999. Net interest income increased $644 thousand, or 31 percent,
reflecting the asset growth. Non-interest income decreased $131 thousand, and
non-interest expense increased $431
6
7
thousand, resulting from increased activity levels. The efficiency ratio
increased from 70.86 in 1999 to 72.80 in 2000 which was lower than the 84.25 in
1998. The efficiency ratios have improved significantly from 1998 with the
increased net interest income.
Mountain West Bank
Total assets increased $37 million, or 41 percent, over the prior year-end.
Total net loans increased $29 million, or 47 percent, over the prior year end.
Real estate loans increased $18 million and commercial and consumer loans
increased $10 million and $416 thousand, respectively. Non-performing loans were
.05 percent of total loans and the allowance for loan losses was at 18.8 times
non-performing loans. Total investments increased by $2 million, or 12 percent.
Total deposits increased $19 million, or 28 percent. Net income increased $850
thousand, or 491 percent, over the prior year. Net interest income increased
$1.3 million, or 34 percent over 1999. Non-interest income increased by $461
thousand. The efficiency ratio of 71.14 percent is an improvement from the 1999
ratio of 89.84 and 1998 ratio of 80.53.
MARKET AREA
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 and Lewis & Clark, Gallatin County, 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 a branch office in Kalispell,
with branches in 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), Billings (the county seat of Yellowstone County), and
Butte (the county seat of Silver Bow County). First Security's main office and
three 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. Big Sky's main
office is in Big Sky, with branches in Bozeman (the county seat of Gallatin
County), and the four corners area west of Bozeman. Mountain West has five
offices in Idaho: Coeur d'Alene, Post Falls, and Hayden Lake, an office in
Boise, and a loan production office in the Sun Valley area.
Northwest Montana 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 freshwater 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.
Bozeman, the home of Montana State University, is the gateway to Yellowstone
National Park and the Big Sky ski resort, both of which are very active tourist
areas. Bozeman also has a high-tech center and is located on Interstate 90, and
has good air service. Coeur d'Alene, located in northern Idaho, is one of the
fastest growing areas in the United States. Boise, the state capital, is also
growing rapidly, with much of the growth related to high-tech manufacturing.
COMPETITION
Glacier, Whitefish and Eureka comprise the largest financial institution group
in terms of total deposits in the three county area of northwest Montana, and
have approximately 23% of the total deposits in this area. Glacier's two Butte,
Montana offices have approximately 17% of the deposits in Silver Bow County.
First Security has approximately 14% of the total deposits in Missoula County.
Valley has approximately 13% of Lewis and Clark County's total deposits, and Big
Sky has approximately 7% of Gallatin County's deposits. Mountain West has
approximately 8% of the deposits in Kootenai County.
There are a large number of depository institutions including savings banks,
commercial banks, and credit unions in the counties in which the Company has
offices. 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.
7
8
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
AVERAGE BALANCE SHEET
The following three-year schedule provides (i) the total dollar amount of
interest and dividend income of the Company for earning assets and the resultant
average yield; (ii) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average rate; (iii) net interest
and dividend income; (iv) interest rate spread; and (v) net interest margin.
AVERAGE BALANCE SHEET
(Dollars in Thousands)
For the year ended 12-31-00 For the year ended 12-31-99
-------------------------------------- --------------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
ASSETS Balance Dividends Rate Balance Dividends Rate
----------- ----------- ----------- ----------- ----------- -----------
Real Estate Loans $ 230,661 19,557 8.48% $ 226,246 17,875 7.90%
Commercial Loans 312,434 28,784 9.21% 246,810 21,499 8.71%
Consumer and Other Loans 164,262 14,856 9.04% 136,484 12,367 9.06%
----------- ----------- ----------- -----------
Total Loans 707,357 63,197 8.93% 609,540 51,741 8.49%
Investment Securities 236,287 15,640 6.62% 202,016 12,978 6.42%
----------- ----------- ----------- -----------
Total Earning Assets 943,644 78,837 8.35% 811,556 64,719 7.97%
----------- ----------- -----------
Non-Earning Assets 64,151 60,766
----------- -----------
TOTAL ASSETS $ 1,007,795 $ 872,322
=========== ===========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW Accounts $ 96,737 1,068 1.10% $ 91,380 1,064 1.16%
Savings Accounts 44,996 806 1.79% 47,272 843 1.78%
Money Market Accounts 167,533 7,447 4.45% 134,364 5,304 3.95%
Certificates of Deposit 230,024 13,353 5.81% 174,368 9,283 5.32%
FHLB Advances 211,217 13,454 6.37% 173,289 9,460 5.46%
Repurchase Agreements
and Other Borrowed Funds 31,799 1,229 3.86% 31,362 1,681 5.36%
----------- ----------- ----------- -----------
Total Interest Bearing Liabilities 782,306 37,357 4.78% 652,035 27,635 4.24%
----------- -----------
Non-interest Bearing Deposits 135,840 118,318
Other Liabilities 1,181 17,102
----------- -----------
Total Liabilities 919,327 787,455
----------- -----------
Common Stock 110 99
Paid-In Capital 95,554 76,696
Retained Earnings (2,250) 10,212
Accumulated Other
Comprehensive Earnings (Loss) (4,946) (2,140)
----------- -----------
Total Stockholders' Equity 88,468 84,867
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,007,795 $ 872,322
=========== ===========
NET INTEREST INCOME $ 41,480 $ 37,084
=========== ===========
NET INTEREST SPREAD 3.57% 3.73%
NET INTEREST MARGIN
ON AVERAGE EARNING ASSETS(1) 4.40% 4.57%
RETURN ON AVERAGE ASSETS(2) 1.39% 1.41%
RETURN ON AVERAGE EQUITY(3) 15.83% 14.60%
For the year ended 12-31-98
------------------------------------------
Interest Average
Average and Yield/
ASSETS Balance Dividends Rate
----------- ----------- -----------
Real Estate Loans $ 237,034 19,404 8.19%
Commercial Loans 202,119 18,250 9.03%
Consumer and Other Loans 124,525 11,907 9.56%
------------ -----------
Total Loans 563,678 49,561 8.79%
Investment Securities 153,225 9,267 6.05%
------------ -----------
Total Earning Assets 716,903 58,828 8.21%
-----------
Non-Earning Assets 54,945
------------
TOTAL ASSETS $ 771,848
============
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW Accounts $ 85,965 1,428 1.66%
Savings Accounts 48,438 1,065 2.20%
Money Market Accounts 118,215 5,175 4.38%
Certificates of Deposit 155,760 8,899 5.71%
FHLB Advances 140,877 7,939 5.64%
Repurchase Agreements
and Other Borrowed Funds 20,023 964 4.81%
----------- -----------
Total Interest Bearing Liabilities 569,278 25,470 4.47%
-----------
Non-interest Bearing Deposits 112,343
Other Liabilities 11,337
------------
Total Liabilities 692,958
------------
Common Stock 81
Paid-In Capital 54,524
Retained Earnings 23,102
Accumulated Other
Comprehensive Earnings (Loss) 1,183
------------
Total Stockholders' Equity 78,890
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 771,848
===========
NET INTEREST INCOME $ 33,358
===========
NET INTEREST SPREAD 3.74%
NET INTEREST MARGIN
ON AVERAGE EARNING ASSETS (1) 4.65%
RETURN ON AVERAGE ASSETS (2) 1.47%
RETURN ON AVERAGE EQUITY (3) 14.43%
(1) Without tax effect on non-taxable securities income
(2) Net income divided by average total assets
(3) Net income divided by average equity
8
9
RATE/VOLUME ANALYSIS
Net interest income can be evaluated from the perspective of relative dollars of
change in each period. Interest income and interest expense, which are the
components of net interest income, are shown in the following table on the basis
of the amount of any increases (or decreases) attributable to changes in the
dollar levels of the Company's interest-earning assets and interest-bearing
liabilities ("Volume") and the yields earned and rates paid on such assets and
liabilities ("Rate"). The change in interest income and interest expense
attributable to changes in both volume and rates has been allocated
proportionately to the change due to volume and the change due to rate.
Years Ended December 31, Years Ended December 31,
(Dollars in Thousands) 2000 vs. 1999 1999 vs. 1998
-------------------------------------------------------------------------
Increase (Decrease) due to: Increase (Decrease) due to:
-------------------------------------------------------------------------
INTEREST INCOME Volume Rate Net Volume Rate Net
-------------------------------------------------------------------------
Real Estate Loans $ 349 $ 1,333 $ 1,682 $ (883) $ (646) $ (1,529)
Commercial Loans 5,716 1,569 7,285 4,035 (786) 3,249
Consumer and Other Loans 2,517 (28) 2,489 1,143 (683) 460
Investment Securities 2,202 460 2,662 2,951 760 3,711
-------------------------------------------------------------------------
Total Interest Income 10,784 3,334 14,118 7,246 (1,355) 5,891
-------------------------------------------------------------------------
NOW Accounts 62 (58) 4 90 (454) (364)
Savings Accounts (41) 4 (37) (26) (196) (222)
Money Market Accounts 1,309 834 2,143 707 (578) 129
Certificates of Deposit 2,963 1,107 4,070 1,064 (680) 384
FHLB Advances 2,071 1,923 3,994 1,826 (305) 1,521
Other Borrowings and
Repurchase Agreements 23 (475) (452) 546 171 717
-------------------------------------------------------------------------
Total Interest Expense 6,387 3,335 9,722 4,207 (2,042) 2,165
-------------------------------------------------------------------------
NET INTEREST INCOME $ 4,397 $ (1) $ 4,396 $ 3,039 $ 687 $ 3,726
=========================================================================
Net interest income increased $4.4 million in 2000 over 1999. The increase was
due to increases in volumes. For additional information see section
"Management's Discussion and Analysis".
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 was an insignificant amount of trading in the Company's investment
portfolios during 2000. Investment securities are generally classified as
available for sale and are carried at estimated fair value with unrealized gains
or losses reflected as an adjustment to stockholders' equity. During 2000, 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 34.69% in calculating the tax
equivalent yield. Approximately $62 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, 2000.
9
10
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.
LOAN PORTFOLIO COMPOSITION
The following table summarizes the Company's loan portfolio:
(Dollars in Thousands) At At At
12/31/00 12/31/99 12/31/98
----------------------------------------------------------------------------------
TYPE OF LOAN
- -----------------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
----------------------------------------------------------------------------------
REAL ESTATE LOANS:
Residential first mortgage loans $ 224,631 30.62% $ 219,482 33.65% $ 222,018 38.87%
Loans held for sale $ 7,058 0.96% $ 5,896 0.90% $ 16,474 2.88%
----------------------------------------------------------------------------------
Total $ 231,689 31.58% $ 225,378 34.55% $ 238,492 41.75%
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL LOANS:
Real estate $ 198,414 27.05% $ 154,155 23.64% $ 118,434 20.73%
Other commercial loans $ 142,519 19.43% $ 125,462 19.24% $ 97,463 17.06%
----------------------------------------------------------------------------------
Total $ 340,933 46.48% $ 279,617 42.88% $ 215,897 37.79%
- -----------------------------------------------------------------------------------------------------------------------------------
INSTALLMENT AND OTHER LOANS:
Consumer loans $ 86,336 11.77% $ 87,967 13.49% $ 69,726 12.21%
Home equity loans(1) $ 83,539 11.39% $ 66,566 10.21% $ 53,325 9.34%
Outstanding balances on credit cards -- -- -- -- $ 18 --
----------------------------------------------------------------------------------
Total $ 169,875 23.16% $ 154,533 23.70% $ 123,069 21.55%
- -----------------------------------------------------------------------------------------------------------------------------------
Net deferred loan fees, premiums
and discounts(2) $( 1,137) -0.16% $( 598) -0.10% $( 602) -0.10%
Allowance for Losses $( 7,799) -1.06% $( 6,722) -1.03% $( 5,668) -0.99%
----------------------------------------------------------------------------------
NET LOANS $ 733,561 100.00% $ 652,208 100.00% $ 571,188 100.00%
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) At At
12/31/97 12/31/96
----------------------------------------------------
TYPE OF LOAN
- ---------------------------------------------------------------------------------------------------
Amount Percent Amount Percent
----------------------------------------------------
REAL ESTATE LOANS:
Residential first mortgage loans $ 237,906 45.23% $ 233,948 48.87%
Loans held for sale $ 9,716 1.85% $ 6,672 1.39%
----------------------------------------------------
Total $ 247,622 47.08% $ 240,620 50.26%
- ---------------------------------------------------------------------------------------------------
COMMERCIAL LOANS:
Real estate $ 73,212 13.92% $ 62,479 13.05%
Other commercial loans $ 85,693 16.29% $ 67,795 14.16%
----------------------------------------------------
Total $ 158,905 30.21% $ 130,274 27.21%
- ---------------------------------------------------------------------------------------------------
INSTALLMENT AND OTHER LOANS:
Consumer loans $ 120,158 22.84% $ 108,183 22.60%
Home equity loans(1) -- -- -- --
Outstanding balances on credit cards $ 3,951 0.75% $ 3,725 0.78%
----------------------------------------------------
Total $ 124,109 23.59% $ 111,908 23.38%
- ---------------------------------------------------------------------------------------------------
Net deferred loan fees, premiums
and discounts(2) -- -- -- --
Allowance for Losses $( 4,654) -0.88% $( 4,106) -0.85%
----------------------------------------------------
NET LOANS $ 525,982 100.00% $ 478,696 100.00%
- ---------------------------------------------------------------------------------------------------
(1) For periods prior to 1998, included with consumer loans.
(2) For periods prior to 1998, included with other loans amounts.
LOAN PORTFOLIO MATURITIES OR REPRICING TERM
The stated maturities or first repricing term (if applicable) for the loan
portfolio at December 31, 2000 was as follows:
(Dollars in Thousands) Real Estate Commercial Consumer Totals
----------- ---------- -------- --------
Variable Rate Maturing or Repricing in:
One year or less $ 69,675 114,933 38,062 222,670
One to five years 36,719 78,208 2,122 117,049
Thereafter -- 2,334 2 2,336
Fixed Rate Maturing or Repricing in:
One year or less 32,377 54,382 43,356 130,115
One to five years 59,166 54,474 73,545 187,185
Thereafter 33,752 36,602 12,788 83,142
-------- -------- -------- --------
Totals $231,689 340,933 169,875 742,497
======== ======== ======== ========
10
11
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 24% of the Banks' consumer portfolio
consists of variable interest rate loans. 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. 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 80% 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 $15,000 to $250,000, and unsecured limits range from $2,000 to
$100,000. An officers' loan committee, consisting of senior lenders and members
of senior management, has approval authority up to $500,000. Loans between
$500,000 and $2,000,000 go to the individual Bank's Board of Directors for
approval. Loans over $2,000,000 go to the Company's Board of Directors for
approval. 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, 2000
are approximately $8.4 million for Glacier, $3.6 million for First Security,
$1.5 million for Valley, $1.2 million for Big Sky, $2.0 million for Mountain
West, $1 million for Whitefish, and $.7 million for Eureka.
Each of the Banks is in compliance with these limits.
LOAN PURCHASES AND SALES
Fixed-rate, long-term mortgage loans are generally 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, the Banks typically 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, 2000, loans serviced for others aggregated
approximately $147 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. 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 collectibility 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
11
12
("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:
NONPERFORMING ASSETS
(Dollars in Thousands) ------------------------------------------------------------
At At At At At
12/31/00 12/31/99 12/31/98 12/31/97 12/31/96
-------- -------- -------- -------- --------
NON-ACCRUAL LOANS:
Mortgage loans $ 687 $ 613 $ 438 $ 176 $ 157
Commercial loans 442 776 1,068 288 262
Consumer loans 25 74 64 156 45
----------------------------------------------------------
TOTAL 1,154 1,463 1,570 620 464
----------------------------------------------------------
ACCRUING LOANS 90 DAYS OR MORE OVERDUE:
Mortgage loans 576 62 632 416 290
Commercial loans 91 99 385 268 222
Consumer loans 83 104 124 251 431
----------------------------------------------------------
TOTAL 750 265 1,141 935 943
----------------------------------------------------------
Troubled debt restructuring: -- -- 205 249 --
Real estate and other assets owned, net 291 550 151 228 506
TOTAL NON-PERFORMING LOANS, TROUBLED DEBT
RESTRUCTURINGS, AND REAL ESTATE AND OTHER
----------------------------------------------------------
ASSETS OWNED, NET $2,195 $2,278 $3,067 $2,032 $1,913
----------------------------------------------------------
AS A PERCENTAGE OF TOTAL ASSETS 0.21% 0.23% 0.39% 0.27% 0.28%
----------------------------------------------------------
Interest Income(1) $ 101 $ 132 $ 103 $ 84 $ 94
----------------------------------------------------------
(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. Interest income
recognized on non-performing loans for each of the above periods was not
significant.
