UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2007
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
COMMISSION FILE 0-18911
GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter)
MONTANA 81-0519541
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
49 Commons Loop, Kalispell, Montana 59901
(Address of principal executive offices) (Zip Code)
(406) 756-4200
Registrant's telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by checkmark whether the registrant is a large accelerated filer, or an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large Accelerated Filer X Accelerated Filer Non-Accelerated Filer
--- --- ---
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
The number of shares of Registrant's common stock outstanding on July 26, 2007
was 53,546,209. No preferred shares are issued or outstanding.
GLACIER BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page #
------
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Financial Condition -
Unaudited June 30, 2007, June 30, 2006 and audited
December 31, 2006 ............................................... 3
Condensed Consolidated Statements of Operations -
Unaudited three and six months ended June 30, 2007 and 2006 ..... 4
Condensed Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Year ended December 31, 2006 and unaudited
six months ended June 30, 2007 .................................. 5
Condensed Consolidated Statements of Cash Flows - Unaudited
six months ended June 30, 2007 and 2006 ......................... 6
Notes to Condensed Consolidated Financial Statements -
Unaudited ....................................................... 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 22
Item 3 - Quantitative and Qualitative Disclosure about
Market Risk ..................................................... 29
Item 4 - Controls and Procedures ................................... 30
PART II. OTHER INFORMATION ............................................ 30
Item 1 - Legal Proceedings ......................................... 30
Item 1A - Risk Factors ............................................. 30
Item 2 - Unregistered Sales of Equity Securities and Use of
Proceeds ........................................................ 30
Item 3 - Defaults Upon Senior Securities ........................... 30
Item 4 - Submission of Matters to a Vote of Security Holders ....... 30
Item 5 - Other Information ......................................... 31
Item 6 - Exhibits .................................................. 31
Signatures ............................................................ 31
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, December 31, June 30,
(Dollars in thousands, except per share data) 2007 2006 2006
--------------------------------------------- ----------- ------------ -----------
(UNAUDITED) (unaudited)
ASSETS:
Cash on hand and in banks ........................ $ 134,647 136,591 124,872
Federal funds sold ............................... 11,735 6,125 4,880
Interest bearing cash deposits ................... 124,566 30,301 33,559
----------- ---------- ----------
Cash and cash equivalents ..................... 270,948 173,017 163,311
Investment securities ............................ 737,104 825,637 870,460
Loans receivable, net ............................ 3,289,234 3,130,389 2,630,254
Loans held for sale .............................. 42,620 35,135 30,596
Premises and equipment, net ...................... 119,320 110,759 88,883
Real estate and other assets owned, net .......... 2,153 1,484 605
Accrued interest receivable ...................... 27,621 25,729 20,449
Deferred tax asset ............................... 2,504 -- 1,199
Core deposit intangible, net ..................... 15,575 14,750 7,195
Goodwill ......................................... 140,018 129,716 79,099
Other assets ..................................... 25,858 24,682 23,962
----------- ---------- ----------
$ 4,672,955 4,471,298 3,916,013
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits .................... $ 820,728 829,355 720,473
Interest bearing deposits ........................ 2,533,957 2,378,178 1,972,296
Advances from Federal Home Loan Bank of Seattle .. 260,224 307,522 435,978
Securities sold under agreements to repurchase ... 156,794 170,216 151,098
Other borrowed funds ............................. 233,986 168,770 162,296
Accrued interest payable ......................... 15,388 11,041 9,453
Deferred tax liability ........................... -- 1,927 --
Subordinated debentures .......................... 118,559 118,559 87,631
Other liabilities ................................ 33,648 29,587 23,958
----------- ---------- ----------
Total liabilities ............................. 4,173,284 4,015,155 3,563,183
----------- ---------- ----------
Preferred shares, $.01 par value per share.
1,000,000 shares authorized None issued or
outstanding ................................... -- -- --
Common stock, $.01 par value per share.
117,187,500 shares authorized ................. 535 523 487
Paid-in capital .................................. 371,289 344,265 269,177
Retained earnings - substantially restricted ..... 128,355 108,286 87,644
Accumulated other comprehensive (loss) income .... (508) 3,069 (4,478)
----------- ---------- ----------
Total stockholders' equity .................... 499,671 456,143 352,830
----------- ---------- ----------
$ 4,672,955 4,471,298 3,916,013
=========== ========== ==========
Number of shares outstanding ..................... 53,525,651 52,302,820 48,658,760
Book value per share ............................. $ 9.34 8.72 7.25
See accompanying notes to condensed consolidated financial statements.
3
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(UNAUDITED - dollars in thousands, --------------------------- -------------------------
except per share data) 2007 2006 2007 2006
---------------------------------- ----------- ---------- ---------- ----------
INTEREST INCOME:
Real estate loans ....................... $ 15,201 12,242 29,642 23,231
Commercial loans ........................ 38,170 27,479 74,822 53,004
Consumer and other loans ................ 11,870 9,654 23,184 18,519
Investment securities and other ......... 10,052 10,558 19,565 21,131
----------- ---------- ---------- ----------
Total interest income ................ 75,293 59,933 147,213 115,885
----------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits ................................ 20,530 13,761 39,337 25,052
Federal Home Loan Bank of Seattle
advances ............................. 4,050 4,417 9,092 9,213
Securities sold under agreements to
repurchase ........................... 1,724 1,471 3,611 2,761
Subordinated debentures ................. 1,816 1,284 3,630 2,713
Other borrowed funds .................... 1,977 1,374 3,256 2,212
----------- ---------- ---------- ----------
Total interest expense ............... 30,097 22,307 58,926 41,951
----------- ---------- ---------- ----------
NET INTEREST INCOME ........................ 45,196 37,626 88,287 73,934
Provision for loan losses ............... 1,210 1,355 2,405 2,520
----------- ---------- ---------- ----------
Net interest income after provision
for loan losses ................... 43,986 36,271 85,882 71,414
----------- ---------- ---------- ----------
NON-INTEREST INCOME:
Service charges and other fees .......... 9,483 7,392 17,746 13,798
Miscellaneous loan fees and charges ..... 2,275 1,957 4,097 3,768
Gains on sale of loans .................. 3,708 2,770 6,750 4,960
Loss on sale of investments ............. -- -- (8) --
Other income ............................ 945 779 3,518 1,528
----------- ---------- ---------- ----------
Total non-interest income ............ 16,411 12,898 32,103 24,054
----------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Compensation, employee benefits
and related expenses ................. 20,594 15,739 40,100 31,050
Occupancy and equipment expense ......... 4,812 3,431 9,270 6,922
Outsourced data processing expense ...... 680 678 1,492 1,402
Core deposit intangibles amortization ... 809 400 1,589 820
Other expenses .......................... 8,179 6,702 15,806 12,583
----------- ---------- ---------- ----------
Total non-interest expense ........... 35,074 26,950 68,257 52,777
----------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES ............... 25,323 22,219 49,728 42,691
Federal and state income tax expense .... 8,598 7,553 16,910 14,396
----------- ---------- ---------- ----------
NET EARNINGS ............................... $ 16,725 14,666 32,818 28,295
=========== ========== ========== ==========
Basic earnings per share ................... $ 0.31 0.30 0.62 0.58
Diluted earnings per share ................. $ 0.31 0.30 0.61 0.57
Dividends declared per share ............... $ 0.12 0.11 0.24 0.21
Return on average assets (annualized) ...... 1.47% 1.52% 1.47% 1.50%
Return on average equity (annualized) ...... 13.79% 16.81% 13.90% 16.51%
Average outstanding shares - basic ......... 53,164,813 48,658,760 52,836,255 48,519,273
Average outstanding shares - diluted ....... 53,601,696 49,345,980 53,414,992 49,292,586
See accompanying notes to condensed consolidated financial statements.
4
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2006 AND UNAUDITED SIX MONTHS ENDED JUNE 30, 2007
Retained Accumulated Total
Common Stock earnings Other stock-
------------------- Paid-in substantially comprehensive holders'
(Dollars in thousands, except per share data) (1) Shares Amount capital restricted income (loss) equity
------------------------------------------------- ---------- ------ ------- ------------- ------------- --------
Balance at December 31, 2005 .................... 48,258,821 $483 262,222 69,713 821 333,239
Comprehensive income:
Net earnings ................................. -- -- -- 61,131 -- 61,131
Unrealized gain on securities, net of
reclassification adjustment and taxes ..... -- -- -- -- 2,248 2,248
-------
Total comprehensive income ...................... 63,379
-------
Cash dividends declared ($.45 per share) ........ -- -- -- (22,558) -- (22,558)
Stock options exercised ......................... 639,563 6 6,700 -- -- 6,706
Stock issued in connection with acquisitions .... 1,904,436 19 41,431 -- -- 41,450
Public offering of stock issued ................. 1,500,000 15 29,418 -- -- 29,433
Acquisition of fractional shares ................ -- -- (5) -- -- (5)
Stock based compensation and tax benefit ........ -- -- 4,499 -- -- 4,499
---------- ---- ------- ------- ------ -------
Balance at December 31, 2006 .................... 52,302,820 $523 344,265 108,286 3,069 456,143
Comprehensive income:
Net earnings ................................. -- -- -- 32,818 -- 32,818
Unrealized loss on securities, net of
reclassification adjustment and taxes ..... -- -- -- -- (3,577) (3,577)
-------
Total comprehensive income ...................... 29,241
-------
Cash dividends declared ($.24 per share) ........ -- -- -- (12,749) -- (12,749)
Stock options exercised ......................... 429,251 4 4,734 -- -- 4,738
Stock issued in connection with acquisitions .... 793,580 8 18,992 -- -- 19,000
Stock based compensation and tax benefit ........ -- -- 3,298 -- -- 3,298
---------- ---- ------- ------- ------ -------
Balance at June 30, 2007 (unaudited) ............ 53,525,651 $535 371,289 128,355 (508) 499,671
========== ==== ======= ======= ====== =======
(1) Shares and per share amounts have been adjusted to reflect the December
2006 three-for-two stock split.