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 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 non-accrual 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 non-accrual, previously accrued unpaid interest is reversed.
12
13
The following table illustrates the loan loss experience:
(Dollars in Thousands) Years ended December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
BALANCE AT BEGINNING OF PERIOD $ 6,722 5,668 4,654 4,106 3,803
CHARGE OFFS:
Residential real estate (98) (44) (50) -- (122)
Commercial loans (450) (409) (514) (162) (229)
Consumer loans (424) (433) (517) (617) (540)
------- ------- ------- ------- -------
Total charge offs $ (972) (886) (1,081) (779) (891)
------- ------- ------- ------- -------
RECOVERIES:
Residential real estate 5 1 -- -- 1
Commercial loans 43 110 250 155 69
Consumer loans 137 106 110 120 107
------- ------- ------- ------- -------
Total recoveries $ 185 217 360 275 177
------- ------- ------- ------- -------
CHARGEOFFS, NET OF RECOVERIES (787) (669) (721) (504) (714)
PROVISION 1,864 1,723 1,735 1,052 1,017
------- ------- ------- ------- -------
BALANCE AT END OF PERIOD $ 7,799 6,722 5,668 4,654 4,106
======= ======= ======= ======= =======
RATIO OF NET CHARGE OFFS TO AVERAGE
LOANS OUTSTANDING DURING THE PERIOD 0.11% 0.11% 0.13% 0.10% 0.16%
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
2000 1999 1998
---------------------- ---------------------- ----------------------
Percent Percent Percent
of loans in of loans in of loans in
(Dollars in thousands) Allowance category Allowance category Allowance category
- ---------------------- --------- ----------- --------- ----------- --------- -----------
Residential first mortgage
and loans held for sale $1,227 31.2% 1,174 34.2% 1,221 41.3%
Commercial real estate 2,300 26.7% 1,526 23.4% 1,095 20.5%
Other commercial 2,586 19.2% 2,466 19.0% 1,992 16.9%
Consumer 1,686 22.9% 1,556 23.4% 1,360 21.3%
------ ------ ------ ------ ------ ------
Totals $7,799 100.0% 6,722 100.0% 5,668 100.0%
====== ====== ====== ====== ====== ======
1997 1996
---------------------- ----------------------
Percent Percent
of loans in of loans in
(Dollars in thousands) Allowance category Allowance category
- ---------------------- --------- ----------- --------- -----------
Residential first mortgage
and loans held for sale 1,263 46.7% 1,227 49.9%
Commercial real estate 549 13.8% 469 12.9%
Other commercial 1,345 16.1% 1,064 14.0%
Consumer 1,497 23.4% 1,346 23.2%
------ ------ ------ -----
Totals 4,654 100.0% 4,106 100.0%
====== ====== ====== =====
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 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.
13
14
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:
Certificates Demand
(Dollars in thousands) of Deposit Deposits Totals
------------ -------- -------
Within three months $40,130 160,805 200,935
Three months to six months 26,450 -- 26,450
Seven months to twelve months 10,329 -- 10,329
Over twelve months 3,556 -- 3,556
------- ------- -------
Totals $80,465 160,805 241,270
======= ======= =======
For additional information, see Note 6 to the Consolidated Financial Statements
for the year ended December 31, 2000.
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 fixed rate mortgages. All of the Banks
are members in the FHLB
From time to time, primarily as a short-term financing arrangement for
investment or liquidity purposes, the Banks have made use of repurchase
agreements with various securities dealers. This process involves the "selling"
of one or more of the securities in the Banks' 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 the Banks have 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, the Banks enter into repurchase agreements
with local municipalities, and large balance customers, and have adopted
procedures designed to ensure proper transfer of title and safekeeping of the
underlying securities.
The following chart illustrates the average balances and the maximum outstanding
month-end balances for FHLB advances and repurchase agreements:
(Dollars in thousands) For the year ended December 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
FHLB Advances
Amount outstanding at end of period ....... $196,791 208,650 125,886
Average balance ........................... $211,217 173,289 140,877
Maximum outstanding at any month-end ...... $234,688 232,238 152,165
Weighted average interest rate ............ 6.35% 5.45% 5.63%
Repurchase Agreements:
Amount outstanding at end of period ....... $ 24,877 19,766 17,239
Average balance ........................... $ 19,052 28,605 16,652
Maximum outstanding at any month-end ...... $ 24,877 53,791 19,300
Weighted average interest rate ............ 5.39% 4.51% 4.70%
For additional information concerning the Company's advances and repurchase
agreements, see Notes 7 and 8 to the Consolidated Financial Statements for the
year ended December 31, 2000.
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SUBSIDIARIES
The Company has eight direct subsidiaries, Glacier Bank (wholly owned), First
Security (wholly owned), Valley (wholly owned), Big Sky (wholly owned), Mountain
West (wholly owned), Whitefish (majority owned), Eureka (majority owned) and CFI
(wholly owned). For information regarding the holding company, as separate from
the subsidiaries, see Note 15 to the Consolidated Financial Statements for the
year ended December 31, 2000.
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, 2000, the Company employed 423 persons, 358 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 12 in the Consolidated Financial Statements for the year
ended December 31, 2000 for detailed information regarding pension/savings plan
costs and eligibility.
SUPERVISION AND REGULATION
INTRODUCTION
Banking is a highly regulated industry. Banking laws and regulations are
primarily intended to protect depositors, not shareholders. The following
discussion identifies some of the more significant state and federal laws and
regulations affecting the banking industry. It is intended to provide a brief
summary of these laws and regulations and, therefore, is not complete and is
qualified by the statutes and regulations referenced.
BANK HOLDING COMPANY REGULATION
We are a bank holding company because of our ownership of Glacier Bank, Glacier
Bank of Whitefish, Glacier Bank of Eureka, Valley Bank of Helena, First Security
Bank of Missoula, Big Sky Western Bank and Mountain West Bank, all of which are
Montana-state chartered commercial banks (with the exception of Mountain West
Bank, an Idaho state-chartered bank), and all of which are members of the
Federal Reserve (with the exception of Mountain West Bank, a non-Fed member
FDIC-insured bank). As a bank holding company, we are subject to the Bank
Holding Company Act of 1956, as amended, which places us under the supervision
of the Board of Governors of the Federal Reserve. We are required to file annual
reports and additional information with the Federal Reserve, and we are
periodically examined by the Federal Reserve.
In general, the Bank Holding Company Act limits bank holding company business to
owning or controlling banks and engaging in other banking-related activities.
Bank holding companies must obtain the Federal Reserve Board's approval before
they: (1) acquire control (i.e., 5% or more) of the voting shares of a bank; (2)
merge or consolidate with another bank holding company; or (3) acquire
substantially all of the assets of any additional banks. Under the Financial
Services Modernization Act of 1999, a bank holding company may apply to the
Federal Reserve Board to become a financial holding company, and thereby engage
(directly or through a subsidiary) in certain activities deemed financial in
nature, such as securities brokerage and insurance underwriting.
Control of Nonbanks
With certain exceptions, the Bank Holding Company Act 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
Federal Reserve Board determines that the activities of such company are
incidental or closely related to the business of banking.
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 Federal Reserve Board with 60 days' prior written notice of the
proposed acquisition. Following receipt of this notice, the Federal Reserve
Board has 60 days (or up to 90 days if extended) within which to issue a notice
disapproving the proposed acquisition. In addition, any "company" must obtain
the Federal Reserve Board's approval before
15
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acquiring 25% (5% if the "company" is a bank holding company) or more of our
outstanding shares or otherwise obtaining control over us.
TRANSACTIONS WITH AFFILIATES
We and our subsidiaries are affiliates within the meaning of the Federal Reserve
Act, and transactions between affiliates are subject to certain restrictions.
Generally, the Federal Reserve Act limits the extent to which a financial
institution or its subsidiaries may engage in "covered transactions" with an
affiliate. It also requires 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 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
We and our 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 we nor our
subsidiaries 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 SUBSIDIARIES
General
With the exception of Mountain West Bank, our subsidiaries are subject to
extensive regulation and supervision by the Montana Department of Commerce's
Banking and Financial Institutions Division and the FRB as a result of their
membership in the Federal Reserve System. Mountain West Bank is subject to
regulation by the Idaho Department of Finance and by the FDIC as a state
non-member commercial bank. In addition, the two Utah branches Mountain West
Bank will acquire from Wells Fargo West, N.A. will be regulated to a limited
extent by the Utah Department of Financial Institutions.
The federal laws that apply to the Banks 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.
Community Reinvestment. The Community Reinvestment Act requires that, in
connection with examinations of financial institutions within their
jurisdiction, the FDIC and the Director must evaluate the record of 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 on
extensions of credit to insiders--executive officers, directors, principal
shareholders, and their related interests. Extensions of credit to insiders 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
non-insiders. Also, extensions of credit to insiders must not involve more than
the normal risk of repayment or present other unfavorable features.
Safety and Soundness Standards. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991, each federal banking agency has prescribed noncapital
safety and soundness standards for institutions under its authority. These
standards cover internal controls, information systems, and 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.
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.
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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.
Idaho has enacted "opting in" legislation in accordance with the Interstate Act
provisions allowing banks to engage in interstate merger transactions subject to
certain "aging" requirements. Branches may not be acquired or opened separately
in Idaho by an out-of-state bank, but once an out-of-state bank has acquired a
bank within Idaho, either through merger or acquisition of all or substantially
all of the bank's assets, the out-of-state bank may open additional branches
within Idaho.
Utah has enacted "opting in" legislation similar in certain respects to that
enacted by Idaho, allowing banks to engage in interstate merger transactions
subject to a five year aging requirement. De novo branching by an out of state
bank is prohibited; however, once an out of state bank has acquired a Utah
branch, that bank may establish additional branches in Utah.
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 subject to semi-annual deposit insurance premium assessments
by the FDIC. 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 Bank Insurance Fund. 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.
DIVIDENDS
The principal source of our cash revenues is dividends received from our
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.
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,
qualifying perpetual preferred stock (up to 25% of total Tier I capital, if
cumulative, although under a Federal Reserve Rule, redeemable perpetual
preferred stock may not be counted as Tier I capital unless the redemption is
subject to the prior approval of the Federal Reserve), and minority interests in
equity accounts of consolidated subsidiaries, less intangibles, except as
described above.
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. Except for the most highly rated banks, the minimum
leverage ratio is 4%.
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Banks are assigned to one of five capital categories depending on their total
risk-based capital ratio, Tier I risk-based capital ratio, and leverage ratio,
together with certain subjective factors. Banks which are deemed to be
"undercapitalized" are subject to certain mandatory supervisory corrective
actions.
FINANCIAL SERVICES MODERNIZATION
The laws and regulations that affect banks and bank holding companies recently
underwent significant changes as a result of the Financial Services
Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act of 1999.
Generally, the act (i) repealed the historical restrictions on preventing banks
from affiliating with securities firms, (ii) provided a uniform framework for
the activities of banks, savings institutions and their holding companies, (iii)
broadened the activities that may be conducted by national banks and banking
subsidiaries of bank holding companies, (iv) provided an enhanced framework for
protecting the privacy of consumers' information and (v) addressed a variety of
other legal and regulatory issues affecting both day-to-day operations and
long-term activities of financial institutions.
Bank holding companies may now engage in a wider variety of financial activities
than permitted under previous law, particularly insurance and securities
activities. In addition, in a change from previous law, a bank holding company
may be owned, controlled or acquired by any company engaged in financially
related activities, so long as such company meets certain regulatory
requirements. The act also permits national banks (and certain state banks),
either directly or through operating subsidiaries, to engage in certain
non-banking financial activities.
We do not believe that the act will negatively affect our operations. However,
to the extent the act permits banks, securities firms and insurance companies to
affiliate, the financial services industry may experience further consolidation.
This consolidation could result in a growing number of larger financial
institutions that offer a wider variety of financial services than we currently
offer and that can aggressively compete in the markets we currently serve.
EFFECTS OF GOVERNMENT MONETARY POLICY
Our earnings and growth are affected by general economic conditions, and by the
fiscal and monetary policies of the federal government, particularly the Federal
Reserve. The Federal Reserve implements a 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
paid on deposits. We cannot predict with certainty the nature and impact of
future changes in monetary policies and their impact on us or our subsidiary
Banks.
TAXATION
FEDERAL TAXATION
The Company files consolidated federal, Montana, and Idaho income tax returns,
using the accrual method of account. 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 11 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 provision 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% in
Montana. Idaho imposes an 8% tax.
ITEM 2. PROPERTIES
At December 31, 2000, Glacier Bank owned 10 of its 13 offices, including its
headquarters and other property having an aggregate book value of approximately
$7.4 million, and lease 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.
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The following table sets forth certain information regarding Glacier Bank's
offices at December 31, 2000:
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 Buffalo Hill area Full Services Owned
of Kalispell, MT
Branch Billings, MT Full Services Leased
Heights area Supermarket Branch
Branch Helena, MT Full Services Leased
Supermarket Branch
Branch Butte, MT Full Services Owned
Branch Butte, MT Full Services Owned
First Security conducts banking activities from four 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 $2.4 million:
Office Services Offered Ownership
- ------ ---------------- ---------
Main Full Services Owned
Branch Full Services Owned
Branch Full Services Owned
Branch Full Services Leased
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 $1.9 million:
Office Services Offered Ownership
- ------ ---------------- ---------
Main Full Services Owned
Branch Full Services Owned
Branch Full Services Leased
Supermarket Branch
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 $639,000 and $532,000 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
Big Sky conducts banking activities from three locations. Net book value of
facilities and leasehold improvements is $3.4 million.
Office City Services Offered Ownership
- ------ ---- ---------------- ---------
Main Big Sky, MT Full Services Leased
Administration
Branch Four Corners area
of Bozeman, MT Full Services Leased
Branch Bozeman, MT Full Services Owned
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Mountain Bank conducts banking activities from five locations. Net book value of
facilities and leasehold improvements is $2.2 million.
Office City Services Offered Ownership
- ------ ---- ---------------- ---------
Main Coeur d'Alene, ID Full Services Owned
Branch Hayden, ID Full Services Lease Land
Own Bldg.
Branch Post Falls, ID Full Services Owned
Branch Boise, ID Full Services Leased
Branch Ketchum, ID Lending Services Leased
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 consolidate 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 security holders in the fourth quarter of
2000.
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.; Sherwood Securities
Corporation, Dain Rauscher, Inc.; McDonald and Company; and Freedman, Billings,
Ramsay & 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, 2000, there were approximately 4,900 shareholders of Company
common stock. Following is a schedule of quarterly common stock price ranges:
2000 1999
------------------ ------------------
Quarter High Low High Low
------ ------ ------ ------
First ......... $14.82 $11.25 $19.84 $15.50
Second ........ $14.44 $11.00 $22.17 $15.70
Third ......... $13.38 $11.00 $21.71 $13.87
Fourth ........ $13.31 $11.00 $17.05 $13.53
The Company paid cash dividends on its common stock of $.59 and $.58 per share
for the years ended December 31, 2000 and 1999, respectively.
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.