See accompanying notes to condensed consolidated financial statements.
5
GLACIER BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
-------------------------
(UNAUDITED - dollars in thousands) 2007 2006
---------------------------------- --------- --------
OPERATING ACTIVITIES :
NET CASH PROVIDED BY OPERATING ACTIVITIES ......... $ 31,584 29,695
--------- --------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and
prepayments of investments
available-for-sale ............................. 165,114 127,238
Purchases of investments available-for-sale ....... (22,491) (40,792)
Principal collected on installment and
commercial loans ............................... 584,905 561,767
Installment and commercial loans originated
or acquired .................................... (737,316) (738,245)
Principal collections on mortgage loans ........... 270,272 186,314
Mortgage loans originated or acquired ............. (262,835) (267,961)
Net purchase of FHLB and FRB stock ................ (3,451) (434)
Net cash paid for sale of Western's Lewistown
branch ......................................... (6,846) --
Net cash received from North Side State Bank
acquisition .................................... 9,339 --
Net addition of premises and equipment ............ (1,221) (11,889)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES .......... (4,530) (184,002)
--------- --------
FINANCING ACTIVITIES:
Net increase in deposits .......................... 72,993 158,056
Net increase in FHLB advances and other
borrowed funds ................................. 17,917 8,391
Net (decrease) increase in securities sold
under repurchase agreements .................... (13,422) 21,568
Cash dividends paid ............................... (12,749) (10,365)
Excess tax benefits from stock options ............ 1,399 1,170
Proceeds from exercise of stock options and
other stock issued ............................. 4,739 4,104
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...... 70,877 182,924
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...... 97,931 28,617
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .. 173,017 134,694
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........ $ 270,948 163,311
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest ......... $ 54,368 39,935
Income taxes ................................ $ 14,005 13,029
The following schedule summarizes the acquisition of North Side State Bank
in 2007
NORTH SIDE
STATE BANK
--------------
Acquired April 30, 2007
Fair Value of assets acquired $127,258
Cash paid for the capital stock 8,854
Capital stock issued 19,000
Liabilities assumed 99,967
See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of Glacier
Bancorp Inc.'s (the "Company") financial condition as of June 30, 2007, and
June 30, 2006, stockholders' equity for the six months ended June 30, 2007,
the results of operations for the three and six months ended June 30, 2007
and 2006, and cash flows for the six months ended June 30, 2007 and 2006.
The condensed consolidated statement of financial condition and statement
of stockholders' equity and comprehensive income of the Company as of
December 31, 2006 have been derived from the audited consolidated
statements of the Company as of that date.
The accompanying condensed consolidated financial statements do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 2006. Operating results for the six months ended June
30, 2007 are not necessarily indicative of the results anticipated for the
year ending December 31, 2007. Certain reclassifications have been made to
the 2006 financial statements to conform to the 2007 presentation.
2) Organizational Structure
The Company, headquartered in Kalispell, Montana, is a Montana corporation
incorporated in 2004 as a successor corporation to the Delaware corporation
incorporated in 1990. The Company is the parent company for eleven
wholly-owned banking subsidiaries: Glacier Bank ("Glacier"), First Security
Bank of Missoula ("First Security"), Western Security Bank ("Western"), Big
Sky Western Bank ("Big Sky"), Valley Bank of Helena ("Valley"), Glacier
Bank of Whitefish ("Whitefish"), First Bank of Montana ("First Bank-MT"),
all located in Montana, Mountain West Bank ("Mountain West") which is
located in Idaho, Utah, and Washington, Citizens Community Bank
("Citizens") located in Idaho, 1st Bank ("1st Bank") located in Wyoming,
and First National Bank of Morgan ("Morgan") located in Utah.
In addition, the Company owns four trust subsidiaries, Glacier Capital
Trust II ("Glacier Trust II"), Glacier Capital Trust III ("Glacier Trust
III"), Glacier Capital Trust IV ("Glacier Trust IV"), and Citizens (ID)
Statutory Trust I ("Citizens Trust I") for the purpose of issuing trust
preferred securities and in accordance with Financial Accounting Standards
Board Interpretation ("FASB") 46(R) the subsidiaries are not consolidated
into the Company's financial statements. The Company does not have any
off-balance sheet entities.
On October 1, 2006, the Company acquired Citizens Development Company
("CDC") and its five subsidiaries which include: Citizens State Bank, First
Citizens Bank of Billings ("FCB-Billings"), First National Bank of
Lewistown, Western Bank of Chinook, and First Citizens Bank, N.A. On
January 26, 2007, Citizens State Bank, FCB-Billings, and First Citizens
Bank, N.A. were merged into First Security, Western, and Glacier,
respectively, without name change for First Security, Western, and Glacier.
On June 22, 2007, Western Bank of Chinook was merged into First National
Bank of Lewistown and renamed First Bank of Montana.
On April 30, 2007, the Company completed the acquisition of North Side
State Bank ("North Side") of Rock Springs, Wyoming, which was merged into
1st Bank, the Company's Evanston, Wyoming subsidiary.
7
The following abbreviated organizational chart illustrates the various
relationships:
------------------------
Glacier Bancorp, Inc.
(Parent Holding Company)
------------------------
|
|
---------------------------------------------|----------------------------------------------
Mountain West Bank Glacier Bank | First Security Bank Western Security Bank
(ID Commercial bank) (MT Commercial bank) | of Missoula (MT Commercial bank)
| (MT Commercial bank)
-------------------- -------------------- | -------------------- ---------------------
|
|
---------------------------------------------|----------------------------------------------
1st Bank Big Sky | Valley Bank Glacier Bank
(WY Commercial bank) Western Bank | of Helena of Whitefish
(MT Commercial bank) | (MT Commercial bank) (MT Commercial bank)
-------------------- -------------------- | -------------------- ---------------------
|
|
---------------------------------------------|----------------------------------------------
Citizens Community First Bank | First National Bank Glacier
Bank of Montana | of Morgan Capital Trust II
(ID Commercial bank) (MT Commercial bank) | (UT Commercial bank)
-------------------- -------------------- | -------------------- ---------------------
|
|
----------------------------------------------------------------------------------------
Glacier Capital Trust III Glacier Capital Trust IV Citizens (ID) Statutory Trust I
------------------------- ------------------------ -------------------------------
3) Ratios
Returns on average assets and average equity were calculated based on daily
averages.
4) Dividends Declared
On June 27, 2007, the Board of Directors declared a $.12 per share cash
dividend payable on July 19, 2007 to stockholders of record on July 10,
2007.
5) Computation of Earnings Per Share
Basic earnings per common share is computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the
period presented. Diluted earnings per share is computed by including the
net increase in shares as if dilutive outstanding stock options were
exercised, using the treasury stock method.
8
The following schedule contains the data used in the calculation of basic
and diluted earnings per share:
Three Three Six Six
months ended months ended months ended months ended
June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
------------- ------------- ------------- -------------
Net earnings available to common
stockholders ....................... $16,725,000 14,666,000 32,818,000 28,295,000
Average outstanding shares - basic .... 53,164,813 48,658,760 52,836,255 48,519,273
Add: Dilutive stock options ........... 436,883 687,220 578,737 773,313
----------- ---------- ---------- ----------
Average outstanding shares - diluted .. 53,601,696 49,345,980 53,414,992 49,292,586
=========== ========== ========== ==========
Basic earnings per share .............. $ 0.31 0.30 0.62 0.58
=========== ========== ========== ==========
Diluted earnings per share ............ $ 0.31 0.30 0.61 0.57
=========== ========== ========== ==========
There were approximately 436,130 and 484,725 average shares excluded from the
six months ended diluted share calculation as of June 30, 2007, and 2006,
respectively, due to the option exercise price exceeding the market price.
6) Investments
A comparison of the amortized cost and estimated fair value of the
Company's investment securities, available-for-sale and other investments,
is as follows:
9
INVESTMENTS AS OF JUNE 30, 2007
Gross Unrealized Estimated
Weighted Amortized ----------------- Fair
(Dollars in thousands) Yield Cost Gains Losses Value
---------------------- -------- --------- ----- --------- ---------
AVAILABLE-FOR-SALE:
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year ......................... 4.59% $ 12,769 22 (9) 12,782
GOVERNMENT-SPONSORED ENTERPRISES:
maturing within one year ......................... 5.16% 10,488 -- (7) 10,481
maturing one year through five years ............. 5.15% 149 -- -- 149
maturing five years through ten years ............ 7.11% 252 -- (2) 250
maturing after ten years ......................... 6.77% 149 1 -- 150
-------- ----- ------ -------
5.23% 11,038 1 (9) 11,030
-------- ----- ------ -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ......................... 3.73% 1,448 (2) 1,446
maturing one year through five years ............. 4.23% 4,955 22 (36) 4,941
maturing five years through ten years ............ 5.00% 16,315 668 (12) 16,971
maturing after ten years ......................... 5.12% 267,311 7,299 (313) 274,297
-------- ----- ------ -------
5.09% 290,029 7,989 (363) 297,655
-------- ----- ------ -------
MORTGAGE-BACKED SECURITIES .......................... 4.80% 45,638 114 (1,691) 44,061
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ............ 4.27% 310,668 12 (6,598) 304,082
FHLMC AND FNMA STOCK ................................ 5.74% 7,593 -- (305) 7,288
OTHER INVESTMENTS:
CERTIFICATES OF DEPOSITS WITH OVER 90 DAY MATURITY .. 4.68% 794 -- -- 794
FHLB AND FRB STOCK, AT COST ......................... 1.69% 59,412 -- -- 59,412
-------- ----- ------ -------
TOTAL INVESTMENTS ............................. 4.45% $737,941 8,138 (8,975) 737,104
======== ===== ====== =======
10
INVESTMENTS AS OF DECEMBER 31, 2006
Gross Unrealized Estimated
Weighted Amortized ---------------- Fair
(Dollars in thousands) Yield Cost Gains Losses Value
-------------------------------- -------- --------- ----- --------- ---------
AVAILABLE-FOR-SALE:
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year ......................... 4.78% $ 10,982 -- (6) 10,976
GOVERNMENT-SPONSORED ENTERPRISES:
maturing within one year ......................... 4.90% 8,177 -- (17) 8,160
maturing one year through five years ............. 5.15% 648 -- -- 648
maturing five years through ten years ............ 7.73% 352 5 -- 357
maturing after ten years ......................... 6.68% 153 1 -- 154
-------- ------ ------ -------
5.05% 9,330 6 (17) 9,319
-------- ------ ------ -------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year ......................... 3.65% 2,190 2 (1) 2,191
maturing one year through five years ............. 4.08% 5,736 43 (21) 5,758
maturing five years through ten years ............ 4.92% 15,180 818 (11) 15,987
maturing after ten years ......................... 5.12% 276,756 11,794 (86) 288,464
-------- ------ ------ -------
5.08% 299,862 12,657 (119) 312,400
-------- ------ ------ -------
MORTGAGE-BACKED SECURITIES .......................... 4.74% 51,673 150 (1,235) 50,588
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ............ 4.14% 382,551 45 (6,634) 375,962
FHLMC AND FNMA STOCK ................................ 5.74% 7,593 218 -- 7,811
OTHER INVESTMENTS:
CERTIFICATES OF DEPOSITS WITH OVER 90 DAY MATURITY .. 4.83% 2,864 -- -- 2,864
FHLB AND FRB STOCK, AT COST ......................... 1.26% 55,717 -- -- 55,717
-------- ------ ------ -------
TOTAL INVESTMENTS ............................. 4.36% $820,572 13,076 (8,011) 825,637
======== ====== ====== =======
Interest income includes tax-exempt interest for the six months ended June
30, 2007 and 2006 of $6,928,000 and $6,947,000, respectively, and for the
three months ended June 30, 2007 and 2006 of $3,476,000 and $3,459,000,
respectively.
Gross proceeds from sales of investment securities for the six months ended
June 30, 2007 and 2006 were $55,798,000 and $0, respectively, resulting in
gross gains of approximately $1,000 and $0, respectively, and gross losses
of approximately $9,000 and $0, respectively. Investment securities of
$54,443,000 from North Side was sold immediately after the acquisition was
completed. The cost of any investment sold is determined by specific
identification.
11
7) Loans
The following table summarizes the Company's loan portfolio:
LOAN PORTFOLIO COMPOSITION
At At At
6/30/2007 12/31/2006 6/30/2006
TYPE OF LOAN --------------------- -------------------- --------------------
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
----------- ------- ---------- ------- ---------- -------
Real Estate Loans:
Residential real estate $ 781,216 23.4% $ 758,921 24.0% $ 670,860 25.2%
Loans held for sale 42,620 1.3% 35,135 1.1% 30,596 1.2%
----------- ----- ---------- ----- ---------- -----
Total 823,836 24.7% 794,056 25.1% 701,456 26.4%
Commercial Loans:
Real estate 1,071,140 32.1% 954,290 30.2% 819,287 30.8%
Other commercial 887,851 26.7% 902,994 28.5% 671,175 25.2%
----------- ----- ---------- ----- ---------- -----
Total 1,958,991 58.8% 1,857,284 58.7% 1,490,462 56.0%
Consumer and other Loans:
Consumer 210,783 6.3% 218,640 6.9% 186,493 7.0%
Home equity 401,759 12.1% 356,477 11.3% 331,716 12.5%
----------- ----- ---------- ----- ---------- -----
Total 612,542 18.4% 575,117 18.2% 518,209 19.5%
Net deferred loan fees, premiums
and discounts (11,093) -0.3% (11,674) -0.4% (8,082) -0.3%
Allowance for loan losses (52,422) -1.6% (49,259) -1.6% (41,195) -1.6%
----------- ----- ---------- ----- ---------- -----
Loan receivable, net $ 3,331,854 100.0% $3,165,524 100.0% $2,660,850 100.0%
=========== ===== ========== ===== ========== =====
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated:
NONPERFORMING ASSETS At At At
(Dollars in thousands) 6/30/2007 12/31/2006 6/30/2006
--------- ---------- ---------
Non-accrual loans:
Real estate loans $ 977 1,806 1,287
Commercial loans 3,799 3,721 2,997
Consumer and other loans 459 538 868
------- ----- -----
Total $ 5,235 6,065 5,152
Accruing Loans 90 days or more overdue:
Real estate loans 659 554 512
Commercial loans 3,791 638 2,475
Consumer and other loans 142 153 199
------- ----- -----
Total $ 4,592 1,345 3,186
Real estate and other assets owned, net 2,153 1,484 605
------- ----- -----
Total non-performing loans and real estate
and other assets owned, net $11,980 8,894 8,943
======= ===== =====
As a percentage of total bank assets 0.25% 0.19% 0.23%
Interest Income (1) $ 206 462 190
(1) Amounts represent interest income that would have been recognized on loans
accounted for on a non-accrual basis for the six months ended June 30,
2007, the year ended December 31, 2006 and the six months ended June 30,
2006, had such loans performed pursuant to contractual terms.
12
The following table illustrates the loan loss experience:
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES:
ALLOWANCE FOR LOAN LOSSES
Six months ended Year ended Six months ended
June 30, December 31, June 30,
(Dollars in thousands) 2007 2006 2006
---------------- ------------ ----------------
Balance at beginning of period $49,259 38,655 38,655
Charge offs:
Real estate loans (94) (14) (2)
Commercial loans (309) (1,187) (324)
Consumer and other loans (160) (448) (202)
------- ------- ------
Total charge-offs $ (563) (1,649) (528)
------- ------- ------
Recoveries:
Real estate loans 110 341 295
Commercial loans 376 331 70
Consumer and other loans 196 298 183
------- ------- ------
Total recoveries $ 682 970 548
------- ------- ------
Net recoveries (charge-offs) 119 (679) 20
Acquisition (1) 639 6,091 --
Provision 2,405 5,192 2,520
------- ------- ------
Balance at end of period $52,422 49,259 41,195
======= ======= ======
Ratio of net recoveries (charge-offs) to
average loans outstanding during the period 0.004% -0.021% 0.001%
(1) Acquisition of North Side State Bank and Citizen's Development Company
The following table summarizes the allocation of the allowance for loan
losses:
June 30, 2007 December 31, 2006 June 30, 2006
---------------------- ---------------------- ----------------------
Percent of Percent of Percent of
loans in loans in loans in
(Dollars in thousands) Allowance category Allowance category Allowance category
---------------------- --------- ---------- --------- ---------- --------- ----------
Real estate loans $ 5,642 24.2% 5,421 24.6% 4,940 25.9%
Commercial real estate loans 19,047 31.6% 16,741 29.6% 14,821 30.2%
Other commercial loans 18,386 26.2% 18,361 28.0% 13,589 24.8%
Consumer and other loans 9,347 18.0% 8,736 17.8% 7,845 19.1%
------- ----- ------ ----- ------ -----
Totals $52,422 100.0% 49,259 100.0% 41,195 100.0%
======= ===== ====== ===== ====== =====
13
8) Intangible Assets
The following table sets forth information regarding the Company's core
deposit intangible and mortgage servicing rights as of June 30, 2007:
Mortgage
Core Deposit Servicing
(Dollars in thousands) Intangible Rights (1) Total
---------------------- ------------ ---------- ------
Gross carrying value $ 25,706
Accumulated Amortization (10,131)
--------
Net carrying value $ 15,575 1,166 16,741
========
WEIGHTED-AVERAGE AMORTIZATION PERIOD
(Period in years) 10.0 9.6 10.0
AGGREGATE AMORTIZATION EXPENSE
For the three months ended June 30, 2007 $ 809 54 863
For the six months ended June 30, 2007 $ 1,589 103 1,692
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2007 $ 3,202 143 3,345
For the year ended December 31, 2008 3,032 79 3,111
For the year ended December 31, 2009 2,738 77 2,815
For the year ended December 31, 2010 2,369 75 2,444
For the year ended December 31, 2011 1,662 72 1,734
(1) The mortgage servicing rights are included in other assets and the gross
carrying value and accumulated amortization are not readily available.