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SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA
At December 31,
-------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
SUMMARY OF FINANCIAL CONDITION:
Total assets ............................... $ 1,056,712 974,001 786,802 748,526 675,580
Investment securities ...................... 211,888 209,312 119,087 128,638 126,689
Loans receivable, net ...................... 733,561 652,208 571,188 526,234 478,868
Allowance for loan losses .................. (7,799) (6,722) (5,668) (4,654) (4,106)
Deposits ................................... 720,570 644,106 546,503 487,539 433,434
Advances ................................... 196,791 208,650 125,886 147,660 152,116
Other borrowed funds
and repurchase agreements ............... 29,529 26,614 18,707 29,960 17,871
Stockholders' equity ....................... 98,113 85,056 84,146 73,537 61,620
Equity per common share* ................... 8.57 7.44 7.85 5.75 5.20
Equity as a percentage of total assets ..... 9.28% 8.73% 10.69% 9.82% 9.12%
Years ended December 31,
-------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
SUMMARY OF OPERATIONS:
Interest income ............................ $ 78,837 64,719 58,828 55,612 50,481
Interest expense ........................... 37,357 27,635 25,470 24,925 22,639
----------- ----------- ----------- ----------- -----------
Net interest income ...................... 41,480 37,084 33,358 30,687 27,842
Provision for loan losses .................. 1,864 1,723 1,735 1,052 1,017
Non-interest income ........................ 13,294 12,809 13,596 11,057 10,421
Non-interest expense ....................... 31,327 29,096 27,170 23,709 23,027
----------- ----------- ----------- ----------- -----------
Earnings before income taxes ............. 21,583 19,074 18,049 16,983 14,219
Income taxes ............................... 7,580 6,722 6,674 6,246 5,740
----------- ----------- ----------- ----------- -----------
Net earnings ............................. 14,003 12,352 11,375 10,737 8,479
=========== =========== =========== =========== ===========
Basic earnings per common share* ......... 1.22 1.08 1.02 1.00 0.81
Diluted earnings per common share* ....... 1.21 1.07 1.00 0.98 0.80
Dividends declared per share* ........... 0.59 0.58 0.47 0.39 0.32
At or for the years ended December 31,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
RATIOS:
Net earnings as a percent of
average assets ........................ 1.39% 1.41% 1.47% 1.50% 1.32%
average stockholders' equity .......... 15.83% 14.60% 14.43% 15.89% 14.45%
Dividend payout ratio ............................ 48.36% 53.70% 46.08% 39.00% 39.51%
Average equity to average asset ratio ............ 8.78% 9.73% 10.22% 9.37% 9.13%
Net interest margin on average earning assets
(tax equivalent) .................... 4.48% 4.67% 4.80% 4.74% 4.75%
Allowance for loan losses as a percent of loans... 1.05% 1.02% 0.98% 0.88% 0.85%
Allowance for loan losses as a percent of
nonperforming assets ..................... 372% 295% 185% 230% 215%
At or for the years ended December 31,
-------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
OTHER DATA:
Loans originated and purchased ............. $ 570,652 528,325 516,497 341,766 363,891
Loans serviced for others .................. $ 203,836 159,451 169,378 156,288 142,878
Number of full time equivalent employees ... 423 434 412 368 361
Number of offices .......................... 30 31 27 26 24
Number of shareholders of record ........... 1,228 1,212 929 772 758
* revised for stock splits and dividends
All amounts have been restated to include mergers using the pooling of interests
accounting method and includes the impact of purchasing minority interest in
Valley Bank in 1998 and two Butte, Montana branches in 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is a Delaware corporation and at December 31, 2000 had six
commercial banks located in Montana as subsidiaries: Glacier Bank, Glacier Bank
of Whitefish, Glacier Bank of Eureka, First Security Bank of Missoula, Valley
Bank of Helena, and Big Sky Western Bank. Mountain West Bank of Coeur d'Alene,
Idaho is its seventh banking subsidiary. The following discussion and analysis
includes the effect of the pooling-of-interests merger with Big Sky Western Bank
and Mountain West Bank. Prior period information has been restated to include
amounts from the Mountain West and Big Sky mergers. The Company reported
earnings of $14,003,000 for the year ended December 31, 2000, or $1.22 basic
earnings per share, and $1.21 diluted earnings per share, compared to
$12,352,000, or $1.08 basic earnings per share and $1.07 diluted earnings per
share, for the year ended December 31, 1999, and $11,375,000, or $1.02 basic and
$1.00 diluted earnings per share for the year ended December 31, 1998. The
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 tables 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.
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
seven subsidiaries are members of the Federal Home Loan Bank of Seattle. This
membership provides for established lines of credit in the form of advances that
are a supplemental source of funds for lending and other general business
purposes. During 2000, all seven financial institutions maintained liquidity
levels in excess of regulatory requirements and deemed sufficient to meet
operating cash needs.
Retention of a portion of Glacier Bancorp, Inc.'s earnings resulted in
stockholders' equity at December 31, 2000 of $98,113,000, or 9.3% of assets,
which compares with $85,056,000, or 8.7% of assets at December 31, 1999.
Earnings retention and an increase in accumulated other comprehensive income of
15.4%, has exceeded the 8.5% growth in total assets. The stockholders' 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
The following table summarizes the Company's major asset and liability
components as a percentage of total assets at December 31, 2000, 1999, and 1998.
December 31,
-------------------------
2000 1999 1998
----- ----- -----
ASSETS:
Cash, and Cash Equivalents, Investment Securities, FHLB
and Federal Reserve Stock .................................. 26.7% 28.6% 23.5%
Real Estate Loans and Loans Held for Sale .................... 21.8% 23.1% 30.3%
Commercial Loans ............................................. 31.8% 28.7% 27.4%
Consumer Loans ............................................... 15.9% 15.9% 15.6%
Other Assets ................................................. 3.8% 3.7% 3.2%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
LIABILITIES AND STOCKHOLDER'S EQUITY:
Deposit Accounts ............................................. 68.2% 66.1% 69.5%
FHLB Advances ................................................ 18.6% 21.4% 16.0%
Other Borrowings and Repurchase Agreements ................... 2.8% 2.7% 2.4%
Other Liabilities ............................................ 1.1% 1.1% 1.4%
Stockholders' Equity ......................................... 9.3% 8.7% 10.7%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
22
23
EFFECT OF INFLATION AND CHANGING PRICES
Generally accepted accounting principles require the measurement of financial
position and operating results in terms of historical dollars, without
consideration for change in relative purchasing power over time due to
inflation. Virtually all assets of a financial institution are monetary in
nature, therefore, interest rates generally have a more significant impact on a
company's performance than does the effect of inflation.
GAP ANALYSIS
The following table gives a description of our GAP position for various time
periods. As of December 31, 2000, we had a negative GAP position at six and
twelve months. The cumulative GAP as a percentage of total assets for six months
is a negative 19.01% which compares to a negative 24.22% at December 31, 1999
and a positive 2.51% at December 31, 1998. 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. Using this analysis to join GAP information with earnings data 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.
Projected maturity or repricing
-----------------------------------------------------------------
0-6 6-12 1-5 More than
(dollars in thousands) Months Months years 5 years Total
--------- --------- --------- --------- ---------
ASSETS:
Interest bearing deposits ........... $ 10,330 - - - 10,330
Investment securities ............... 740 339 6,630 63,706 71,415
Mortgage-backed securities .......... 8,626 10,194 51,204 70,449 140,473
Floating rate loans ................. 191,600 27,155 113,303 2,365 334,423
Fixed rate loans .................... 75,182 55,849 187,698 80,409 399,138
Other earning assets ................ 16,435 - - 1,663 18,098
--------- --------- --------- --------- ---------
TOTAL INTEREST BEARING ASSETS ................ $ 302,913 93,537 358,835 218,592 973,877
========= ========= ========= ========= =========
LIABILITIES:
Interest-bearing deposits ........... 354,617 49,209 25,824 149,713 579,363
FHLB advances ....................... 104,001 69,570 16,490 6,730 196,791
Other borrowed funds and repurchase
agreements ........................ 29,382 147 - - 29,529
--------- --------- --------- --------- ---------
TOTAL INTEREST BEARING LIABILITIES ........... $ 488,000 118,926 42,314 156,443 805,683
========= ========= ========= ========= =========
Repricing gap ................................ $(185,087) (25,389) 316,521 62,149 168,194
Cumulative repricing gap ..................... (185,087) (210,476) 106,045 168,194
Cumulative gap as a % of total assets ........ -19.01% -21.61% 10.89% 17.27%
Gap Earnings Sensitivity (1) ................. $ (1,284)
Gap Earnings Sensitivity Ratio (2) ........... $ -9.17%
(1) Gap Earnings Sensitivity is the estimated effect on income, after taxes of
39%, of a 1% increase or decrease in interest rates (1% of (-$210,476 +
$82,086))
(2) Gap Earnings Sensitivity Ratio is Gap Earnings Sensitivity divided by the
estimated yearly earnings of $14,003. A 1% increase in interest rates has this
estimated percentage decrease 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. Interest-bearing checking and
regular savings are included in the more than 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.
23
24
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. The interest spread for 2000 was slightly lower than the prior
year. The net interest margin decreased slightly in 2000 from 4.67% to 4.48%,
primarily the result of an increase in rates on deposits and borrowings.
Increased asset levels, and increased interest-free funding resulted in
significantly higher net interest income.
December 31,(1)
----------------------
2000 1999 1998
---- ---- ----
Combined weighted average yield on loans and investments(2) ..... 8.51% 7.97% 8.21%
Combined weighted average rate paid on savings deposits
and borrowings ............................................ 4.89% 4.24% 4.47%
Net interest spread ............................................. 3.62% 3.73% 3.74%
Net interest margin(3) .......................................... 4.48% 4.67% 4.80%
(1) Weighted averages are computed without the effect of compounding daily
interest.
(2) Includes dividends received on capital stock of the FHLB 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.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999
FINANCIAL CONDITION
Total assets increased $82,711,000, or 8.5% over the December 31, 1999 asset
level. Total loans outstanding increased 12.6%, or $82,969,000 with the largest
increase occurring in the commercial classification which increased $61,316,000,
or 21.9%. Consumer loans increased $15,342,000, or 9.9%. Residential real estate
loans and loans held for sale increased $6,311,000 or 2.8%. Investment
securities increased $2,576,000, or 1.2%.
Total liabilities increased $69,654,000, or 7.8%, with non-interest bearing
deposits up $14,280,000, or 11.3%, and interest bearing deposits up $62,184,000,
or 12.0%. Federal Home Loan Bank advances decreased $11,859,000, or 5.7%.
Securities sold under repurchase agreements and other borrowed funds were up
$2,915,000, or 11.0%.
Total stockholders' equity increased $13,057,000, or 15.4%, the result of
earnings retention, and $5,689,000 net increase from the unrealized gain (loss)
on the securities available-for-sale.
RESULTS OF OPERATIONS
INTEREST INCOME - Interest income was $78,837,000 compared to $64,719,000 for
the years ended December 31, 2000 and 1999, respectively, a $14,118,000, or
21.8% increase. The weighted average yield on the loan and investment portfolios
increased from 7.97% to 8.51%, the results of higher interest rates, increased
volumes in loans, and the continued change in loan mix from real estate loans to
higher yielding commercial and consumer loans.
INTEREST EXPENSE - Interest expense was $37,357,000 for the year ended December
31, 2000, up from $27,635,000 in 1999, a $9,722,000, or 35.2%, increase. The
increase is due to higher interest rates and larger balances during the year in
interest bearing deposits and FHLB advances. Repurchase agreements and other
borrowed funds and related interest expense increased during 2000. The increased
interest expense resulting from the higher balances, and rates, in interest
bearing liabilities was partially offset by the increase in non-interest bearing
deposits. The cost of interest bearing liabilities increased from 4.2% in 1999
to 4.9% in 2000.
NET INTEREST INCOME - Net interest income was $41,480,000 compared to
$37,084,000 in 1999, an increase of $4,396,000, or 11.9%, the net result of the
items discussed in the above paragraphs.
24
25
PROVISION FOR LOAN LOSSES - The provision for loan losses was $1,864,000 for
2000, up slightly from $1,723,000 for 1999. Total loans charged off, net of
recoveries, were $787,000 in 2000, up from the $669,000 experienced in 1999. The
allowance for loan losses balance was $7,799,000 at year end 2000, up from
$6,722,000 at year end 1999, an increase of $1,077,000. At December 31, 2000,
the non-performing assets (non-accrual loans, accruing loans 90 days or more
overdue, real estate acquired by foreclosure or deed-in-lieu thereof, and
repossessed personal property) totaled $2,097,000 or .20% of total assets;
compared to $2,278,000 or .23% of total assets at December 31, 1999. The
allowance for loan losses was 372% of non-performing assets at December 31,
2000, up from 295% the prior year end. The allowance for loan losses as a
percentage of loans increased to 1.06% from 1.02 % at the 2000 and 1999 year
ends. The allowance for losses has increased primarily because of the changing
mix of loans from residential real estate to more commercial and consumer loans
which historically have greater credit risk along with higher loan rates.
NON-INTEREST INCOME - Total non-interest income of $13,294,000 was up $485,000,
or 3.8% from 1999. Loan fees and charges were $164,000 below the prior year, due
mostly to a slowdown in real estate loan origination and sale activity resulting
from higher mortgage rates in 2000. Increased volumes in deposit accounts
resulted in an increase in fee income of $1,423,000 from service charges and
other fees. Other income was up $257,000, most of which was from the sale of two
small branches in 2000. The gain on sale of investments was $51,000 in 2000, up
from $23,000 in 1999.
NON-INTEREST EXPENSE - Total non-interest expense increased from $29,096,000 to
$31,327,000 an increase of $2,231,000, or 7.7%. Compensation, employee benefits,
and related expenses increased $1,657,000, or 11.4% from 1999 resulting from
additional branch and data center staffing, increased activity volumes, and
other normal increases. Occupancy and equipment expense increased $658,000, or
15.8% from 1999, the result of bringing more data processing functions in-house,
the substantial investment in enhanced technology for transaction imaging and
internet banking, and additional expenses from the new branch offices. Data
processing and other expenses were up $98,000, or 8.1%,. The other category of
expense is the minority interest in subsidiaries which increased $10,000.
The efficiency ratio (non-interest expense)/(net interest income + non-interest
income), was 57.2% in 2000, down from 58.3% in 1999, which compares favorably
with similar sized bank holding companies nationally which average approximately
63.5%.
25
26
YEAR ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
FINANCIAL CONDITION
The Company acquired two Butte, Montana offices of Washington Mutual, with
approximately $73,000,000 in deposits, on October 8, 1999. Those branches have
been fully integrated into Glacier Bank, the largest subsidiary of the Company.
The following information includes the impact of that acquisition which was
accounted for as a purchase.
Total assets increased $187,199,000 or 23.8% over the December 31, 1998 asset
level. Total loans outstanding increased 14.2%, or $81,020,000 with the largest
increase occurring in the commercial classification which increased $63,720,000,
or 29.5%. Consumer loans increased $31,464,000 or 25.6%. Residential real estate
loans and loans held for sale declined $13,114,000 or 5.5%, in accordance with
management's plan to reduce the balances on real estate loans which generally
have lower interest rates than other loan types. Investment securities increased
$90,225,000, or 75.8%. Higher investment yields, a steeper yield curve, and the
Butte branch acquisition from Washington Mutual provided an opportunity to
increase the investment portfolio.
Total liabilities increased $186,289,000, or 26.5%, with non-interest bearing
deposits up $10,973,000, or 9.5%, and interest bearing deposits up $86,630,000
or 20.1%. Federal Home Loan Bank advances increased $82,764,000, or 65.7%.
Securities sold under repurchase agreements and other borrowed funds were up
$7,907,000, or 42.3%.
Total stockholders' equity increased $910,000 or 1.1%, the result of earnings
retention, offset by a $6,604,000 net change in accumulated other comprehensive
income (loss), the result of unrealized losses on securities available-for-sale.