Acquisitions are accounted for using the purchase accounting method as
prescribed by Statement of Financial Accounting Standard Number 141, Business
Combinations. Purchase accounting requires the total purchase price to be
allocated to the estimated fair values of assets acquired and liabilities
assumed, including certain intangible assets. Goodwill is recorded for the
residual amount in excess of the net fair value.
Adjustment of the allocated purchase price may be related to fair value
estimates for which all information has not been obtained or required for
pre-acquisition contingencies of the acquired entity known or discovered during
the allocation period, the period of time required to identify and measure the
fair values of the assets and liabilities acquired in the business combination.
The allocation period is generally limited to one year following consummation of
a business combination.
The following is a summary of activity in goodwill for the six months ended June
30, 2007.
(Dollars in thousands) Goodwill
---------------------- --------
Balance as of December 31, 2006 $129,716
Sale of Western's Lewistown branch (454)
Adjustment for FCB-Billings' building (760)
Adjustment for FCB-Billings' loan 3,766
Acquisition of North Side State Bank 7,675
Other adjustments 75
--------
Balance as of June 30, 2007 $140,018
========
As a condition of acquiring FCB - Billings, a subsidiary of CDC which was
acquired on October 1, 2006, bank regulators required Western to divest of
Western's branch in Lewistown, Montana. Western was acquired in
14
February 2001 through the purchase of WesterFed Financial Corporation
("WesterFed"), its parent company. The WesterFed acquisition was accounted for
using the purchase method of accounting with a portion of goodwill allocated to
Western's Lewistown branch. With the January 2007 sale of the Lewistown branch,
$454 thousand of goodwill associated with such branch was removed.
In March 2007, Western adjusted its purchase price allocation for FCB - Billings
based upon new information available to management concerning the estimated fair
value of property as of the acquisition date. Accordingly, the fair value of
certain property was increased by $1.25 million with a related $490 thousand
increase in deferred tax liability, resulting in a $760 thousand decrease in
goodwill.
In February 2007, Western became aware of a preacquisition contingency in
regards to a loan that was impaired as of the October 1, 2006 acquisition of FCB
- Billings. After taking into consideration recoveries, the amount of impairment
determined to have occurred on or before the acquisition date is estimated to be
$6.3 million with such amount charged off against the loan balance. No further
loss is expected as the balance of the loan, after such charge-off, has been
collected. On an after tax basis, the increase to goodwill is $3.8 million.
Management continues to pursue additional recoveries and remedies from the
guarantors and other third parties. Additional recoveries, if any, occurring on
or before September 30, 2007, i.e., the expected end of the allocation period
will be an adjustment of goodwill, with any recoveries occurring after such date
recorded in earnings in the period in which the recoveries are received or
accrued.
On April 30, 2007, the Company acquired North Side State Bank of Rock Springs,
and the purchase price included core deposit intangible of $2,524,000 and
goodwill of $7,675,000.
9) Deposits
The following table illustrates the amounts outstanding for deposits
$100,000 and greater at June 30, 2007 according to the time remaining to
maturity. Included in the CD maturities are brokered CDs in the amount of
$227,288,000.
Certificates Non-Maturity
(Dollars in thousands) of Deposit Deposits Totals
---------------------- ------------ ------------ ---------
Within three months ..... $149,754 1,236,079 1,385,833
Three to six months ..... 249,786 -- 249,786
Seven to twelve months .. 93,990 -- 93,990
Over twelve months ...... 48,306 -- 48,306
-------- --------- ---------
Totals ............... $541,836 1,236,079 1,777,915
======== ========= =========
10) Advances and Other Borrowings
The following chart illustrates the average balances and the maximum
outstanding month-end balances for Federal Home Loan Bank of Seattle (FHLB)
advances and repurchase agreements:
15
As of and As of and As of and
for the six for the for the six
months ended year ended months ended
(Dollars in thousands) June 30, 2007 December 31, 2006 June 30, 2006
------------- ----------------- -------------
FHLB Advances:
Amount outstanding at end of period ... $260,224 307,522 435,978
Average balance ....................... $368,928 487,112 485,746
Maximum outstanding at any month-end .. $509,519 655,492 572,954
Weighted average interest rate ........ 4.97% 4.20% 3.82%
Repurchase Agreements:
Amount outstanding at end of period ... $156,794 170,216 151,098
Average balance ....................... $159,557 153,314 137,800
Maximum outstanding at any month-end .. $168,395 164,338 151,098
Weighted average interest rate ........ 4.56% 4.32% 4.04%
11) Stockholders' Equity
The Federal Reserve Board has adopted capital adequacy guidelines that are
used to assess the adequacy of capital in supervising a bank holding
company. The following table illustrates the Federal Reserve Board's
capital adequacy guidelines and the Company's compliance with those
guidelines as of June 30, 2007.
CONSOLIDATED Tier 1 (Core) Tier 2 (Total) Leverage
(Dollars in thousands) Capital Capital Capital
---------------------- ------------- -------------- ----------
GAAP Capital ................................ $ 499,671 499,671 499,671
Less: Goodwill and intangibles .............. (155,593) (155,593) (155,593)
Other adjustments ........................ (323) (323) (323)
Plus: Allowance for loan losses ............. -- 48,530 --
Accumulated other comprehensive
Unrealized loss on AFS securities ........ 508 508 508
Subordinated debentures .................. 118,559 118,559 118,559
---------- --------- ----------
Regulatory capital computed ................. $ 462,822 511,352 462,822
========== ========= ==========
Risk weighted assets ........................ $3,760,588 3,760,588
========== =========
Total average assets ........................ $4,539,226
==========
Capital as % of defined assets .............. 12.31% 13.60% 10.20%
Regulatory "well capitalized" requirement ... 6.00% 10.00% 5.00%
---------- --------- ----------
Excess over "well capitalized" requirement .. 6.31% 3.60% 5.20%
========== ========= ==========
12) Federal and State Income Taxes
The Company and its financial institution subsidiaries join together in the
filing of consolidated income tax returns in the following jurisdictions:
federal, Montana, Idaho and Utah. Although 1st Bank has operations in Wyoming
and Mountain West has operations in Washington, neither Wyoming nor Washington
imposes a corporate level income tax. All required income tax returns have been
timely filed. Income tax returns for the years ended December 31, 2003, 2004,
2005 and 2006, remain subject to examination by federal, Montana, Idaho and Utah
tax authorities.
On January 1, 2007, the Company adopted FASB Interpretation No. 48 ("FIN 48"),
Accounting for Uncertainty in Income Taxes. There was no cumulative effect
recognized in retained earnings as a result of adopting FIN
16
48. The Company determined its unrecognized tax benefit to be $300,000 as of
June 30, 2007. In accordance with FIN 48, the Company reclassified such amount
from a deferred tax liability to a current tax liability.
If the unrecognized tax benefit amount was recognized, it would decrease the
Company's effective tax rate from 34.0 percent to 33.7 percent. Management
believes that it is unlikely that the balance of its unrecognized tax benefits
will significantly increase or decrease over the next twelve months.
The Company recognizes interest related to unrecognized income tax benefits in
interest expense and penalties are recognized in other expense. During the six
months ended June 30, 2007 and 2006, the Company recognized $0 interest expense
and recognized $0 penalty with respect to income tax liabilities. The Company
had approximately $50,000 and $0 accrued for the payment of interest at June 30,
2007 and 2006, respectively. The Company had accrued $0 for the payment of
penalties at June 30, 2007 and 2006.
13) Comprehensive Income
The Company's only component of comprehensive income other than net
earnings is the unrealized gains and losses on available-for-sale
securities.
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
Dollars in thousands 2007 2006 2007 2006
-------------------- ------- ------ ------ ------
Net earnings ............................ $16,725 14,666 32,818 28,295
Unrealized holding loss arising during
the period ........................... (7,092) (7,606) (5,911) (8,744)
Tax benefit expense ..................... 2,794 2,997 2,329 3,445
------- ------ ------ ------
Net after tax ........................ (4,298) (4,609) (3,582) (5,299)
Reclassification adjustment for losses
included in net earnings ............. -- -- 8 --
Tax benefit ............................. -- -- (3) --
------- ------ ------ ------
Net after tax ........................ -- -- 5 --
Net unrealized loss on securities .... (4,298) (4,609) (3,577) (5,299)
------- ------ ------ ------
Total comprehensive income ........ $12,427 10,057 29,241 22,996
======= ====== ====== ======
17
14) Segment Information
The Company evaluates segment performance internally based on individual
bank charters, and thus the operating segments are so defined. The
following schedule provides selected financial data for the Company's
operating segments. Centrally provided services to the Banks are allocated
based on estimated usage of those services. The operating segment
identified as "Other" includes the Parent, non-bank units, and elimination
of transactions between segments.
Six months ended and as of June 30, 2007
----------------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky Valley
---------------------- -------- ------- -------- ------- -------- ------- -------
Revenues from external customers $ 42,446 31,576 29,187 20,455 11,809 11,439 10,667
Intersegment revenues 24 78 920 713 552 15 95
Expenses (35,521) (24,789) (23,497) (16,903) (9,966) (9,024) (8,570)
Intercompany eliminations -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Net Earnings $ 6,949 6,865 6,610 4,265 2,395 2,430 2,192
======== ======= ======= ======= ======= ======= =======
Total Assets $996,119 836,522 834,762 553,387 470,595 288,449 281,809
======== ======= ======= ======= ======= ======= =======
First Bank Total
Whitefish Citizens of MT Morgan Other Consolidated
--------- -------- ---------- ------ -------- ------------
Revenues from external customers $ 6,962 7,549 4,604 2,427 195 179,316
Intersegment revenues -- -- 316 632 41,188 44,533
Expenses (5,629) (6,461) (3,969) (2,602) 433 (146,498)
Intercompany eliminations -- -- -- -- (44,533) (44,533)
-------- ------- ------- ------ -------- ---------
Net Earnings $ 1,333 1,088 951 457 (2,717) 32,818
======== ======= ======= ====== ======== =========
Total Assets $193,716 181,250 143,093 91,560 (198,307) 4,672,955
======== ======= ======= ====== ======== =========
Six months ended and as of June 30, 2006
-------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky
---------------------- --------- ------- -------- ------- -------- -------
Revenues from external customers $ 33,783 25,772 25,133 14,056 8,871 10,162
Intersegment revenues 15 200 96 19 354 92
Expenses (27,590) (19,473) (18,851) (11,150) (7,499) (7,743)
Intercompany eliminations -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Net Earnings $ 6,208 6,499 6,378 2,925 1,726 2,511
======== ======= ======= ======= ======= =======
Total Assets $862,075 744,359 745,180 424,534 293,717 275,250
======== ======= ======= ======= ======= =======
Total
Valley Whitefish Citizens Other Consolidated
-------- --------- -------- ------- ------------
Revenues from external customers $ 9,079 6,198 6,655 230 139,939
Intersegment revenues 66 -- -- 36,032 36,874
Expenses (7,070) (4,833) (5,592) (1,843) (111,644)
Intercompany eliminations -- -- -- (36,874) (36,874)
-------- ------- ------- ------- ---------
Net Earnings $ 2,075 1,365 1,063 (2,455) 28,295
======== ======= ======= ======= =========
Total Assets $262,370 182,742 164,215 (38,429) 3,916,013
======== ======= ======= ======= =========
18
Three months ended and as of June 30, 2007
----------------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky Valley
---------------------- -------- ------- -------- ------- -------- ------- -------
Revenues from external customers $ 22,140 16,156 14,764 9,407 6,741 5,894 5,543
Intersegment revenues 13 39 643 549 302 14 58
Expenses (18,399) (12,650) (12,066) (8,361) (5,600) (4,613) (4,449)
Intercompany eliminations -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Net Earnings $ 3,754 3,545 3,341 1,595 1,443 1,295 1,152
======== ======= ======= ======= ======= ======= =======
Total Assets $996,119 836,522 834,762 553,387 470,595 288,449 281,809
======== ======= ======= ======= ======= ======= =======
First Bank Total
Whitefish Citizens of MT Morgan Other Consolidated
--------- -------- ---------- ------ -------- ------------
Revenues from external customers $ 3,544 3,820 2,379 1,221 95 91,704
Intersegment revenues -- -- 101 327 20,957 23,003
Expenses (2,865) (3,259) (1,985) (1,339) 607 (74,979)
Intercompany eliminations -- -- -- -- (23,003) (23,003)
-------- ------- ------- ------ -------- ---------
Net Earnings $ 679 561 495 209 (1,344) 16,725
======== ======= ======= ====== ======== =========
Total Assets $193,716 181,250 143,093 91,560 (198,307) 4,672,955
======== ======= ======= ====== ======== =========
Three months ended and as of June 30, 2006
------------------------------------------------------------
Mountain First
(Dollars in thousands) West Glacier Security Western 1st Bank Big Sky
---------------------- -------- ------- -------- ------- -------- -------
Revenues from external customers $ 17,859 13,320 12,875 7,176 4,769 5,244
Intersegment revenues 9 148 18 2 118 92
Expenses (14,527) (10,189) (9,684) (5,746) (3,973) (4,024)
Intercompany eliminations -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Net Earnings $ 3,341 3,279 3,209 1,432 914 1,312
======== ======= ======= ======= ======= =======
Total Assets $862,075 744,359 745,180 424,534 293,717 275,250
======== ======= ======= ======= ======= =======
Total
Valley Whitefish Citizens Other Consolidated
-------- --------- -------- ------- ------------
Revenues from external customers $ 4,735 3,202 3,496 155 72,831
Intersegment revenues 33 -- -- 18,658 19,078
Expenses (3,699) (2,527) (2,981) (815) (58,165)
Intercompany eliminations -- -- -- (19,078) (19,078)
-------- ------- ------- ------- ---------
Net Earnings $ 1,069 675 515 (1,080) 14,666
======== ======= ======= ======= =========
Total Assets $262,370 182,742 164,215 (38,429) 3,916,013
======== ======= ======= ======= =========
15) Rate/Volume Analysis
Net interest income can be evaluated from the perspective of relative
dollars of change in each period. Interest income and interest expense,
which are the components of net interest income, are shown in the following
table on the basis of the amount of any increases (or decreases)
attributable to changes in the dollar levels of the Company's
interest-earning assets and interest-bearing liabilities ("Volume") and the
yields earned and rates paid on such assets and liabilities ("Rate"). The
change in interest income and interest expense attributable to changes in
both volume and rates has been allocated proportionately to the change due
to volume and the change due to rate.
19
Six Months Ended June 30,
2007 vs. 2006
(Dollars in thousands) Increase (Decrease) due to:
---------------------------
INTEREST INCOME Volume Rate Net
------- ------ ------
Residential real estate loans $ 5,139 1,272 6,411
Commercial loans 16,364 5,454 21,818
Consumer and other loans 3,509 1,156 4,665
Investment securities and other (2,381) 815 (1,566)
------- ------ ------
Total Interest Income 22,631 8,697 31,328
INTEREST EXPENSE
NOW accounts 283 898 1,181
Savings accounts 130 118 248
Money market accounts 2,617 3,823 6,440
Certificates of deposit 2,290 4,126 6,416
FHLB advances (2,216) 2,095 (121)
Other borrowings and repurchase
agreements 2,238 573 2,811
------- ------ ------
Total Interest Expense 5,342 11,633 16,975
------- ------ ------
NET INTEREST INCOME $17,289 (2,936) 14,353
======= ====== ======
20
16) Average Balance Sheet
The following schedule provides (i) the total dollar amount of interest and
dividend income of the Company for earning assets and the resultant average
yield; (ii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average rate; (iii) net interest and dividend
income; (iv) interest rate spread; and (v) net interest margin. Non-accrual
loans are included in the average balance of the loans.