RESULTS OF OPERATIONS
INTEREST INCOME - Interest income was $64,719,000 compared to $58,828,000 for
the years ended December 31, 1999 and 1998, respectively, a $5,891,000 or 10%
increase. The weighted average yield on the loan and investment portfolios
decreased from 8.2% to 8.0%. This decrease in yield was offset by increased
volumes in loans, and the change in loan mix from real estate loans to higher
yielding commercial and consumer loans, increasing interest income.
INTEREST EXPENSE - Interest expense was $27,635,000 for the year ended December
31, 1999, up from $25,470,000 in 1998, a $2,165,000, or 8.5%, increase. The
increase is due to higher balances in interest bearing deposits, Federal Home
Loan Bank advances, repurchase agreements and other borrowed funds during 1999.
The increased interest expense resulting from the higher balances in interest
bearing liabilities was partially offset by reduced rates and by the increase in
non-interest bearing deposits. The yield on interest bearing liabilities
declined from 4.5% in 1998 to 4.2% in 1999.
NET INTEREST INCOME - Net interest income was $37,084,000 compared to
$33,358,000 in 1998, an increase of $3,726,000, or 11.2%, the net result of the
items discussed in the above paragraphs.
PROVISION FOR LOAN LOSSES - The provision for loan losses was $1,723,000 for
1999, down slightly from $1,735,000 for 1998. Total loans charged off, net of
recoveries, were $669,000 in 1999, down from the $721,000 experienced in 1998.
The allowance for loan losses balance was $6,722,000 at year end 1999, up from
$5,668,000 at year end 1998, an increase of $1,054,000. At December 31, 1999,
the non-performing assets (non-accrual loans, accruing loans 90 days or more
overdue, real estate acquired by foreclosure or deed-in-lieu thereof, and
repossessed personal property) totaled $2,278,000 or .23% of total assets;
compared to $3,067,000 or .39% of total assets at December 31, 1998. The
allowance for loan losses was 295% of non-performing assets at December 31,
1999, up from 185% the prior year end. The allowance for loan losses as a
percentage of loans increased to 1.02% from .98% at the 1999 and 1998 year ends.
The allowance for losses has increased primarily because of the changing mix of
loans from residential real estate to more commercial and consumer loans which
historically have greater credit risk along with higher loan rates.
NON-INTEREST INCOME - Total non-interest income of $12,809,000 was down
$787,000, or 5.8% from 1998 which included one time gains on the sale of the
credit card portfolio of $457,000, and $102,000 from the sale of the trust
business. Loan fees and charges were approximately the same as the prior year.
Increased volumes in deposit accounts
26
27
resulted in an increase in fee income of $499,000 from service charges and other
fees. Other income was down $485,000 most of which was the gain on sale of
credit card and trust business in 1998. The gain on sale of investments was
$23,000 in 1999, down from $62,000 in 1998. Real estate loans sold totaled
$158,204,000 in 1999 down from $205,783,000 in 1998. Commercial loan sales
totaled $10,796,000 and $8,756,000 for 1999 and 1998, respectively.
NON-INTEREST EXPENSE - Total non-interest expense increased from $27,170,000 to
$29,096,000 an increase of $1,926,000, or 7.1%. Compensation, employee benefits,
and related expenses increased $1,166,000, or 8.7% from 1998, with the new
branches and expanded data processing staff included. Occupancy and equipment
expense increased $585,000, or 16.3% from 1998, the result of bringing more data
processing functions in-house, the substantial investment in enhanced technology
for transaction imaging and internet banking, and additional expenses from the
new branch offices. Data processing and other expenses were up $269,000, or
2.7%, primarily the result of increased volumes and $78,000 in amortization of
the premium paid for the Butte acquisition. The other category of expense is the
minority interest in subsidiaries which decreased $94,000, resulting from the
acquisition of minority shares in 1998.
The efficiency ratio (non-interest expense)/(net interest income + non-interest
income), was 58.3% in 1999, up from 57.9% in 1998, as compared with similar
sized bank holding companies nationally which average approximately 61.28%.
27
28
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 loner-term
interest rate risk. The simulation model captures the impact of changing
interest rates on the interest income received and interest expense paid on all
assets and liabilities reflected on the Company's statement of financial
condition. This sensitivity analysis is compared to ALCO policy limits which
specify a maximum tolerance lever 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, 2000 and 1999 as compared to the 10% Board approved
policy limit.
+200 bp 2000 1999
- ------- ---- ----
Estimated sensitivity ....................... -2.75% -3.66%
Estimated decrease in net interest income ... $(1,141) (1,357)
- -200 bp
- -------
Estimated sensitivity ....................... 1.73% 2.68%
Estimated increase in net interest income ... $ 718 994
The preceding sensitivity analysis does not represent a 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 cash flows, and
others. While assumptions are developed based upon current economic and local
market conditions, the Company cannot make any assurances as to the predictive
nature of these assumptions including how customer preferences or competitor
influences might change. Also, as market conditions vary from those assumed in
the sensitivity analysis, actual results will also differ due to
prepayment/refinancing levels likely deviating from those assumed, the varying
impact of interest rate change caps or floors on adjustable rate assets, the
potential effect of changing debt service levels on customers with adjustable
rate loans, depositor early withdrawals and product preference changes, and
other internal/external variables. Furthermore, the sensitivity analysis does
not reflect actions that ALCO might take in responding to or anticipating
changes in interest rates.
FORWARD-LOOKING INFORMATION
In addition to historical information, this report contains certain "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 (PSLRA). This statement is included for the express purpose
of availing the Company, of the protections of the safe harbor provisions of the
PSLRA. The forward-looking statements contained in this report are subject to
factors, risks, and uncertainties that might cause actual results to differ
materially form those projected. Important factors that might cause such a
material difference include, but are not limited to, those discussed in this
section of the report. In addition, the following items are among the factors
that could cause actual results to differ materially from the forward looking
statements in this report: general economic conditions, including their impact
on capital expenditures; business conditions in the banking industry; the
regulatory environment; new legislation; vendor quality and efficiency; employee
retention factors; rapidly changing technology and evolving banking industry
standards; competitive standards; competitive factors, including increased
competition with community, regional and national financial institutions;
fluctuating interest rate environments; and similar matters. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date of the statement. The Company
undertakes no obligation to publicly revise or update these forward-looking
statements to reflect events or circumstances that arise after the date of this
report. Readers should carefully review the risk factors described in this and
other documents we file from time to time with the Securities and Exchange
Commission.
28
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements and related documents
are set forth in the Annual Report on Form 10-K on the pages indicated.
Page
----
Independent Auditors' Report 30
Consolidated Statements of Financial Condition 32
Consolidated Statements of Operations 33
Consolidated Statements of Stockholders' Equity and Comprehensive Income 34
Consolidated Statements of Cash Flows 35
Notes to Consolidated Financial Statements 36-59
29
30
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, 2000 and 1999 and
the related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2000. 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 did
not audit the 1998 financial statements of Mountain West Bank, acquired by
Glacier Bancorp, Inc. on February 4, 2000 in a pooling of interests, which
financial statements reflect net interest income and net income constituting
9.6% and 4.0%, respectively, of the related 1998 consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Mountain West
Bank, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, based on our audits and the report of the other auditors, 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Billings, Montana
February 2, 2001
30
31
Report of Independent Accountants
The Board of Directors and Stockholders
Mountain West Bank
In our opinion, the statements of income, comprehensive income, changes in
stockholders' equity and of cash flows for the year ended March 31, 1999 of
Mountain West Bank (not presented separately herein) present fairly, in all
material respects, the results of operations and cash flows of Mountain West
Bank for the year ended March 31, 1999, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion. We have
not audited the financial statements of Mountain West Bank for any period
subsequent to March 31, 1999.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
May 19, 1999
31
32
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
-----------------------------
(dollars in thousands except per share data) 2000 1999
----------- -----------
ASSETS:
Cash on hand and in banks ........................................................... $ 41,456 50,590
Federal funds sold .................................................................. -- 64
Interest bearing cash deposits ...................................................... 10,330 1,711
----------- -----------
Cash and cash equivalents ...................................................... 51,786 52,365
Investment securities, available-for-sale ........................................... 211,888 209,312
Loans receivable, net ............................................................... 726,503 646,312
Loans held for sale ................................................................. 7,058 5,896
Premises and equipment, net ......................................................... 25,016 24,670
Real estate and other assets owned, net ............................................. 291 550
Federal Home Loan Bank of Seattle stock, at cost .................................... 16,436 15,134
Federal Reserve Bank stock, at cost ................................................. 1,662 1,467
Accrued interest receivable ......................................................... 6,637 5,611
Goodwill and other intangibles, net of accumulated amortization of $1,556
and $1,012 at December 31, 2000, and 1999, respectively .......................... 6,493 7,035
Deferred tax asset .................................................................. -- 2,959
Other assets ........................................................................ 2,942 2,690
----------- -----------
$ 1,056,712 974,001
=========== ===========
LIABILITIES:
Deposits - non-interest bearing ..................................................... $ 141,207 126,927
Deposits - interest bearing ......................................................... 579,363 517,179
Advances from Federal Home Loan Bank of Seattle ..................................... 196,791 208,650
Securities sold under agreements to repurchase ...................................... 24,877 19,766
Other borrowed funds ................................................................ 4,652 6,848
Accrued interest payable ............................................................ 4,591 2,717
Current income taxes ................................................................ 17 108
Deferred income taxes ............................................................... 578 --
Minority interest ................................................................... 338 308
Other liabilities ................................................................... 6,185 6,442
----------- -----------
Total liabilities .............................................................. 958,599 888,945
STOCKHOLDERS' EQUITY:
Preferred shares, 1,000,000 shares authorized. None outstanding
at December 31, 2000 and 1999 .................................................... -- --
Common stock, $.01 par value per share. 50,000,000 shares authorized, 11,447,150
and 10,394,041 outstanding at December 31, 2000 and 1999, respectively .......... 114 104
Paid-in capital ..................................................................... 101,828 87,387
Retained earnings (accumulated deficit) - substantially restricted .................. (4,087) 2,996
Accumulated other comprehensive income (loss) ....................................... 258 (5,431)
----------- -----------
Total stockholders' equity ..................................................... 98,113 85,056
----------- -----------
$ 1,056,712 974,001
=========== ===========
See accompanying notes to consolidated financial statements
32
33
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
---------------------------------
(dollars in thousands except per share data) 2000 1999 1998
------- ------- -------
INTEREST INCOME:
Real estate loans .................................... $19,557 17,875 19,404
Commercial loans ..................................... 28,784 21,499 18,250
Consumer and other loans ............................. 14,856 12,367 11,907
Investment securities and other ...................... 15,640 12,978 9,267
------- ------- -------
TOTAL INTEREST INCOME .............................. 78,837 64,719 58,828
------- ------- -------
INTEREST EXPENSE:
Deposits ............................................. 22,674 16,494 16,567
Advances ............................................. 13,454 9,460 7,939
Securities sold under agreements to repurchase ....... 949 1,318 772
Other borrowed funds ................................. 280 363 192
------- ------- -------
TOTAL INTEREST EXPENSE ............................. 37,357 27,635 25,470
------- ------- -------
NET INTEREST INCOME ................................ 41,480 37,084 33,358
Provision for loan losses ............................ 1,864 1,723 1,735
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ................................... 39,616 35,361 31,623
NON-INTEREST INCOME:
Service charges and other fees ....................... 7,839 6,416 5,917
Miscellaneous loan fees and charges .................. 1,917 2,081 2,089
Gain on sale loans ................................... 2,049 3,108 3,862
Gain on sale of investments, net ..................... 51 23 62
Other income ......................................... 1,438 1,181 1,666
------- ------- -------
TOTAL NON-INTEREST INCOME .......................... 13,294 12,809 13,596
------- ------- -------
NON-INTEREST EXPENSE:
Compensation, employee benefits and related expenses . 16,214 14,557 13,391
Occupancy expense .................................... 4,830 4,172 3,587
Data processing expense .............................. 1,313 1,215 1,347
Other expense ........................................ 8,909 9,101 8,700
Minority interest .................................... 61 51 145
------- ------- -------
TOTAL NON-INTEREST EXPENSE ......................... 31,327 29,096 27,170
------- ------- -------
Earnings before income taxes ................................. 21,583 19,074 18,049
Federal and state income tax expense ...................... 7,580 6,722 6,674
------- ------- -------
NET EARNINGS ................................................. $14,003 12,352 11,375
======= ======= =======
BASIC EARNINGS PER SHARE ............................. $ 1.22 1.08 1.02
DILUTED EARNINGS PER SHARE ........................... $ 1.21 1.07 1.00
See accompanying notes to consolidated financial statements.
33
34
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Years ended December 31, 2000, 1999, and 1998
Common Stock
----------------------------- Paid-in
(Dollars in thousands except per share data) Shares Amount capital
----------- ----------- -----------
Balance at December 31, 1997 ............................................. 8,259,742 $ 83 42,760
Comprehensive income:
Net earnings ........................................................ -- -- --
Unrealized loss on securities, net of reclassification adjustment ... -- -- --
Total comprehensive income ............................................... -- -- --
Transfer from retained earnings to additional paid in capital ............ -- -- 100
Cash dividends declared ($.57 per share) ................................. -- -- --
Stock options exercised .................................................. 153,459 1 1,572
Tax benefit from stock related compensation .............................. -- -- 386
Increase in stock grant earned ........................................... -- -- 15
10% stock dividend ....................................................... 847,131 8 19,149
Additional shares issued ................................................. 83,761 1 2,198
----------- ----------- -----------
Balance at December 31, 1998 ............................................. 9,344,093 $ 93 66,180
Comprehensive income:
Net earnings ........................................................ -- -- --
Unrealized loss on securities, net of reclassification adjustment ... -- -- --
Total comprehensive income ............................................... -- -- --
Cash dividends declared ($.64 per share) ................................. -- -- --
Stock options exercised .................................................. 113,049 1 1,091
Tax benefit from stock related compensation .............................. -- -- 240
10% stock dividend ....................................................... 936,899 10 19,876
Fiscal year conforming adjustment ........................................ -- -- --
----------- ----------- -----------
Balance at December 31, 1999 ............................................. 10,394,041 $ 104 87,387
Comprehensive income:
Net earnings ........................................................ -- -- --
Unrealized gain on securities, net of reclassification adjustment ... -- -- --
Total comprehensive income ............................................... -- -- --
Cash dividends declared ($.59 per share) ................................. -- -- --
Stock options exercised .................................................. 14,161 -- 134
Tax benefit from stock related compensation .............................. -- -- 16
10% stock dividend ....................................................... 1,039,608 10 14,302
Dissenting Mountain West shareholders .................................... (660) -- (11)
----------- ----------- -----------
Balance at December 31, 2000 ............................................. 11,447,150 $ 114 101,828
=========== =========== ===========
Retained
earnings Accumulated
(accumulated other comp- Total
deficit) rehensive stock-
substantially income holders'
(Dollars in thousands except per share data) restricted (loss) equity
------------- ----------- -----------
Balance at December 31, 1997 ............................................. 29,504 1,191 73,538
Comprehensive income:
Net earnings ........................................................ 11,375 -- 11,375
Unrealized loss on securities, net of reclassification adjustment ... -- (18) (18)
-----------
Total comprehensive income ............................................... -- -- 11,357
-----------
Transfer from retained earnings to additional paid in capital ............ (100) -- --
Cash dividends declared ($.57 per share) ................................. (4,922) -- (4,922)
Stock options exercised .................................................. -- -- 1,573
Tax benefit from stock related compensation .............................. -- -- 386
Increase in stock grant earned ........................................... -- -- 15
10% stock dividend ....................................................... (19,157) -- --
Additional shares issued ................................................. -- -- 2,199
----------- ----------- -----------
Balance at December 31, 1998 ............................................. 16,700 1,173 84,146
Comprehensive income:
Net earnings ........................................................ 12,352 -- 12,352
Unrealized loss on securities, net of reclassification adjustment ... -- (6,604) (6,604)
-----------
Total comprehensive income ............................................... -- -- 5,748
-----------
Cash dividends declared ($.64 per share) ................................. (6,076) -- (6,076)
Stock options exercised .................................................. -- -- 1,092
Tax benefit from stock related compensation .............................. -- -- 240
10% stock dividend ....................................................... (19,905) -- (19)
Fiscal year conforming adjustment ........................................ (75) -- (75)
----------- ----------- -----------
Balance at December 31, 1999 ............................................. 2,996 (5,431) 85,056
Comprehensive income:
Net earnings ........................................................ 14,003 -- 14,003
Unrealized gain on securities, net of reclassification adjustment ... -- 5,689 5,689
-----------
Total comprehensive income ............................................... -- -- 19,692
-----------
Cash dividends declared ($.59 per share) ................................. (6,752) -- (6,752)
Stock options exercised .................................................. -- -- 134
Tax benefit from stock related compensation .............................. -- -- 16
10% stock dividend ....................................................... (14,334) (22)
Dissenting Mountain West shareholders .................................... -- -- (11)
----------- ----------- -----------
Balance at December 31, 2000 ............................................. (4,087) 258 98,113
=========== =========== ===========
Year ended December 31,
-----------------------------------
Disclosure of reclassification amount: 2000 1999 1998
------- ------- -------
Unrealized and realized holding gains (losses) arising during the year ......... $ 9,347 (10,929) (98)
Transfer from held to maturity ................................................. -- 288 --
Tax (expense) benefit .......................................................... (3,693) 4,021 39
------- ------- -------
Net after tax ............................................................. 5,654 (6,620) (59)
------- ------- -------
Reclassification adjustment for gains included in net income ..................... 51 23 62
Tax expense .................................................................... (16) (7) (21)
------- ------- -------
Net after tax ............................................................. 35 16 41
------- ------- -------
Net change in unrealized gain (loss) on available-for-sale securities ... $ 5,689 (6,604) (18)
======= ======= =======
See accompanying notes to consolidated financial statements.