For the Three months
ended 6-30-07 For the Six months ended 6-30-07
-------------------------------- --------------------------------
Interest Average Interest Average
AVERAGE BALANCE SHEET Average and Yield/ Average and Yield/
(Dollars in thousands) Balance Dividends Rate Balance Dividends Rate
---------- --------- ------- ---------- --------- -------
ASSETS
Residential real estate loans $ 806,134 15,201 7.54% $ 787,767 29,642 7.53%
Commercial loans 1,886,129 38,170 8.12% 1,869,486 74,822 8.07%
Consumer and other loans 594,600 11,870 8.01% 586,428 23,184 7.97%
---------- ------- ---------- --------
Total Loans 3,286,863 65,241 7.96% 3,243,681 127,648 7.94%
Tax - exempt investment securities (1) 276,295 3,476 5.03% 278,239 6,928 4.98%
Other investment securities 589,025 6,576 4.47% 576,737 12,637 4.38%
---------- ------- ---------- --------
Total Earning Assets 4,152,183 75,293 7.25% 4,098,657 147,213 7.18%
------- --------
Goodwill and core deposit intangible 146,166 145,003
Other non-earning assets 254,410 243,307
---------- ----------
TOTAL ASSETS $4,552,759 $4,486,967
========== ==========
LIABILITIES
AND STOCKHOLDERS' EQUITY
NOW accounts $ 480,584 1,262 1.05% $ 457,027 2,353 1.04%
Savings accounts 269,108 669 1.00% 267,850 1,327 1.00%
Money market accounts 734,722 6,775 3.70% 721,226 13,189 3.69%
Certificates of deposit 1,011,110 11,824 4.69% 978,187 22,468 4.63%
FHLB advances 319,193 4,050 5.09% 368,928 9,092 4.97%
Repurchase agreements
and other borrowed funds 425,541 5,517 5.20% 408,387 10,497 5.18%
---------- ------- ---------- --------
Total Interest Bearing Liabilities 3,240,258 30,097 3.73% 3,201,605 58,926 3.71%
------- --------
Non-interest bearing deposits 782,502 765,140
Other liabilities 43,398 44,021
---------- ----------
Total Liabilities 4,066,158 4,010,766
---------- ----------
Common stock 531 528
Paid-in capital 351,625 348,811
Retained earnings 130,479 123,535
Accumulated other
Comprehensive income 3,966 3,327
---------- ----------
Total Stockholders' Equity 486,601 476,201
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $4,552,759 $4,486,967
========== ==========
Net interest income $45,196 $ 88,287
======= ========
Net interest spread 3.52% 3.47%
Net interest margin
on average earning assets 4.37% 4.34%
Return on average assets (annualized) 1.47% 1.47%
Return on average equity (annualized) 13.79% 13.90%
(1) Excludes tax effect on non-taxable investment security income
21
17) Recent Acquisitions
On April 30, 2007, the Company completed the acquisition of North Side of
Rock Springs, Wyoming, which was merged into 1st Bank, the Company's
Evanston, Wyoming subsidiary. As of April 30, 2007, North Side had
approximate total assets of $119 million, loans of $40 million, and
deposits of $100 million. A portion of the purchase price was allocated to
core deposit intangible of $2,524,000 and goodwill of $7,675,000.
Acquisitions are accounted for under the purchase method of accounting.
Accordingly, the assets and liabilities of the acquired banks are recorded
by the Company at their respective fair values at the date of the
acquisition and the results of operations are included with those of the
Company since the date of acquisition. 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.
Adjustment of the allocated purchase price may be related to fair value
estimates for which all information has not been obtained or required for
pre-acquisition contingencies of the acquired entity known or discovered
during the allocation period, the period of time required to identify and
measure the fair values of the assets and liabilities acquired in the
business combination. The allocation period is generally limited to one
year following consummation of a business combination.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Key Management
The Company appointed Don Chery as Chief Administrative Officer for the Company
by the Board of Directors. Don brings with him nearly 20 years of experience
with the Company, most recently as President of Big Sky. Don will begin his new
role August 20. Ron Ostermiller has been appointed the new President of Big Sky.
Ron has been with the Company for 9 years as the Senior Credit Officer of Big
Sky and has been in the banking industry for 38 years.
Impact of Recently Issued Accounting Standards
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities--including an amendment of FASB
Statement No. 115" (Statement 159). Statement 159 permits entities to choose to
measure many financial instruments and certain other items at fair value and
amends Statement 115 to, among other things, require certain disclosures for
amounts for which the fair value option is applied. This standard is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2007, or January 1, 2008 for the Company. Early adoption is permitted as of
the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of Statement 157. The
Company has not completed its assessment of SFAS 159 and the impact, if any, on
the consolidated financial statements.
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, Fair Value Measurements, which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit fair value
measurements, FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating the impact of the adoption of this
standard, but does not expect it to have a material effect on the Company's
financial position or results of operations.
22
Financial Condition
This section discusses the changes in the Statement of Financial Condition items
from June 30, 2006 and December 31, 2006, to June 30, 2007.
Effective with its acquisition on April 30, 2007, North Side of Rock Springs,
Wyoming was merged into 1st Bank, the Company's subsidiary bank in Evanston,
Wyoming. On June 21, 2007, the remaining two CDC subsidiaries, i.e., First
National Bank of Lewistown and Western Bank of Chinook, merged to become First
Bank of Montana. In June, each of the combining CDC bank's operating systems and
First National Bank of Morgan's operating systems were converted to the core
operating system used by the Company's banking subsidiaries.
The results of operations and financial condition include the acquisition of
North Side from May 1, 2007 forward. Cash of $8.8 million and 793,580 shares of
the Company's common stock were issued to North Side shareholders. The following
table provides information on selected classifications of assets and liabilities
acquired:
North Side
(UNAUDITED - $ IN THOUSANDS) State Bank
----------
Total assets 118,803
Investments 61,456
Fed funds sold 10,100
Net loans 39,541
Non-interest bearing deposits 22,101
Interest bearing deposits 77,467
As reflected on the next schedule, total assets at June 30, 2007 were $4.673
billion, which is $202 million, or 4.5 percent, higher than the December 31,
2006 total assets of $4.471 billion, and $757 million, or 19.3 percent, greater
than the June 30, 2006 total assets of $3.916 billion.
$ change $ change
June 30, June 30 from from
2007 December 31, 2006 December 31, June 30,
ASSETS ($ IN THOUSANDS) (unaudited) 2006 (unaudited) 2006 2006
----------- ------------ ----------- ------------ --------
Cash on hand and in banks $ 134,647 136,591 124,872 (1,944) 9,775
Investment securities, interest bearing deposits,
FHLB stock, FRB stock, and fed funds 873,405 862,063 908,899 11,342 (35,494)
Loans:
Real estate 819,427 789,843 697,351 29,584 122,076
Commercial 1,951,995 1,850,417 1,486,847 101,578 465,148
Consumer and other 612,854 574,523 517,847 38,331 95,007
---------- --------- --------- ------- -------
Total loans 3,384,276 3,214,783 2,702,045 169,493 682,231
Allowance for loan losses (52,422) (49,259) (41,195) (3,163) (11,227)
---------- --------- --------- ------- -------
Total loans net of allowance for loan losses 3,331,854 3,165,524 2,660,850 166,330 671,004
---------- --------- --------- ------- -------
Other assets 333,049 307,120 221,392 25,929 111,657
---------- --------- --------- ------- -------
Total Assets $4,672,955 4,471,298 3,916,013 201,657 756,942
========== ========= ========= ======= =======
At June 30, 2007, total loans were $3,384,276, an increase of $177 million, or
5.5 percent over total loans of $3,207,686 at March 31, 2007. The second quarter
loan growth included $40 million from the North Side acquisition. Total loans
increased $169 million from December 31, 2006. For the first half of 2007,
commercial loans have increased $102 million, or 5.5 percent, real estate loans
increased $30 million, or 3.7 percent, and consumer loans grew by $38 million,
or 6.7 percent. Total loans have increased $682 million, or 25 percent, from
June 30, 2006, with all loan categories showing increases. Commercial loans grew
the most with an increase of
23
$465 million, or 31 percent, followed by real estate loans which increased $122
million, or 18 percent, and consumer loans, which are primarily comprised of
home equity loans, increasing by $95 million, or 18 percent.
Investment securities, including interest bearing deposits in other financial
institutions and federal funds sold, have increased $11 million from December
31, 2006, or 1.32 percent, and have declined $35 million, or 3.91 percent, from
June 30, 2006. The investment portfolio of North Side was sold immediately after
the acquisition was completed with the sale proceeds invested in higher yielding
loans. Investment securities at June 30, 2007 represented 19% of total assets
versus 23% the prior year.
The Company typically sells a majority of long-term mortgage loans originated,
retaining servicing only on loans sold to certain lenders. The sale of loans in
the secondary mortgage market reduces the Company's risk of holding long-term,
fixed rate loans in the loan portfolio. Mortgage loans sold for the six months
ended June 30, 2007 and 2006 were $310 million and $210 million, respectively,
and for the three months ended June 30, 2007 and 2006 were $168 million and $120
million, respectively. The Company has also been active in generating commercial
SBA loans. A portion of some of those loans is sold to other investors. The
amount of loans sold and serviced for others at June 30, 2007 was approximately
$170 million.
$ change $ change
June 30, June 30 from from
2007 December 31, 2006 December 31, June 30,
LIABILITIES ($ IN THOUSANDS) (unaudited) 2006 (unaudited) 2006 2006
----------- ------------ ----------- ------------ --------
Non-interest bearing deposits $ 820,728 829,355 720,473 (8,627) 100,255
Interest bearing deposits 2,533,957 2,378,178 1,972,296 155,779 561,661
Advances from Federal Home Loan Bank 260,224 307,522 435,978 (47,298) (175,754)
Securities sold under agreements to
repurchase and other borrowed funds 390,780 338,986 313,394 51,794 77,386
Other liabilities 49,036 42,555 33,411 6,481 15,625
Subordinated debentures 118,559 118,559 87,631 -- 30,928
---------- --------- --------- ------- -------
Total liabilities $4,173,284 4,015,155 3,563,183 158,129 610,101
========== ========= ========= ======= =======
Non-interest bearing deposits decreased $9 million, or 1.04 percent, since
December 31, 2006. However, non-interest bearing deposits increased by $32
million, or 4.10 percent, since March 31, 2007, and increased by $100 million,
or 14 percent, since June 30, 2006. Increasing non-interest bearing deposits
continues to be a primary focus of each of the banks. Interest bearing deposits
increased $156 million from December 31, 2006, with $123 million of such growth
occurring in the second quarter, and the primary changes attributable to growth
in broker originated certificates of deposits ("CD's"). The June 30, 2007
balance of interest bearing deposits includes $227 million in broker originated
CD's. Since June 30, 2006, interest bearing deposits increased $562 million, or
28 percent, including an increase of $57 million in CD's from broker sources.