34
35
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
-----------------------------------------
(dollars in thousands) 2000 1999 1998
--------- --------- ---------
OPERATING ACTIVITIES :
Net earnings ........................................................... $ 14,003 12,352 11,375
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Mortgage loans held for sale originated or acquired .................. (103,284) (143,313) (207,622)
Proceeds from sales of mortgage loans held for sale .................. 102,122 158,204 205,783
Proceeds from sales of commercial loans .............................. 23,314 10,796 8,756
Provision for loan losses ............................................ 1,864 1,723 1,735
Depreciation of premises and equipment ............................... 2,315 1,883 1,596
Amortization of goodwill and deposit premium ......................... 542 305 165
Gain on sale of investments .......................................... (51) (23) (62)
Gain on sale of loans ................................................ (2,049) (3,108) (3,862)
Amortization of investment securities premiums and discounts, net .... 162 196 (196)
FHLB stock dividends ................................................. (1,022) (1,038) (973)
Gain on sale of branches ............................................. (198) -- --
Deferred tax benefit ................................................. (139) (207) (99)
Net (increase) decrease in accrued interest receivable ............... (1,026) (867) 15
Net increase in accrued interest payable ............................. 1,874 394 1,155
Net increase (decrease) in current income taxes ...................... (75) 475 (632)
Net (increase) decrease in other assets .............................. 2 (320) (77)
Net increase (decrease) in other liabilities and minority interest ... (108) (683) 1,439
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......................... 38,246 36,769 18,496
--------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of investment
securities available-for-sale ...................................... 34,042 38,279 38,142
Purchases of investment securities available-for-sale .................. (27,335) (142,852) (36,916)
Proceeds from maturities and prepayments of investment
securities held-to-maturity ........................................ -- 841 9,775
Purchases of investment securities held-to-maturity .................... -- 12,057 (1,130)
Principal collected on installment and commercial loans ................ 231,674 169,429 162,626
Installment and commercial loans originated or acquired ................ (334,904) (290,174) (236,378)
Principal collections on mortgage loans ................................ 128,714 98,397 95,945
Mortgage loans originated or acquired .................................. (132,464) (94,838) (72,497)
Net purchase of FHLB and FRB stock ..................................... (475) (1,788) (879)
Net payments for sale of branches ...................................... (901) -- --
Net addition of premises and equipment ................................. (3,307) (5,799) (4,791)
Acquisition of minority interest ....................................... -- -- (236)
Acquisition of branch deposits ......................................... -- (4,739) --
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES ............................. (104,956) (221,187) (46,339)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase in deposits ............................................... 81,878 99,263 59,586
Net increase (decrease) in FHLB advances and other borrowed funds ...... (14,055) 87,971 (28,593)
Net increase (decrease) in securities sold under repurchase agreements . 5,111 2,527 (4,434)
Cash dividends paid to stockholders .................................... (6,904) (5,923) (4,237)
Proceeds from exercise of stock options and other stock issued ......... 101 1,073 1,573
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................... 66,131 184,911 23,895
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................... (579) 493 (3,948)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 52,365 51,872 55,252
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $ 51,786 52,365 51,304
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest ................................. $ 35,483 27,241 24,315
Cash paid during the year for income taxes ............................. $ 7,794 6,247 7,348
NON-CASH INVESTING AND FINANCING ACTIVITY
During the year ended December 31, 2000, the Company sold branches with
net loans of $3,660 and deposits of $5,414. At December 31, 2000 and
1999, the Company had dividends payable of $1,758 and $1,910,
respectively. Dividends payable are included in other liabilities.
See accompanying notes to consolidated financial statements.
35
36
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 and Idaho 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 accounting principles generally accepted in the United
States of America 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 seven subsidiaries, Glacier Bank ("Glacier"), First Security Bank of
Missoula ("First Security"), Glacier Bank of Whitefish ("Whitefish"), Glacier
Bank of Eureka ("Eureka"), Valley Bank of Helena ("Valley), Big Sky Western
Bank, ("Big Sky"), Mountain West Bank in Idaho, ("Mountain West"), and Community
First, Inc. ("CFI"). All significant inter-company transactions have been
eliminated in consolidation. The Company owns 94% of the outstanding stock of
Whitefish, 98% of Eureka, and 100% of Glacier, First Security, Valley, Big Sky,
Mountain West and CFI.
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 the 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. Big Sky was acquired on January 20, 1999 and Mountain West was
acquired February 4, 2000. The pooling of interests method of accounting was
used for the merger transaction with HUB, Big Sky, and Mountain West. Under this
method, financial information for each of the periods presented includes the
combined companies as though the merger had occurred prior to the earliest 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.
(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 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.
36
37
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . CONTINUED
Premiums and discounts on investment securities are amortized or accreted into
income using a method that approximates the level-yield interest method. The
cost of any investment, if sold, is determined by specific identification.
Declines in the fair value of securities below carrying value that are other
than temporary are charged to expense as realized losses and the related
carrying value is reduced to fair value.
Effective January 1, 1999, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting
and reporting standards that derivative instruments (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 133
requires that changes in the derivatives' fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The adoption of SFAS
133 had no impact on the financial statements of the Company except that it
allowed for a one-time reclassification of the investment portfolio from
held-to-maturity to either trading or available-for-sale. The net effect on the
January 1, 1999 consolidated statement of financial condition of this
reclassification of all the Company's held-to-maturity securities, with an
amortized cost of approximately $8,272,000, was an increase in total assets of
$288,000, deferred tax liabilities of $98,000 and unrealized gains on securities
available-for-sale of $190,000.
(e) LOANS RECEIVABLE
Loans that are intended to be held to maturity are reported at their unpaid
principal balance less chargeoffs, specific valuation accounts, and any deferred
fees or costs on originated loans. Purchased loans are reported net of
unamortized premiums or discounts. 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.
Loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full, timely collection of interest or
principal or when a loan becomes contractually past due by ninety days or more
with respect to interest or principal unless such past due loan is well secured
and in the process of collection. When a loan is placed on nonaccrual status,
interest previously accrued but not collected is reversed against current period
interest income. 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.
(f) LOANS HELD FOR SALE
Mortgage and commercial 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. A sale is
recognized when the Company surrenders control of the loan and consideration,
other than beneficial interests in the loan, is received in exchange. A gain is
recognized to the extent the selling price exceeds the carrying value.
(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 impaired loans. 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
37
38
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . CONTINUED
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 cases, impairment is measured
by determining the current value of the collateral, reduced by anticipated
selling costs. The Company recognizes interest income on impaired loans only to
the extent the cash payments are received.
(h) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less depreciation. Depreciation is
computed on a straight-line method over the estimated useful lives or the term
of the related lease.
(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, less selling costs. 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, a loss is recognized and the asset carrying value
is reduced.
(j) RESTRICTED STOCK INVESTMENTS
The Company holds stock in the Federal Home Loan Bank (FHLB) and the Federal
Reserve Bank (FRB). FHLB and FRB stocks are restricted because they may only be
sold to another member institution or the FHLB or FRB at their par values. Due
to restrictive terms, and the lack of a readily determinable market value, FHLB
and FRB stocks are carried at cost
(k) GOODWILL AND OTHER INTANGIBLES
The excess of purchase price over the fair value of net assets from acquisitions
("Goodwill") is being amortized using the straight-line method over periods of
primarily 5 to 25 years. The Company assesses the recoverability of Goodwill by
determining whether the unamortized balance related to an acquisition can be
recovered through undiscounted future cash flows over the remaining amortization
period. As of December 31, 2000 and 1999, the carrying value of goodwill was
$4,946,000 and $5,289,000, respectively.
Core deposit intangibles represent the intangible value of depositor
relationships resulting from deposit liabilities assumed in acquisitions and are
amortized using an accelerated method based on an estimated runoff of the
related deposits, not exceeding 10 years. As of December 31, 2000 and 1999, the
carrying value of core deposit intangibles was $1,547,000 and $1,746,000,
respectively
(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 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.
38
39
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . CONTINUED
(n) 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, 2000 and 1999 there were no
assets that were considered impaired.
(o) MORTGAGE SERVICING RIGHTS
The Company recognizes mortgage servicing rights when rights are acquired
through purchase or through sale of financial assets. The mortgage servicing
rights are assessed for impairment based on the fair value of the mortgage
servicing rights. Fair value is determined using prices for similar assets with
similar characteristics when available, based upon discounted cash flows using
market-based assumptions. Impairment is determined by stratifying rights by
predominant characteristics, such as interest rates and terms.
As of December 31, 2000 and 1999 the carrying value of servicing rights was
approximately $984,000 and $1,007,000, respectively. Amortization expense of
$85,000, $175,000, and $145,000 was recognized in the years ended December 31,
2000, 1999, and 1998, respectively. The servicing rights are included in other
assets on the balance sheet and are amortized over the life of the loan. There
was no impairment of carrying value at December 31, 2000 or 1999. At December
31, 2000, the fair value of mortgage servicing rights was approximately
$1,358,000.
(p) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings available to
common stockholders by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per share is computed by dividing
such net earnings by the weighted average number of common shares used to
compute basic EPS plus the incremental amount of potential common stock
determined by the treasury stock method. Previous period amounts are restated
for the effect of stock dividends and splits.
(q) COMPREHENSIVE INCOME
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 other
comprehensive income is unrealized gains and losses on available-for-sale
securities.
(r) RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform to the 2000 presentation.
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, 2000 was $4,560,000
39
40
3. INVESTMENT SECURITIES, AVAILABLE FOR SALE
A comparison of the amortized cost and estimated fair value of the Company's
investment securities is as follows at:
DECEMBER 31, 2000
Dollars in thousands Gross Unrealized Estimated
Weighted Amortized --------------------- Fair
Yield Cost Gains Losses Value
-------- --------- ------- ------- ---------
AVAILABLE-FOR-SALE
U.S. GOVERNMENT AND FEDERAL AGENCIES
maturing within one year ..................... 5.05% 500 -- (3) 497
maturing one year through five years ......... 6.33% 4,975 5 (25) 4,955
maturing five years through ten years ........ 6.92% 3,050 24 (11) 3,063
maturing after ten years ..................... 7.20% 1,070 -- (12) 1,058
------- ------- ------- -------
6.55% 9,595 29 (51) 9,573
------- ------- ------- -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ..................... 5.47% 600 1 (19) 582
maturing one year through five years ......... 5.17% 1,635 41 (1) 1,675
maturing five years through ten years ........ 7.53% 4,047 34 (99) 3,982
maturing after ten years ..................... 5.50% 54,561 1,612 (570) 55,603
------- ------- ------- -------
5.63% 60,843 1,688 (689) 61,842
------- ------- ------- -------
MORTGAGE-BACKED SECURITIES ..................... 6.79% 39,374 268 (157) 39,485
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ....... 6.94% 101,635 396 (1,043) 100,988
------- ------- ------- -------
TOTAL AVAILABLE FOR SALE SECURITIES ..... 6.52% 211,447 2,381 (1,940) 211,888
======= ======= ======= =======
DECEMBER 31, 1999
Dollars in thousands Gross Unrealized Estimated
Weighted Amortized --------------------- Fair
Yield Cost Gains Losses Value
-------- --------- ------- ------- ---------
AVAILABLE FOR SALE
U.S. GOVERNMENT AND FEDERAL AGENCIES
maturing within one year .................... 5.98% 1,998 3 (4) 1,997
maturing one year through five years ........ 6.37% 4,980 15 (105) 4,891
maturing five years though ten years ........ 6.76% 4,546 -- (221) 4,325
maturing after ten years .................... 5.20% 1,322 2 (13) 1,310
------- ------- ------- -------
6.33% 12,846 20 (343) 12,523
------- ------- ------- -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .................... 6.50% 397 1 (49) 349
maturing one year through five years ........ 4.92% 1,302 14 (5) 1,311
maturing five years through ten years ....... 6.88% 4,120 25 (20) 4,125
maturing after ten years .................... 5.21% 46,698 39 (2,985) 43,752
------- ------- ------- -------
5.34% 52,517 79 (3,059) 49,537
------- ------- ------- -------
MORTGAGE-BACKED SECURITIES .................... 6.96% 44,528 164 (1,310) 43,382
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ...... 6.94% 108,374 126 (4,630) 103,870
------- ------- ------- -------
TOTAL AVAILABLE FOR SALE SECURITIES ........... 6.52% 218,265 389 (9,342) 209,312
======= ======= ======= =======
40
41
3. INVESTMENT SECURITIES . . . CONTINUED
The book value of investment securities is as follows at:
December 31, 1998
--------------------------------------------------
(dollars in thousands) Held-to-Maturity Available-for-Sale Totals
---------------- ------------------ ------
U.S. Government and Federal Agencies ......... $ 4,876 16,447 21,323
State and Local Governments and Other Issues . 4,184 40,037 44,221
Mortgage-Backed Securities ................... 280 25,738 26,018
Real Estate Mortgage Investment Conduits ..... - 27,813 27,813
-------- -------- --------
$ 9,340 110,035 119,375
======== ======== ========
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 interest rate swaps, options or futures
contracts.
Gross proceeds from sales of investment securities for the years ended December
31, 2000, 1999, and 1998 were approximately $19,253,000, $10,770,000 and
$10,476,000 respectively, resulting in gross gains of approximately $127,000,
$72,000 and $65,000 and gross losses of approximately $76,000, $49,000 and
$3,000, respectively.
At December 31, 2000, the Company had investment securities with carrying values
of approximately $73,616,000 pledged as security for deposits of several local
government units, securities sold under agreements to repurchase, and as
collateral for treasury tax and loan borrowings.
The Real Estate Mortgage Investment Conduits are backed by the FNMA, GNMA, or
FHLMC. At December 31, 2000 and 1999, the minority interest share of the
unrealized gain (loss) was approximately $6,000 and ($22,000), respectively.