Federal Home Loan Bank ("FHLB") advances decreased $47 million from year end and
decreased $176 million from June 30, 2006. Repurchase agreements and other
borrowed funds increased $52 million from December 31, 2006. Included in this
latter category are U. S. Treasury Tax and Loan Term Auction funds. FHLB
advances are $176 million less than the June 30, 2006 balances due primarily to
the above described changes in funding.
Liquidity and Capital Resources
The objective of liquidity management is to maintain cash flows adequate to meet
current and future needs for credit demand, deposit withdrawals, maturing
liabilities and corporate operating expenses. The principal source of the
Company's cash revenues is the dividends received from the Company's banking
subsidiaries. The payment of dividends is subject to government regulation, in
that regulatory authorities may prohibit banks and bank holding companies from
paying dividends which would constitute an unsafe or unsound banking practice.
The subsidiaries' source of funds is generated by deposits, principal and
interest payments on loans, sale of
24
loans and securities, short and long-term borrowings, and net earnings. In
addition, all of the banking subsidiaries are members of the FHLB. As of June
30, 2007, the Company had $887 million of available FHLB credit of which $260
million was utilized. Accordingly, management of the Company has a wide range of
versatility in managing the liquidity and asset/liability mix for each
individual institution as well as the Company as a whole.
Lending Commitments
In the normal course of business, there are various outstanding commitments to
extend credit, such as letters of credit and un-advanced loan commitments, which
are not reflected in the accompanying condensed consolidated financial
statements. Management does not anticipate any material losses as a result of
these transactions.
June 30, June 30 $ change from $ change from
STOCKHOLDERS' EQUITY 2007 December 31, 2006 December 31, June 30,
($ IN THOUSANDS EXCEPT PER SHARE DATA) (unaudited) 2006 (unaudited) 2006 2006
----------- ------------ ----------- ------------- -------------
Common equity $ 500,179 453,074 357,308 47,105 142,871
Accumulated other comprehensive (loss) income (508) 3,069 (4,478) (3,577) 3,970
--------- ------- ------- ------ ------
Total stockholders' equity 499,671 456,143 352,830 43,528 146,841
Core deposit intangible, net, and goodwill (155,593) (144,466) (86,294) (11,127) (69,299)
--------- ------- ------- ------ ------
$ 344,078 311,677 266,536 32,401 77,542
========= ======= ======= ====== ======
Stockholders' equity to total assets 10.69% 10.20% 9.01%
Tangible stockholders' equity to total tangible assets 7.62% 7.20% 6.96%
Book value per common share $ 9.34 8.72 7.25 0.62 2.09
Market price per share at end of quarter $ 20.35 24.44 19.51 (4.09) 0.84
Total equity and book value per share amounts have increased $44 million and
$.62 per share, respectively, from December 31, 2006, the result of earnings
retention, issuance of common stock in connection with acquisitions, and stock
options exercised. Accumulated other comprehensive income (loss), representing
net unrealized gains or losses on securities designated as available for sale,
decreased $3.6 million from December 31, 2006, such decrease primarily a
function of interest rate changes and the decreased balance of securities.
June 30, June 30,
2007 December 31, 2006
CREDIT QUALITY INFORMATION ($ IN THOUSANDS) (unaudited) 2006 (unaudited)
----------- ------------ -----------
Allowance for loan losses $52,422 $49,259 $41,195
Non-performing assets $11,980 8,894 8,943
Allowance as a percentage of non performing assets 438% 554% 461%
Non-performing assets as a percentage of total bank assets 0.25% 0.19% 0.23%
Allowance as a percentage of total loans 1.55% 1.53% 1.52%
Net recoveries (charge-offs) as a percentage of loans 0.004% (0.021%) 0.001%
Allowance for Loan Loss and Non-Performing Assets
Non-performing assets as a percentage of total bank assets at June 30, 2007 were
at .25 percent, unchanged from the first quarter results, up slightly from .23
percent at June 30, 2006, but increasing 6 basis points from .19 percent
25
at December 31, 2006. The Company ratios compare favorably to the Federal
Reserve Bank Peer Group average of .51 percent at March 31, 2007, the most
recent information available. The allowance for loan losses was 438 percent of
non-performing assets at June 30, 2007, down from 461 percent a year ago. The
allowance, including $6.434 million from acquisitions, has increased $11.227
million, or 27 percent, from a year ago. The allowance of $52.422 million, is
1.55 percent of June 30, 2007 total loans outstanding, up slightly from the 1.52
percent a year ago. The second quarter provision for loan losses expense was
$1.210 million, a decrease of $145 thousand from the same quarter in 2006.
Recovery of previously charged-off loans exceeded amounts charged-off during the
quarter by $33 thousand. Loan growth, average loan size, and credit quality
considerations will determine the level of additional provision expense.
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 2006.
The Company reported record net earnings of $16.725 million for the second
quarter, an increase of $2.1 million, or 14 percent, over the $14.666 million
for the second quarter of 2006. Diluted earnings per share of $.31 for the
quarter is an increase of 3 percent over the diluted earnings per share of $.30
for the second quarter of 2006. Net earnings for the second quarter of 2007 were
reduced by $623,000, or $.01 per share, for share-based compensation expense.
Annualized return on average assets and return on average equity for the quarter
were 1.47 percent and 13.79 percent, respectively, which compares with prior
year returns for the first quarter of 1.52 percent and 16.81 percent.
Three months ended June 30,
REVENUE SUMMARY ---------------------------------------
(UNAUDITED - $ IN THOUSANDS) 2007 2006 $ change % change
------- ------- -------- --------
Net interest income $45,196 $37,626 $ 7,570 20%
Non-interest income
Service charges, loan fees, and other fees 11,758 9,349 2,409 26%
Gain on sale of loans 3,708 2,770 938 34%
Loss on sale of investments -- -- -- n/m
Other income 945 779 166 21%
------- ------- ------- ---
Total non-interest income 16,411 12,898 3,513 27%
------- ------- ------- ---
$61,607 $50,524 $11,083 22%
======= ======= ======= ===
Tax equivalent net interest margin 4.36% 4.34%
======= =======
Net Interest Income
Net interest income for the quarter increased $7.570 million, or 20 percent,
over the same period in 2006, and increased $2.105 million, or 5 percent, from
the first quarter of 2007. Total interest income increased $15.360 million from
the prior year's quarter, or 26 percent, while total interest expense was $7.790
million, or 35 percent higher. The increase in interest income and interest
expense is primarily attributable to the volume and rate increases in interest
bearing deposits. The net interest margin as a percentage of earning assets, on
a tax equivalent basis, was 4.36 percent which was unchanged from the first
quarter of 2007, and was 2 basis points higher than the 4.34 percent result for
the second quarter of 2006.
Non-interest Income
Fee income increased $2.409 million, or 26 percent, over the same period last
year, driven primarily by an increased number of loan and deposit accounts from
internal growth and acquisitions. Gain on sale of loans increased $938 thousand,
or 34 percent, from the second quarter of last year. Loan origination activity
for housing construction and purchases remains stable in the bank's markets.
26
Three months ended June 30,
NON-INTEREST EXPENSE SUMMARY ---------------------------------------
(UNAUDITED - $ IN THOUSANDS) 2007 2006 $ change % change
------- ------- -------- --------
Compensation and employee benefits $20,594 $15,739 $4,855 31%
Occupancy and equipment expense 4,812 3,431 1,381 40%
Outsourced data processing 680 678 2 0%
Core deposit intangibles amortization 809 400 409 102%
Other expenses 8,179 6,702 1,477 22%
------- ------- ------ ---
Total non-interest expense $35,074 $26,950 $8,124 30%
======= ======= ====== ===
Non-interest Expense
Non-interest expense increased by $8.124 million, or 30 percent, from the same
quarter of 2006. Compensation and benefit expense increased $4.855 million, or
31 percent, which is primarily attributable to increased staffing levels,
including staffing from the acquisitions of First National Bank of Morgan and
CDC during 2006, new branches, as well as increased compensation, including
commissions tied to increased production, and benefits, including health
insurance, and overtime associated with the merger and operating systems
conversions in the second quarter of 2007. The number of full-time-equivalent
employees has increased from 1,147 to 1,469, a 28 percent increase, since June
30, 2006. Occupancy and equipment expense increased $1.381 million, or 40
percent, reflecting the bank acquisitions, cost of additional branch locations
and facility upgrades. Other expenses increased $1.477 million, or 22 percent,
primarily from acquisitions, data conversions, additional marketing expenses,
and costs associated with new branch offices. The efficiency ratio (non-interest
expense/net interest income plus non-interest income) was 57 percent for the
2007 second quarter, up from 53 percent for the 2006 second quarter.
RESULTS OF OPERATIONS - THE SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2006.
Record net earnings of $32,818 million for the first half of 2007 is an increase
of $4.523 million, or 16 percent over the first half of the prior year. Diluted
earnings per share of $0.61 versus $0.57 for the same period last year is an
increase of 7 percent. Included in net earnings for the first half of 2007 is a
$1.0 million gain (pre-tax gain of $1.6 million) from the January 19, 2007 sale
of Western Security Bank's Lewistown branch, a requirement imposed by bank
regulators to complete the acquisition of Citizens Development Company ("CDC").
Also, included in the first half earnings is approximately $500,000 of
non-recurring expenses and costs associated with the January 26, 2007 merger of
three of the five CDC subsidiaries into Company subsidiaries.
27
Six months ended June 30,
REVENUE SUMMARY ----------------------------------------
(UNAUDITED - $ IN THOUSANDS) 2007 2006 $ change % change
-------- ------- -------- --------
Net interest income $ 88,287 $73,934 $14,353 19%
Non-interest income
Service charges, loan fees, and other fees 21,843 17,566 4,277 24%
Gain on sale of loans 6,750 4,960 1,790 36%
Loss on sale of investments (8) -- (8) n/m
Other income 3,518 1,528 1,990 130%
-------- ------- ------- ---
Total non-interest income 32,103 24,054 8,049 33%
-------- ------- ------- ---
$120,390 $97,988 $22,402 23%
======== ======= ======= ===
Tax equivalent net interest margin 4.36% 4.36%
======== =======
Net Interest Income
Net interest income for the six months increased $14.353 million, or 19 percent,
over the same period in 2006. Total interest income increased $31.328 million,
or 27 percent, while total interest expense increased $16.975 million, or 40
percent. The increase in interest income and interest expense is primarily
attributable to the volume and rate increases in interest bearing deposits. The
net interest margin as a percentage of earning assets, on a tax equivalent
basis, was 4.36 percent which was equal to the 4.36 percent for 2006.
Non-interest Income
Total non-interest income increased $22.402 million, or 23 percent in 2007. Fee
income for the first half of 2007 increased $4.277 million, or 24 percent, over
the first half of 2006, driven primarily by an increased number of loan and
deposit accounts, acquisitions, and additional customer product and services
offered. Gain on sale of loans increased $1.790 million, or 36 percent, from the
first six months of last year. Loan origination volume in our markets for
housing construction continues to remain very active by historical standards.
Other income for the six months increased $1.990 million, or 130 percent, over
the same period in 2006. Such increase includes a gain of $1.6 million from the
January 19, 2007 sale of Western Security Bank's Lewistown branch, a regulatory
requirement imposed to complete the acquisition of CDC.
Six months ended June 30,
NON-INTEREST EXPENSE SUMMARY ---------------------------------------
(UNAUDITED - $ IN THOUSANDS) 2007 2006 $ change % change
------- ------- -------- --------
Compensation and employee benefits $40,100 $31,050 $ 9,050 29%
Occupancy and equipment expense 9,270 6,922 2,348 34%
Outsourced data processing 1,492 1,402 90 6%
Core deposit intangibles amortization 1,589 820 769 94%
Other expenses 15,806 12,583 3,223 26%
------- ------- ------- ---
Total non-interest expense $68,257 $52,777 $15,480 29%
======= ======= ======= ===
Non-interest Expense
Non-interest expense increased by $15.480 million, or 29 percent, from the same
six months of 2006. Compensation and benefit expense increased $9.050 million,
or 29 percent, which is primarily attributable to increased staffing levels,
including staffing from the acquisitions of First National Bank of Morgan and
CDC during 2006, de novo branches, increased compensation and benefits,
including health insurance, and overtime associated with the merger and
operating systems conversions in the first half of 2007 The first half of 2007
included approximately $500,000 of non-recurring expenses and costs associated
with the January 26, 2007 merger of three of the five CDC subsidiaries into
Company subsidiaries. Occupancy and equipment expense increased
28
$2.348 thousand, or 34 percent, reflecting the acquisitions, cost of additional
locations and facility upgrades. Other expenses increased $3.223 million, or 26
percent, primarily from acquisitions, additional marketing expenses, and costs
associated with new branch offices. The efficiency ratio (non-interest
expense/net interest income plus non-interest income) increased to 57 percent
from 54 percent for the first six months of 2006.
Allowance for Loan Loss and Non-Performing Assets
The provision for loan losses expense was $2.405 million for the first six
months of 2007, a decrease of $115 thousand, or 5 percent, from the same period
in 2007. Recovery of previously charged-off loans exceeded amounts charged-off
during the six months ended June 30, 2007 by $119 thousand.
Critical Accounting Policies
Companies apply certain critical accounting policies requiring management to
make subjective or complex judgments, often as a result of the need to estimate
the effect of matters that are inherently uncertain. The Company considers its
only critical accounting policy to be the allowance for loan losses. The
allowance for loan losses is established through a provision for loan losses
charged against earnings. The balance of allowance for loan loss is maintained
at the amount management believes will be adequate to absorb known and inherent
losses in the loan portfolio. The appropriate balance of allowance for loan
losses is determined by applying estimated loss factors to the credit exposure
from outstanding loans. Estimated loss factors are based on subjective
measurements including management's assessment of the internal risk
classifications, changes in the nature of the loan portfolio, industry
concentrations and the impact of current local, regional and national economic
factors on the quality of the loan portfolio. Changes in these estimates and
assumptions are reasonably possible and may have a material impact on the
Company's consolidated financial statements, results of operations and
liquidity.
Effect of inflation and changing prices
Generally accepted accounting principles require the measurement of financial
position and operating results in terms of historical dollars, without
consideration for change in relative purchasing power over time due to
inflation. Virtually all assets of a financial institution are monetary in
nature; therefore, interest rates generally have a more significant impact on a
company's performance than does the effect of inflation.
Forward Looking Statements
This Form 10-Q includes forward looking statements, which describe management's
expectations regarding future events and developments such as future operating
results, growth in loans and deposits, continued success of the Company's style
of banking and the strength of the local economies in which it operates. Future
events are difficult to predict, and the expectations described above are
necessarily subject to risk and uncertainty that may cause actual results to
differ materially and adversely. In addition to discussions about risks and
uncertainties set forth from time to time in the Company's public filings,
factors that may cause actual results to differ materially from those
contemplated by such forward looking statements include, among others, the
following possibilities: (1) local, national and international economic
conditions are less favorable than expected or have a more direct and pronounced
effect on the Company than expected and adversely affect the company's ability
to continue its internal growth at historical rates and maintain the quality of
its earning assets; (2) changes in interest rates reduce interest margins more
than expected and negatively affect funding sources; (3) projected business
increases following strategic expansion or opening or acquiring new banks and/or
branches are lower than expected; (4) costs or difficulties related to the
integration of acquisitions are greater than expected; (5) competitive pressure
among financial institutions increases significantly; (6) legislation or
regulatory requirements or changes adversely affect the businesses in which the
Company is engaged.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company believes that there have not been any material changes in
information about the Company's market risk than was provided in the Form 10-K
report for the year ended December 31, 2006.
29
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have reviewed
and evaluated the effectiveness of our disclosure controls and procedures (as
required by Exchange Act Rules 240.13a-15(b) and 15d-14(c)) as of the date of
this quarterly report. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's current disclosure
controls and procedures are effective and timely, providing them with material
information relating to the Company required to be disclosed in the reports the
Company files or submits under the Exchange Act.
Changes in Internal Controls
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the second quarter 2007, to which this report relates that
have materially affected, or are reasonably likely to materially affect the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the registrant or
its subsidiaries are a party.
ITEM 1A. RISK FACTORS
There have not been any material changes to the Company's risk factors
during the second quarter 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) The Company's Annual Shareholders' Meeting was held April 25, 2007
(b) Not Applicable
(c) A brief description of each matter voted upon at the Annual Meeting
and the number of votes cast for, against, or withheld, including a
separate tabulation with respect to each nominee to serve on the Board
is presented below:
30
(1) Election of Directors for three-year terms expiring in 2010 and until
their successors have been elected or qualified.
James M. English -
Votes Cast For: 33,139,075
Votes Cast Withheld: 1,039,922
Jon W. Hippler -
Votes Cast For: 33,497,396
Votes Cast Withheld: 681,601
Douglas J. McBride -
Votes Cast For: 33,471,602
Votes Cast Withheld: 707,394
(d) None
ITEM 5. OTHER INFORMATION
(a) Not Applicable
(b) Not Applicable
ITEM 6. EXHIBITS
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes - Oxley Act of 2002
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes - Oxley Act of 2002
Exhibit 32 - Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLACIER BANCORP, INC.
August 8, 2007 /s/ Michael J. Blodnick
----------------------------------------
Michael J. Blodnick
President/CEO
August 8, 2007 /s/ Ron J. Copher
----------------------------------------
Ron J. Copher
Senior Vice President/CFO
31