4. LOANS RECEIVABLE
The following is a summary of loans receivable at:
December 31,
-------------------------
(dollars in thousands) 2000 1999
--------- ---------
Residential first mortgage ...................... $ 224,631 219,482
Loans held for sale ............................. 7,058 5,896
Commercial real estate .......................... 198,414 154,155
Commercial ...................................... 142,519 125,462
Consumer ........................................ 86,336 87,967
Home equity ..................................... 83,539 66,566
--------- ---------
742,497 659,528
Net deferred loan fees, premiums and discounts ... (1,137) (598)
Allowance for loan losses ........................ (7,799) (6,722)
--------- ---------
$ 733,561 652,208
========= =========
The following is a summary of activity in allowance for losses on loans:
Years ended December 31,
-----------------------------------
(dollars in thousands) 2000 1999 1998
------- ------- -------
Balance, beginning of period ...... $ 6,722 5,668 4,654
Net charge offs ................... (787) (669) (721)
Provision ......................... 1,864 1,723 1,735
------- ------- -------
Balance, end of period ............ $ 7,799 6,722 5,668
======= ======= =======
41
42
4. LOANS RECEIVABLE . . . CONTINUED
The following is the allocation of allowance for loan losses and percentage of
loans in each category at:
DECEMBER 31, 2000 December 31, 1999
---------------------- ----------------------
PERCENT OF Percent of
OF LOANS IN of loans in
AMOUNT CATEGORY Amount category
------ ----------- ------ -----------
(dollars in thousands)
Residential first mortgage and loans held for sale . $1,227 31.2% $1,174 34.2%
Commercial real estate ............................. 2,300 26.7% 1,526 23.4%
Other commercial ................................... 2,586 19.2% 2,466 19.0%
Consumer loans ..................................... 983 11.6% 1,087 13.3%
Home equity ........................................ 703 11.3% 469 10.1%
------ ----- ------ -----
$7,799 100.0% $6,722 100.0%
====== ===== ====== =====
Substantially all of the Company's loans receivable are with customers within
the Company's market area. Although the Company has a diversified loan
portfolio, a substantial portion of its customers' ability to honor their
contracts is dependent upon the economic performance in the Company's market
areas.
Impaired loans for the years ended December 31, 2000, 1999, and 1998 were
approximately $1,154,000, $1,463,000, and $1,570,000, respectively, of which no
impairment allowance was deemed necessary. The average recorded investment in
impaired loans for the years ended December 31, 2000, 1999, and 1998 was
approximately $1,309,000, $1,517,000, and $1,095,000, respectively. Interest
income that would have been recorded on impaired loans if such loans had been
current for the entire period would have been approximately $101,000, $132,000,
and $103,000 for the years ended December 31, 2000, 1999, and 1998,
respectively. Interest income recognized on impaired loans for the years ended
December 31, 2000, 1999, and 1998 was not significant.
The weighted average interest rate on loans was 8.91% and 8.53% at December 31,
2000 and 1999, respectively.
At December 31, 2000, 1999 and 1998 loans sold and serviced for others were
$146,534,000, $159,451,000, and $169,378,000, 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 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.
The Company had outstanding commitments as follows (in thousands):
December 31,
----------------------
2000 1999
-------- --------
Loans and loans in process ........ $111,141 74,315
Unused consumer lines of credit ... 27,270 26,464
Letters of credit ................. 6,342 6,918
-------- --------
$144,753 107,697
======== ========
42
43
4. LOANS RECEIVABLE . . . CONTINUED
The following is a summary of accrued interest receivable (in thousands):
December 31,
------------------
2000 1999
------ ------
Investment securities ... $1,953 1,896
Loans receivable ........ 4,684 3,715
------ ------
$6,637 5,611
====== ======
The Company has entered into transactions with its executive officers,
directors, significant shareholders, and their affiliates. The aggregate amount
of loans to such related parties at December 31, 2000 was approximately
$13,372,000. During 2000, new loans to such related parties were approximately
$7,292,000 and repayments were approximately $4,665,000.
5. PREMISES AND EQUIPMENT
Premises and equipment consist of the following at:
December 31,
-----------------------
(dollars in thousands) 2000 1999
-------- --------
Land ................................................... $ 3,968 4,118
Office buildings and construction in progress........... 18,401 17,435
Furniture, fixtures and equipment ...................... 13,590 12,291
Leasehold improvements ................................. 1,498 1,341
Accumulated depreciation ............................... (12,441) (10,515)
-------- --------
$ 25,016 24,670
======== ========
6. DEPOSITS
Deposits consist of the following at:
DECEMBER 31, 2000 December 31, 1999
--------------------------------------- -------------------------
Weighted
(dollars in thousands) Average Rate AMOUNT PERCENT Amount Percent
------------ -------- ---------- -------- ----------
Demand accounts ................................ 0.0% $141,207 19.6% $126,927 19.7%
-------- ---------- -------- ----------
NOW accounts ................................... 1.1% 105,616 14.7% 102,917 16.0%
Savings accounts ............................... 1.8% 44,171 6.1% 47,312 7.3%
Money market demand accounts ................... 4.5% 164,917 22.9% 156,692 24.3%
Certificate accounts:
4.00% and lower ........................... 584 0.1% 1,715 0.3%
4.01% to 5.00% ............................ 14,742 2.0% 70,153 10.9%
5.01% to 6.00% ............................ 57,997 8.0% 110,490 17.2%
6.01% to 7.00% ............................ 183,896 25.6% 27,328 4.2%
7.01% to 8.00% ............................ 7,416 1.0% 412 0.1%
8.01% and higher .......................... 24 0.0% 160 0.0%
-------- ---------- -------- ----------
Total certificate accounts ......... 5.8% 264,659 36.7% 210,258 32.7%
-------- ---------- -------- ----------
Total interest bearing deposits ................ 4.2% 579,363 80.4% 517,179 80.3%
-------- ---------- -------- ----------
Total deposits ................................. 3.3% $720,570 100.0% 644,106 100.0%
======== ========== ======== ==========
Deposits with a balance in excess of $100,000 .. $241,270 $188,813
======== ========
43
44
6. DEPOSITS...CONTINUED
At December 31, 2000, scheduled maturities of certificates of deposit are as
follows:
Years ending December 31,
-------------------------------------------------------------------------------
(dollars in thousands) TOTAL 2001 2002 2003 2004 Thereafter
-------- -------- -------- -------- -------- ----------
4.00% and lower .... $ 584 583 1 -- -- --
4.01% to 5.00% ..... 14,742 11,548 1,572 415 918 289
5.01% to 6.00% ..... 57,997 47,272 7,766 1,838 564 557
6.01% to 7.00% ..... 183,896 173,416 6,115 2,833 749 783
7.01% to 8.00% ..... 7,416 6,285 120 613 -- 398
8.01% and higher ... $ 24 17 7 -- -- --
-------- -------- -------- -------- -------- --------
264,659 239,121 15,581 5,699 2,231 2,027
======== ======== ======== ======== ======== ========
Interest expense on deposits is summarized as follows:
Years ended December 31,
---------------------------------
(dollars in thousands) 2000 1999 1998
------- ------- -------
NOW accounts .................... $ 1,068 1,064 1,428
Money market demand accounts .... 7,447 5,304 4,458
Certificate accounts ............ 13,353 9,283 8,723
Savings accounts ................ 806 843 1,958
------- ------- -------
$22,674 16,494 16,567
======= ======= =======
7. ADVANCES FROM FEDERAL HOME LOAN BANK OF SEATTLE
Advances from the Federal Home Loan Bank of Seattle consist of the following:
Totals as of Totals as of
Maturing in years ending December 31, December 31, December 31,
------------------------------------------------------------------------------ ------------ ------------
(dollars in thousands) 2001 2002 2003 2004 2005 2006-2011 2000 1999
-------- -------- -------- -------- -------- -------- ------------ ------------
4.00% to 5.00% ..... 25 -- -- -- -- -- 25 84,018
5.01% to 6.00% ..... 4,430 3,204 3,014 2,612 2604 6,116 21,980 112,726
6.01% to 7.00% ..... 168,602 2,570 508 401 366 470 172,917 9,996
7.01% to 8.00% ..... 451 351 302 248 173 144 1,669 1,710
8.01% to 8.15% ..... 63 63 54 20 -- -- 200 200
-------- -------- -------- -------- -------- -------- -------- --------
$173,571 6,188 3,878 3,281 3,143 6,730 196,791 208,650
======== ======== ======== ======== ======== ======== ======== ========
These advances were collateralized by the Federal Home Loan Bank of Seattle
stock held by the Company totaling approximately $16,436,000 and $15,134,000 at
December 31, 2000 and 1999, respectively, and a blanket assignment of the Bank's
unpledged qualifying real estate loans and investments. The total amount of
advances available as of December 31, 2000 was approximately $135,751,000.
The weighted average interest rate on these advances was 6.35% and 5.25% at
December 31, 2000 and 1999, respectively.
The Federal Home Loan Bank of Seattle holds callable options which may be
exercised after a predetermined time, and quarterly thereafter. At December 31,
2000 advances totaling $18,000,000 with contractual maturity of 2008 and initial
call dates of 2001 on $3,000,000 and 2003 on $15,000,000 were outstanding.
44
45
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
(dollars in thousands) REPURCHASE AVERAGE UNDERLYING UNDERLYING
December 31, 2000 AMOUNT RATE ASSETS ASSETS
---------- -------- ---------- ----------
SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE WITHIN:
1-30 DAYS ................. $12,650 4.32% $17,995 18,139
31-90 days .................. 9,100 6.48% 12,945 13,049
Greater than 90 days ......... 3,127 6.57% 4,448 4,484
------- ------- -------
$24,877 5.39% $35,388 35,672
======= ======= =======
December 31, 1999:
Securities sold under agreements
to repurchase within:
1-30 days ................. $13,765 4.38% $19,601 20,295
31-90 days .................. 6,001 4.81% 6,757 6,866
------- ------- -------
$19,766 4.51% $26,358 27,161
======= ======= =======
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, 2000 and 1999 securities sold
under agreements to repurchase averaged approximately $19,052,000 and
$28,605,000, respectively, and the maximum outstanding at any month end during
the year was approximately $24,877,000 and $53,791,000, respectively
In 1996 the Company entered into the treasury tax and loan account note option
program, which provides short term funding with no fixed maturity date up to
$12,850,000 at federal funds rates minus 25 basis points. At December 31, 2000
and 1999 the outstanding balance under this program was approximately $4,302,000
and $5,778,000. The borrowings are secured with investment securities with a par
value of approximately $20,363,000 and a market value of approximately
$20,487,000. For the year ended December 31, 2000, the maximum outstanding at
any month end was approximately $9,426,000 and the average balance was
approximately $3,236,000.
Other borrowed funds also includes federal funds purchased of $0 and $720,000 at
December 31, 2000 and 1999, respectively.
9. SUBORDINATED DEBENTURES
During 1999, the Company assumed Big Sky's subordinated convertible debentures
as part of the merger transaction. The outstanding balance at December 31, 2000
and 1999 was $350,000. The debentures are due December 31, 2001. The interest
rate is 7.5 percent, payable quarterly. The debentures may be prepaid at any
time by the Company, subject to approval by the FDIC and the Company's primary
regulator, and are convertible at the rate of one share of Company stock for
each $10.60 of principal value, or an equivalent of 33,025 shares.
45
46
10. REGULATORY CAPITAL
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, 2000:
Minimum capital Well capitalized
Actual requirement requirement
----------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Tier 1 (core) capital to risk weighted assets
Consolidated ................................ 91,263 12.31% 29,659 4.00% 44,489 6.00%
Glacier ..................................... 37,328 13.45% 11,099 4.00% 16,648 6.00%
Whitefish ................................... 4,974 11.97% 1,663 4.00% 2,494 6.00%
Eureka ...................................... 3,350 16.42% 816 4.00% 1,224 6.00%
First Security .............................. 18,099 9.98% 7,254 4.00% 10,881 6.00%
Big Sky ..................................... 6,223 9.68% 2,572 4.00% 3,858 6.00%
Valley ...................................... 7,598 12.41% 2,448 4.00% 3,673 6.00%
Mountain West ............................... 9,797 11.12% 3,523 4.00% 5,285 6.00%
Tier 2 (total) capital to risk weighted assets
Consolidated ................................ 99,062 13.36% 59,319 8.00% 74,149 10.00%
Glacier ..................................... 39,897 14.38% 22,198 8.00% 27,747 10.00%
Whitefish ................................... 5,477 13.18% 3,325 8.00% 4,157 10.00%
Eureka ...................................... 3,606 17.67% 1,632 8.00% 2,041 10.00%
First Security .............................. 20,229 11.15% 14,508 8.00% 18,135 10.00%
Big Sky ..................................... 6,951 10.81% 5,144 8.00% 6,430 10.00%
Valley ...................................... 8,293 13.55% 4,897 8.00% 6,121 10.00%
Mountain West ............................... 10,737 12.19% 7,046 8.00% 8,808 10.00%
Leverage capital to total average assets
Consolidated ................................ 91,263 8.72% 41,853 4.00% 52,317 5.00%
Glacier ..................................... 37,328 8.08% 18,471 4.00% 23,088 5.00%
Whitefish ................................... 4,974 8.90% 2,235 4.00% 2,794 5.00%
Eureka ...................................... 3,350 10.84% 1,236 4.00% 1,545 5.00%
First Security .............................. 18,099 8.64% 8,376 4.00% 10,470 5.00%
Big Sky ..................................... 6,223 8.28% 3,005 4.00% 3,756 5.00%
Valley ...................................... 7,598 8.66% 3,509 4.00% 4,387 5.00%
Mountain West ............................... 9,797 8.11% 4,832 4.00% 6,040 5.00%
46
47
10. REGULATORY CAPITAL. . . CONTINUED
The following table illustrates the Federal Reserve Board's adequacy guidelines
and the Company's compliance with those guidelines as of December 31, 1999:
Minimum capital Well capitalized
Actual requirement requirement
----------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Tier 1 (core) capital to risk weighted assets
Consolidated ................................ 83,678 13.23% 25,290 4.00% 37,935 6.00%
Glacier ..................................... 33,645 13.58% 9,913 4.00% 14,870 6.00%
Whitefish ................................... 4,934 13.49% 1,462 4.00% 2,194 6.00%
Eureka ...................................... 3,339 19.45% 687 4.00% 1,030 6.00%
First Security .............................. 16,456 9.73% 6,764 4.00% 10,146 6.00%
Big Sky ..................................... 5,716 11.35% 2,015 4.00% 3,023 6.00%
Valley ...................................... 7,376 12.59% 2,344 4.00% 3,516 6.00%
Mountain West ............................... 6,542 10.40% 2,515 4.00% 3,773 6.00%
Tier 2 (total) capital to risk weighted assets
Consolidated ................................ 90,400 14.30% 50,581 8.00% 63,226 10.00%
Glacier ..................................... 35,898 14.48% 19,827 8.00% 24,784 10.00%
Whitefish ................................... 5,313 14.53% 2,925 8.00% 3,656 10.00%
Eureka ...................................... 3,555 20.70% 1,374 8.00% 1,717 10.00%
First Security .............................. 18,549 10.97% 13,527 8.00% 16,909 10.00%
Big Sky ..................................... 6,335 12.58% 4,030 8.00% 5,038 10.00%
Valley ...................................... 7,953 13.57% 4,688 8.00% 5,860 10.00%
Mountain West ............................... 7,196 11.44% 5,031 8.00% 6,289 10.00%
Leverage capital to total average assets
Consolidated ................................ 83,678 9.59% 34,893 4.00% 43,616 5.00%
Glacier ..................................... 33,645 7.58% 17,758 4.00% 22,198 5.00%
Whitefish ................................... 4,934 9.86% 2,001 4.00% 2,501 5.00%
Eureka ...................................... 3,339 12.03% 1,110 4.00% 1,388 5.00%
First Security .............................. 16,456 8.62% 7,640 4.00% 9,550 5.00%
Big Sky ..................................... 5,716 9.15% 2,498 4.00% 3,123 5.00%
Valley ...................................... 7,376 8.95% 3,295 4.00% 4,119 5.00%
Mountain West ............................... 6,542 7.60% 3,443 4.00% 4,304 5.00%
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, 2000, 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, 2000.
47
48
11. FEDERAL AND STATE INCOME TAXES
The following is a summary of consolidated income tax expense for:
Years ended December 31,
-----------------------------------
(dollars in thousands) 2000 1999 1998
------- ------- -------
Current:
Federal ..................................... $ 6,259 5,675 5,546
State ....................................... 1,460 1,254 1,227
------- ------- -------
Total current tax expense ............. 7,719 6,929 6,773
------- ------- -------
Deferred:
Federal ..................................... (74) (164) (127)
State ....................................... (65) (43) 28
------- ------- -------
Total deferred tax benefit ............ (139) (207) (99)
------- ------- -------
Total income tax expense ... $ 7,580 6,722 6,674
======= ======= =======
Federal and state income tax expense differs from that computed at the federal
statutory corporate tax rate as follows for:
Years ended December 31,
--------------------------------
2000 1999 1998
------ ------ ------
Federal statutory rate ............................ 35.0% 35.0% 35.0%
State taxes, net of federal income tax benefit .... 4.2% 4.1% 4.5%
Other, net ........................................ -4.1% -3.9% -2.5%
------ ------ ------
35.1% 35.2% 37.0%
====== ====== ======
Tax exempt interest for the years ended December 31, 2000, 1999 and 1998 was
approximately $2,816,000, $2,301,000, and $1,604,000, respectively.
The tax effect of temporary differences which give rise to a significant portion
of deferred tax assets and deferred tax liabilities are as follows:
December 31,
---------------------
(dollars in thousands) 2000 1999
------- -------
Deferred tax assets:
Allowance for losses on loans ......................... $ 3,270 2,826
Available-for-sale securities fair value adjustment ... -- 3,501
Other ................................................. 440 540
------- -------
Total gross deferred tax assets ................ 3,710 6,867
------- -------
Deferred tax liabilities:
Federal Home Loan Bank stock dividends ................ (2,678) (2,247)
Fixed assets, due to differences in depreciation ...... (823) (665)
Tax bad debt reserve in excess of base-year reserve ... (200) (418)
Available-for-sale securities fair value adjustment ... (175) --
Basis difference from acquisitions .................... (181) (186)
Other ................................................. (231) (392)
------- -------
Total gross deferred tax liabilities .......... (4,288) (3,908)
------- -------
Net deferred tax asset (liability) ............ $ (578) 2,959
======= =======
48
49
11. FEDERAL AND STATE INCOME TAXES . . . CONTINUED
There is no valuation allowance at December 31, 2000 and 1999 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, 2000 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.
12. 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, 2000, 1999, and 1998 was approximately $1,058,000,
$791,000 and $552,000 respectively.
The Company also 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, 2000, 1999 and 1998 was approximately $331,000, $288,000, and
$256,000, 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, 2000, 1999 and 1998 was approximately
$18,000, $10,000, and $26,000, 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
$34,000, $43,000, $52,000, for the years ending December 31, 2000, 1999, and
1998, 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 (losses) for the years ended 2000, 1999, and 1998
were approximately ($24,000), ($33,000), and $12,000, respectively.
The Company has entered into employment contracts with nine senior officers that
provide benefits under certain conditions following a change in control of the
Company.
49
50
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
For the Years Ended December 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
Net earnings available to common
stockholders, basic ...................... $14,003,000 12,352,000 11,375,000
After tax effect of interest on
convertible subordinated debentures ... 16,000 16,000 16,000
----------- ----------- -----------
Net earnings available to common
stockholders, diluted .................... $14,019,000 12,368,000 11,391,000
=========== =========== ===========
Average outstanding shares - basic .......... 11,440,391 11,392,861 11,146,948
Add: Dilutive stock options ................. 70,730 174,183 219,551
Convertible subordinated debentures ... 33,025 33,025 33,025
----------- ----------- -----------
Average outstanding shares - diluted ........ 11,544,146 11,600,069 11,399,524
=========== =========== ===========
Basic earnings per share .................... $ 1.22 1.08 1.02
=========== =========== ===========
Diluted earnings per share .................. $ 1.21 1.07 1.00
=========== =========== ===========
There were approximately 510,000 and 351,000 option shares in 2000 and 1999,
respectively, that were not included because the option exercise price exceeded
the market value. All option shares were included as dilutive stock options in
1998.
14. STOCK OPTION PLANS
During fiscal 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 provided 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 provided for the grant of options limited
to 279,768 shares to certain full-time employees of the Company. In April 1999
the Directors 1994 Stock Option Plan, and the Employees 1995 Stock Option Plan,
were amended to provide 100,000 and 600,000 additional shares for the Directors
and Employees Plans, respectively. The option price at which the Company's
common stock may be purchased upon exercise of options granted under the plans
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 (cash-less exercise).
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. The term of the options may not
exceed five years from the date the options are
50
51
14. STOCK OPTION PLANS . . . CONTINUED
granted. The employee options vest over a period of two years and the director
options vest over a period of six months.
At December 31, 2000, total shares available for option grants to employees and
directors are 736,634. Changes in shares granted for stock options for the years
ended December 31, 2000, 1999, and 1998, are summarized as follows:
Options outstanding Options exercisable
--------------------------- ----------------------------
Weighted Weighted
average average
Shares exercise price Shares exercise price
-------- -------------- -------- --------------
Balance, December 31, 1997 ..... 534,759 $ 12.33 234,338 $ 10.32
Canceled ....................... (16,738) (13.51) (8,388) (10.97)
Granted ........................ 170,957 22.10 31,860 13.75
Became exercisable ............. 132,885 11.31
Three for two stock split ...... 58,939 40,985
Exercised ...................... (153,459) (10.26) (153,459) (10.26)
-------- ---------- --------
Balance, December 31, 1998 ..... 594,458 $ 14.40 278,221 10.36
Canceled ....................... (43,439) (18.57) (2,631) (11.74)
Granted ........................ 217,573 22.27 10,620 16.95
Became exercisable ............. 197,139 16.01
Stock dividend ................. 55,913 32,042
Exercised ...................... (113,049) (11.58) (113,049) (11.58)
-------- ---------- --------
Balance, December 31, 1999 ..... 711,456 $ 15.85 402,342 12.41
Canceled ....................... (12,687) (15.42) (28,889) (16.77)
Granted ........................ 145,818 15.27
Became exercisable ............. 161,852 17.81
Stock dividend ................. 54,887 60,210
Exercised ...................... (14,161) (9.47) (14,161) (9.47)
-------- ---------- --------
Balance, December 31, 2000 ..... 885,313 $ 14.34 581,354 13.13
======== ========== ========
The range of exercise prices on options outstanding at December 31, 2000 is as
follows:
Options exercisable
-------------------------
Weighted Weighted Weighted
average average average
Price range Shares exercise price life of options Shares exercise price
- ----------------- ------- -------------- --------------- ---------- --------------
$5.65 - $8.12 44,017 $ 6.22 3.8 years 44,017 $ 6.22
$8.75 - $9.57 131,295 9.11 3.1 years 131,295 9.11
$11.21 - $13.09 203,302 11.92 2.1 years 202,302 11.92
$13.63 - $16.95 150,551 13.86 5.8 years 23,584 14.74
$18.28 - $21.82 356,148 18.86 3.2 years 180,156 18.89
--------- -------
885,313 14.34 3.8 years 581,354 13.13
========= =======
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52
14. STOCK OPTION PLANS . . . CONTINUED
The options exercised during the year ended December 31, 2000 were at prices
from $7.00 to $13.24.
The per share weighted-average fair value of stock options granted during 2000,
1999 and 1998 was $2.47, $5.04, and $4.76, respectively, on the date of grant
using the Black Scholes option-pricing model with the following assumptions:
2000 - expected dividend yield of 4.6%, risk-free interest rate of 4.98%,
volatility ratio of 25%, and expected life of 4.8 years: 1999 - expected
dividend yield of 3.3%, risk-free interest rate of 6.2%, volatility ratio of
23%, and expected life of 4.8 years: 1998 - expected dividend yield of 2.5%,
risk-free interest rate 4.6%, volatility ratio 22%, and expected life of 4.8
years.
The exercise price of all options granted has been equal to the fair market
value of the underlying stock at the date of grant and, accordingly, no
compensation cost has been recognized for its stock options in the financial
statements. Had the Company determined compensation cost based on the fair value
of the option itself at the grant date for its stock options under SFAS No. 123,
the Company's net income would have been reduced to the pro forma amounts
indicated below:
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
Net earnings (in thousands): As reported $ 14,003 12,352 11,375
Pro forma 13,379 11,463 10,724
Basic earnings per share: As reported 1.22 1.08 1.02
Pro forma 1.17 1.00 0.96
Diluted earnings per share: As reported 1.21 1.07 1.00
Pro forma 1.16 0.99 0.94
52
53
15. PARENT COMPANY INFORMATION (CONDENSED)
The following condensed financial information is the unconsolidated (parent
company only) information for Glacier Bancorp, Inc.:
STATEMENTS OF FINANCIAL CONDITION December 31,
(dollars in thousands) -------------------------
2000 1999
--------- ---------
Assets:
Cash ............................................... $ 1,674 2,561
Interest bearing cash deposits ..................... 586 16
--------- ---------
Cash and cash equivalents .................... 2,260 2,577
Investment securities, available-for-sale .......... 1,075 1,755
Other assets ....................................... 3,022 2,640
Goodwill, net ...................................... 2,150 2,376
Investment in subsidiaries ......................... 92,235 78,220
--------- ---------
$ 100,742 87,568
========= =========
Liabilities and Stockholders' Equity:
Dividends payable .................................. $ 1,758 1,910
Other liabilities .................................. 871 602
--------- ---------
Total liabilities .......................... 2,629 2,512
Common stock ....................................... 114 104
Paid-in capital .................................... 101,828 87,387
Retained earnings (accumulated deficit) ............ (4,087) 2,996
Accumulated other comprehensive income (loss) ...... 258 (5,431)
--------- ---------
Total stockholders' equity ................ 98,113 85,056
--------- ---------
$ 100,742 87,568
========= =========
STATEMENTS OF OPERATIONS Years ended December 31,
(dollars in thousands) --------------------------------------
2000 1999 1998
-------- -------- --------
Revenues
Dividends from subsidiaries ...................................... $ 8,650 8,518 5,761
Other income ..................................................... 163 161 168
Intercompany charges for services ................................ 2,469 1,617 1,971
-------- -------- --------
Total revenues .............................................. 11,282 10,296 7,900
Expenses
Employee compensation and benefits ............................... 1,852 1,519 1,880
Goodwill amortization ............................................ 243 243 165
Other operating expenses ......................................... 1,635 1,027 1,239
-------- -------- --------
Total expenses .............................................. 3,730 2,789 3,284
Earnings before income tax benefit and equity in undistributed
earnings of subsidiaries ................................... 7,552 7,507 4,616
Income tax benefit ............................................... (359) (328) (198)
-------- -------- --------
Income before equity in undistributed earnings of subsidiaries ... 7,911 7,835 4,814
Equity in undistributed earnings of subsidiaries ................. 6,092 4,517 6,561
-------- -------- --------
Net earnings ........................................................ $ 14,003 12,352 11,375
======== ======== ========
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54
15. PARENT COMPANY INFORMATION (CONDENSED) . . . CONTINUED
Years ended December 31,
STATEMENTS OF CASH FLOWS --------------------------------------
(dollars in thousands) 2000 1999 1998
-------- -------- --------
Operating Activities
Net earnings ..................................................... $ 14,003 12,352 11,375
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Goodwill amortization ............................................ 243 242 165
Gain on sale of investments available-for-sale ................... (11) -- (8)
Equity in undistributed earnings of subsidiaries ................. (6,092) (4,517) (6,561)
Net increase in other assets and other liabilities ............... 321 375 1,179
-------- -------- --------
Net cash provided by operating activities ........................... 8,464 8,452 6,150
-------- -------- --------
Investing activities
Purchases of investment securities available-for-sale ............ -- (103) (198)
Proceeds from sales, maturities and prepayments of securities
available-for-sale ......................................... 702 3 59
Proceeds from maturities of securities held-to-maturity .......... -- -- 3
Equity contribution to subsidiary ................................ (2,200) (2,500) --
Net addition of premises and equipment ........................... (480) (1,510) (1,399)
Acquisition of minority interest ................................. -- -- (236)
-------- -------- --------
Net cash used by investing activities ............................... (1,978) (4,110) (1,771)
-------- -------- --------
Financing activities
Proceeds from exercise of stock options and other stock issued ... 101 1,073 1,573
Principal reductions on notes payable ............................ -- -- (216)
Cash dividends paid to stockholders .............................. (6,904) (5,923) (4,327)
-------- -------- --------
Net cash used by financing activities ............................... (6,803) (4,850) (2,970)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................ (317) (508) 1,409
Cash and cash equivalents at beginning of year ...................... 2,577 3,085 1,676
-------- -------- --------
Cash and cash equivalents at end of year ............................ $ 2,260 2,577 3,085
======== ======== ========
16. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data is as follows (in thousands except
per share amounts):
QUARTERS ENDED
------------------------------------------------------------------------------------
MARCH 31, 2000 JUNE 30, 2000 SEPT. 30, 2000 DEC. 31, 2000
--------------- --------------- --------------- ---------------
Interest income ................... $ 18,246 19,293 20,400 20,898
Interest expense .................. 8,345 9,134 9,881 9,997
Net interest income ............... 9,901 10,159 10,519 10,901
Provision for loan loss ........... 487 505 491 381
Net income before income taxes .... 4,979 4,983 6,137 5,485
Net earnings ...................... 3,228 3,192 3,853 3,730
Basic earnings per share [1] ...... 0.28 0.28 0.34 0.32
Diluted earnings per share [1] .... 0.28 0.28 0.33 0.32
Dividends per share [1] ........... 0.14 0.15 0.15 0.15
Market range high-low [1] ......... $14.82-$11.25 $14.44-$11.00 $13.38-$11.00 $13.31-$11.00
54
55
16. UNAUDITED QUARTERLY FINANCIAL DATA . . . CONTINUED
Quarters Ended
------------------------------------------------------------------------------------
March 31, 1999 June 30, 1999 Sept. 30, 1999 Dec. 31, 1999
--------------- --------------- --------------- ---------------
Interest income ................... $ 14,398 15,476 16,849 17,996
Interest expense .................. 5,973 6,470 7,260 7,932
Net interest income ............... 8,425 9,006 9,589 10,064
Provision for loan loss ........... 359 410 478 476
Net income before income taxes .... 4,540 4,742 5,099 4,693
Net earnings ...................... 2,969 3,088 3,266 3,029
Basic earnings per share[1] ....... 0.26 0.27 0.28 0.26
Diluted earnings per share[1] ..... 0.25 0.26 0.28 0.26
Dividends per share[1] ............ 0.13 0.14 0.14 0.18[2]
Market range high-low[1] .......... $19.84-$15.50 $22.17-$15.70 $21.71-$13.87 $17.05-$13.53
[1] Per share amounts adjusted to reflect effect of 10% stock dividend.
[2] Special dividend was paid at $0.5 per share.
17. 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:
2000 1999
------------------------- -------------------------
(dollars in thousands) AMOUNT FAIR VALUE Amount Fair Value
-------- ---------- -------- ----------
Financial Assets:
Cash ............................................. $ 41,456 41,456 50,590 50,590
Federal funds sold ............................... -- -- 64 64
Interest bearing cash deposits ................... 10,330 10,330 1,711 1,711
Investment securities ............................ 71,415 71,415 62,060 62,060
Mortgage-backed securities ....................... 140,473 140,473 147,252 147,252
Loans ............................................ 733,561 728,511 652,208 641,499
FHLB and Federal Reserve Bank stock .............. 18,098 18,098 16,601 16,601
Financial Liabilities:
Deposits ......................................... $720,570 721,217 644,106 646,778
Advances from the FHLB of Seattle ................ 196,791 198,195 208,650 204,681
Repurchase agreements and other borrowed funds ... 29,529 29,529 26,614 26,614
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 deposits. For investment and
mortgage-backed 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.
55
56
17. FAIR VALUE OF FINANCIAL INSTRUMENTS...CONTINUED
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. 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. Repurchase
agreements and other borrowed funds have variable interest rates, or are short
term, so fair value approximates book value.
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.
18. CONTINGENCIES AND COMMITMENTS
The company leases certain land, premises and equipment from third parties under
operating leases. Total rent expense for the year ended December 31, 2000, 1999,
and 1998 was approximately $462,000, $352,000, and $306,000, respectively. The
total future minimum rental commitments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year at
December 31, 2000 are as follows:
Years ended December 31, Amount
------------------------ ------
2001 $ 529
2002 427
2003 257
2004 188
2005 124
Thereafter 445
------
Total minimum future rental expense $1,970
======
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, results of operations or liquidity.
19. BUSINESS COMBINATIONS
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.
Also on August 31, 1998, the Company issued 83,761 shares of common stock valued
at $2,199 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.
On January 18, 1999, the Company issued 227,707 shares of common stock in
exchange for all of the outstanding stock of Big Sky Western Bank. This business
combination has been accounted for as a pooling-of-interests combination and,
accordingly, the consolidated financial statements for periods prior
56
57
19. BUSINESS COMBINATIONS...CONTINUED
to the combination have been restated to include the accounts and results of
operations of Big Sky Western Bank.
On February 4, 2000, the Company issued 844,257 shares of common stock in
exchange for all of the outstanding stock of Mountain West Bank. This business
combination has been accounted for as a pooling-of-interests combination, and
accordingly, the consolidated financial statements for the periods prior to the
combination have been restated to include the accounts and results of operations
of Mountain West Bank.
Prior to the combination Mountain West Bank's fiscal year ended on March 31. In
recording the pooling-of-interests combination, Mountain West Bank's financial
statements for the twelve months ended
December 31, 1999, were combined with the Company's financial statements for the
same period. For the December 31, 1998 financial statements Mountain West Bank's
March 31, 1999 financial statements were combined with the Company's December
31, 1998 financial statements. An adjustment of $75,000 has been made to
stockholders' equity as of December 31, 1999, to eliminate the effect of
including Mountain West Bank's results of operation for the three months ended
March 31, 1999, in both the years ended December 31, 1999 and 1998. The results
of operations previously reported by the separate companies and the combined
amounts presented in the accompanying consolidated financial statements are
summarized below (in thousands):
Years ended
December 31
1999 1998
----------- -------
Revenue of:
Glacier Bancorp, Inc. .. $69,985 65,680
Mountain West Bank ..... 7,543 6,744
------- -------
Combined ....... $77,528 72,424
======= =======
Net earnings of:
Glacier Bancorp, Inc. .. $12,179 10,915
Mountain West Bank ..... 173 460
------- -------
Combined ....... $12,352 11,375
======= =======
20. BRANCH ACQUISITIONS
On October 8, 1999, the Company, through its largest subsidiary Glacier Bank,
acquired the two Butte, Montana offices of Washington Mutual Bank with
approximately $73,000,000 in deposits. This acquisition was accounted for as a
purchase and accordingly, the consolidated statement of operations for the year
ended December 31, 1999 includes the results of these branch operations from the
date of purchase. The premium paid of $4,767,000 included a core deposit
intangible of approximately $1,797,000 and goodwill of approximately $2,970,000.
21. OPERATING SEGMENT INFORMATION
FASB Statement 131, Financial Reporting for Segments of a Business Enterprise,
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. According to the statement,
operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.
The Company evaluates segment performance internally based on individual bank
charter, and thus the operating segments are so defined. All segments, except
for the segment defined as "other," are based
57
58
21. OPERATING SEGMENT INFORMATION . . . CONTINUED
on commercial banking operations. The operating segment defined as "other"
includes the Parent company, smaller nonbank operating units, and eliminations
of transactions between segments.
The accounting policies of the individual operating segments are the same as
those of the Company described in note 1. Transactions between operating
segments are primarily conducted at fair value, resulting in profits that are
eliminated for reporting consolidated results of operations. Expenses for
centrally provided services are allocated based on the estimated usage of those
services.
The following is a summary of selected operating segment information for the
years ended and as of December 31, 2000, 1999, and 1998 (in thousands):
Operating Segments information
(Dollars in thousands)
First
2000 Glacier Whitefish Eureka Security Valley
--------- --------- --------- --------- ---------
Net interest income ............. $ 16,361 2,406 1,335 9,324 4,171
Provision for loan losses ....... 460 225 24 360 205
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses ..... 15,901 2,181 1,311 8,964 3,966
Noninterest income .............. 5,913 704 332 2,000 1,411
Merger expense and amortization
of goodwill and core deposit
intangibles ................... 317 0 0 0 0
Other noninterest expense ....... 11,440 1,522 933 4,771 3,498
--------- --------- --------- --------- ---------
Income before income taxes
and minority interest ......... 10,057 1,363 710 6,193 1,879
Minority interest ...............
Income tax expense (benefit) .... 3,456 423 199 2,251 657
--------- --------- --------- --------- ---------
Net income ...................... $ 6,601 940 511 3,942 1,222
========= ========= ========= ========= =========
Assets .......................... $ 469,351 56,563 30,562 214,231 87,791
Net loans ....................... 282,467 40,146 20,291 180,041 62,645
Deposits ........................ 288,556 41,475 19,285 164,168 76,508
Stockholders' equity ............ 42,049 5,060 3,402 18,027 7,649
1999
Net interest income ............. $ 15,266 2,044 1,290 8,804 3,614
Provision for loan losses ....... 470 66 24 600 155
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses ..... 14,796 1,978 1,266 8,204 3,459
Noninterest income .............. 5,539 675 313 2,260 1,494
Merger expense and amortization
of goodwill and core deposit
intangibles ................... 78 0 0 0 0
Other noninterest expense ....... 10,750 1,502 986 4,567 2,977
--------- --------- --------- --------- ---------
Income before income taxes
and minority interest ......... 9,507 1,151 593 5,897 1,976
Minority interest ...............
Income tax expense (benefit) .... 3,303 348 191 2,132 731
--------- --------- --------- --------- ---------
Net income ...................... $ 6,204 803 402 3,765 1,245
========= ========= ========= ========= =========
Assets .......................... $ 460,257 52,203 28,879 193,548 82,587
Net loans ....................... 272,060 35,485 18,178 161,781 58,924
Deposits ........................ 276,880 34,261 18,514 143,645 65,095
Stockholders' equity ............ 36,040 4,605 3,137 15,640 7,073
Mountain
2000 Big Sky West Other Consolidated
--------- --------- --------- ------------
Net interest income ............. 2,721 5,037 125 41,480
Provision for loan losses ....... 180 410 0 1,864
--------- --------- --------- ---------
Net interest income after
provision for loan losses ..... 2,541 4,627 125 39,616
Noninterest income .............. 750 2,206 (22) 13,294
Merger expense and amortization
of goodwill and core deposit
intangibles ................... 0 0 242 559
Other noninterest expense ....... 2,527 5,153 863 30,707
--------- --------- --------- ---------
Income before income taxes
and minority interest ......... 764 1,680 (1,002) 21,644
Minority interest ............... 61 61
Income tax expense (benefit) .... 258 657 (321) 7,580
--------- --------- --------- ---------
Net income ...................... 506 1,023 (742) 14,003
========= ========= ========= =========
Assets .......................... 77,111 126,518 (5,415) 1,056,712
Net loans ....................... 57,050 90,921 0 733,561
Deposits ........................ 49,616 86,632 (5,670) 720,570
Stockholders' equity ............ 6,090 9,780 6,056 98,113
1999
Net interest income ............. 2,077 3,755 234 37,084
Provision for loan losses ....... 191 217 -- 1,723
--------- --------- --------- ---------
Net interest income after
provision for loan losses ..... 1,886 3,538 234 35,361
Noninterest income .............. 881 1,745 (98) 12,809
Merger expense and amortization
of goodwill and core deposit
intangibles ................... 0 78 361 517
Other noninterest expense ....... 2,096 4,941 709 28,528
--------- --------- --------- ---------
Income before income taxes
and minority interest ......... 671 264 (934) 19,125
Minority interest ............... 51 51
Income tax expense (benefit) .... 231 91 (305) 6,722
--------- --------- --------- ---------
Net income ...................... 440 173 (680) 12,352
========= ========= ========= =========
Assets .......................... 66,255 89,884 388 974,001
Net loans ....................... 43,850 61,930 -- 652,208
Deposits ........................ 41,034 67,824 (3,147) 644,106
Stockholders' equity ............ 5,281 6,243 7,037 85,056
58
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21. OPERATING SEGMENT INFORMATION . . . CONTINUED
Operating Segments information
(Dollars in thousands)
First
1998 Glacier Whitefish Eureka Security Valley
-------- --------- -------- -------- --------
Net interest income ............... $ 14,572 1,820 1,247 7,784 3,312
Provision for loan losses ......... 670 78 12 645 85
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses ....... 13,902 1,742 1,235 7,139 3,227
Noninterest income ................ 5,723 686 372 2,801 1,553
Merger expense and amortization
of goodwill and core deposit
intangibles ..................... -- -- -- -- --
Other noninterest expense ......... 10,523 1,347 971 4,151 3,010
-------- -------- -------- -------- --------
Income before income taxes
and minority interest ........... 9,102 1,081 636 5,789 1,770
Minority interest .................
Income tax expense (benefit) ...... 3,238 343 217 2,138 659
-------- -------- -------- -------- --------
Net income ........................ $ 5,864 738 419 3,651 1,111
======== ======== ======== ======== ========
Assets ............................ $370,686 42,643 24,471 164,546 69,924
Net loans ......................... 272,399 22,022 16,322 134,646 48,860
Deposits .......................... 201,211 34,179 17,797 139,348 57,807
Stockholders' equity .............. 39,058 4,642 3,309 14,668 6,628
Mountain
1998 Big Sky West Other Consolidated
-------- -------- -------- ------------
Net interest income ............... 1,251 3,187 185 33,358
Provision for loan losses ......... 42 203 -- 1,735
-------- -------- -------- --------
Net interest income after
provision for loan losses ....... 1,209 2,984 185 31,623
Noninterest income ................ 743 1,637 81 13,596
Merger expense and amortization
of goodwill and core deposit
intangibles ..................... -- -- 931 931
Other noninterest expense ......... 1,680 3,885 527 26,094
-------- -------- -------- --------
Income before income taxes
and minority interest ........... 272 736 (1,192) 18,194
Minority interest ................. 145 145
Income tax expense (benefit) ...... 103 276 (300) 6,674
-------- -------- -------- --------
Net income ........................ 169 460 (1,037) 11,375
======== ======== ======== ========
Assets ............................ 39,376 80,867 (5,711) 786,802
Net loans ......................... 23,959 52,980 -- 571,188
Deposits .......................... 31,385 70,659 (5,883) 546,503
Stockholders' equity .............. 2,873 6,336 6,632 84,146
22. ACQUISITIONS
On September 20, 2000, the Company entered into a merger agreement to acquire
WesterFed Financial Corporation (WesterFed). The merger was closed on February
28, 2001. Under the terms of the agreement, the Company issued 4,530,462 shares
and $37,274,000 cash for total consideration of $96,669,000, based on a $13.11
per share price. The merger is being accounted for using the purchase method of
accounting. Accordingly, the assets and liabilities of WesterFed are recorded by
the Company at their respective fair values at the time of the completion of the
merger. The excess of the Company's purchase price over the net fair value of
the assets acquired and liabilities assumed, including identifiable intangible
assets, is recorded as goodwill and will be amortized over a useful life of 20
years.
On September 14, 2000 the Company announced the acquisition of seven branches of
Wells Fargo & Company and First Security Corporation subsidiary banks located in
Idaho and Utah. The transaction was completed on March 15, 2001. In total, as of
the closing, the branches had approximately $187,000,000 in deposits and
$38,000,000 in loans. The purchase price of approximately $18,500,000 was based
on the total deposits, cash-equivalent assets and loans at the branches
immediately prior to closing. The locations became branch offices of Mountain
West Bank of Coeur d'Alene.
23. SUBSEQUENT EVENTS
The Company formed Glacier Capital Trust I (Glacier Trust) as a financing
subsidiary on December 18, 2000. On January 25, 2001, Glacier Trust offered
1,400,000 preferred securities at $25 per preferred securities. The purchase of
the securities entitles the shareholder to receive cumulative cash distributions
at an annual interest rate of 9.40% from payments on the junior subordinated
debentures of Glacier Bancorp, Inc. The subordinated debentures will mature and
the preferred securities must be redeemed by February 1, 2031. In exchange for
the Company's capital contribution, the Company will own all of the outstanding
common securities of the trust.
59
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PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting
and financial disclosure.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding "Directors and Executive Officers of the Registrant" is
set forth under the headings "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 2000 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 11. EXECUTIVE COMPENSATION
Information regarding "Executive Compensation" is set forth under the headings
"Election of Directors - Compensation of Directors" and "Executive Compensation"
of the Company's Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding "Security Ownership of Certain Beneficial Owners and
Management" is set forth under the headings "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 13. 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 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) and (2) Financial Statements and 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.
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(1) The following exhibits are included as part of this Form 10-K:
EXHIBIT NO. EXHIBIT
- ----------- -------
3(a) Amended and Restated Certificate of Incorporation (1)
3(b) Amended and Restated Bylaws (2)
10(a) 1989 Incentive Stock Option Plan (3)
10(b) Employment Agreement dated August 31, 1996 between the Company,
Glacier Bank and Michael J. Blodnick (4)
10(c) Employment Agreement dated August 31, 1996 between the Company,
Glacier Bank and Stephen J. Van Helden (4)
10(d) Employment Agreement dated August 31, 1996 between the Company,
Glacier Bank and James H. Strosahl (4)
10(f) Employment Agreement dated August 9, 1996 between First Security
Bank and William L. Bouchee (5)
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 (6)
10(i) 1995 Employee Stock Option Plan (7)
10(j) Deferred Compensation Plan (6)
10(k) Supplemental Executive Retirement Agreement (6)
10(l) Employment agreement dated September 14, 1999, between Mountain
West Bank and Jon W. Hippler (8)
10(m) Employment agreement dated September 20, 2000 between Western
Security Bank and Ralph R. Holliday (9)
21 Subsidiaries of the Company (See item 1, "Subsidiaries")
23 Consent of KPMG LLP
(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 3 (b) included in the
Company's Form 10-K for the fiscal year ended December 31, 1999
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) Incorporated by reference to Exhibit 99.1 of the Company's S-8
Registration Statement (No. 33-94648).
(8) Incorporated by reference to exhibit 10.3 of the Company's
Registration Statement on S-4 (No. 333-90701), declared effective
on December 17, 1999.
(9) Incorporated by reference to exhibit 10.4 of the Company's
Registration Statement on S-4 (No. 333-52498), declared effective
as of February 28, 2001.
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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 February 26, 2001.
GLACIER BANCORP, INC.
By: /s/ Michael J. Blodnick
--------------------------
Michael J. Blodnick
President/CEO/Director
PURSUANT to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 26, 2001, by the following persons in the
capacities indicated.
/s/Michael J. Blodnick President, CEO, and Director
- ------------------------------- (Principal Executive Officer)
Michael J. Blodnick
/s/James H. Strosahl Executive Vice President and CFO
- ------------------------------- (Principal Financial/Accounting Officer)
James H. Strosahl
Majority of the Board of Directors
/s/ John S. MacMillan Chairman
- -------------------------------
John S. MacMillan
/s/ L. Peter Larson Director
- -------------------------------
L. Peter Larson
/s/ Allen Fetscher Director
- -------------------------------
Allen J. Fetscher
/s/ Jon W. Hippler Director
- -------------------------------
Jon W. Hippler
/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
/s/ F. Charles Mercord Director
- -------------------------------
F. Charles Mercord
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